Buy now, pay later?
It seems like a common theme in today's day-and-age. If you look at any Brick flyer, the front page screams "*Do not pay for 15 months on everything in the store." CanEquity Mortgage Canada allows you to finance 100 percent of your property's value and therefore, you need "no money down." Need a new bed? What about a new washing machine? Need a new sewing machine? Just swipe with your Sears Financial Credit Card and "don't pay for 12 months*."
Sounds like a great idea, doesn't it?
But what about the *? What about the administration charges for the loveseat from The Brick? And what about the 29.9 percent interest fee that 'may' accumulate prior to the end of the 15 months? Or what about the fact that the current interest rate for the zero/no money down mortgage is 5.39 percent when 2.39 percent fixed rates are available for one year? And what about the compounded interest rates that occur when you don't quite make that payment on time?Millions of people may be doing it, but many of them are being caught by these unexpected charges. And I don't understand why. I mean, I understand the attractiveness of the idea. A person can get something immediately without having the money to buy it. But if a person can't afford it now, how are they really going to be able to afford it in 12 or 15 months? What do people foresee that is really going to change financially in those upcoming months? Or are they just hopeful? Or, do we just live in a buy now, deal with it later society?
I do understand that there are people out there with the money-saving skills that enable them to take advantage of these offers. That can put their money into an interest savings account until just before the payment deadline and indeed, they can actually make a few bucks off of it. And I do understand that there are unexpected purchases that are required and that not everyone has an emergency fund set aside. But as for many of the people out there, I question whether this is the case.
The Canadian Bankers Association states that only 65 percent of Canadians pay off their credit card balance in full each month. So what does that mean? Essentially, 35 percent of Canadians are making purchases or living lifestyles that are beyond their income.
And what I don't understand is when 'keeping up with the Jones' became worth 19.9 percent interest each and every month? When did living a lifestyle beyond a person's means become worth going deeper and deeper into debt.
And that just addresses credit card debt, which according to the Canadian Bankers Association only accounts for a mere five percent of total household debt in Canada. And if people can't afford that, what are they doing about the balance owing on their lines of credit, which account for 20 percent of household debt. At least the report showed that 68 percent of debt results from something tangible, that of residential mortgages.
The Bank of Canada stated in their June 2011 financial review that the aggregate debt-to-income ratio of Canadian households is at a record high. The Canadian Financial Capability survey, released by Statistics Canada in 2009, confirmed that by stating that 76 percent of Canadians aged 19 to 64 live in a household that carries debt.
That same study stated an average debt load of about $119,000 per household. And those with the highest ratio of debt to pre-tax income? It was the 19 to 39 age group with a ratio of 180 percent. So what does that mean? For each $1,000 of pre-tax income that couple families make, they owe $1,800!
Perhaps I was lucky. I was raised with the philosophy that in order to buy, you must save. That being said, I am truly a believer of each to their own. I feel that what one person spends their money on is no business of anybody else.
But regardless of your outlook on money and spending, these numbers serve as a good reminder to all of us. It poses the question of whether we really need a 52 inch TV to replace the smaller one? It asks whether a brand new vehicle is necessary when the used one runs perfectly fine? And it really makes a person think about whether 'keeping up with the Jones' is worth the price of admission.
