Though warning signs for people facing a personal debt crisis are flashing from several directions, not enough people are paying attention, says a licensed insolvency trustee.
Darrin Surminsky, with MNP Debt’s Kelowna office, says over the last year, he has seen a 39.8 increase in the number of consumer insolvency cases filed at his office over the last year.
Surminsky says those numbers reflect the entire B.C. Interior, but among the largest impact areas are the Peace and Okanagan regions.
While Surminsky urges consumer restraint among local residents, trying to focus on debt costs often gets sidetracked by the constant push for consumers to spend and buy to fuel economic growth, and a lack of basic education about how to manage their income inflows and outflows.
“Other surveys across the country have shown that the number of people who are financially living paycheque to paycheque, without any emergency reserves saved away in case anything goes wrong to impact your income, those people could be in a lot of trouble in a hurry,” said Surminsky.
The recent consumer cash crunch is due in part, he said, to the slump in the oil industry in northern Alberta, which employs many British Columbians.
“As long as the interest rates remain low and people stay employed, they can manage to rob Peter to pay Paul, but any kind of pressure on those interest rates or losing a job, and people are in trouble quickly,” he said.
Surminsky said an entire generation has grown up with low interest rates, and the concept of those rates changing four or five points on mortgages, car loans or other personal bank loans is foreign to them.
“When those interest rates do eventually go up, and it will happen at some point because everything that goes down will go up again, a move up to five- six per cent or beyond will have major implications for debt servicing cost,” he said.
As a licensed bankruptcy trustee through the provincial government, Surminsky says his office deals with bankruptcy situations as a last resort, initially attempting to help people reshuffle their finances to put themselves in a better position to pay off their debts.
“Looking forward for the immediate future, we see a sustained level of bankruptcies continuing to be filed, with no impetus in sight to see that reduce, only for it to be sustained or get worse if interest rates go up, the economy softens or key industries see a spike in lost jobs.
“In Alberta, we are seeing that right now. Our office is swamped and our phones are ringing off the hook with people seeing debt relief help because of what has happened in northern Alberta with the oil and gas industry slump.”
Surminsky sees the rising consumer debt load among Canadians as two-fold: The constant push to buy on credit that begins with government urging consumers to spend with banks and the retail industry aggressively extending credit to sell goods and services; and our schools doing little to educate students how to manage their money as adults.
“I think at the root of it is the lack of education…how to reconcile their banking, understanding net worth and basic money management skills. Consumers rely on others for what they can get approval for, and that is a big mistake because those others don’t always have your best interests at heart.
“Part of it is also that desire to keep up with the Joneses. My neighbour has a big house, a new car and a vacation down south every year, so why can’t I have that to? Banks or businesses that offer credit cards are
for-profit businesses. How big a loan you can get is not always in line with what you really need or can afford.
“You don’t go to McDonald’s and ask them: ’How many burgers should I buy?’ because they will always sell you more than you really need.”
Since moving from Winnipeg to the local office, Surminsky says he has been taken aback by the divergence of wealth in Kelowna.
“I was shocked at how way more million-dollar-plus homes there are in Kelowna than Winnipeg, even though Winnipeg is eight times the size of Kelowna in population,” he said.
“The wealthy people can afford the bigger more expensive homes, the four TVs in the house, the empty bedrooms that go unused.
“But unfortunately, a lot of people are what they call house poor in Kelowna, stuck in a financial trap they can’t really afford.”
Surminsky said he has seen some reason to be optimistic about the new generation of young people for not necessarily being driven to buy a condo or house, or even a new car.
“But while they are not tied down to those things, unfortunately they are continuing to spend, just on different things, piling on debt while perhaps living at home thinking they can afford all this stuff they are buying on credit.”
Besides the reality of being overly saddled with debt when it comes time to move out on their own, university graduate consumers are also carrying a huge debt load from student loans as they embark on their post-graduate careers.