According to Statistics Canada, Canadian households owed an average of $1.71 for every dollar of disposable income in the third quarter of 2020. FP Canada reported from their Financial Stress Index 2021 that 39% of Canadians say that paying down debt would reduce financial stress. Credit Counselling Canada reported that the top three causes of financial problems, both before and during the pandemic, are: (1) income issues; (2) overextension/overuse of credit; (3) money management. These are concerning statistics.
In my role as Financial Counsellor for undergraduate medical students, I talk about debt a lot. Many medical students finance their studies through government student loans and professional lines of credit. The median medical school debt in Canada in 2020 was $100,000. Many of the conversations that I have with students involve planning for debt: setting a budget and estimating the total amount of debt to be incurred during medical school and then creating a financial plan for repaying the debt once working as a physician. While the amount of debt required to complete medical school may be significant, physicians are in the enviable position of having high future net income potential and the ability to manage the required future debt payments.
Other students that I meet with may experience a different situation. These students may have borrowed more money than they had planned, or perhaps they didn’t have a budget for the amount of debt they would need to complete their studies. Regardless of the reason, their level of debt is causing these students stress.
It is important to know that not all debt is bad. In fact, certain debt is characterized as “good debt” if it will ultimately increase the value of an asset, or in the case of student debt, increase a student’s future earning potential. However, when debt is used to finance items that don’t increase in value over time, for example, consumer goods and cars, this debt is characterized as “bad debt.” This type of debt should be avoided or minimized where possible.
The Financial Consumer Agency of Canada has several resources available to help you manage your debt, including this step-by-step guide for how to pay down your debt: https://www.canada.ca/en/financial-consumer-agency/services/debt/plan-debt-free.html
Over the coming weeks, I am going to talk about WHY we make the financial decisions that we do. Stay tuned!
Full disclosure: I sang along when I was typing the title of today’s post. My apologies to Salt-N-Pepa.
Life Lessons 