In what we call our Joe Debtor study we identified five dreams destroyed by debt.
1. Finding a Good Job
Gone are the days when a Gr.10 education guaranteed you a lifetime job at the factory. Recent Statistics Canada figures show that almost half of all employed youths are working part-time. Without a good paying full time job, younger debtors are unable to repay their average $33,000 in unsecured debts, including almost $12,000 in student loans, that they have accumulated. Many are forced to live with, or move back in with their parents to make ends meet. Most people dream of moving out, not staying with parents forever.
2. Starting a family
For those who managed their debt through their youth, many start a family and buy a home. For some, the slow economic recovery has taken a toll, causing them to rely on credit to survive. One in three own a home, but with an average mortgage of $215,000, combined with over $67,000 in other debts, a big part of their paycheque goes to debt payments.
Even with a stable income, the stress of all that debt can lead to marital problems. Almost one-third of all insolvent debtors between the ages of 30 and 49 are divorced or separated. After divorce, the cost of maintaining two households adds to an already overwhelming debt burden.
4. Saving for Retirement
We all dream of our earnings peaking in our 50s as we approach retirement, but our study found that the risk of bankruptcy was the greatest for "Pre-Retirement" debtors. Unsecured debts peaked for debtors aged 50 to 59 at more than $84,000, the highest of any age group.
How did the dream of increasing wealth as we get older get destroyed?
In our study 30% of the Pre-Retirement debtors are still supporting a dependent, often a child in school, and many are assisting aging parents. At the same time, their income is dropping.
I have met with many 50+ Canadians who were downsized and can't find another job earning what they were making, and they are forced to take part time or lower paying jobs. The older you get the more likely you are to encounter medical issues, which can also reduce your income and increase reliance on credit cards and lines of credit to survive.
5. The Golden Years
We all dream of a comfortable retirement, but our study also revealed that while total insolvencies have declined in Canada, insolvency filings among seniors have increased. With debts that have accumulated over a lifetime, little in the way of retirement savings, and a reduction in income, more seniors are filing for insolvency than ever before.
So how can you prevent debt from destroying your dreams?
Watch for the pitfalls that can happen at any age, and avoid debt that you can't repay. It's better to cut your expenses now, so you are not destroyed by debt later.
If you find yourself with more debt than you can handle, take a look at your options to reduce your debt. Debt problems won't just go away on their own. The sooner you start making a plan, the sooner you can be debt free, and preserve your version of the Canadian dream.
Debt as a percentage of GDP: 80.9 percent General government debt: $1.99 trillion GDP per capita (PPP): $35,860 Nominal GDP: $2.46 trillion Unemployment rate: 8.4 percent Credit rating: Aaa Although the UK has one of the largest debt-to-GDP ratios among developed nations, it has managed to keep its economy relatively stable. The UK is not part of the eurozone and has its own independent central bank. The UK's independence has helped protect it from being engulfed in the European debt crisis. Government bond yields have remained low. The country also has retained its Aaa credit rating, reflecting its secure financial standing. Read more at 24/7 Wall St.
Debt as a percentage of GDP: 81.8 percent General government debt: $2.79 trillion GDP per capita (PPP): $37,591 Nominal GDP: $3.56 trillion Unemployment rate: 5.5 percent Credit rating: Aaa As the largest economy and financial stronghold of the EU, Germany has the most interest in maintaining debt stability for itself and the entire eurozone. In 2010, when Greece was on the verge of defaulting on its debt, the IMF and EU were forced to implement a 45 billion euro bailout package. A good portion of the bill was footed by Germany. The country has a perfect credit rating and an unemployment rate of just 5.5 percent, one of the lowest in Europe. Despite its relatively strong economy, Germany will have one of the largest debt-to-GDP ratios among developed nations of 81.8 percent, according to Moody's projections. Read more at 24/7 Wall St.
Debt as a percentage of GDP: 85.4 percent General government debt: $2.26 trillion GDP per capita (PPP): $33,820 Nominal GDP: $2.76 trillion Unemployment rate: 9.9 percent Credit rating: Aaa France is the third-biggest economy in the EU, with a GDP of $2.76 trillion, just shy of the UK's $2.46 trillion. In January, after being long-considered one of the more economically stable countries, Standard & Poor's downgraded French sovereign debt from a perfect AAA to AA+. This came at the same time eight other euro nations, including Spain, Portugal and Italy, were also downgraded. S&P's action represented a serious blow to the government, which had been claiming its economy as stable as the UK's. Moody's still rates the country at Aaa, the highest rating, but changed the country's outlook to negative on Monday. Read more at 24/7 Wall St.
Debt as a percentage of GDP: 85.5 percent General government debt: $12.8 trillion GDP per capita (PPP): $47,184 Nominal GDP: $15.13 trillion Unemployment rate: 8.3 percent Credit rating: Aaa U.S. government debt in 2001 was estimated at 45.6 percent of total GDP. By 2011, after a decade of increased government spending, U.S. debt was 85.5 percent of GDP. In 2001, U.S. government expenditure as a percent of GDP was 33.1 percent. By 2010, is was 39.1 percent. In 2005, U.S. debt was $6.4 trillion. By 2011, U.S. debt has doubled to $12.8 trillion, according to Moody's estimates. While Moody's still rates the U.S. at a perfect Aaa, last August Standard & Poor's downgraded the country from AAA to AA+. Read more at 24/7 Wall St.
Debt as a percentage of GDP: 97.2 percent General government debt: $479 billion GDP per capita (PPP): $37,448 Nominal GDP: $514 billion Unemployment rate: 7.2 percent Credit rating: Aa1 Belgium's public debt-to-GDP ratio peaked in 1993 at about 135 percent, but was subsequently reduced to about 84 percent by 2007. In just four years, the ratio has risen to nearly 95 percent. In December 2011, Moody's downgraded Belgium's local and foreign currency government bonds from Aa1 to Aa3. In its explanation of the downgrade, the rating agency cited "the growing risk to economic growth created by the need for tax hikes or spending cuts." In January of this year, the country was forced to make about $1.3 billion in spending cuts, according to The Financial Times, to avoid failing "to meet new European Union fiscal rules designed to prevent a repeat of the eurozone debt crisis." Read more at 24/7 Wall St.
Debt as a percentage of GDP: 101.6 percent General government debt: $257 billion GDP per capita (PPP): $25,575 Nominal GDP: $239 billion Unemployment rate: 13.6 percent Credit rating: Ba3 Portugal suffered greatly from the global recession -- more than many other countries -- partly because of its low GDP per capita. In 2011, the country received a $104 billion bailout from the EU and the IMF due to its large budget deficit and growing public debt. The Portuguese government now "plans to trim the budget deficit from 9.8 percent of gross domestic product in 2010 to 4.5 percent in 2012 and to the EU ceiling of 3 percent in 2013," according Business Week. The country's debt was downgraded to junk status by Moody's in July 2011 and downgraded again to Ba3 on Monday. Read more at 24/7 Wall St.
Debt as a percentage of GDP: 108.1 percent General government debt: $225 billion GDP per capita (PPP): $39,727 Nominal GDP: $217 billion Unemployment rate: 14.5 percent Credit rating: Ba1 Ireland was once the healthiest economy in the EU. In the early 2000s, it had the lowest unemployment rate of any developed industrial country. During that time, nominal GDP was growing at an average rate of roughly 10 percent each year. However, when the global economic recession hit, Ireland's economy began contracting rapidly. In 2006, the Irish government had a budget surplus of 2.9 percent of GDP. In 2010, it accrued a staggering deficit of 32.4 percent of GDP. Since 2001, Ireland's debt has increased more than 500 percent. Moody's estimates that the country's general government debt was $224 billion, well more than its GDP of $216 billion. Moody's rates Ireland's sovereign debt at Ba1, or junk status. Read more at 24/7 Wall St.
Debt as a percentage of GDP: 120.5 percent General government debt: $2.54 trillion GDP per capita (PPP): $31,555 Nominal GDP: $2.2 trillion Unemployment rate: 8.9 percent Credit rating: A3 Italy's large public debt is made worse by the country's poor economic growth. In 2010, GDP grew at a sluggish 1.3 percent. This was preceded by two years of falling GDP. In December 2011, the Italian government passed an austerity package in order to lower borrowing costs. The Financial Times reports that according to consumer association Federconsumatori, the government's nearly $40 billion package of tax increases and spending cuts will cost the average household about $1,500 each year for the next three years. On Monday, Moody's downgraded Italy's credit rating to A3, from A2. Read more at 24/7 Wall St.
Debt as a percentage of GDP: 168.2 percent General government debt: $489 billion GDP per capita (PPP): $28,154 Nominal GDP: $303 billion Unemployment rate: 19.2 percent Credit rating: Ca Greece became the poster child of the European financial crisis in 2009 and 2010. After it was bailed out by the rest of the EU and the IMF, it appeared that matters could not get any worse. Instead, Greece's economy has continued to unravel, prompting new austerity measures and talks of an even more serious default crisis. In 2010, Greece's debt as a percent of GDP was 143 percent. Last year, Moody's estimates Greece's debt increased to 163 percent of GDP. Greece would need a second bailout worth 130 billion euro -- the equivalent of roughly $172 billion -- in order to prevent the country from defaulting on its debt in March. Read more at 24/7 Wall St.
Debt as a percentage of GDP: 233.1 percent General government debt: $13.7 trillion GDP per capita (PPP): $33,994 Nominal GDP: $5.88 trillion Unemployment rate: 4.6 percent Credit rating: Aa3 Japan's debt-to-GDP ratio of 233.1 percent is the highest among the world's developed nations by a large margin. Despite the country's massive debt, it has managed to avoid the type of economic distress affecting nations such as Greece and Portugal. This is largely due to Japan's healthy unemployment rate and population of domestic bondholders, who consistently fund Japanese government borrowing. Japanese vice minister Fumihiko Igarashi said in a speech in November 2011 that "95 percent of Japanese government bonds have been financed domestically so far, with only 5 percent held by foreigners." Prime Minister Yoshihiko Noda has proposed the doubling of Japan's 5 percent national sales tax by 2015 to help bring down the nation's debt. Read more at 24/7 Wall St.
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