BY JIM PITT Special to the VOICE
A CIBC survey in 2012 showed that 60% of retirees in Canada were in debt. By 2016 that number had grown to 66%. Some 25% of these indebted retirees were carrying mortgage debt. This after a lifetime of home ownership and making regular mortgage payments.
Other debts carried by retirees were car loans, health bills and holiday expenses. Some 30% of these retirees were continuing to work because they had to. As mentioned in an earlier column, 40% of working Canadians aged 20-64 have dipped into their retirement savings to pay bills and/or buy stuff.
Today’s Canadians are living longer than previous generations. Women live to an average age of 87, while men live to an average of 84. Yet people are not preparing for the time when they can no longer work.
Younger generations of Canadians are also piling on the debt. While the average debt for a typical Canadian rose 4.3% in 2017, for millennials, born between 1980 and 1994, debt rose nearly 13% and for Generation Z, those born after 1995, debt rose nearly 23% in 2017.
Other than the obvious costs associated with debt—making payments, juggling credit cards and borrowing from various accounts—there is another set of associated costs.
Many studies have been done on these corollary costs of debt to the average person. They are many and varied. The information below is from Doug Hayes, a licensed bankruptcy trustee writing for the website The Simple Dollar. Generally, people do not consider the long term financial impact of taking on debt, not to mention the emotional toll that debt can bring to bear.
Interest payments on credit cards run around 21%. If you have $5,000 in credit card debt, the interest is costing you around $50 a month or $600 per year. If you only pay the interest, and more debt is added, the interest payments increase, but the debt never goes away. You have less take-home pay and you become more dependent on credit to get by.
If the car you want to purchase is $20,000 and the bank will lend you the amount at 3.25%, your monthly payment will be around $580 for three years. Dealer financing will get you into the same car for around $300 per month, but to achieve the lower monthly payment you will be paying off the loan over six years, not three. The true cost of the car is $20,000 plus $2200 interest—more than twice the interest you would pay if you chose the bank loan and shorter term.
Having debt deters the ability to save money. The low interest rate environment of the past decade has encouraged people to rely on credit for emergency expenses. A recent study found that 25% of respondents could not come up with $2000 in 30 days for an emergency—which means that 75% of people could. Not bad, but 92% said they would have to borrow for the emergency. They have no savings. Debt encourages more debt and savings suffer from it.
Debt really limits freedom. If you have too much of it, you cannot just pick up and go on a vacation, or buy some frivolous bobble. If a new job opportunity comes up hundreds of kilometers away, but your mortgage payments are high and the housing market has slowed, you are stuck. You can sell the house, but you could then be underwater, owing more than the house is now worth. It happened a decade ago in the U.S. and elsewhere. It is starting to look like it is about to play out in Canada.
If most of your monthly income is spoken for in debt payments, what happens if there is a job loss or illness or death in the family? Financially, you have no wiggle room and you have no freedom.
Having debt while going into retirement seems foolish, but more are doing it. Using credit to smooth over emergencies is fine if you have the money in savings and the debt is easily covered, but this is not usually the case. Starting off in life with heavy debt seems to become self-perpetuating, as debt breeds more debt. The solutions are not easy.
Solution one, pay off your debts from the highest to lowest interest rates and avoid all debt in favour of saving. Solution two, declare bankruptcy or go to a debt consolidation firm to lower your monthly payments. This is not ideal and it is best that you look closely at the fine print before signing on.
Many marriages end in divorce, a major cause of bankruptcy. Financial problems in a marriage often lead to divorce.
To avoid any of these scenarios, always remember that debt grows a lot faster than you expect. Debt takes far longer to pay off than you thought and debt adds risk when life throws a wobbly at you.
Unbeknownst to all, save a couple of insiders, Pelham’s new twin arenas were using a temporary name for the last two years. They have now been christened with there true and rightful title. Farewell “Pelham Community Centre,” or PCC as it was known. We didn’t even get to meet you let alone cheer you.
Don’t get me wrong on this. While I have never been a fan of the "Meridian Community Centre" or the "Duliban Arena" or the "Accipiter Arena" or the other various “named” chunks of the white elephant being built off of Highway 20, I do think that the Mayor should get some kind of award for selling the most names at one construction site. We won’t need a map of the facility. A business directory should suffice.
Too bad the Mayor couldn’t sell PCC to the people of Pelham. Well, desperate times and all that. Of the $36 million needed to pay for the arenas, almost $3 million has been collected for naming rights. But over $9 million is being collected now in increased property taxes and that will continue for another 28 years.
I remember Toronto’s O’Keefe Centre becoming the Hummingbird Centre and now the Sony Centre. All corporate names, but that’s fine because a corporation built it. E. P. Taylor, a very wealthy and generous industrialist, took up the challenge from the mayor of the day to build the centre on land he owned and named it after a brewery he owned. I don’t think Mr. Taylor went around selling naming rights to the various parts of the O’Keefe Centre, saythe Taylor Lobby, or the So-and-So Dressing Room. They were just called the lobby and the dressing room. It was probably considered déclassé or pretentious, or vulgar self-aggrandizement. That was then. In 1960, rich folks kept their wealth on the down-low.
Today a supposed community centre gets renamed for a relatively small percentage of the overall cost of the facility, on land the Town owns—or is it the Mayor's property? Sometimes it’s hard to tell. 1/36 of the cost to be accurate. The other $33 million will be picked up through taxes, present and future, as well as development fees, although how the Town will collect this amount, $12 million, still escapes reasonable explanation. $12 million is also coming from land sales. Say, how go those land sales anyway?
Naming rights are fine when the namer contributes the lion's share of the revenue and builds whatever on the namer's land. They are not fine when the community that is really paying for the facility, on their land, has zero presence or recognition placed anywhere on the facility. But hey, these arenas have never been about the people of Pelham anyway, have they.
