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How Canadians Dug Themselves into Debt

One may truly feel for our Minister of Finance, as no one likes to talk and be ignored. Yet, this seems to be an experience Mr. Flaherty knows all too well, as the past year he has repeatedly warned Canadians about their increasing personal debt loads, only to have those warnings tuned out.
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One may truly feel for our Minister of Finance, as no one likes to talk and be ignored. Yet, this seems to be an experience Mr. Flaherty knows all too well, as the past year he has repeatedly warned Canadians about their increasing personal debt loads, only to have those warnings tuned out. This situation surfaced again when Canadian banks announced a drop in mortgage rates, just eight months after Mr. Flaherty tried to cool off the Canadian housing market by introducing tougher mortgage rules.

Mr. Flaherty immediately scolded the banks for creating a "race to the bottom" as a means to gain customers and repeated his warning to Canadians about an inevitable rise in interest rates and the consequences this will have when carrying too much debt. Despite this, statistics released on March 13 show that the Canadian debt-to-income ratio hit another historic high, coming in at an even 165 per cent. In fact, Canadians' debt loads grew by 6 per cent in 2012 and retail spending (on the back of this historic debt) also grew in January 2013.

So, the real question may be why are Canadians binging on debt? We all know that binging usually leads to a period of discomfort and this particular binge can lead to dire impacts for one's family, relationships and future. Economists answer this question with explanations about the lure of low interest rates and the role of consumer confidence. Perhaps, however, these economic considerations are built upon a foundation that is more psychological in nature -- what we'll coin here as the MLS, or minimum lifestyle standards.

The MLS is, in essence, an inventory of "wants." It is an extrapolation of actual needs that aligns with our desires versus necessities. Unlike economic indexes, western cultures' MLS has undergone major revisions in recent decades and this evolution can be witnessed in many aspects of society, from pop culture to current political events. An overt illustration would be hip-hop song lyrics that speak of exceptional wealth as a norm and lead youth to incorporate these notions into their own MLS. But deeper societal examples can also be argued to be linked to a western culture MLS.

Consider the recent Italian election results and the renewed Eurozone debt concerns they created. Like the Greek crisis before it, Italians have indicated an unwillingness to accept austerity initiatives. Regardless of the cause of their nation's debt burden, a crisis still exists and significant changes are required to regain stability. Despite this, the citizens have indicated that they are not interested in austerity policies to stabilize their country.

This is in stark contrast to the social culture seen after the Great Depression. Nations hunkered down and their citizens practiced spending restraint for a generation in order to forge a stable future. Today, after the "great recession," a desire to immediately return to the culture of consumption seems to be the mandate. Austerity is not something people are interested in enduring.

With such societal illustrations in mind, one could argue that the global debt crises have as much of a cultural component as they do financial. Governments can propose central bank interventions, austerity programs and a litany of top down initiatives to tackle their mounting debt. These policies and interventions, however, may all prove ineffectual if there fails to be a shift in social consciousness to one of a collective accountability. Perhaps the real debt nemesis is an MLS expectation that spurs consumption over restraint, wants over needs and gratification over effort.

If the notion seems provocative, consider a current event utterly unrelated to the global debt turmoil; Mayor Bloomberg's failed attempt at banning super-sized sodas in New York. The "disconnect" between a public crisis and society's willingness to accept change is aptly illustrated in the story. With diabetes (alone) costing the American public $245 billion in 2012, it's a little tough to argue that something doesn't need to be done. None the less, over 60 per cent of New Yorkers were ardently against this nominal lifestyle policy.

The point becomes that if limited access (in a few public locations only) to mega-sized servings of pop (people could still get pop in smaller sizes) is cause for unified societal dissent, how will our societies (globally) ever face the substantive challenges of confronting debt loads that jeopardize our futures? They both require restraint, an awareness of the individual role in the societal crisis and a commitment to revising our MLS.

From soda bans, to rejection of austerity programs and gratuitous consumption celebrated in current culture, is the real nemesis in our pending war on debt the magnitude of the amount owed, or society's aversion to restraint. Our minimum lifestyle standard may have a rude awakening if this isn't determined.

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