Reduce, Reduce, Reduce -- the three R's and the hemorrhaging bank account

"People first, then money, then things."

This is the catchphrase of a contemporary, famous and female personal finance expert from Chicago.

And it is a catchphrase that reminds us of the importance of priorities.

A catchphrase that needs to be invoked by more and more Canadians -- particularly in the time of uncertain inflationary markets and slowly creeping, but still inticingly low interest rates.

The fact is, Canada is a nation in debt. Put aside governmental spending and we begin to see how detrimental this non-frugal spending spree really is -- and it is to the point where the average Canadian family owes more than it earns.

How do we know this? From statistics gathered on personal debt, interest owed on credit cards and interest paid on mortgage credit.

In 1984:

*Canadians owed roughly $187 billion in personal debt
*We paid $6 billion in consumer credit (typically credit cards and lines of credit)
*We paid $14 billion on mortgage credit
*Total interest on consumer credit and mortgage credit totalled $20.6 billion

In 2004:
*We owe more than $801 billion
*We paid $22 billion on consumer credit
*We paid $34 billion in interest on mortgage credit
*Total interest consumer credit and mortgage credit was set at $56.6 billion

Source: Statistics Canada

What's worse is that we cannot pay for our high-cost living! Personal bankruptcies are near record highs. The result of this spend now pay later philosophy is that by 2003, for the first time ever, the average Canadian household owed more than its annual take-home pay.

The fact is, we have seemed to have lost the discipline of buy only what you can afford. The discipline of planning for a rainy day has disappeared and the desire for gear, gadgets and big ticket items has replaced responsible spending.


In a Maclean's article last year, senior economist at CIBC World Markets Toronto, Benjamin Tal explains that "As a society we have become addicted to low interest rates. That means as consumers we're much more vulnerable to an economic shock, like a sudden rise in interest rates, a recession or a job loss. Many of us are now living paycheque to paycheque."

Now back to Orman's powerful catchphrase: People first, then money, then things.

It appears the paraphernalia is clouding our perspective.

In an interview with the New York Times, Orman explains that anyone can save money but because of their psychological hang ups they don't. Orman uses the stereotype of women as "birdbrains" when it comes to saving. She explains that women are very good at saving their money, but because of their psychological hang-ups, they give away their money to friends and family to the extent of harming themselves financially. Orman elaborates on this idea in another interview with NBC where she explains why she focuses on the psychological aspects of financial management (in her recent book). "I had to get into the minds and souls and hearts of women to say, 'Ladies, do you understand it? We're voluntarily committing financial suicide.'"

To be truthful our entire society is committing voluntary financial suicide; we are hemorraging at the bank, through the line of credit and bleeding from the credit cards and it is time to stop.

In order to lead a responsible life, one must, at some point, come to terms with the undeniable fact that gear and goods will not make us happy. While a new car, new washing machine or a new pair of shoes may elicit a temporary high, the only way to gain personal, inner and lasting satisfaction is through a disciplined and purposeful lifestyle -- a lifestyle that includes an acceptance that material goods are only one, surface aspect of life.

As such, and going into the Spring sales, we need to commit, as a nation, to examine our spending habits. In the reduce, reuse and recycle mantra the most mantra of the new religion (environmentalism) is reduce -- and that requires self awareness and commitment.