Lifestyles get frugal for many debt-conscious Canadians

At the risk of sounding like a broken record, another poll has been published suggesting many households are headed into a period of atonement in the wake of accumulating high levels of debt in recent years.

Many experts have been calling for some time now for borrowing levels to drop among consumers. But while credit growth slowed in 2013, it continued to flow generously – lifting new car sales to a banner year and providing unexpected support to the housing market.

A new report gauging sentiment however indicates the freewheeling mood may at last be turning.

An “investor sentiment index” published Wednesday by Manulife Financial suggests more than a fifth of Canadians plan to forego the comforts of their current lifestyles this year in order to get their financial house in order.

Paying down debt, meanwhile, stands as the “top financial priority” among respondents, Manulife says.

“Debt management, reducing spending and saving are, more than ever, top of mind for Canadians,” Paul Lorentz, executive vice-president of retail at the insurance giant, said.

The downshifting in spending intentions is music to the ears of Sheldon Wolf, founder of Calgary-based Canada Credit Fix Inc., which helps people who’ve racked up unmanageable debt loads get back on their feet.

“We’re trained now to buy the new version of almost everything,” Wolf, who’s company has provided credit relief services since 2006, said.

“We get an iPhone 5 and they come up with a silver edition so some people throw away a brand new phone to go buy the newer one.

“Its always bigger, better, faster,” he said.

Wolf says he’s noticed that borrowers in Alberta in particular have have racked up big debts as the provincial economy has boomed.

“People are confident because things are good here right now,” Wolf said. “That worries me a bit, because you can be confident today and then a storm hits and man, that confidence evaporates very quickly.”

Indeed, the flooding across Southern Alberta in June created a financial emergency for scores of households. The floods helped push average debt levels (non-mortgage) in the province to the highest in the country, according to an RBC report from late October.

But the story across the country isn’t all that different. Like a song on repeat, headline after headline has been warning of excessive borrowing among households, which currently sit on an all-time high of $1.63 in debt for every $1 earned in after-tax income.

That level of indebtedness is pressuring more Canadians to forgo saving. According to a poll released by Scotiabank earlier this week, more say they’re skipping a contribution to a retirement savings plan this year.

That realization is perhaps part of the reason behind nearly half of younger working Canadians (aged 25-34) saying they feel worse off financially than two years ago, according to Manulife.

Bryan Gelman, a partner at bankruptcy trustee Albert Gelman Inc. in Toronto said that if people are coming to his company, it’s likely because they’re already in trouble. His advice is to rein in spending before it requires a call to his offices.

“In general, people have to be willing to change their lifestyle to reduce their debt,” Gelman said.

Wolf said part of some clients’ problems stem from the easy availability of credit cards, car loans and other forms of debt.

“When you see someone making $30-40,000 a year and they’ve got $80,000 of debt, you have to shake your head and ask, ‘Who is lending money to these people?’ It’s irresponsible to lend them the money, never mind them borrowing it.”

The Manulife index is based on a semi-annual online survey of 2,000 Canadians conducted in late November.

© Shaw Media, 2014