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rob carrick

The Globe and Mail is hosting a debate on the economy among the leaders of the three main political parties on Thursday at 8 pm (ET). Click here for more details.

The most telling insights about the economy today come from household debt trends, not GDP or federal budget surplus numbers.

Debt levels have been steadily rising for years, partly because the cost of financing the purchase of a house, car and other things is a bargain of historic proportions. But there's another factor in the rise of debt. Today's economy isn't generating the level of prosperity some people expect, and they're borrowing to fill the gap.

The state of the economy has become a major issue in the federal election and it will be the focus of the leaders' debate presented Thursday night by The Globe and Mail in partnership with Google Canada and CPAC (Cable Public Affairs Channel). There are multiple interpretations of how we're doing as we head into the latter part of 2015.

The news earlier this week that the federal government ran a small budget surplus in last fiscal year suggests the economy's doing okay. The most recent report on gross domestic product – economic growth, in other words – showed the economy was technically in a recession in the first half of the year.

These measures have their uses, but they don't say much about the state of personal finance in today's economy. Debt levels do a better job of this, particularly when we zero in on what's happening with people who are approaching or are in retirement.

The overall ratio between debt and disposal income hit a high of 164.6 per cent in the second quarter of this year, which tells us that we're adding to our debts faster than our incomes are rising. It's been widely reported that seniors are increasing the amount they owe more than other age groups, but not much attention has been paid to the reasons.

For some perspective, let's check in with Donna Cairns, a bankruptcy trustee with Cooper & Co. Ltd. in Toronto. She sees three trends driving debt levels higher among seniors:

  • Helping adult kids buy houses: Seniors are dipping into their lines of credit to help their children come up with house down payments.
  • Multigenerational funding: Seniors are helping adult children, as well as grandchildren and even their own parents.
  • Cars: More seniors are financing their new vehicles as opposed to paying cash.

Seniors are like the rest of us in becoming more comfortable with debt as a result of low interest rates. For that reason alone, there's more borrowing than ever in this demographic. But Ms. Cairns sees a growing trend of parents stepping in to cover for an economy that can't deliver the same level of prosperity to their adult children as they experienced.

There's nothing new in parents helping their adult children out financially. But there's now a sense of urgency to this, with parents sometimes contributing beyond their financial means. "It's just now coming to the breaking point for some people," Ms. Cairns said.

Two lazy narratives explain this trend – one is that today's kids are more entitled and demanding than ever, and the other is that parents are too soft to say no and look after their own needs first. Somehow, the economy gets a free pass. Virtually no one is asking why young people can't get jobs that help them pay their own way, without their parents helping them.

Drawing upon both her work and personal experience, Ms. Cairns described a job market for young adults where full-time positions are hard to find and contract work or temporary work is common. "These kids cannot get on their feet," she said. And so parents step in at an age when they should be putting their own financial needs first and helping their kids only with surplus money. This helps explain why the 50-plus crowd is increasingly dominant among the people Ms. Cairns helps in making consumer proposals, which are an offer to partly repay creditors over time.

Forty-three per cent of the proposals made by her firm today are for people in their early 50s and older, compared to 27 per cent in 2012. Most notable is the emergence of people in the 70-to-79 bracket who are making proposals – they're 3 per cent of clients now, compared with virtually zero a few years ago.

Health problems can cause financial stress in your retirement years, especially with longer lifespans. So can investing setbacks and the cost of maintaining a house or car. It's a dismal comment on the economy if we have to add financial support for adult kids to the list of financial risks for seniors.