In almost three decades of assisting clients at the Credit Counselling Society, outgoing president Scott Hannah says there’s a marked shift away from retiring debt-free and having emergency savings.
It’s what Hannah describes as dangerous combination with a no-fear approach to debt.
“In 1996, the average debt on a debt management program with CCS was about $12,000,” says Hannah. “Now it’s over $25,000 and it’s not uncommon to see people with over $100,000 of non-mortgage debt. Much of it is credit card debt and that’s exactly the type of unsecured debt a DMP can help with.”
Hannah notes that in the mid-’90s, interest rates were between five and six per cent, and decreased further with the 2008-9 downturn and remained low until recently, catching many people off guard.
“Creditors also changed their repayment terms,” he says. “Minimum payments on credit cards used to be five per cent of the outstanding balance. They dropped to two per cent, which has not served consumers well. Car loans were a maximum of 48 months, and are now double that if you have a strong credit rating. Mortgages were extended to 30 or even 35-year amortizations. That was brought down again to 25 years when the detrimental side of those longer loans became evident,” Hannah said.
“In the ’90s, people wanted to avoid bankruptcy. While that’s still the case, it’s to a lesser degree,” says Hannah. “When consumer proposals were first introduced, they were hardly talked about. They required creditor approval so it was easier to file for bankruptcy. These proposals are payment arrangements under the Bankruptcy and Insolvency Act that allow people to repay a portion of what they owe. Today, they are widely advertised as a way to avoid bankruptcy,” he notes.
Hannah recounts how payday lenders came into Canada in the mid ‘90s, starting as cheque cashing and wire transfer services.
“A lot of people got in way over their heads when their services expanded to include payday loans,” he says. “And in about 2010, debt settlement companies became very prominent in Canada causing untold harm to many unsuspecting consumers who paid thousands of dollars to have their debts settled, only to find out their creditors had not agreed to the settlement. I’m proud that CCS was called on to assist with input when provincial governments began drafting consumer protection regulations for both of these industries.”
The prevalence of Home Equity Lines of Credit was scarce in the 1990s, but now they are heavily and extensively used, he says, noting how HELOCs are often used to pay off credit cards. “Robbing Peter to pay Paul can mask someone’s true financial circumstances. Their situation can be quite dire by the time they realize what’s happened and how they’ve jeopardized their home.”
Consumers now are more concerned about their credit score and rating than ever before, with credit scoring having gained significant prominence since 1996.
“It’s more important to focus on your health and overall financial well-being than a three-digit number. Manage your money and credit wisely and your score will take care of itself.”
Hannah says that in the 1990s, people didn’t want to retire with debt. “Now they feel like they have fewer options around that. And the practises that were problematic in 1996 are still problematic, but now with bigger numbers and higher risks.”
Other notable shifts in finance and consumer habits that have reshaped the financial landscape include:
• The Y2K and dot-com crash signalled that financial markets were less safe than people thought.
• At the start of COVID, people paid debt down and developed better and more traditional money habits. But as the economy recovered, bad habits returned.
• Retirement and emergency savings have fallen in consumer priority. “In fact, when CCS surveyed Canadians in January for our 2023 consumer debt report, we found that only one-third were concerned about not having enough emergency and retirement savings,” explains Hannah.
• Home ownership was easier 26 years ago and now is seemingly out of reach for many without family help.
• In the 1990s, there were no consumer credit monitoring services, which have increased with the digital age and the increase in fraud.
“How we use credit products today versus our understanding of credit back then is different,” says Hannah. “In 1996, you were more inclined to save for the things you wanted, being careful with how much and how you used credit.”
As for online lending and investing, Hannah says DIY is the fashion.
“People weren’t as comfortable shopping around back then. This hasn’t changed, but with DIY you can be more anonymous doing it. It’s typically a younger demographic that does this. And it has pros and cons, especially when it comes to discerning reputable information.”
Hannah was tapped to lead CCS since its inception in 1996 and helped grow the organization from helping 500 clients in its first year to now providing assistance through education, counselling, and debt repayment solutions to tens of thousands each year.
Hannah says CCS is now invited by the government to provide comment and insight and to participate in working groups.
“We have been involved with changes regarding the debt settlement industry, payday lenders, high interest rate lenders, credit repair and more recently, providing input on credit reporting.”
“While it has been an honour and a privilege for CCS to have helped improve the financial well-being of one million people in Canada, our work is far from done. The problems that tripped people up in the 1990s still exist today,” Hannah said. “Living within your means, using credit wisely and saving for your future is something we can all benefit from.”
Author Julie Jaggernath is a personal finance educator and writer for the Credit Counselling Society and has worked with retiring president Scott Hannah for 18 years.
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