Many people spend their savings and go into debt, says a credit counselor

A financial education and credit counselor says many of her clients are taking on debt or spending savings to make ends meet as prices for everything from gas to food to housing continue to rise.

Canada’s inflation rate rose to a new multi-decade high of 5.7 percent last month, the highest since August 1991, according to Statistics Canada.

Pamela George said the people she advises take on debt through credit cards or lines of credit, or dip into their savings to offset budget shortfalls they face.

“It’s normal for most of us that if the credit card bill comes and you can’t pay it with your own money, you just go to the line of credit or if you can’t pay something, you put it on the line.” credit,” she said.

“It’s so normal for us to do that that a lot of us don’t see that line between what is our money and what is the bank’s money.”

‘It is very sad to see this. As it is, they’ve been struggling since 2020, some of them before that,’ Pamela George, a financial education and credit counselor, says of some of her clients. (Ortega)

George said the recent price increase is not necessarily what caused the problems his customers are facing, but it is exacerbating the problem.

β€œIt is very sad to see this. As it is, they have been fighting since 2020, some of them before that,” she said.

“And now with higher prices, they’re just having a really tough time.”

How did we get here?

Energy prices were a major factor in the increase, as the ongoing crisis in Ukraine was followed by a sharp increase in prices during the month and the next. Retail gasoline prices rose 6.9 percent in the month of February alone and are up almost a third compared to the same period last year.

Mario Seccareccia, an economics professor at the University of Ottawa, said there are many factors at play and the current rate of inflation did not come out of nowhere.

At the end of the day, we got to eat. We have to have shelter. Focus on that now.β€” Pamela George, credit counselor

But he said rising oil prices, which hit other costs like heating and transportation, are a big contributor.

Statistics Canada cited “geopolitical conflict in Eastern Europe and the Middle East” for higher pump prices, “as uncertainty surrounding global oil supply pushes prices higher.”

But the inflation figures released on Wednesday don’t even include the spike seen in early March, when oil briefly exceeded $130 a barrel.

Seccareccia said Canada hasn’t had many spikes in inflation over the past 80 years, but global events that disrupt the supply side of the economy often drive those changes.

all in one day8:54Inflation Rate Credit Counselor

Pamela George, a credit and financial education counselor, tells us how high prices are hurting her clients and how to get ahead when things get more expensive. 8:54

“Just after World War II, we had the demobilization of troops and everything else came back. You had a lot of supply constraints, problems in Canada, not too different from the kind of things we’re seeing now in terms of supply chains and everything. That. After the war they also lifted the price controls that were in place during the war, and we had some pretty big jumps in the rate of inflation at the time.”

How we go out?

Looking at the big picture, Seccarecchia said he doesn’t think raising interest rates beyond 2 percent will solve the problem.

“We’re trying to raise, in this case, interest rates to slow down demand when the real cause is not the demand side. It’s kind of a supply side issue,” he said.

He said raising interest rates is like using a hammer to kill a fly, and the solution needs to be more focused.

“In general, it’s going to hurt a lot of people, households that are borrowing a lot of money for all sorts of reasons, including on their credit card,” he said.

“But also companies, they get into debt… you’re going to hurt these people or these companies or whatever. So that’s not a solution the way I see it.”

The rising cost of groceries has many people struggling to make ends meet. (Ivanoh Demers/Radio-Canada)

Seccarecchia said he believes the exit will involve cooperation and a deliberate move between government, workers and business to raise wages to deal with inflation, but not so much that businesses are squeezed out.

There are also areas, like housing, where he said direct, targeted moves like high capital gains taxes on real estate investments and caps on the number of homes someone can own for investment purposes could have effects. rapid.

Basic needs must be met

For many of George’s clients, thinking about the future is out of reach at the moment.

“If you can’t put food on the table, if you can’t pay the grocery bill, you can’t pay the rent and the mortgage, you really shouldn’t be spending energy worrying about retirement,” he said.

“I know it sounds weird to hear that from a financial education counselor, but at the end of the day, we have to eat. We have to have a shelter. Focus on that now.”

However, for people just trying to get through the next day, week or month, George said don’t think too far into the future.

“We’re going through a lot. It’s been two years, two years of hell,” he said.

“We’re exhausted, we’re battling mental health issues…if we have savings, now is the time to use it. I hate to say that because, again, with my training, but you can’t worry about holding out for the future again when you don’t even You can’t even eat right now.”

Previous post How the Student Loan Pause Has Played Out for Borrowers | Smart Switch: Personal Finance
Next post Quicken Inc., Leader in Personal Finance, Announces New Majority Investment from Aquiline Capital Partners LLC
%d bloggers like this: