Good News, Bad News
Whenever I tell my daughter, Alex, that I have some good news and I have some bad news, she always wants the bad news first. Like mother, like daughter. We figure if we know the worst first, we can put everything else in perspective.
So here’s the worst: Bankruptcies in Canada (and no doubt in the U.S.) are on the rise.
Are you surprised?
According to the Office of the Superintendent of Bankruptcy, in the 12 month period ending in April 2007 almost 85,000 Canadians ranging in age from 18 to 90-something filed for personal bankruptcy. They owed, on average, $69,619 each.
A year later, the number of people who filed for bankruptcy jumped to almost 88,000. Add in the over 23,000 people who filed consumer proposals, and you have over 110,000 people who are so far up to their eyeballs in debt they can’t see daylight. Sad.
Often debt starts accumulating when kids head off to university. They’re offered a credit card with what appears to be a reasonable limit so they can “learn to manage credit.” Soon, however, that $1,000 mushrooms to two cards, student loans, a consolidation loan, a line of credit and a car loan. Suddenly – really? suddenly? – a young adult has way more debt than they can ever hope to repay on a starter-income.
So, how does a student get a credit card? Beats me. At no other time in your life can you walk up to a lender and say, “Hey, buddy, I don’t have a job and I don’t have any way to repay debt, but how about a credit card?” If you don’t believe me, try it!
Yet kids who have no experience managing money – never mind credit – are given student loans, credit cards and other forms of credit without a minute of education. Is it any wonder so many trip and fall?
Sometimes people file for bankruptcy because of a relationship breakdown or a loss of employment with a side-dish of with poor money management. It seems that the Eternal Optimists among us believe that they can count on a steady dual income for years to come, and so rack up enormous amounts of debt for the things they just HAVE TO HAVE RIGHT NOW. We’re talking shoes, big screen TVs, digital cameras, hardwood floors. Nothing you can boil for soup should hard times hit and you have to feed your hungry children.
Then there are the people in their 50s and 60s who are finding themselves strapped. Caught between elderly parents who need care and kids in university, parents are borrowing themselves into very deep holes and then going bankrupt when they can’t meet their payment obligations. Here again, bad money management is at the root of this issue. After all, it doesn’t take a genius to see that if your kid is half-way academically inclined you’re going to want him or her to go off to university. And the idea that your parents could grow old without you noticing is ridiculous.
As if life isn’t hard enough, there are also temptations that rear their ugly heads and end up biting us in the butt. Can you believe that when bankrupt consumers were asked what had contributed to their dilemma, 31% reported that home shopping channel, casino visits, lottery tickets or on-line poker influenced their financial situation? Are you kidding me? People, no one is making you go into the casino. If you have a problem, don’t go in the door!
I bet you’re wondering what the good news is.
It’s this: Bankruptcy isn’t the worst thing in the world. Living in the hell you’ve created is. And if you’ve been given a whack of credit that’s way above what you can manage, maybe it’s time to rub the slate clean and start again.
I’m not for absolving people of their personal responsibility. Nope. I’m all about personal responsibility. But when I see couples earning $100,000 in family income being given $136,000 in credit, I scratch my head and wonder whatever happened to “responsible lending practices.” And I feel for the people who have debt they can’t manage because of significant changes in their lives like disability, divorce, widowhood, illness, unemployment, and the like. I even feel for the silly buggers who went out and charged up a storm, never understanding the implications and the impact the payments were going to have on their rest of their lives.
It isn’t an easy decision, deciding to go bankrupt. Nope. It’s a thorny path. But if that’s what it’ll take to get you out of hell, then do it. It won’t be easy to live through. And the black mark will stay with you for a long time. But there is an end. And you can have a life – a good life – after bankruptcy.
If you’re feeling pretty desperate about your situation and wondering if bankruptcy could be an option for you, start by reading the FAQs on bankruptcy at http://strategis.ic.gc.ca/epic/site/bsf-osb.nsf/en/br01407e.html. Then have a look at Deal With Debt, a Consumer’s Guide at http://strategis.ic.gc.ca/epic/site/bsf-osb.nsf/en/br01035e.html.
Oh, one more thing. While bankruptcy is considered a last resort, with a Consumer Proposal being the much offered alternative, it behooves you to know that regardless of which you choose, your credit history will be crap for the same amount of time since, as for as creditors are concered, a proposal is as bad as a bankruptcy.
Now, go make a decision.
BTW, The Canadian Capitalist (http://www.canadiancapitalist.com/2008/06/16/smith-manoeuvre-who-profits#comments) — this is a truly terrific blog — has a great piece on the Smith Manoeuvre. Not only should you read his post, you should also read all the comments that go with it.
June 18th, 2008 at 1:06 pm
Gail, though I see the hazards of a credit card as a young student, I disagree that it is a totally bad idea. I thank my lucky stars that I got one at 18. I paid for gas with it, and only gas, and paid it off every single month. Then when it was time to get my first decent car I already had credit that helped me negotiate a very reasonable interest rate. I kept paying off the card every month and paid out my car loan as early as I reasonably could. Then when it was time to buy our first tiny little house, we had some more good credit to negotiate a very nice rate on our mortgage (better than my step-dad’s!). We got the mortgage at the limit we were comfortable with (not what the bank was comfortable with) and based it on one income instead of both (we wanted to start a family after all). And with that little bit of forethought we were able to save for a new roof and other vital maintenance issues that sprung up.
All the planning in the world doesn’t guarantee success, and there have been some squeaky tough times (cut off cable and cancel the cell phone!). BUT, for sure, any kind of financial contract (like a credit card, loans or other such things) need to be seriously thought out! “What if somthing happens, will it be okay with this debt” needs to be your own personal dialogue before you purchase. Doo-doo happens!
My mom’s gone the bankrupcy route twice as a young adult and done the proposal thing fairly recently. To follow in mom’s footsteps, my sister went bankrupt at the tender age of 24, and her “I-deserve-it-now” spending hasn’t changed in the least…. try the car loan at 28% thanks to her terrible credit! I see what they go through and chose to take the other path.
And bankruptcy, though saving you from complete disaster, takes a long time to come back from. And it hurts others too. My family screwed over other small businesses when they filed… it created terrible tension for them in the community… and worst of all… my sister also defaulted on a loan to FAMILY… it messed things up royally! It’s not an easy fix, it’s a hard fix. Trust me, I’ve seen it up close.
June 18th, 2008 at 3:42 pm
Totally agree with the above commenter–I’m a university student and I’ve never carried a balance on a credit card, in 3 years of having one. I’m just building my credit rating. With that said, I do know a lot of people who use their credit cards to survive month-to-month. I guess it depends on the user.
Also, for people who treat the casino as entertainment, I agree that it is just as simple as not going — but for people with gambling problems, it’s not as simple to just “not go inside.” My parents had great finances–made a lot of money and were very frugal–and then my dad developed bipolar disorder and became a compulsive gambler. What can prepare you financially for finding out that your husband gambled over $100,000 (probably closer to $200 grand) on a line of credit/advance paycheques, through stealing, etc. behind your back? The emergency fund can’t quite cover that.
Suffice to say my parents are no longer together and they are both still working through the combined debt my dad accumulated from his addiction. He’s tried everything — counselling, support groups, even signed up for self-exclusion with the OLG (they, of course, still let him into the casino every time) — and 10 years later is just finally starting to get a grip on his addiction. Love ya Gail, but telling someone with a gambling problem to just not “go in the door” isn’t as easy as you’d think. That’s like telling a heroin addict to just “stay away from drugs.” Not quite so simple.
But gosh, I wish it was! Life would be so much less complicated for my family if that were the case.
Anyway, sorry to vent!
June 18th, 2008 at 4:34 pm
Tracy, the mere fact that you never carried a balance speaks to your readiness to take on credit. For every one of you, there’s one that isn’t.
Kait, sorry to hear about your dad. You’re right, there is no way to prepare for that. But for most people who gamble, it is not a illness, but a sense that the gambling is an easy way to get out of a financial mess. I too have had some experience with people for whom gambling was the “answer.” Sadly, they only made the holes they had dug deeper.
June 18th, 2008 at 6:40 pm
Hi Gail,
You would be amazed how easy it is to get a credit card in University. The week before classes start there are booths set up all over and all you have to do is walk up and sign the form. Many offer free gifts and just the right talk to relieve the anxiety of a student who may already be wondering how they are going to manage. Also, all over campus are applications for ’student credit cards’. The application is short, simple and in some cases when you fill out one application you end up with multiple credit cards within a week. I recall filling out my little form thinking there was no way I would ever be approved- a week later I had a Visa, Canadian Tire card, Petro Canada card and a Zellers card. I’d like to say I cut them up immediately but I kept them ‘just in case’. Fortunately I used them responsibly- many of my friends who filled out the same form did not.
June 19th, 2008 at 7:54 am
Gail, you mentioned that some people in their 50s and 60s filed bankruptcies because of their parents and their children.
I think there are a lot of emotions involed when things have gone to that direction. I can tell from my observation from my family. My uncle and aunt are so very pound to have a son who’s a lawyer, and a daughter who’s a dentist. However, in their 60s, they recently tell my mom that they’ve just started saving for retirement! They put a lot of money into my cousins when they were young to ensure that they could “buy” the best education possible. My cousins are lucky — they didn’t graduate with a huge student debts. But what a sacrifice! All because they couldn’t bear the thought of their kids not to be the best professionally among their cousins!
On top of that, my aunt’s mom has just died and the father is still living in his 90s. She feels responsibile for his welfare.
My uncle has been laid off a few years ago and he hasn’t been working since. And I think he’s too pound to “lower” himself to work in places like Wal-Mart. My aunt’s job is not safe. My cousins are doing very well financially but I can’t see any evidence that they are supporting their parents financially in any way. As much as I don’t like my aunt when I was younger, I really feel sorry for her.
On the other hand, my mom also feels that she’s entitled to whatever success I have. It means that I should share part of my earning with her. I think this thought is common among many parents who put way too much money into their children; they think that their children is like their RRSP. Parents should really stop thinking like that. Do what you can for your children, but your children can never replace your saving in such a way.
June 19th, 2008 at 9:38 am
Gail (was that you?), thanks — I was hoping you wouldn’t be offended by my soapbox rant. I do totally agree that people who don’t have a problem with gambling and just see it as a sort of get-rich quick scheme need to give their head a shake — a casino is a money-making business, not designed to be profitable to its patrons! Surely there are better ways to make money, like, say, working extra hours? Seeing just how much a person can lose in a casino has made me not want to ever use one as a form of entertainment, or, for that matter, money-making.