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moneysense.ca, 8/11/05
A Portrait of a Joe Canadian in Bankruptcy
I’ve always assumed that bankruptcy is something that happens to people with very low income. Turns out my assumptions are totally incorrect.
A story in the National Post paints the portrait of a typical bankrupt: He is 40 years old, earns a decent income of about $50,000 a year, has experienced a major life event like a divorce or a lay-off and is upto his eyeballs in debt.
So, how deep in debt is our bankrupt Joe Canadian? Try $46,000 (not counting a mortgage) owed to assorted banks, credit card companies and the government.
It is worth staying out of financial difficulties. It is all just plain old common sense:
- Spending less than we earn.
- Keeping an emergency fund because stuff happens.
- Buying adequate insurance coverage, just in case we are unable to work.
- Paying down and then staying out of debt (especially the consumer variety).
moneysense.ca, 8/11/05
I agree. I would predict that although Joe Canadian makes a decent income, Joe also still lives paycheck to paycheck due to high monthly obligations like a nice house, car, etc. When Joe experienced that major live event, he went off a slippery slope, which snowballed into bankruptcy.
At least in the US, most Payday-loan lending places (not sure if they are as common in Canada) are frequented more often by people with average to above average incomes, not the poverty stricken. Very sad.
You are absolutely right. In fact, the news story points out that many Canadians are a paycheck or two away from financial disaster. Payday lenders are common here as well. There was a news story a few months back that most of their clients are comfortably middle class. Like you say, it is all very sad.
I’ve always wondered what the best investment vehicle is for an emergency fund, besides cash (which will bleed with inflation)?
David: You want to access an emergency fund at very short notice. So, the best bet, despite its disadvantages is a money market fund or a high-interest savings account.
Personally, I don’t have a big emergency fund because I think I am better off paying off the mortgage and using my secured line of credit as a backup. I made an earlier post on this topic.
Interesting… I have a high-interest savings account at ING direct and that is always what I’ve thought of using. The ease of creating automatic withdrawal schedules from my chequing account is a big advantage.
On the other hand, I haven’t built up any emergency fund, because like you, I’ve decided that any spare cash after RRSPs should be used to pay down our student line of credit, and in an emergency, we’ll draw money from the line of credit.