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opinion

Michelle Pommells is the chief executive officer of Credit Counselling Canada, the national association and accrediting body of non-profit credit counselling agencies in Canada.

The COVID-19 pandemic has taken the discussion around Canada’s consumer debt problem into overdrive. While Canadian household debt isn’t new, the stakes are higher than ever. The pandemic has peeled back the layers and revealed the critical juncture at which we find ourselves.

Consumer debt is at an all-time high – a reality that won’t change anytime soon. Overall household credit-market debt has risen by 578 per cent over the past 30 years in Canada. Drops in the household debt-to-income ratio and consumer insolvencies during the pandemic mask the true picture. Despite a staggering 40-per-cent decline in consumer insolvencies in the third quarter of 2020 compared with the previous year, there’s every reason to believe filings will spike in the months to come. This is a trend we’re already starting to see, with a rise of 8 per cent in this quarter compared with the last.

The pandemic has intensified our country’s financial challenges. Canadians lost jobs, saw their hours cut and have had to restrict their bottom lines. Women and those working in the service sector have been disproportionately affected. Meanwhile, the federal debt accumulated during this period will fall on the shoulders of our children in the years to come. Canada’s public debt burden per child is growing, totalling US$279,000 in 2019, up from $161,000 10 years ago.

Additionally, the labour market is precarious. Although nearly 80 per cent of jobs that were lost in March and April have been recovered, Canadians are extremely vulnerable. The Globe and Mail’s Matt Lundy reported that the COVID-19 labour market can be summarized: “The more you earn, the less likely your employment was affected.” This is especially worrying for those already in debt.

Canada needs to take a multipronged approach to helping consumers reduce their personal debt. It must deal with both the pandemic economy and the need for provincial and federal governments to play a more direct role in providing access to credit and financial counselling services. As Albert Einstein famously said, “we cannot solve our problems with the same level of thinking that created them.”

Although the federal government swiftly addressed the immediate emergency with the Canada Emergency Response Benefit and the Canada Emergency Wage Subsidy, there is no long-term strategy to build Canadians' financial well-being beyond the crisis. For a workable approach, Canada should look to models in Britain, Australia and New Zealand – which together have invested upward of $115-million in credit and financial counselling services to supplement their COVID-19 relief packages.

These countries have put the interest of society’s indebted consumers first, and developed a progressive framework of sustainable options, including the crucial service of non-profit credit counselling. Running credit and financial counselling alongside government support packages could be a major game-changer for millions of financially vulnerable and at-risk Canadians.

The United States also has a fairly progressive policy. In 2005, the government passed the Bankruptcy Abuse Prevention and Consumer Protection Act, which requires anyone filing for bankruptcy to have a credit counselling session at least 180 days beforehand. Personal bankruptcies declined 27 per cent in 2005-2015 compared with the decade before. Why does Canada not have a similar policy?

Such prevention can be supported by greater public awareness about unbiased and affordable debt relief options such as non-profit credit counselling. A recent study conducted for Credit Counselling Canada found nearly four in 10 Canadians would have no idea where to turn if they were facing “debt rock-bottom.”

Governments, local community foundations and charitable foundations can band together to support the financial literacy goals of non-profit credit counselling. Funding can also be used to help shift the economics of debt repayment through incentives for banks and credit unions to innovate, and community centres and organizations can provide space and resources for consumer debt education.

There is no panacea for Canada’s consumer debt problem. A collaborative approach that includes the non-profit credit counselling sector is essential. A co-operative strategy would enable a more holistic and practical dialogue, sparking more creative solutions to debt repayment and financial literacy.

As we make our way through the second wave of the pandemic, we must strive for progressive change. Our dialogue must include urgent measures and a plan for a postpandemic future. After all, in every crisis, there are opportunities.

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