I've interviewed past guests about children, millennials, parents and seniors and today, I want to bring those demographics together to focus on the family as a whole. I'm joined by Nora Spinks, CEO of The Vanier Institute of the Family, a research and education organization based in Ottawa, Canada. For the past 50 years the Vanier Institute has assessed changes and experiences within the family that have an impact, including a financial impact, on present and future generations.
Family Debt Is Complicated
Every year for the past 15 years, the Vanier Institute produces a report called The Current State of Family Finances in Canada that assesses three main financial categories:
- Income and expenditures;
- Savings and debt; and
- Wealth and net worth.
When it comes to family debt, Nora explains that about 80% of Canadians carry some sort of debt; the highest debt being mortgages, followed by car loans and student debt. Lifestyle debt, money used to fund vacations, health, entertainment etc. it there but it's way down the list of the reasons people carry debt.
The pattern has been, and continues to be, that people incur debt during their most productive years when they're starting out in life; going to school, buying a house and a car, and raising a family. However, Nora explains that this cycle of debt accumulation is expanding into retirement.
the things that cause families to go into debt are getting married, having children, getting divorced and living a long life, which is ironically what most of us really strive for. And so, it's not just a simple don’t get married, be an orphan, don’t have parents, don’t have children...
Other changing family dynamics are also leading to increased debt usage in Canada. Having to support our parents or adult children financially, the reality of divorce and remarriage makes family debt complicated and puts stress on a household to keep up with the financial demands.
And the stress of all this debt is impacting families. Nora reveals that a recent study by BMO Financial showed that 13% of Canadians are so embarrassed by their debts that they avoid looking at their statements.
The Interconnectedness Of Family Finances
Changes to family finances are driven by these family dynamics. Instead of saving for your own retirement in your 40's and 50's you may be helping your parents or adult children financially. As student loan debt increases and it becomes more difficult for millennials to get into the housing market, they look to their parents for financial help; creating an even bigger strain on their parents' finances. Increased life expectancy means people are outliving their savings. Where once the life expectancy for males was 63 years old and around 70 for females, people are now living into their late 80's and 90's with limited financial options, ultimately having to look to the next generation for assistance. And the cycle continues.
Nora explains that although we collect data about Canadian household debt levels, that data is lacking because
most of the data that we have on family finances looks at either the individual or the census household. And your household finances may tell one story, but in fact, there may be expenses in another household that don’t necessarily get captured in all the data.
Families may be sending money home to another country or sending money to a student living in another city. These expenses are not captured in the data of the cost of operating a household in Canada but they are a reality for many.
There Are Four Kinds Of Debt
The Vanier Institute takes into consideration four kinds of debt:
- Good Debt - Purchasing items that appreciate in value such as a home.
- Bad Debt - Purchasing an item that depreciates in value, but offers a practical use. For example, buying a car to be able to get to work every day.
- Ugly Debt - High interest consumer debt such as credit cards that is used for life expenses such as buying groceries or paying utility bills, but without the means to pay it off.
- Devastating Debt - Relying on fee based, high interest debt like payday loans.
Nora recommends that more people take control over their finances. Be aware of where your money is coming from and where it is going. Learn about financial tools like tax incentives and RESP's, learn how compound interest works and how it can help you save for the long-term.
one of the things that I've seen a lot of families who are quite successful is that they take the time to sit down and evaluate and assess their goals, they sit down and talk about them together, they take the long view.
Read the full transcript below for more information about:
- Advice for parents to teach children about debt and finances.
- How families can take the long-view to be prepared for future expenses.
- The digitization and perpetual updating of The Current State of Family Finances in Canada starting in 2016.
Resources Mentioned in the Show:
FULL TRANSCRIPT show #59 with Nora Spinks
Doug Hoyes: On previous episodes of Debt Free in 30, we've explored how debt impacts different age groups. We've talked about children, millennials and seniors. Today we tie it all together, seniors, parents, millennials, children, they all make up the family and that's today's topic of discussion. How does debt impact the family? To explore this topic I've got a great guest today. Her name is Nora Spinks and she's the CEO of the Vanier Institute of the Family. What's the Vanier Institute? That was my first question for Ms. Spinks, here's her answer.
Nora Spinks: Well, the Vanier Institute is a research and education organization based in Ottawa. It's been around for 50 years. It was set up by the Governor General, George Vanier and his wife Pauline in the early to mid 60's when families were in their estimation undergoing significant change and experiencing a lot of pressure and wanted to establish an institute that would maintain and monitor and assess families and family life and family experiences, including family finances, forever. So, that's what we are and that's what we do.
Doug Hoyes: And so the institute has been going on for 50 years now. How does it keep going? Where does it get its funding? What keeps it going?
Nora Spinks: Well, one of the things that the Vanier did in their foresight was to set up an endowment fund that allows us to keep the lights on. And so, we only need to do fund development for special projects and initiatives but we don’t have to worry about our existence. So, we're able to focus on things of importance. We're able to feel confident that we're going to be around for the next 50 years. And so, 15 years ago we decided that we would take a serious look at family finances. And for the last 15 years we've actually been producing a report, analyzing this current state of family finances in Canada.
Doug Hoyes: And so, that report you're talking about is called The Current State of Canadian Family Finances, I believe. What are the state of Canadian family finances today?
Nora Spinks: At the institute when we look at family finances, we basically look at three major areas. The first one is income and expenditures. Where is the money coming from? How much is it? Where's the money going? And then we look at savings and debt. So, how much is left over or how much are we behind? And the third one is the ultimate wealth and net worth of families.
And so, when we look at income and expenditures it's clear that in order to maintain basics standard of living, the average household requires more than one income when you look at average incomes. When we look at savings and debt we see that household debt is increasing, but it's also much more complicated than ever before. And the kind of debt is as significant as the amount of debt which we hear about from other sources. And when we look at wealth and net worth we really look at it through a family lens. And what does it mean when you have multi-generations involved in family finances and what does that mean for each generation, older, middle and upcoming generations?
Doug Hoyes: So, let's focus in then on number two on your list which is savings and debt 'cause obviously this show is called Debt Free in 30 so that's a big interest of mine. You said that debt is more complicated, what do you mean by that?
Nora Spinks: Well, what we do now is that the vast majority of Canadians have some kind of debt. So, about 80% of Canadians have debt. The vast majority of that is related to mortgage. Including mortgages, the average Canadian owes about $93,000. When you look at that and you take homes out of that, the second largest investment that results in debt is a vehicle, a car, and third is sort of repairs and maintenance and operations of both the house and the car. And when all of that's taken care of then the next major investment is education. Way down the list are things like vacation, health, entertainment, electronics.
And so when we look at debt, we recognize that most people accumulate their debt in their most productive years when they're starting to have children, when they're getting into the housing market, when they're incurring costs associated with education and so that is sort of the norm.
What we are now seeing, that's relatively new in sort of historic economics in this country, is older people with debt, more people retiring with debt and more people accumulating debt while in retirement. And so that adds complication to the debt question because we're more likely to be taking care of the previous generation or older generation in supporting our parents and grandparents in maintaining a household or paying for certain expenses or just incurring our own costs associated with care giving. We're also trying to manage and maintain our own household expenses, while often caring for or supporting young adults in either, when they're away at school or starting out in their careers or looking for work or paying student debt. And that may add strain to a household income.
And then there's divorce, which of course adds even more complication. But there's also remarriages, step families and much more complication in those relationships because we tend to live a lot longer today and because if we divorce we're much more likely to re-partner and add on top of that that when we do partner, increasingly we're less likely to form marriages, which adds all kinds of complication when you end up separating, or when there's a death in the family.
Doug Hoyes: Wow and that's a long list of things that are more complicated now than they used to be. And I see what you're saying, if we turn the clock back 50 years ago when your institute first started, a lot of those things you mentioned were uncommon. Divorce was less common, remarriage was even less common and we didn’t have this concept of the sandwich generation I guess where I'm caring for both my elderly parents and the younger generation as well. So, the impact of that on the family is what? Is it creating a lot of additional stress? What do you see as the impact on the family of all this debt, then?
Nora Spinks: Well, it really depends on the family itself. It depends on how much people talk about finances. People are more likely to share with you their sex life than their financial situation. What we're finding is people are feeling if they're not financially secure or they have accumulated a great deal of debt, that there's a sense of regret or shame or embarrassment. And there was a recent study done by BMO Financial that showed that 13% are so upset, ashamed or embarrassed that they avoid looking at their statements and bills. They just can't emotionally get themselves to want to take on managing that responsibility.
So, if you think about 50 years ago when the institute was formed, life expectancy for men was 63, for women it was around 70. And so when you think about when today's 65 year olds were born, that was roughly end of life. Now life expectancy at 60 is another 25 to 30 years. So, if you make it to 60, you're going to make it to 90.
And so, it changes the dynamics in household finances increasingly seniors are just running out of money; they weren’t expecting to live another 30, 40 years after retirement and they have and they've lived a healthy long life. Or, they may have lived a life with increasing health complexities requiring more care, treatment, medication, special devices that aren’t covered by health insurance or covered by the publicly funded healthcare system. So, that tends to fall onto the next generation.
So, instead of saving for your own retirement in your 40's and 50's, you're spending any disposable income that you have on paying or providing financial assistance to the elders in your family. And at the same time you're subsidizing a living expense of your adult children or you are helping them pay off their student loans or helping them get into the housing market with helping them get to have the down payment necessary to get started or even co-signing the mortgage or taking out a second mortgage on your home in order to help them get into the housing market. So, the interconnection amongst family generations and family members is much more complicated than it's been in the past and goes on for a much longer period of time than in the past.
Doug Hoyes: And you're right, it's very complicated. So, is the biggest factor the fact that people are living longer or is it really all these factors put together?
Nora Spinks: I think if you look at any one of these factors on their own, they're compelling enough. But when you put them all together through the family lens, it becomes extremely complicated and for some it becomes overwhelming. And even when you look at the data, most of the data that we have on family finances looks at either the individual or the census household. And your household finances may tell one story but in fact there may be expenses in another household that don’t necessarily get captured in all the data. So, for example you may be sending money home to another country. You may be sending money to a student who's living in another city or another part of the world. And some of those expenditures don’t always get captured in the statistics that we have available to us.
Doug Hoyes: That's a very interesting point that I hadn’t thought of. You're right; we look at our own tax return to see what our income is. We look at the Stats Canada numbers to show what the average earnings are but you are defining a family as a bigger unit than just the people who live in this house then. Is that what you're saying?
Nora Spinks: Yeah, we conducted a national listening tour last year as part of our 50th anniversary celebration. And we went from coast to coast to coast talking to families about their experiences. And one of the things that we spent a lot of time talking to families about were some of the things that they didn’t even realize themselves were a part of subsidizing the lives of others. So, for example there may be one family plan or the phones and for the internet and for things like Skype, so, you may be paying for grandma's internet and Skype access so she can continue her relationship with her grandchildren or great grandchildren. But you never really think of that as subsidizing somebody else's lifestyle. And yet, in fact, if you didn’t do that, then they would not have that access to that technology and the likelihood is they wouldn’t either want to or be able to pay for those expenses themselves.
Doug Hoyes: That's very interesting. So, tell me more about how the Vanier Institute views debt.
Nora Spinks: When we look at debt at the institute we look at basically four different types of debt. One is relatively good debt, that's where people borrow money and go into debt for something that is going to appreciate in value. So, like a mortgage, one would hope and has shown certainly in history that that's a relatively good investment and it will increase over time. A bad debt is one where you generate debt but it's for an asset that would be depreciate in value but at the same time offers the family something else. So, but for that vehicle you might not have that job. And so, a bad debt would be taking out a car loan. And even though the car depreciates in value, you sort of offset that with an increase in income or employment flexibility.
The third type is the ugly debt. And the ugly debt is when you're using high interest credit cards for daily expenses, things like utilities or groceries with no ability to pay those balances on a monthly basis. And that ugly debt begins to accumulate to a point that it becomes unserviceable. And then we've recently added devastating debt as a fourth category. And that's when people begin to rely on payday loans or commercial lending facilities that aren’t banks that take a high percentage of your income, your pay or off your cheques and you pay interest on top of that. So, there's a fee plus the interest. And so, that can be really devastating debt for a lot of families. Although for some it's the only option they may have.
Doug Hoyes: Yeah and we're certainly seeing that as well. Are you saying then that the mortgage debt isn’t a significant problem so long as the underlying asset is going up? Or is it - again, is it a complicated thing where you've got to look at the whole picture?
Nora Spinks: Well, again, if you look at households and you look at the average house price in Canada now, yes the average house prices is around $433,000. But if you live in a place like Vancouver, you know you're not going to be able to find anything or anything less than about $800,000. So, you have to look at geography. You have to look at the salaries in that particular community.
Doug Hoyes: What's the conclusion that you draw from all of this? Is there practical advice that you can give people based on these numbers that you've found in your research?
Nora Spinks: Well, you know, I'm thinking that the things that cause families to go into debt are getting married, having children, getting divorced and living a long life, which is ironically what most of us really strive for. And so, it's not just a simple don’t get married, be an orphan, don’t have parents, don’t have children -
Doug Hoyes: Die young.
Nora Spinks: Yeah, don’t take care of anybody else and die at 65. It's really not what I would like to recommend to folks. But what I do think is that the more people take control over their finances the more aware they are of where their money is coming from and where it's going to, the more they take advantage of tax credits and benefits and tax tools that allow you to save money in the best way possible.
Understand and learn about things like Registered Education Plans or RESP's, understand about how compound interest and how investing a little bit maybe before you have children will have huge benefits to you in the long-term when you're in your 80's and 90's. And it's tough when you're in your 20's to think about what life is going to be like in your 90's, but I think it's important for us to start taking the long view.
And at the institute, we look at each family has a 200 year present so if you're born today, chances are you're going to be around roughly a 100 years from now. And you're great grand parent is probably in their 90's today when you're born.
And so, each family has this 200 year present and when you're looking at stock markets they go up and down every day, you look at them over the course of a week or a month or even a cycle, an economic cycle, it can sometimes be overwhelming. But if we look at it in a 200 year present and work towards building family net worth and family equity then it changes the likely outcomes to be much more positive than negative. And that requires conversation, that requires education, that requires honesty and that requires conscious decisions about expenditures and about investments and about goals in your life.
And I think that we are often so busy rushing just to get through the day, that the idea of sitting and thinking about what life is going to be like next week, let alone next decade, can be a little overwhelming. But one of the things that I've seen a lot of families who are quite successful is that they take the time to sit down and evaluate and assess their goals, they sit down and talk about them together, they take the long view. They set systems in place even if it's as something as simple as ever year on your birthday you take a look at where you are and where you want to be in the next year if the 10 year mark is - or this 90 year mark is too long for you to think about, just take a day or two to see exactly where your money's going.
If you're avoiding looking at your statements and bills, have somebody walk you through them and help you understand them and engage professionals who are there to assist you so that it's not this big dark, scary thing in your life. But it in fact can be, although challenging for many of us, it can also be very rewarding and very fulfilling if we take a conscious strategic approach to the way in which we manage money.
Doug Hoyes: That was Nora Spinks of The Vanier Institute of the Family. We'll be right back.
Doug Hoyes: It's time for the Let's Get Started segment here in Debt Free in 30. My guest today is Nora Spinks from The Vanier Institute of the Family and in the first segment she said that families should take the long view but it's also never too long to start. Here's more of our conversation.
Nora Spinks: Yeah and I think it's never too young to start. I remember when my daughter was about 14 or so and she got her first debit card. Now it was a very tight leash on that credit card but every single month we sat down and went through every single expenditure. And she's got into the habit now, now that she's well into her 20's, every month she sits down and she goes through where did she spend her money? How much money did she save? How much is in her long-term savings? How much is in her short-terms savings, how much is in your give away fund? How much is in her daily fund? And, you know, we started way back even before she got her own card, to really look at every time you get a quarter, every time you find a loonie, what do you want to do with that? And think about it very consciously.
And whenever you think you want to buy something, go outside the store, take a deep breath and if it's worth going back in and you've made a conscious decision to buy it, then maybe that's okay, but learning little strategies that work for yourself when to avoid impulse purchases or to avoid buying things that you're going to regret. And right now when we know that about 36% of people regret past financial decisions or purchases, that's a lot of people who just needed a few minutes to pause and say, hmm, maybe I need to wait and make that purchase tomorrow.
Doug Hoyes: That's excellent advice. As families we need to take the long view but we also need to look after today. As Ms. Spinks said if you start with your immediate ancestors and think ahead to your grandchildren, you're part of a 200 year time span. My grandfather was born in 1900. My second son was born almost exactly 100 years later and my grandchildren, who aren’t born yet, will probably be alive in the year 2100, that's 200 years from my grandfather to my grandchildren.
Looking at life over that long a time span helps us focus more on long-term planning and it helps us not worry too much about our minor day-to-day crisis. That's why I like the approach to family finances that Nora Spinks is suggesting. Start with the long view and then once a year, perhaps on your birthday or over the holidays; take a look at your long-term goals. If you have a young child, a long-term goal may be post secondary education.
So, thinking today about how you'll help pay for it is prudent financial planning. Perhaps that long-term thinking causes you to start an RESP. Thinking ahead to your own retirement and how that will impact the rest of the family is also an important aspect of long-term financial planning. But of course you must also plan for today.
And I think Ms. Spink's example of helping her teenage daughter open a bank account was an excellent example of an action that you can take today that has a long-term impact. I noticed that she didn’t just take her daughter to the bank and help her open a bank account and then leave her to her own devices, she followed up by helping her make and maintain a monthly budget, which is an excellent skill to have for the future.
For more information on the work of The Vanier Institute of the Family you can visit their website at vanierinstitute.ca. Also the report they publish on the current state of Canadian Family Finances, which I found very useful, will be going digital starting in 2016. Here's how that will work.
Nora Spinks: What we're doing as of this year, so the 2015/2016 version of Current State is actually going to go digital and it's going to go perpetual. So, in other words instead of releasing it once a year, we're going to update it every month where there is a new number. So, when the national accounts come out, we'll update the national accounts. When the debt numbers come out, we'll update the debt numbers. And so it will become a perpetual update - a perpetual current state that will be continuously updated and people can go to at any time and know that it is absolutely as up to date as the numbers allow it to be.
Doug Hoyes: And that's something that will kick in, in the next six months kind of thing?
Nora Spinks: Yeah. Our goal is to put up the next one in early 2016. And so that will cover off all the numbers in 2015 and then from then on it will be perpetual.
Doug Hoyes: I think having a perpetual report like that is going to be a great resource for anyone who wants to know what's happening with the family and in particularly with family finances. So, I'll be keeping an eye on it and it's a good idea for everyone to do that same. That's my conversation with Nora Spinks of The Vanier Institute of the Family. I'll be back to wrap it up right here on Debt Free in 30.
Doug Hoyes: Welcome back. It's time for the 30 second recap of what we discussed today. On today's show, Nora Spinks from The Vanier Institute of the Family described how debt today, viewed through the family perspective can be very complicated. That's the 30 second reap of what we discussed today.
My experience helping people with debt agrees completely with what Ms. Spinks and The Vanier Institute are seeing. Life today is more complicated with adults supporting adult children and their senior parents and with the impacts of divorce and remarriage. As Ms. Spinks said on the show, the impact of this complicated modern family structure is different for each family. Those families that talk about money and debt are much more able to anticipate challenges and find solutions. I agree and I think that's a great takeaway message from today's show. Talk about these issues with your extended family so that everyone is on the same page.
That's our show for today. Full show notes are available at hoyes.com, that's h-o-y-e-s-dot-com. Thanks for listening. Until next week, I'm Doug Hoyes, that was Debt Free in 30.