Canada has one of the best standards of living in the world and managed to survive the last global financial meltdown relatively well compared to other developed countries, such as the USA and the UK, due in part to the country’s lower household debt levels. After escaping the great recession on what appeared to be sound economic fundamentals, it would seem logical that the nation and the majority of Canadians would be positioned for a bright financial future. However, there is currently a lot of talk about Canadians having high household debt and spending considerably more than they earn. In the past, people with lower incomes got into debt, often out of sheer necessity, but these days it is a problem for all income groups. Why do high-income earners have debt worries and what are the possible solutions?

New graduates who are fortunate enough to land a high-paying job often spend a large percentage of their income, and sometimes more, rather than accumulating savings. A great job with a sizeable paycheque allows for a fantastic lifestyle, which may include a big house, exotic car and the latest technology, as well as the most exquisite restaurants and travel destinations. It all becomes that much more accessible when credit is easy to come by at low-interest rates, and the expectation is that those paycheques will keep rolling in.

Although there is absolutely nothing wrong with wanting to enjoy the finer things in life (however one defines that), spending habits can lead to a trap, especially if debt and other financial obligations get out of control. Although mortgage debt is perhaps more sensible than debt for pure consumption items – restaurant meals, clothing, and entertainment – this too is an area where high-income earners often overextend themselves. A large percentage of domestic debt is related to mortgage payments, and even among high-income earners it is not uncommon for both partners to work full-time in well-paid jobs just to meet monthly bills and mortgage payments. It can lead to serious problems if one of them loses their job or is unable to work.

While we are all accountable for our own financial decisions, it still begs the question of what role has the government played in the mounting consumer debt situation? Since 2008, the Bank of Canada has attempted to stimulate economic growth by keeping interest rates low. The series of interest rate cuts since then has encouraged our consumption-driven society to do just what the government intended, and that is to go out and spend. And so by doing your part to help rescue the economy from slow growth, you could be weakening your personal balance sheet.

It is not difficult to find examples of individuals who command high salaries yet find themselves in financial difficulty. One only needs to look at the world of sports to find gifted athletes who make millions only to lose it all within a few years after retirement. A Financial Post article entitled “Why some high-income earners still go broke” quotes that 78% of NFL players go bankrupt or have serious financial problems within two years of retiring. Another example is lottery winners: 70% of people who receive a sudden sum of money will lose it within a few years. So how are high-income earners, who work more traditional jobs, different from athletes and lottery winners? Not that much. All expect that the money will be more than enough regardless of spending behaviour.

Often, financial guidance is only sought when the situation is obviously out of control. If high earners are unable to balance their lifestyle needs and earnings, what hope is there for the rest of us? Financial experts indicate that just because someone is good at a job and earns a great amount, it doesn’t necessarily mean that he or she is good at managing money and investing it. Those who have always had to be careful with money and pay off their debts each month are more able to control spending, putting them in a better position to save meaningful amounts. In many cases they are better at wealth management than those who earn far more. The secret to success is to have the will to reduce your lifestyle spending habits today in order to save money for tomorrow. Given the difficulty many of us have in this area, consulting a financial advisor makes a great deal of sense, as it can certainly help you to plan and save enough to have a healthy financial future.