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Money trouble

Canadians would rather take on debt than take a handout Add to ...

Two maxed-out cards, a line of credit and an overdraft on a bank account. That's how far Scott went to keep from asking Mom and Dad for financial help. The 48-year-old Toronto man had gone to his parents in the past for fast money. But, he says, grovelling to them one more time was not an option.

"I just couldn't go and ask them, and that was just me," he says. "It was just embarrassment."

Scott, who declined to share his last name because most people in his life don't know about his financial struggles, says pride and ego has made requests to loved ones a last resort.

He's just one of many Canadians who say they would rather pick up another credit card, open a line of credit or take out a second mortgage than ask their friends and family for dough in a financial emergency, a new global survey of 15 countries has found.

While Canadians tend to have more savings than those in other nations (we ranked fourth out of 15 for being able to come up with cash in a pinch), we're almost twice as likely to exhaust other options before hitting up friends and family - 13 per cent would in Canada, compared to less than 7 per cent in most other countries, including the U.S. and the U.K. Twenty-eight per cent of Canadians would rely on credit cards compared to 20 per cent in the United States.

The survey, which assessed the financial preparedness of 14,693 respondents, including 1,132 Canadians, was conducted by U.K.-based TNS, a social research firm. The findings shed light on the connection between Canadians' money and our sense of self, experts say. Mounting debt troubles are often linked to pride, a desire for independence and a very Canadian unwillingness to impose.

"I think people may have some reluctance to admit to family members that they can't scrape together $2,000 in an emergency," says Rhonda Grunier, vice-president of TNS Canadian Facts, the Canadian arm of the research firm. "They don't necessarily want their family members knowing the details of their financial situation, so that may cause some people to be reluctant to take that approach."

People headed for financial ruin often strain to keep up appearances in order to maintain their loved ones' respect, says Jeff Schwartz, executive director of Consolidated Credit Counselling of Canada.

"Turning to a financial institution or a bank to obtain credit when it's available is sometimes emotionally easier than it is to [approach]family and friends," he says. "It takes that fear of looking like a failure out of the equation and it allows them to keep their financial skeletons, so to speak, in the closet."

It's also a matter of control.

"Most people really don't want to feel indebted to family or friends," he adds.

Canadians have attached a huge amount of self-worth to money, says Laurie Campbell, executive director of Credit Canada, a not-for-profit credit counselling agency in Toronto. "The shiny car in the driveway, the nice clothes, the nice house - all that crap that we've associated as status symbols revolves around money," she says. "So if you have to go out and ask family or friends for money, boy, that's a pretty embarrassing place to be."

We're also socialized, as a nation, to be self-reliant and independent of others, and tend to care more about what others think, perhaps more so than Americans, says Miranda Goode, a professor of marketing at the University of Western Ontario's Richard Ivey School of Business.

"The big fear for a lot of people is they don't want to burden their relatives, she says. "But the individual part of it is you don't want to demonstrate that you can't handle things on your own."

Going to a bank for financial help is more entrenched in our culture, she adds - a point echoed by Lee Anne Davies, head of Retirement Strategies at RBC Royal Bank. She points to a recent RBC survey that found 50 per cent of baby boomers visit a financial adviser.

While it's good to head to the bank before family, to avoid relationship strains, there are times when it makes sense to hit up relatives for cash, says Al Antle, executive director of the Credit Counselling Service of Newfoundland and Labrador.

"It's a capital-M minefield. However, when any individual is making a consumer decision … all possibilities need to be considered," he says. "[That's]including, 'How can I negotiate this particular piece of credit in terms of a win-win for both Granny and me, and at the same time retain my place in my family?'"

If you're trying to get a car loan from the bank at 8-per-cent interest and you know your grandmother is paying 4 per cent on the $50,000 in her account, it couldn't hurt to borrow from her and offer 2 per cent more, Mr. Antle says.

Credit counselling helped Scott dig himself out of his self-made hole by consolidating all of his debts into one manageable loan. Since the fall of 2007, he has wiped his debt clean and, two weeks ago, he received a new credit card to help rebuild his battered credit rating.

And while they're glad he gained control of his financial life, Scott's parents wondered why he didn't ask them for cash.

"I said, 'I just didn't feel comfortable coming to you and asking you for help … I had to get myself out of it this time,'" he says. "And they said, 'It's about time. Hopefully you've really learned your lesson.'"

How to lend to friends

Can you lend me $500? It's a cringe-inducing request and one experts say should be dodged if possible. But if you really want to help a brother out, there are ways to pitch in without putting your relationship at risk, says John Silver, executive director of Community Financial Counselling Services in Winnipeg.

Be formal about it. This could mean drawing up a contract that includes the date of the transaction, the amount of money lent and the interest rate. "It can be really simple, but it simply prevents argument further down the road," he says.

Create a payment schedule and stick to it. That way each party knows how much is due and when. It also breaks the debt into manageable chunks.

Be up front. If the borrower misses a payment, the lender shouldn't pretend he or she didn't notice. Same goes for the borrower. "You have to keep letting this person know what your financial situation is," says Mr. Silver. "If you can't make the payments or repay when you promise, it's similar to any other creditor - denying it and avoiding it is not going to make it go away."

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