Chances are you’ve heard somebody tell you that the government’s finances should be managed like we run our homes. Heck, I’ve probably said it once or twice myself! Let’s accept the fiscal conservative adage that governments should run like people’s homes. If that’s something you like to say, then it better reflect what’s going on in people’s homes. The problem, however, is that, like government, our personal finances are not where they could or should be. If anybody is paying any attention to what’s going on around them, they should read the near crisis levels of increased household debt. Thus, talking to people about running a government like their homes, when their homes are run like the government, isn’t going to sway many people toward the need to change the way the government spends money.
One should note the generational difference on the significance of debt. Our parents and grandparents are far more debt averse than their children. Think about it. Our children are conditioned to understand that taking a loan to go college or university is a sufficient, if not necessary, way of paying for it. Once they’re there, the credit card companies are lining up people for free t-shirts and electronics to sign a student up for a card when they don’t have income to pay for it. More and more people finance or lease their vehicles because debts are cheap. Home ownership has been made possible for the savingless masses due to lower ratio mortgages and low interest rates too. We’re even told that we can borrow to save for retirement! Debt is just what we do, and we buy nicer cars than we need and bigger homes than our parents, and this is supposed to be the symbol of (indebted) progress.
This is the picture of a young-ish suburban family in Ontario today. For many of these families, things are going all right, if they still have a middle-class job. Even though debt levels are high, they are manageable and they are slowly being paid. Food is on the table. A roof is over their heads. The car still has gas. The kids are still in hockey. However, for some families, consumer debt is creeping up. Credit is used to pay credit. And, if there’s nothing that says people are entertained by other people’s misfortunes, some of these middle-class suburban families end up on television shows to get the counsel they need to bring them out of their debt woes.
Even for those families that aren’t quite in that terrible predicament of being unable to manage their own finances, the statistics are showing that many families don’t have the three to six months of savings they need to be able to prevent financial catastrophe if they lose their job. In other words, many Ontario families are a pink slip away from being on a TV show to fix their debt.
This is the real fiscal crisis in Ontario. As bad as Ontario’s finances are, nobody will really understand that until we have an adult conversation about the nature of household debt and how too many of us are carrying more debt than we need. Coming to this realization is how we begin to change the nature of the conversation we’re having with Ontarians. That conversation has to reflect what people are talking about at the water cooler at work or around the dinner table with their families.
Most people will also acknowledge that there is good debt and bad debt. Buying something with debt that will appreciate in value, i.e. home ownership, home renovations etc., is generally seen as a good investment. Buying something with debt that will depreciate in value, which is what much of consumer debt is used for, is generally considered bad debt. So, if we’re thinking of policy solutions to this problem, let’s make sure we aren’t further indebting families. For example, making home ownership more expensive, say by increasing the land transfer tax (which is an active policy option), should be seen as an inferior pledge because it means families will go more into debt. On the other hand, exploring the regulation of ultra high interest rates on bad consumer debt, where it seems anybody with bad credit can still qualify for loans they can’t repay, seems more prudent. Teaching kids about financial literacy at a younger age serves to reinforce the idea that managing money in an age when money is ultra accessible should be another policy priority.
What you can then do, once you start having an adult conversation about personal finances, is to more easily draw better links to how government must behave. Everything should be divided according to people’s needs, wants, and nice-to-haves. Governments must ensure that people’s basic needs are not only met, but we do an optimal job of providing for those needs. What about those nice-to-have luxuries? Well, you shouldn’t pursue any of them until you have the money to pay for them. The wants can be dealt with in a measured way when it provides value to citizens and when they can be efficiently delivered.
Think about what this would look like in a household faced with reducing its spending. Do we really need 500 TV channels we don’t watch? Or super-ultra high speed internet? Or multiple phone lines? Or that trip to Disney when spending an afternoon on a nature trail can be ultra fun for kids? Families facing financial concerns are forced to ask these questions, and I would argue that it’s high time government asked these questions about what it spends every year too. We just need to make the conversation a whole lot more relevant for people.