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The Social Impact of Historic Debt Loads at The Holidays

The holiday season brings with it significant financial demands on many Canadians, as they try to avoid adding to their personal debt loads, while also funding family gift and travel expectations. In addition to the spending stress, the holidays also bring a litany of predictable media stories around budgeting, savings tips and the impact of the holiday season in creating a ‘debt hang over’ felt by many in January. What many don’t stop to reflect upon in all of this festivity, however, are the social implications of rising personal debt loads on our communities.

Heading into this holiday season, Canadians are unquestionably balancing some substantive household debt loads. The credit rating agency Equifax Canada reported in early December that Canadians now have more than $1.5 trillion in personal debt, which was above and beyond their mortgages. The rating agency Fitch called this staggering amount of debt “unsustainable” and identified the risk this represents to many Canadians as interest rates begin to rise, which is expected in 2015.

One has to ask what the implications of these historic debt levels mean for Canadians as a society. Of course, it means that many may be in personal financial trouble when interest rates begin to rise, as the monthly bill payments could increase by several hundreds of dollars each month. Many may find that they will not be able to service their debt and will need to speak with a debt professional to explore the options available to them, such as consolidation strategies, or consumer proposals.

There may, however, be much larger social implications that arise from these personal debt challenges. Our varied charities that serve the needs of so many Canadians may also face a financial crisis of their own, as they confront steep declines in donations from Canadians struggling with their own bills. This may already be occurring, according to an annual survey of charitable giving by the Fraser Institute. Donations to Canadian charities has been declining since 2005, before the great recession hit, with a mere 22.3 per cent of Canadians donating in the most recent year Statistics Canada has data (which is 2012). The shocking finding inherent to these numbers was that the $9 billion donated in 2012 is $2.9 billion lower than it would have been if Canadians were still donating at 2006 levels. That is a staggering shortfall our front line charitable agencies have gone without as they serve our communities.

While the authors of the report did not research the exact reasons for the decline in charitable giving, one might suggest that rising debt loads may play a significant role in the decline, if not in the past then perhaps into the future. As interest rates rise, with the OECD seeing this happening as soon as May 2015, many Canadians may see their monthly debt servicing costs rise by several hundreds of dollars each month as revolving debt is renewed. Some economists, such as Benjamin Tal at CIBC, have noted that “we might see bankruptcies rising alongside interest rates” as a result. Clearly, a rise in outright bankruptcies (or a need for other debt relief solutions like consumer proposals) would inhibit any charitable donations from those affected. But one also has to wonder about those struggling with their bills, not going bankrupt in a new higher-interest-rate environment, but struggling to make ends meet? Charitable giving would surely see declines in that group too.

The worrisome impact of these decreased charitable donations would be a financial crisis for those agencies helping so many Canadians, from so many walks of life. This potential trickle-down effect of Canadians’ historic debt is one many may wish to reflect upon this holiday season, the time of year when so many give to charity. Rather than adding to existing debt loads through gift and travel expenses, Canadians would be well served to shore up their personal finances and ensure that 2015 is sustainable for both their own families and their communities.

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