Generation Debt: We’re living beyond our means and we don’t seem to care

As published in Unlimited magazine 2008-02-28

I’ve always been a little scared of debt. Growing up the youngest of six air force brats under the frequently loud marching orders of a five-foot-four chief warrant officer, some things just ricochet forever: finish what’s on your plate, shine your leather shoes, and if you can’t pay your credit card balance by month’s end, you’re spending too much.

Not everyone grew up with a flat-top dad and they probably count themselves lucky. But are they? Gen Y is doubled over in debt. “Don’t sweat it, get it” has drowned out “A penny saved is a penny earned” as our tolerance for living in the red climbs ever skyward. Student loans, car loans, maxed-out credit cards: some of us slouch on couches we haven’t even paid for yet. By the time our don’t-pay-a-cent dreamtime evaporates, we’ll be forking over the kind of interest Knuckles McBride used to extract in the back alley.

There’s a fundamental disconnect here: we’re living beyond our means and we don’t seem to care. Critics our parents’ age wag index fingers and say we suffer from narcissism, financial illiteracy and an appalling lack of restraint, which is funny because they’re talking about their own kids. Doesn’t that reflect badly on their mentorship, or lack thereof? “But the scolders of the young argue on,” authors Neil Howe and William Strauss opined recently in the Los Angeles Times. “Many are themselves boomers, a generation that pushed up most indicators of self-seeking behavior during their own youth: violence, risk, rage and rebellion.” They cite American studies showing that young people drink less booze, smoke fewer cigarettes and commit fewer crimes than their parents did in their youth. That would imply more restraint on our part.

Except when it comes to money, apparently. But debt is not necessarily a sign of myopia. Quite the opposite. Sometimes planning for the future is what got us into hock in the first place. According to a 2006 Statistics Canada report, average undergraduate tuition fees in Alberta for 2006-07 nearly quadrupled over the past 15 years to $4,828 from $1,286. A StatsCan report on the graduating class of 2000 said nearly half of university students left school with debt, the average owing $20,000 and 14 per cent owing more than $25,000. And that was eight years ago.

Anya Kamenetz, a Brooklyn-based writer whose sultry publicity photos might land her in Hollywood, blames the debt crisis among young people on low-paying and contract jobs, the prevalence of predatory credit, and the rising cost of a post-secondary education. “In the 1960s,” she writes in 2006′s Generation Debt, “the phrase ‘midlife crisis’ captured the malaise of the educated middle-class man confronting his mortality and an unfulfilling job or family life. Today, ‘quarterlife crisis’ has entered the lexicon for a generation whose unbelievably expensive educations didn’t guarantee them success, a sense of purpose or even a livable income.”

So it’s not your fault. It’s society.

Actually, it’s both, with a little bad luck thrown in sometimes to tighten the screw. Even in affluent Alberta, you can lose your job, get jilted or, perish the thought, get debilitatingly sick. From a bevy of debt counsellors, bankruptcy trustees and financial advisors come a few stories you may not believe and some advice you may not want to hear. But sometimes it pays to listen.

Mary Oussova grew up in a place where people saved money under the pillow. Yekaterinburg, Russia. “We didn’t use the banks. We didn’t trust them,” she says, her undulating accent masking a dry wit.

She’s on the phone from London, Ontario, explaining how Russian banks were dodgy in the 1990s. The collapse of a centralized economy, political corruption, inflation and a wildly fluctuating ruble made pillows much safer and fortified an already frugal citizenry. “I came from a family where debt was not seen and not needed,” she says. “If we can’t afford it, we don’t buy it.”

At age 17, she met Canadian Jeff McGregor, 23, in Cyprus. They fell in love, spent two years phoning and emailing until finally returning in 2001 to the Mediterranean island where they’d met to marry. But storybook love and financial compatibility aren’t necessarily bedfellows. Jeff liked collecting treasures on credit and, since he handled the bills, Mary didn’t notice their diminishing solvency.

Like most young couples, the McGregors had manageable car and consumer debt in the beginning, about $4,000. They bought a condo in 2003, tapped into a line of credit for the down payment and then tapped in deeper for renovations. She had a baby, he took parental leave and when it expired, he extended the leave for less pay instead. Maybe that wasn’t wise but he hated his job – gruelling seven-day stretches of shift work at the Ontario Department of Transportation, where he suffered work-related stress. By March 2004, both their baby boy and their $15,000 debt were growing fast. A year later, after a pricey trip to Russia and years of minimum payments to creditors, their debt had nearly doubled to $28,000.

Home life swung wildly between anxiety and denial. Mary, a leukemia survivor, had several miscarriages, including a twin who died in the womb while the other lived. Jeff found shreds of morbid relief in tragedy: one less mouth to feed. Mary suffered grief, resentment toward Jeff. While on leave, he stayed home to care for their son and she got an $11 an hour inventory job. Then her boss found out she was pregnant and fired her.

She’s talking but all I can picture are two people scrambling up a down escalator, sweaty and exasperated. They sold the condo and knocked their debt down to about $10,000, but Jeff, who’d gone back to work, took another leave of absence and borrowed money to go to school.

Bad timing, perhaps, but at least, he thought, it might give him the means to leave a job he despised. Again, more money going out than coming in. Their debts mounting anew, Mary grabbed the reins of the runaway cart and called a number in Calgary: Bonnie Krisher, debt slayer.

All in black from her thick shiny mane to the winter coat draped on square shoulders to the gleam of black patent leather on her feet, Bonnie Krisher devours the width of a west-end Calgary restaurant with nine long strides and extends a French manicured hand in my direction. Aside from a small horizontal scar just below her hairline – a childhood jumping-on-bed incident – she appears formidable, invulnerable, two definite assets in her line of work.

Krisher, who runs K & G Debt and Credit Professionals, is a self-employed debt arbitrator, running one of only a handful of such companies in Canada. She approaches banks, stores and other lenders, and negotiates settlements on behalf of clients teetering towards bankruptcy.

Sometimes, knowing it’s her offer or nothing, creditors will settle for half or even less of what’s owed; she singles out MBNA Canada and ATB Financial as compassionate and professional to deal with. Others, like CapitalOne, she says, spend years clawing back whatever they can.

Paralyzing debt is more than embarrassing. It’s shameful and demoralizing. People are more apt to talk about their sex life than their financial situation, Brett Williams writes in her 2004 eye-opener Debt for Sale: A Social History of the Credit Trap. No one knows this vulnerability better than collection agents who get hired by creditors to find you, break you down and squeeze money out through your pores. Some are relentless and abusive, Krisher says. They lie. She describes a phone call from a hyperventilating blind woman who said a collector threatened to come to her apartment and seize all her possessions – including the cat – and then accused her of faking blindness. (Collection agents can’t take your things.)

She recalls a jobless cancer patient getting harassed daily by collection agents, even at Christmas. “You’d almost have to lose your humanity to do that to someone, knowing they are severely ill,” says Krisher, a 33-year-old wife and mother of three.

Only about 10 per cent of calls to K & G turn into clients. She spends hours on the phone calming people down and untangling the financial twine that binds them. Her fees are fluid, depending on each individual situation. She takes a contingency fee from what the client saves and only if she can actually settle the debts, like a lawyer getting paid only if she wins a case.

Roughly one third of her clients are in their 20s and 30s and they’ve either recently lost a job, suffered catastrophic injury or disease or all of the above. Often, a big portion of their debt is student loan (anywhere from $10,000 to $40,000), with vehicle and credit card debt on top. “One of the biggest issues in our age group is invincibility,” she says. “All it takes is one thing – you lose your job, you have a disabled child. What was manageable before is suddenly unmanageable.” If you live cheque to cheque, there’s no money left for an umbrella and a rainy day can quickly turn to a flood of compound interest. (Incidentally, the 28 per cent annual interest often charged by department stores is still well below the “criminal rate” as defined by Canada’s Criminal Code: 60 per cent.) “Our culture revolves around feeling good and having fun with no fear and no consequences,” Krisher says. “There were constraints before where people lived within boundaries. Those constraints are gone. Our generation has no boundaries anymore.”

Mary McGregor has been thinking a lot about boundaries. Just because the bank offers you credit doesn’t mean you should use it, she says. “Don’t try to talk yourself into believing you’ll have more money tomorrow than you have today.” Wise words from a 26-year-old. Krisher managed to dispense with all but one of the McGregors’ debts within six months: $8,200 owed to CapitalOne remained. Mary pays the bills now. She likes crunching numbers, pinching pennies and dreaming of a carefree future in the land of advantage: Alberta. They’re not the only ones grasping for the western teat. Credit counsellors here say a lot of clients moved to the province from somewhere else hoping for financial salvation and found snarled traffic, cold shoulders, expensive apartments and $10-an-hour Tim Hortons’ jobs instead.

Small debt grows bigger.

Although the total number of bankruptcies in Alberta has been decreasing since 1998 (6.94 per 1,000 Albertans declared bankruptcy in 1998 compared to 3.94 in 2005), thousands of people here still struggle to stay afloat. According to federal statistics, from November 2006 to November 2007, 4,474 individuals and 424 businesses in Alberta went belly up including 160 construction companies with nearly $20 million in liabilities. Not everyone is making a killing here, Krisher says. People are holding down two or three jobs in Calgary to pay exorbitant rents or mortgages. They’re burned out, haunted by the mail and far from home in places like London, Ontario.

How do we dig such deep holes of denial? Is it, as Krisher says, our lack of boundaries: those lines your parents drew or should have drawn around your behaviour and the ones you must now draw for yourself?

Maybe, but just try to maintain boundaries when everyone’s flashing cash like a pusher. In the time it took to research this story, I got four credit card offers in the mail, all advertising generous credit limits, low introductory interest rates and reward programs.

“Banks Say No? Car Loans To Go!” announces a ubiquitous Edmonton billboard featuring a twentysomething fox in a tank top brandishing car keys. The corresponding website says “credit specialists” await your call. Who are these people? The banks will lend anything to just about anybody, so if the banks say no, maybe you should forget about that car for now.

Banks used to have boundaries but the fences have collapsed and the livestock are bleeding in the thornbushes and drowning in dugouts. The bank that holds our mortgage recently informed me that a $10,000 line of credit I never requested has been approved. When I pay bills through my bank’s automated telephone system, I get my account balance and something called my “available balance,” which tops me up with an extra five grand. This is my complimentary overdraft, like a piece of cheesecake when I’m trying to diet. What’s the point of setting boundaries if they’re constantly undermined?

“Part of it is the competition between lenders,” says Robert Price, a bankruptcy trustee with Calgary’s Hudson and Company. “Historically the banker was viewed as someone who qualified you for credit. He was viewed as an expert. Today banks and lenders are in so much competition with each other they have sales targets to meet.” The neighbourhood banker who used to examine your finances and honestly determine whether you could afford to borrow money – maybe even advise against it if the answer was borderline – is pure nostalgia.

Ultimately, Price says, lenders are less concerned with you retiring the debt because they’d rather you service it for years: making minimum payments where about 10 per cent kicks down the principal and 90 per cent goes into their pocket.

I called the Canadian Bankers Association to ask about the banker’s new role as sales jockey. Despite its encouraging motto – “Building a Better Understanding” – no one returned my call. Patricia Lovett-Reid, a senior vice-president at TD Waterhouse in Toronto, did acknowledge that credit is lucrative for banks and that competition for clients leads to prevalent marketing. But if you pay your credit card balance every month, she says, the bank makes no profit. Unfortunately, lots of people don’t, especially young women. According to a 2007 TD Waterhouse female investor poll, just over one third of women aged 25 to 35 pay off their credit cards each month. It also found women in that age group were less concerned than older women about financial independence and nearly 40 per cent of that demographic said it’s OK to spend money on things they don’t need.

Tammy Hough is familiar with that attitude. She works for Credit Counselling Services of Alberta, a not-for-profit agency under a national umbrella called Credit Counselling Canada.

Between the Edmonton and Calgary offices, CCSA gets about 20,000 calls per year. A typical scenario for a young couple unfolds like this: two incomes, no kids, a high tolerance for debt and a lot of freewheeling consumption. Then comes marriage, mortgage, student loan payments, children and one income. But neither parent bothers to adjust their wardrobe-computer-bigscreen-TV budget.

Suddenly the house of cards falls down. But young people are media savvy and resourceful, Hough says. They can easily inform themselves online, shop comparatively and make wise choices about cellphone plans and department store credit. The problem might be information itself. There’s too much of it, she says, and it’s confusing and contradictory. Under those circumstances, people often make rash decisions based more on slick marketing than reason.

So you fell prey to duplicitous marketing, you made only minimum payments on that $7,000 stereo, you took a three-month winter leave to sunbathe in Bali, you leased a nice pickup truck when you returned and then you lost your job. The lenders and leasers and collection agents start calling. You lay awake at night considering the B-word: bankruptcy. But where do you start? “You’re embarrassed so you don’t go to a friend and say, ‘Hey, who did your bankruptcy?’” says Price. Bankruptcy trustees, like him, are easy to find online and in the yellow pages. And if a trustee asks you to pay fees up front, hang up.

Filing for bankruptcy is actually not as bad as you might think, especially in Alberta, where the laws are generous about what you get to keep: $40,000 worth of equity in your house, for instance, as well as a vehicle worth up to $5,000, $10,000 worth of tools of the trade and your RRSPs among other things. With a bankruptcy, you sign over your assets to a trustee, minus what you’re allowed to retain, and he or she divides them among your creditors. Then you’re free. “It’s not meant to leave you in a barrel,” says Price. “It’s enough to let you get a new start. There’s a rehabilitative component to bankruptcy and proposals.” (A proposal is a re-negotiated contract between a trustee and a creditor that allows you to continue paying at a varied rate.) During the nine-month bankruptcy period, your creditors are not allowed to contact you. This alone might be worth the price of admission.

Here’s the bad news: when you’re discharged after nine months, credit bureaus report your bankruptcy for six years so you’ll be operating strictly on a cash basis for a while. And some debts survive a bankruptcy, including your student loan if it was obtained within the previous 10 years, although that’s about to change. A recent amendment to the Bankruptcy and Insolvency Act will soon reduce that to seven years. Alimony, child maintenance and court fines are also immune to bankruptcy protection. Some things just can’t be willed away, even on hands and knees.

Tammy Hough wants you to remember something: people who lend you money are not doing you any favours. They’re earning money off your need to get educated and own a bed or your lust for pretty things. Bonnie Krisher wants to ask you a question: what’s wrong with saving up for that new couch the old-fashioned way? If shopping is what you do for fulfillment, what does that say about you? “We are smacking into the awareness that not only can’t we afford all the stuff we were raised with,” Kamenetz writes, “we may never be the stars we were told we were, or achieve what our parents had.” But that’s OK. Austerity is the new black. It’s hip to divest. Debt is not a natural state of being. Freedom is. And if all else fails, go to college, learn a trade and join the Alberta gravy train. There’s always well-paid work for someone swinging a hammer.