Debt: a top to bottom approach

Brittany Brooks- Brock Press

Brittany Brooks- Brock Press

For many students, the transition from high school to university represents a rite of passage into adulthood. For the first time, students find themselves free to stay out till the early hours of the morning, go bar hopping on Wednesdays and even make their own decision on whether or not to attend that 8:00 a.m. lecture which that paid $500 dollars for.

Though this time in our lives is marked by the sudden burst of autonomy we receive from the increased distance to our parents, (for those Brock students like myself who moved to go to school), I can’t help but wonder if our generation is ready for the responsibility of full-fledged-adulthood, when they’ll having to manage, maintain and budget their own lives.

While not all young adults are inherently bad with money, I am sure that if you honestly accessed yourself, you would even admit that there are certain aspects of your spending habits that you are not happy with.

Personally, I will admit that I waste far too much money on eating out and I’m not alone. A report by CBC found that people from Ontario are among the worst of Canadians when it comes to buying lunches, often eating out three or more times a week. The report went on to discuss that, after taxes, within ten years the average adult from Ontario could spend upwards of $20,000 dollars on lunch according to Andrew Rice from the Toronto-based Stewart and Kett Financial Advisors.

Further, a survey conducted by Visa has found that nearly 61 per cent of Canadians spend on average $7 -$13 dollars per meal, with 9 per cent of Canadians spending as much as $25 per meal.

Now ask yourself this, how many times have you honestly bought lunch or anything for that matter without knowing your balance? How many times have you charged something to your credit card without knowing how much your previous balance was? Lastly, how can you spend money that isn’t there? If you find yourself troubled by your answers, you can at least take solace in the fact that you are certainly not alone.

In fact, our Government in 2011 only collected 90 cents for every dollar it spent. While this is much better than the states that in a similar survey, only collected 70 cents per dollar spent this point illustrating one of the growing problems with capitalism that is the concept of spending money that is simply not there.

According to a recent survey, Canada’s account deficit widened to $16 billion dollars in the last quarter of 2013, a figure that suggests a lessening of debt over the last few years. However, despite misleading numbers like this and headlines discussing the Conservative party “closing the deficit”, it is worth mentioning that even if Canada settled the $16 billion annual deficit it has, it would still be in massive debt.

In fact, the Canadian government currently faces a staggering $686 billion dollars of net debt. This equates to roughly $17 billion in interest per year or $549 a second, while our countries GDP total is only about $1.7 billion.

You may be asking yourself, what does my country’s debt have to do with me? Well, besides contributing to it via your student debt and credit cards, you in many ways represent a microcosm of the totality of society (as shown through the previous drawing countless comparisons between young adults and the Canadian government’s actual economic practices regarding debt).Proof of both society’s as well as our own ignorance in regards to debt comes from a simple study of compound interest, which, according to a study done by the Globe and Mail is, “The most powerful force in the universe”.

“When you borrow money on a credit card, the credit-card company charges you interest on the amount of money that you borrowed. The amount you initially borrow is called the principal… If your credit card has an annual interest rate of 19.99 per cent, and you carry a balance of $100 all year while paying back only the interest each month, you will have paid the credit card company roughly $20 in interest by the end of the year–on top of the original $100 you borrowed. When you use small amounts, like that $100, this doesn’t seem so bad–but this can snowball in a hurry. Carrying $1,000 for the year will cost you $200–and we’ve seen a few students graduate with $5,000 or more in credit-card debt, and it was costing them $1,000 and up, every year, just to pay the interest.” This principle of compound interest applies to all forms of debt, ranging from the previously mentioned credit cards, to mortgages on houses, student loans like OSAP as well as government money owed (I mean come on everyone wants to collect interest.

In fact, in a report issued in 2011 by TD Bank, it was found that nearly, “21 per cent of Canadians made only the minimum required payments on their credit cards. “Also, according to a Prairie Research Associates study from 2009, “24 per cent of graduating Canadian university students reported carrying an average monthly balance of $3,440″.

What does this tell us about the nature of debt in Canada? Well for one, it seems that debt is predominant throughout much of society, with the average student debt clearly lumped into a much larger, more daunting debt of the Canadian Government. It also tells us that regardless of what kind of debt we take on, that each will incur additional debt associated to our principal balance. Lastly, this practice of creating debt leads to economic tightening due to the ever-increasing perpetuation of the debt’s initial balance requiring a high payment.

In keeping with the perpetuation of debt, Canadian student debt has grown exceptionally over the previous years. In a survey conducted by Statistics Canada, it was found that student debt grew 44.1 per cent from 1999 to 2012, or 24.4 per cent between 2005 and 2012. It was also stated that nearly one in eight families are still in debt from post-secondary education with the average debt owing sitting around $10,000. In conclusion, the report found that Canadians owe 28.3 Billion dollars in outstanding student debt.

As mentioned earlier, when you have perpetual deficit that is always rising, other costs associated with these will also increase to make up for the payment of compound interest. Evidence of this can be seen no further than looking to Canada’s rising cost of post-secondary Education which in some provinces has nearly tripled in the last 25 years.

In 1990, the average cost of tuition was $1,464. In 2012 it had already reached $6,348 and it is expected to reach $7,437 by 2016. Further, Ontario inflation-adjusted fees were roughly $2,574 in 1990-91, but will surge to nearly $9000 by 2016/2017. In Newfoundland and Labrador however, a province that has frozen tuition since 1999, the average tuition cost is a mere $2,872, a much smaller amount than most other provinces.

This, coupled with the relatively small growth of cost (the provinces 1990/1991 tuition rates which were a little over $2000) will allow for its 2016 tuition rates to be under $3000.

In Quebec, tuition is expected to reach nearly $4000 despite the protests of 2012 which saw students protesting the sharp rise in tuition rates. These sharp increases in tuition costs, coupled with the lack of jobs due to the ending recession has severely hindered students from moving on to the next step of their adult lives e.g. getting a mortgage on a house, leasing a car etc.

In a study published by TD Bank last year, it was reported that the average debt of a student immediately following post-secondary was approximately $27,000.

An example of the sheer amount of debt the average university student amasses can be seen in a survey conducted by Simon Fraser University. In the survey 15,000 students were interviewed. Of these students, the average debt was nearly $24,600 dollars. However, when those students who did not have debt were added into the survey, the average debt dropped to $14,500.

Defaulting on your student debt:  Just as much fun as when the country defaults

Many students who receive OSAP and other student loans often find themselves unable to pay back their debt upon leaving school. Between paying rent, the cost of living and maintaining a school debt, many students feel overwhelmed and hopeless in the face of piles of debt. In a survey conducted by CIBC, it was found that 14 per cent of people with federal student loans default within three years of leaving school.

Those seeking relief from these huge payments can apply to the CSLP repayment assistance program and have their monthly payments reduced to a mere 20 per cent of their total earning if they have not previously defaulted on said loans.

So what does this all mean?

Often, it becomes all too easy to forget about debt and the negative cycle of dependency it creates. Once you have signed on the dotted line of your “Masters Agreement”, many of us including myself, forget from time to time that we are even in debt. I mean does it really exist? Think about it for a second. Have you ever seen the money used to pay your school? Have you ever touched it? And more importantly, where did it come from?

While there are no simple solutions to solving the problem of debt (except for the possible overthrowing of Capitalism), what is important is that we continue to talk about it and make sure not to sit idly by and allow ourselves to become wage slaves, working to pay off debt as opposed to working towards building a financial backing.

The more we educate people on debt, the more people can make educated decisions considering their economic future.

Furthermore, it is important that we question our country as a whole, as well as other forms of economic practices that operate using money that simply put, does not, has not, and never will exist.

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