Challenges of Managing Money in a Booming Economy

Posted in Debt Free In 30
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

money management

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Personal Debt is a Problem Even in a Booming Economy - Lessons From Alberta

On today's show Barton Goth, a bankruptcy trustee from Goth & Company in Edmonton, Alberta, talked about how the money from the oil industry has impacted the economy in Alberta. He also talked about how this creates challenges when it comes to managing money for both job seekers and those retiring in a booming economy. And we learn that the money management lessons from Alberta apply to most Canadians.

Alberta's Economic Boom

The oil industry has made Alberta the fastest growing economy in Canada. With growth significantly outpacing other provinces, Alberta has plenty of jobs to fill, where many other provinces may not. This entices many Canadians from other provinces move to Alberta to find work. In fact, Alberta leads in terms of inter-Canadian relocation.

When then economy improves, when people are employed and incomes increase, the insolvency rate tends to decline and Alberta is no exception. In fact, recent government statistics show the number of personal bankruptcy filings are down almost 20% in the last year.  No surprises there.

What is surprising is that the number of consumer proposal filings has increased. The main reason for this is the benefit of a proposal when you have good income but are carrying too much debt.

As Bart says on the show:

“A consumer proposal is an excellent opportunity to avoid bankruptcy.  It allows you, through a court sanctioned mechanism, to negotiate a settlement with your creditors, or basically to make a deal.  You avoid a bankruptcy, but also bring your finances back down to a level that makes sense and is manageable.”

This shift from personal bankruptcy to consumer proposals is a profound shift.  In the past most people filed bankruptcy. Now however, in both Alberta and Ontario, the number of consumer proposals filed is in fact over-taking the number of bankruptcy filings.

What Is It Like to Live in Fort McMurray?

Workers in the oil sands are faced with expensive living conditions.  It's not uncommon for four or five guys to live in a small apartment so they can share costs. Plus many are maintaining a home for their family in Edmonton and commuting which adds to their cost of living.

While workers in the oil industry make very good money, they also spend a lot, and that can lead to financial problems.  The oil industry is cyclical, so often periods of high income are followed by periods of unemployment, which further strains personal finances.

Practical Advice from Barton Goth

Bart advises everyone to realize that there will be periods of time when your income drops, so you must prepare for those periods of reduced income.  Bart recommends a two fold approach to dealing with cyclical income:

  1. Prepare by setting money aside when your earnings are high. That way when your income drops it won't be such a shock to your finances.
  2. Look at how you buy things. Don't be so quick to finance everything. If possible, save up a larger down payment, or what you can with cash, so that you don't have financing costs when your income drops.

Retirement in Alberta

In the second segment we discussed the implications of retiring in Alberta.  The booming economy has increased the price of housing, which makes it difficult for retired people on a fixed income.

Bart advises people approaching retirement age to work to reduce debt before they retire, so that they don't have debt payments to worry about when they go on a fixed income.  In some cases this may require the filing of a consumer proposal before you retire to eliminate your debts.  If your income is fixed, or will be reduced, a bankruptcy is also a good option for seniors.

Bonus Podcast Only Segment - Differences Between Alberta and Ontario

Barton Goth gave a summary of the RESP and bankruptcy rules in Ontario and Alberta. Bart also discussed the principal residence exemption. This only applies in Alberta, and it allows a resident of Alberta to keep the first $40,000 of their house equity in a bankruptcy.  In Ontario, there is no house equity exemption, so in Ontario a consumer proposal is often an option for a home owner.

Resources Mentioned in the Show

Click here for a full transcript to Show # 12 - Practical Debt Advice from Booming Alberta with Barton Goth

About J. Douglas Hoyes

Doug is our co-founder and is a Licensed Insolvency Trustee, Consumer Proposal Administrator, certified Insolvency Counsellor and Chartered Professional Accountant.

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