For most people, the images seen recently of the devastation in Alberta have been as shocking as they have been hard to believe. The Premier's suggestion that "the world changed" for those in the affected regions seemed fitting, as disasters are inherently hard to imagine before they occur and inevitably create new realities in their aftermath. As an insolvency professional, the analogy between this tragedy and the rising debt tide many individuals are now confronting seems evident. Indeed, disasters, like disability or divorce, happen more frequently in the human ecosystem than in the natural environment, but hold very similar consequences.
In the aftermath of the Alberta disaster, a $1-billion flood recovery fund was announced to kick start the recovery process. In announcing the fund, the Premier acknowledged that plans to balance the provincial budget in the coming years would be derailed. An unexpected disaster had compromised the financial status of a province. The thought, of course, is that while a province can devise a plan to prolong a budgetary deficit in the wake of a disaster, most individuals cannot when faced with similar tragedies.
Consider disabilities, as the sad truth is that these happen far too often and are profoundly devastating to the families involved. A Fraser Institute report back in 2009 noted that "medical reasons were cited as the primary cause of bankruptcy by approximately 15 per cent of bankrupt Canadian seniors (55 years of age and older)." With an aging population and steadily increasing rates of chronic disease in all age categories, these numbers may have already increased. Cancer, a stroke, workplace or motor vehicle accident and a long list of other considerations can all spontaneously change people's worlds forever and wreak financial collapse in a short period of time.
Equally devastating is separation or divorce and the role these play in personal insolvencies in Canada. Recent statistics indicate that almost 20 per cent of insolvencies in the country cite a separation, or divorce, as the primary cause of their financial crises. With the unfortunate rate of separation and/or divorce in the country somewhere around 50 per cent, one can see how disasters occur more frequently in the human sphere than the natural environment. The impact on peoples' lives is not dissimilar.
The point is that, like the floods recently seen, many causes of debt disasters are not foreseeable and enact considerable emotional and financial devastation. Their onset can be rapid and quickly overwhelming, with the damage permanent or requiring years to repair.
With many cases of insolvency being the direct result of unforeseen events, the question becomes whether or not prudent planning can mitigate the effects of such tragedies when they do occur. In Alberta, the media has identified a 2006 report that laid out plans to minimize damage from future floods. The report was shelved and people have speculated whether or not the recent disaster could have been minimized had the report's recommendations been implemented. Does the concept of having a 'prevention' plan apply to debt disasters as well?
Well, obviously few can fully predict the occurrence of a disease, accident, job loss or other unexpected cause of personal insolvencies. What everyone can do (to varying extents), however, is make debt reduction and 'prevention' an ongoing policy. The less debt a person has at the time of a personal disaster, the greater the options they will have to find a solution. Leaving the concepts of 'good debt' and 'bad debt' aside, some simple premises can go a long way in the new world of debt disaster prevention. For those entering post-secondary education programs, a hard look at the return on investment for varying programs may be warranted, as student loan debt is a significant issue at present in the economy, our society and the insolvency profession. Some financial experts ardently suggest slashing expenses on items like cars and radically downsizing personal lifestyles to provide protection into an uncertain future. Many can rethink their retail and disposable income spending, as the Canadian personal debt loads continue to grow, being up 3.5 percent thus far in the year vs. 2012.
The moral fortitude and societal cohesiveness shown in the aftermath of the Alberta floods show that Canadians can face a disaster head on and do what has to be done to move forward. Somewhere in the tragedy, we can hold out hope that people will reflect on the analogy this disaster serves to the many others occurring around them daily and remain committed to helping friends and loved ones in their times of need.