Canadians have heard the message over and over again, from the Bank of Canada, the Parliamentary Budget Office and even the credit industry itself: Personal debt levels are alarmingly high, especially in light of interest rates that are only poised to increase.
Why aren't those warnings convincing Canadians to borrow less? The answer may lie in a combination of blissful financial ignorance, economic incentives to keep borrowing and complex subconscious attitudes towards debt.
'We're comfortable carrying debt'
Credit counselling experts say many Canadians simply don't understand how precarious their finances truly are, especially as ballooning home prices and a stable economy make people feel wealthy.
"As long as people are out going to work every day, earning an income, it's easy to perceive that they're managing their finances," said Laurie Campbell, CEO of non-profit Credit Canada Debt Solutions.
Until the fallout from high debt levels leads to a collective economic crisis such as a recession, said Campbell, individual Canadians will continue to ignore the risks.
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"We've kind of morphed into what U.S. citizens used to be," said Scott Hannah, CEO of the Credit Counselling Society.
"They used to be really comfortable with having a car payment and having other debts, where in Canada, we used to be savers and somewhat debt-averse. And we're not anymore. We're comfortable carrying debt."
It's not just that Canadians are comfortable with debt, according to licensed insolvency trustee Doug Hoyes. In recent years, he said, the ability to borrow at low interest rates to buy homes that see outsized annual price gains has actually rewarded the most indebted homeowners among us.
"The banks will lend me the money, and interest rates are low so I can service it, and even if my monthly payments are kind of high, and even if I have to then get into other debt to furnish the house and pay for other expenses, it doesn't matter because house prices go up 20 per cent every year," said Hoyes.
'People don't think about it as debt'
Economic incentives are relatively easy to understand, but the psychological forces that allow us to feel comfortable living with debt are more complex.
"One of the difficulties about debt is that its everyday meaning doesn't quite correspond to its technical, economic or accounting meaning," said Stephen Lea, an emeritus professor of psychology at the University of Exeter in the U.K. who has decades of experience studying the psychology of debt.
For example, an objective observer would define a mortgage, a credit card balance or a car loan as debts — money is borrowed up front and paid back with interest over time.
But Lea's research shows that individual debtors actually modify the definition of debt subconsciously.
"If it involves a willing lender and a willing borrower, and the terms of the agreement are being maintained, people don't think about it as debt," he said.
As people acquire debt, Lea has found, they also change their attitudes towards indebtedness.
"People who don't have any debts tend to be strongly opposed to debt… but if you put them into a situation where they are forced to acquire it, their attitudes change in the direction of toleration," Lea said.
That's an example of what psychologists call dissonance reduction.
"If you find your behaviour is inconsistent with your attitudes, it's often easier to change your attitudes than to change your behaviour," Lea explained.
When information isn't enough
Psychological research like Lea's seems to fly in the face of neoclassical economic theory, which holds that people make rational economic decisions based on the information available to them.
"People are not totally rational, they don't have perfect self-control, they don't have perfect knowledge, they're not able to do the kinds of calculations that economists think they can make," said Saul Schwartz, who has studied personal debt as a professor of public policy at Carleton University.
Government messaging that tries to warn Canadians about their high debt levels can't overcome our biased view of our own finances, Schwartz said.
"There's no evidence that providing information, which is the government's standard prescription, has any impact on people's behaviour."
Instead of encouraging borrowers to change their ways, Schwartz argues that government should focus on policy actions that would rein in the lenders who are enabling all of our borrowing.
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But here the government faces a quandary. Cracking down on lenders and making it harder for Canadians to borrow money risks having the unintended effect of deflating the real estate market and causing the very economic crisis the government is worried about.
If heavy borrowing does play a role in the next economic recession, Canadians might be less interested in reflecting on why we borrowed so much money in the first place and more interested in figuring out who to blame.
"If the inevitable happens and real estate prices stop going up, and as a result our debt levels become a problem, then we can certainly blame the government for inflating the bubble. We can certainly blame the banks for going along for the ride," said Hoyes.
"I guess you've got to blame the borrower, too — but it's very hard to resist [borrowing] when everyone else is doing it, everyone else is getting rich. It takes a very disciplined person."