The number of people in Newfoundland and Labrador who can’t pay their bills is growing — faster than in any other province.
And the director of a credit counselling non-profit in St. John’s says he expects things to get worse.
“Credit is the crack cocaine of the majority of Canadians,” said Al Antle on Tuesday. “We love the stuff. We owe $1.74 for every dollar we earn, and that’s incredibly serious business.”
Data released by the federal government this month shows the number of people in this province who filed for insolvency — the inability to pay one’s debts — jumped 22.4 per cent in the second quarter of 2019 over the same period last year, from 742 in 2018 to 908 this year. That comes on the heels of a 19.2 per cent year-over-year jump in the first quarter as well.
“It’s distressing for us as the provincial credit counselling movement,” said Antle, who nevertheless said he wasn’t surprised.
‘House has become an ATM’
“We have been acutely aware of the subtle increase in consumer bankruptcy over the last five to seven years; however, in the last year, year and a half, it’s, for want of a better word, gone crazy.”
People in Newfoundland and Labrador are largely uneducated on what credit actually is and how to use it, said Antle.
A survey released Tuesday by MNP Ltd., an insolvency trustee firm, suggests some people find themselves struggling after tapping into a home equity line of credit to pay off other debts, such as credit cards, and then running up that debt again on top of the line of credit.
“Paying off the mortgage used to be an important financial goal for households. But today the house has become an ATM and the cash withdrawn is being used to pay other bills or to fuel more spending,” said Greg Gosse, an MNP insolvency trustee, in Tuesday’s release.
Home equity lines of credit can be a very effective tool to help people deal with over-indebtedness to multiple accounts, said Antle, but the key to success with a consolidation loan is to stop consuming the freed-up credit.
“Well, consumers are not doing that. They’re just not doing it,” he said. “They’re taking $30-$35,000 in consumer debt and they’re making that part of their mortgage. And then they’re going out and re-consuming $35,000. Well, now what do you do when you can’t consolidate that into your mortgage?”
While Credit Counselling Services focuses on individuals, Antle said, the growing number of insolvencies — which often lead to bankruptcies — will hurt the provincial economy as a whole.
“When you make an assignment in bankruptcy, you become unable to fully participate in the economy because you can’t borrow,” he said. “So if you need to buy a new car, good luck with that. If you need to send your child on a school trip, good luck with that. So the quality of life is adversely affected.”
And if someone declares bankruptcy, that also affects creditors who won’t get paid, he said.
Newfoundland and Labrador’s growth in insolvency is outpacing any other province. Ontario is next with a 13.5 per cent increase in the second quarter of 2019, followed by New Brunswick at 11.7 per cent.
Antle blames the rise on an economic slowdown. Megaprojects are winding down, as is the steady stream of N.L. workers to lucrative work in Alberta and elsewhere. Spending habits need to be in line with incomes, no matter what level of income, he said.
“How do you say to somebody, ‘You are making $195-$225,000 a year, but you should live as though you’re earning minimum wage’? That’s crazy. That’s insane. But somehow we have to find the healthy balance,” he said.
‘This is going to get worse’
“The trick to living is if you make minimum wage, then don’t spend 10 cents more per hour, and if you make $200,000 a year, then don’t spend $201,000. That’s the message. That’s how people have to start living if we are to get to the other side of this dependence on credit.”
But he’s not optimistic about that happening.
“Watch for the next quarter. It’ll be worse again,” he said. “We need to stop doing what we’re doing. Until we do that, this is going to get worse and worse and worse. And we had better become acutely aware that this costs tons in actual dollars in the provincial and the national and the municipal economy. Tons.”