We didn’t learn from the massive 2008 financial meltdown in the US that triggered millions of job losses, business closings, and over five million foreclosures, from which they’re still not fully recovered. That doesn’t make me hopeful that we’ll learn much from what’s still happening just a six hour drive East in Calgary, but you should know:
Oil prices started to fall in late 2014 and the job losses became very big and very real in the spring of 2015 and are now at a 22-year high. One of my former clients is down to a third of their staff while their debt has reached $2.5 billion – today they’re a walking bankruptcy within months. In the “good old days” one-fifth of Calgary families earned over $363,000. Today, restaurants are empty and it’s easy to find parking spots downtown. Bankruptcies are up 28% and suicides up 30%. With every month that passes, the psychological depression gets worse as there seems to be no end in sight.
It’s now been long enough for an entire city that’s dependant on the oil business to likely change their views on money, debt, and financial security. It isn’t – or should never be – about a line of credit for an emergency, or the attitude they can always remortgage their home – or sell if it absolutely need be. You can’t keep running up a line of credit with no income, and you certainly can’t remortgage. The last great hope of selling the home may take a year or more, and at a much lower price, and that $100,000 price drop is all their equity wiped out.
An expensive lesson is also that everything can go wrong at the same time: A job loss, plummeting home prices, a stalled market that won’t grow investments, no more stock options, and the dollar back down to the mid 70s. It’s a shock to anyone, but more so people in their 50s or older who were counting on every one of these factors in funding their retirement. For younger people, the student loans have started, while the promise to an average entry level wage of $50,000 are dead, and they’re now scrambling for any job paying anything at all, in order to pay the rent and to eat.
Calgarians (and all of us Canadians) were fine with perpetual debt because we thought we had a perpetual income stream. The hard reality is that income isn’t guaranteed, or permanent – but the debts are! And now they need to be paid with little or no income in a new reality. It isn’t hard to skip a few dinners out for a month. It’s hard to skip a car payment – and it’s almost impossible to recover a month of arrears on their mortgage payment. The more you owe – the higher the odds are that you’ll lose everything.
EI has run out, the small savings are long gone, soon the RRSPs will have been cashed out, and everything that took decades to build will be wiped out within a year or two, tops.
I’m here to tell you that Calgarians won’t see those bonuses and wages again in their lifetime. Of course the oil business will recover. But it’ll be a very different reality when it does. Just look at all the economic turmoil that happened in the U.S. if you don’t believe me. Calgarians of all ages, and they’re not alone, are starting to realize that their peak earnings are already behind them. The question is: What financial changes would you make today if you knew this is your last large paycheque?
Banks do stress tests on themselves: What shape would we be in, or what would we do, if the worst happens? Think about that in your own financial life. One day it may start raining and not stop for a long time. How big and sturdy is your umbrella for a rainy year or two or three?