4 ms·

While I don't doubt that Canadian debt levels are unsustainable, note this finding is from an insolvency firm and IMO should be taken with a huge grain of salt.

by corry 5y ago

While I don't doubt that Canadian debt levels are unsustainable, note this finding is from an insolvency firm and IMO should be taken with a huge grain of salt. http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html

VBprogrammer 5y ago
Don't I know it. Even now I can see a headline and know it will have a quote from the founder of the company I used to work for without even opening the article. Most likely the whole article was written by their PR firm, maybe with a couple of stats dragged out of the DB to add authenticity.
Sanzig 5y ago
Indeed, MNP makes this proclamation about once per quarter. I don't doubt that Canadian consumer debt is at an all-time high, and I agree that's concerning. However, MNP's survey methodology makes the 52% number misleading: they basically ask a sample of the population if a $200 increase in monthly spending would make them unable to pay bills and meet debt obligations, and people self-report if that is the case or not. Most people don't have firm monthly budgets, so this is probably more a psychological excercise than a personal finance one. Realistically, most people have more "give" in their monthly spending than they realize: if they get stuck with a $200 per month increase from somewhere, they can probably compensate by reducing bills (eg: cutting cable, changing phone/internet providers, shopping at the discount grocery store) and adjusting spending habits. A better, more informative metric would be to sit down with a representative sample of the population and analyze their monthly bills to find the gap between inflexible expenditures (eg: rent/mortage, debt service, utilities, basic internet + phone packages, reasonable food expenditures) and monthly income. Knowing what the statistics are for that number is a better proxy for how close Canadians are to insolvency than self-reporting. But that's an awful lot of work.
- tomrod 5y ago
  If psychological, this reveals the level of anxiety in the economy, which highlights a similar problem and suggests similar policy remediations. Financial literacy really should be required in primary education.
  - HarryHirsch 5y ago
    Housing prices and tuition have risen far faster than salaries in the last 20 years, meanwhile entry level jobs with possibility of advancement have dried up. Offering "financial literacy" as a solution in the current environment is like the "identity theft" scam, when people get the blame when a fraudster opened credit cards in their name. The system is not working any longer.
    - throw0101a 5y ago
      > Housing prices And interest rates have fallen, so monthly payments may be net the same. Rising prices could have an impact of down payments though. In the US, inflation-adjusted mortgage payments seem to be at the lowest they've every been: * https://awealthofcommonsense.com/2021/03/what-if-housing-prices-arent-as-high-as-they-appear/ https://awealthofcommonsense.com/2021/03/what-if-housing-pri...
      - HarryHirsch 5y ago
        I'd offer rental prices in Boston for consideration: https://fred.stlouisfed.org/series/CUURA103SEHA https://fred.stlouisfed.org/series/CUURA103SEHA The ladder was pulled up in the mid-nineties, and since 2008 it's out of reach.
    - tomrod 5y ago
      Instead of railing against policy that would help operating in a system because it's doesn't apply global changes, perhaps consider that the policy suggested still has demonstrable merit.
- scrivna 5y ago
  If you need to cut cable because you can’t afford some expenses is that not the definition of “unable to pay bills” the article mentions?
  - leetcrew 5y ago
    I would also be "unable to pay bills" if I struggled to heat my 10,000 sq ft mansion in the winter, but there's no particular reason anyone should care.
  - dahfizz 5y ago
    The question is whether the insolvency claim is valid. If an additional expense would require reshuffling your budget, but afterwards you can pay all your debt obligations, you are not insolvent.
  - prennert 5y ago
    If you can cut your bills so you can pay them, you don't become insolvent, because you maintain a positive cash flow. In contrast, if you cannot cut your costs anymore and your outgoings exceed your income, you will have a negative cash flow. You are still not insolvent, but you will eat into your savings and credit lines and eventually become insolvent if you cannot recover.
- lumost 5y ago
  The latter methodology tends to produce laughably out of touch analysis. Mcdonalds and walmart both produced similar reports in order to demonstrate that you could in fact live on minimum wage in high cost areas without government subsidies. Most healthy adults do not eat a diet of ramen as their mainstay. However an independent budget analysis would surely find that a healthy individual could downgrade their food purchases to just ramen (or another minimal cost set of foods) and find more give in the budget. As I recall the McDonalds budget also assumed the individual would not need phone or internet as they can use the library. This quickly becomes an exercise in lifestyle dictation.
  - Sanzig 5y ago
    Well, yes, but you have to draw the line somewhere. A long-term diet of ramen is not healthy, but drawing up a reference basket of middle-of-the-road nutritious food and pricing it based on median market prices for statistical purposes isn't unreasonable. And we can agree that assuming that somebody uses the library for the internet is unreasonable - a better baseline is a basic package for both at local market rates. The goal is to assess reasonable flexibility in cashflow. If the study author is biased towards trying to prove a predetermined outcome (eg: that minimum wage in high CoL areas is livable), the results are poisoned from the get-go: good luck getting repeat business from McDonalds' if your study unearths some unpleasant truths. It's the classic case of a metric becoming a goal and ceasing to be useful as a metric. I do think this is certainly something a national statistical agency could do in a minimally biased fashion, if done rigorously.
    - AstralStorm 5y ago
      Then again, not having resources or entertainment while having a soul-crushing boring job is a massive mental health risk. Ignoring that is of course a nasty bias. Much like ignoring that you do sometimes have to buy clothing or shoes, you probably do have to spend on something to unwind. (What it is depends on the person.) Likewise, ignoring cost of transportation is a chief sin of those analyses, even bus tickets are not free, and bicycles are not exactly fast.
    - lumost 5y ago
- mschuster91 5y ago
  > Realistically, most people have more "give" in their monthly spending than they realize: if they get stuck with a $200 per month increase from somewhere, they can probably compensate by reducing bills (eg: cutting cable, changing phone/internet providers, shopping at the discount grocery store) and adjusting spending habits. Not specific to Canada but rather generic: it's virtually without alternative in most parts of the world to pay enormous percentages of a net income for fixed, unchangeable stuff: - rent - car-related payments (even a beater requires gas, insurance and maintenance) or public transport - some form of internet access - food Most people (~70% in the US!) don't have the savings to weather an unexpected 1000$ bill so it's fair to assume they've already stretched their budgets thin. It is very, very hard to cut in the variable part of monthly costs then, and impossible to cut on the fixed costs. And the coronavirus crisis with its various impacts, especially destroying a lot of "side hustles" like restaurant or other service "moonlight" jobs or sex work, hasn't made things better. In fact, most of the Western societies' masses are barely kept afloat. It is a ticking bomb waiting to explode, we're seeing violent outbursts for over two years now - Yellow Vests in France, the BLM protests and the January putsch attempt in the US, covid-deniers nearly storming the Parliament in Germany, escalating covid-denier and youth riots in the Netherlands, religious-nationalist riots in Northern Ireland... societies are under immense tension, with demagogues fanning the flames.
  - ac29 5y ago
    > Most people (~70% in the US!) don't have the savings to weather an unexpected 1000$ bill According to this report the 60-80th percentile family has an income of $97k/year and a net worth of $423k: https://www.federalreserve.gov/publications/files/scf20.pdf https://www.federalreserve.gov/publications/files/scf20.pdf
_fat_santa 5y ago
I need to go through and read all of Paul's essays. His writing is top notch and ages like fine wine.

by corry 5y ago

VBprogrammer 5y ago

Don't I know it. Even now I can see a headline and know it will have a quote from the founder of the company I used to work for without even opening the article. Most likely the whole article was written by their PR firm, maybe with a couple of stats dragged out of the DB to add authenticity.

Sanzig 5y ago

Indeed, MNP makes this proclamation about once per quarter. I don't doubt that Canadian consumer debt is at an all-time high, and I agree that's concerning. However, MNP's survey methodology makes the 52% number misleading: they basically ask a sample of the population if a $200 increase in monthly spending would make them unable to pay bills and meet debt obligations, and people self-report if that is the case or not. Most people don't have firm monthly budgets, so this is probably more a psychological excercise than a personal finance one. Realistically, most people have more "give" in their monthly spending than they realize: if they get stuck with a $200 per month increase from somewhere, they can probably compensate by reducing bills (eg: cutting cable, changing phone/internet providers, shopping at the discount grocery store) and adjusting spending habits. A better, more informative metric would be to sit down with a representative sample of the population and analyze their monthly bills to find the gap between inflexible expenditures (eg: rent/mortage, debt service, utilities, basic internet + phone packages, reasonable food expenditures) and monthly income. Knowing what the statistics are for that number is a better proxy for how close Canadians are to insolvency than self-reporting. But that's an awful lot of work.

tomrod 5y ago
If psychological, this reveals the level of anxiety in the economy, which highlights a similar problem and suggests similar policy remediations. Financial literacy really should be required in primary education.
- HarryHirsch 5y ago
  Housing prices and tuition have risen far faster than salaries in the last 20 years, meanwhile entry level jobs with possibility of advancement have dried up. Offering "financial literacy" as a solution in the current environment is like the "identity theft" scam, when people get the blame when a fraudster opened credit cards in their name. The system is not working any longer.
  - throw0101a 5y ago
    > Housing prices And interest rates have fallen, so monthly payments may be net the same. Rising prices could have an impact of down payments though. In the US, inflation-adjusted mortgage payments seem to be at the lowest they've every been: * https://awealthofcommonsense.com/2021/03/what-if-housing-prices-arent-as-high-as-they-appear/ https://awealthofcommonsense.com/2021/03/what-if-housing-pri...
    - HarryHirsch 5y ago
      I'd offer rental prices in Boston for consideration: https://fred.stlouisfed.org/series/CUURA103SEHA https://fred.stlouisfed.org/series/CUURA103SEHA The ladder was pulled up in the mid-nineties, and since 2008 it's out of reach.
  - tomrod 5y ago
    Instead of railing against policy that would help operating in a system because it's doesn't apply global changes, perhaps consider that the policy suggested still has demonstrable merit.
scrivna 5y ago
If you need to cut cable because you can’t afford some expenses is that not the definition of “unable to pay bills” the article mentions?
- leetcrew 5y ago
  I would also be "unable to pay bills" if I struggled to heat my 10,000 sq ft mansion in the winter, but there's no particular reason anyone should care.
- dahfizz 5y ago
  The question is whether the insolvency claim is valid. If an additional expense would require reshuffling your budget, but afterwards you can pay all your debt obligations, you are not insolvent.
- prennert 5y ago
  If you can cut your bills so you can pay them, you don't become insolvent, because you maintain a positive cash flow. In contrast, if you cannot cut your costs anymore and your outgoings exceed your income, you will have a negative cash flow. You are still not insolvent, but you will eat into your savings and credit lines and eventually become insolvent if you cannot recover.
lumost 5y ago
The latter methodology tends to produce laughably out of touch analysis. Mcdonalds and walmart both produced similar reports in order to demonstrate that you could in fact live on minimum wage in high cost areas without government subsidies. Most healthy adults do not eat a diet of ramen as their mainstay. However an independent budget analysis would surely find that a healthy individual could downgrade their food purchases to just ramen (or another minimal cost set of foods) and find more give in the budget. As I recall the McDonalds budget also assumed the individual would not need phone or internet as they can use the library. This quickly becomes an exercise in lifestyle dictation.
- Sanzig 5y ago
  Well, yes, but you have to draw the line somewhere. A long-term diet of ramen is not healthy, but drawing up a reference basket of middle-of-the-road nutritious food and pricing it based on median market prices for statistical purposes isn't unreasonable. And we can agree that assuming that somebody uses the library for the internet is unreasonable - a better baseline is a basic package for both at local market rates. The goal is to assess reasonable flexibility in cashflow. If the study author is biased towards trying to prove a predetermined outcome (eg: that minimum wage in high CoL areas is livable), the results are poisoned from the get-go: good luck getting repeat business from McDonalds' if your study unearths some unpleasant truths. It's the classic case of a metric becoming a goal and ceasing to be useful as a metric. I do think this is certainly something a national statistical agency could do in a minimally biased fashion, if done rigorously.
  - AstralStorm 5y ago
    Then again, not having resources or entertainment while having a soul-crushing boring job is a massive mental health risk. Ignoring that is of course a nasty bias. Much like ignoring that you do sometimes have to buy clothing or shoes, you probably do have to spend on something to unwind. (What it is depends on the person.) Likewise, ignoring cost of transportation is a chief sin of those analyses, even bus tickets are not free, and bicycles are not exactly fast.
  - lumost 5y ago
mschuster91 5y ago
> Realistically, most people have more "give" in their monthly spending than they realize: if they get stuck with a $200 per month increase from somewhere, they can probably compensate by reducing bills (eg: cutting cable, changing phone/internet providers, shopping at the discount grocery store) and adjusting spending habits. Not specific to Canada but rather generic: it's virtually without alternative in most parts of the world to pay enormous percentages of a net income for fixed, unchangeable stuff: - rent - car-related payments (even a beater requires gas, insurance and maintenance) or public transport - some form of internet access - food Most people (~70% in the US!) don't have the savings to weather an unexpected 1000$ bill so it's fair to assume they've already stretched their budgets thin. It is very, very hard to cut in the variable part of monthly costs then, and impossible to cut on the fixed costs. And the coronavirus crisis with its various impacts, especially destroying a lot of "side hustles" like restaurant or other service "moonlight" jobs or sex work, hasn't made things better. In fact, most of the Western societies' masses are barely kept afloat. It is a ticking bomb waiting to explode, we're seeing violent outbursts for over two years now - Yellow Vests in France, the BLM protests and the January putsch attempt in the US, covid-deniers nearly storming the Parliament in Germany, escalating covid-denier and youth riots in the Netherlands, religious-nationalist riots in Northern Ireland... societies are under immense tension, with demagogues fanning the flames.
- ac29 5y ago
  > Most people (~70% in the US!) don't have the savings to weather an unexpected 1000$ bill According to this report the 60-80th percentile family has an income of $97k/year and a net worth of $423k: https://www.federalreserve.gov/publications/files/scf20.pdf https://www.federalreserve.gov/publications/files/scf20.pdf

_fat_santa 5y ago

I need to go through and read all of Paul's essays. His writing is top notch and ages like fine wine.