Lots of people spending savings, getting into debt, credit counselor says

A financial literacy and credit counselor says many of her clients are going into debt or spending savings to make ends meet as the prices of everything from gas to food to housing continue to rise. to augment.

Canada’s inflation rate hit 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 make up for the budget shortfalls they face.

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

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

‘It’s so sad to see this. As it stands, they’ve been struggling since 2020, some of them before that,” financial literacy and credit counselor Pamela George says of some of her clients. (Ortega)

George said the recent price hike is not necessarily the cause of the problems his customers are facing, but exacerbates the problem.

“It’s so sad to see that. As it stands they’ve been struggling since 2020, some of them before that,” she said.

“And now, with the higher prices, they’re going through a really tough time.”

How did we come here?

Energy prices were a major contributor to the increase as the ongoing crisis in Ukraine was followed by a sharp rise in prices in the month and the following month. Retail gasoline prices jumped 6.9% in February alone and were up nearly a third from the same period last year.

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

At the end of the day, we were able to eat. We must have shelter. Focus on that now.— Pamela George, Credit Counselor

But he said rising oil prices – which affect other costs, such as heating and transportation – are a big contributor.

Statistics Canada cited “geopolitical conflict in Eastern Europe and the Middle East” for the rise in pump prices, “as uncertainty surrounding global oil supplies put upward pressure on price”.

But the inflation figures released Wednesday do not even include the spike seen in early March, when oil briefly rose above $130 a barrel.

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

All in one day8:54Inflation Rate Credit Advisor

Financial Literacy and Credit Counselor Pamela George tells us how high prices affect her clients and how to cope when things are more expensive. 8:54

“Right 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, kind of like the kind of things we see now in terms of of supply chains and After the war, they also lifted the price controls that existed during the war, and we had pretty big jumps in the rate of inflation at the time.

How do we get out?

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

“We’re trying to raise, in this case, interest rates to slow down demand when the real cause isn’t on the demand side. It’s kind of a supply-side problem,” did he declare.

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

“Overall, you’re going to hurt a lot of people, households that are borrowing a lot for all kinds of reasons, even on your credit card,” he said.

“But also companies, they borrow…you’re going to hurt those people or those companies or whatever. So that’s not a solution in my view.”

Rising grocery prices are making it hard for many people to make ends meet. (Ivanoh Demers/Radio-Canada)

Seccarecchia said he thinks the solution will involve cooperation and a deliberate move between government, workers and business to raise wages to keep up with inflation, but not so much that business is rushed.

There are also areas, like housing, where he said direct and specific moves, like high capital gains taxes on real estate investments and limiting the number of homes a person can own at investment purposes could have quick effects.

Basic needs must be met

For many George clients, thinking about the future is out of reach right now.

“If you can’t put food on the table, if you can’t pay your grocery bill, you can’t pay the rent and your mortgage, really, you shouldn’t put any energy into worrying retirement,” she said.

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

For people who are just trying to get through the next day, the next week or the next month, George said not to think too far ahead.

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

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