"It's Not Fair" And Other Important Rules Of Economics
"Trapped" in the spiral of easy debt...
Tanya Talaga
Social Justice Reporter
Several years ago, Mary and Don Oxley were living the good life. They earned $100,000 a year between them and bought a modest house in Brampton.
Don became disabled from a severe sciatic nerve condition in 2004. The Oxleys, who have a 16-year-old son, experienced a rapid drop in income, relying on Mary's $38,000-a-year pay as an office sales support worker and Don's $1,000 monthly disability cheque.
They quickly racked up credit-card debt, taking out cash advances to make their monthly mortgage payments. At one point the debt on their cards reached $30,000. A couple of times they refinanced their mortgage, which ballooned to $180,000.
"It hasn't been the best of times," says Don, 48, sitting in their family room, his canes resting beside him.
"You just barely live," adds Mary, 44.
For a lot of working Canadians, "just barely" living is getting harder to do without spiralling into debt. Some get trapped in unforeseen circumstances, while others borrow beyond their means – because they can.
Like everyone else, low-paid, cash-strapped earners are constantly being tempted by consumer goods and lured by the promise of easy money. Access to financing or credit has never been easier.
From rent-to-own plasma TVs, PCs and used cars, pre-approved credit cards that come in the mail, and lines of credit available to low-income earners at the drop of a hat, not to mention the payday lenders at almost every strip mall, it is easy for the working poor to access cash to buy the latest consumer craze or pay the monthly mortgage.
Bad credit rating? Divorced? Single? New immigrant to Canada? Visa student? No problem. You can go on the Internet and find a variety of companies willing to lend cash instantly, no questions asked.
But being poor is costly. Prices for products and services soar when you rely on lenders that charge high interest rates, which can run from 30 per cent on department store credit cards and rent-to-own company leases to 60 per cent plus fees with payday lenders.
The Vanier Institute for the Family released a study last year that examined the assets and debts of Canada's 15 million households. They found that, based on Statistics Canada figures, the poorest 20 per cent, approximately 2.6 million households, had a net worth of $34 billion but their debts totalled $40 billion.
"This is the only group where the debt is bigger than the (net) value of the assets," says Roger Sauvé, a consultant who prepared the report.
Meanwhile, the richest 20 per cent had debts worth $186 billion but held net assets worth $3.5 trillion. The StatsCan figures also showed the poorest 20 per cent were more likely to have vehicle and student loans and credit card debt than any other group.
Though some provinces, including Ontario, are moving to rein in payday-lending firms with fee caps to protect low-income borrowers, the subprime lending and leasing business is booming. Rent-to-own companies, which are not subject to the same regulations that control payday lenders, are also exploding across North America. One Canadian company, easyhome Ltd., operates more than 200 stores in 10 provinces and is expanding into the United States. It rents out everything from sofa sets to big-screen TVs to home-theatre systems, laptops, digital cameras and pay-as-you-go cellphones.
"All you need is a place to live, a few friends and a source of income," says an ad by easyhome where a sofa and loveseat might rent for $19 a week.
Marion Callow, 59, leased a sofa and loveseat from easyhome. She says she signed up to lease the furniture for more than two years. Less than a year and about $700 into her payments, she noticed a flyer from another store selling a similar couch for $999 and got easyhome to take the furniture back.
Callow said she went to easyhome because it requires no credit. She could also get the furniture the next day. "They've got nice furniture but boy, do they charge," says Callow, who is on disability and lives in subsidized housing in North York. "It's not fair. I'm on a fixed income."
President and CEO David Ingram believes the company provides a valuable service to all sorts of people in various stages of their lives – post-secondary students, those in need of short-term rentals and real-estate agents staging houses. Many customers are blue-collar workers, he adds.
Easyhome's annual interest rate is 29 per cent. If you lease a sofa for $16 a week, the 29-per-cent interest payment is rolled into the price, he explains in an interview.
Ingram says easyhome is different from payday lenders because customers can end the lease at any time, and unlike some payday lenders the company does not charge the equivalent of (once fees are factored in) three-digit interest rates. Easyhome does not contribute to the growing problems of debt since there is no upfront cost, people do not need to borrow money to buy the items and instead are able to rent the products for long as they want, he says. "We give consumers complete control and help them avoid further debt, rather than add to it," Ingram says.
TIM TRIANTAFILLOU, director of resource development at Family Services of Peel, says his concern is that our consumer-oriented society thinks nothing of aggressively promoting debt.
"(Society) sells debt and complicated contracts," he says. "People get sucked into low-interest credit cards and easy access."
His agency served a total of 10,722 people in 2006-2007 – nearly 2,000 of whom received credit counselling.
He recalls one immigrant couple who were enticed into leasing a Lexus SUV and became swamped with payments. "There is always someone there to take advantage of the vulnerable, marginal and new." A growing problem, Triantafillou notes, is clients with intellectual disabilities who rely on Ontario Works or Ontario Disability Support Program payments and receive free credit cards in the mail.
"Somehow their names get on the mailing lists, they'd call the activation number and they'd have a credit card. Or, they'll get a cellphone because they think it's about integration and status. But what are they really getting? Debt."
ABOUT 3.4 MILLION Canadians live in poverty – in Ontario, 1.3 million people, of whom 345,000 are children – based on StatsCan's after-tax low-income cut-off (in 2004, $16,853 for a single person in Toronto and $31,865 for a family of four).
Household income has traditionally been used as an unofficial measure of poverty, but more countries are moving toward also defining poverty by what items or services poor people need and are unlikely to have.
Some anti-poverty activists are hoping the McGuinty government applies a so-called "deprivation index" when it comes up with its first official definition of poverty in Ontario later this year.
But as low-income households wind up with expensive products they borrow heavily to buy, it raises the question:
Can someone be defined as poor if they can't afford to buy fresh fruit and vegetables every second day or go to a movie twice a year, but are making payments on a plasma TV, a stereo or a car? The Oxleys believe they aren't poor, but they do live in a constant state of dread. If Mary were to lose her job, they'd be on welfare, she says. "My job is the lifeline."
The Oxleys can't afford either to rent or go to the movies. But Mary's line of credit is maxed out at $19,000 because of a used vehicle she bought. To make things easier for Don, at home all day, and to give the family a source of entertainment two years ago, she bought a large-screen plasma TV and made payments on it for two years.
"You have to have some entertainment for him," she says.
The $3,800 TV is now paid for. But they still have their monthly cable bill of $176, which includes the Internet, cell and home phone.
For many low-income earners, a widescreen TV is "essentially and fundamentally the only entertainment," says Peel Family Services' Triantafillou. "How sad is that? I don't doubt for a minute, if they had the means they'd find other entertainment."
Also, just because someone has a house, that doesn't mean they are wealthy. "You may have your own home, but how do you maintain it when someone is on disability?"
SOME POLICY-MAKERS believe the best way to help low-income families escape the debt trap is to make them financially literate. Community workers, they say, need to teach the basics of budgeting, credit and money management. "Just because you may not have a lot of money doesn't mean you don't need to know how to manage it," says Casey Cosgrove, director of financial literacy initiatives at Social and Enterprise Development Innovations (SEDI), a non-profit group that works with low-income Canadians.
While middle- to high-income earners are guided on how to invest and save money by financial advisers or banks, low earners often don't have the same opportunity.
Other nations have made financial literacy a hallmark of their anti-poverty campaigns. In Ireland, centres across the country teach money management and budgeting. They also have a toll-free helpline. This month the U.S. government announced it is setting up a special committee – made up of representatives from the treasury, education, housing and urban development departments – to improve financial literacy rates of its citizens.
In Canada, the big banks have created tool kits on financial literacy – websites and brochures. But the poor do not always use a bank or have ready access to the Internet. "It is that bridge that is missing," Cosgrove says. "It starts with policy. There is no policy in Canada that says Canadians should be financially literate."
Also, the poor don't realize there are programs and money out there for them, he points out. Learn$ave, an asset-building program run by SEDI that matches every dollar saved with $3 for the first $1,500, helped get Nekesha Blake, 25, out of debt and back to school.
She was $25,000 in the hole with no way out. Most was owed to her credit cards. At the time she was a personal-care worker, looking after the needs of the elderly and housebound across the city.
It was while doing the winter bus slog to Richmond Hill, Woodbridge and Markham that she realized in order to improve her life she needed to go back to school. To do that, she had to save. "I used to think if you were saving money at 1.5 per cent and owed debt at 18 per cent, why save?" she says. "It didn't make sense to me."
In seven years, the 3,609 participants in the pilot program saved $3.8 million. The program, implemented in 10 locations across seven provinces, is slated to end in 2009, and the deadline to enter it has passed.
Blake worked hard and saved her pennies.
She went to George Brown College during the day, then to her job at a long-term-care home, working until 11 p.m. After that, she cleaned office towers. More than once she fell asleep in class.
But she did it.
"I saved $1,500. It was really, really hard." Blake graduated as a registered practical nurse in 2004.
"The word 'debt' should be changed to the word 'dead,' " she says. "It's a real killer – like a noose."
