Guest Commentary

James Rajotte

Credit And Debt

Many Canadians see personal debt as a fact of life and a monthly payment. I think of it as a liability. My father Ron was a math teacher who drilled this into us: Pay off your debts as soon as possible. I got my first credit card at 18 and bought a $500 stereo, then Dad explained compound interest to me. “Have fun paying it off,” he said. It was a $500 lesson.

My grandparents settled in Wainwright, Alberta in 1915. They saw the peak of the wheat boom, then the crash, then the Depression. It was a life filled with chores. You learn the value of money if you don’t have much.

These lessons shaped our whole family’s attitude towards debt. My Poppa wouldn’t turn the heater on in the car because he thought it cost. My brother needed transportation so he saved up for a Toyota Echo and paid cash. My parents are still thrifty. They bought a $23,000 house in Edmonton in 1967 and paid it off in 12 years. We drove a Chevrolet Suburban for years. It rusted so badly there were holes in the floor, so Dad put down a carpet.

Debt can be a necessity in today’s society, especially student loans and mortgages. Yet Canadians should keep a timetable on paying their bills. Nobody is expected to wear a hair shirt, but we should think in terms of needs, not wants.

I have never made a purchase on the Home Shopping Channel. I have never borrowed to pay for a holiday or made an impulse purchase at the mall. When I go shopping I make a list and stick to it. In Edmonton I drive a six-year old Ford that gets me from A to B. I own two personal credit cards and pay them off every month. I enjoy zero balances.

With younger Canadians accustomed to low, low interest rates it became very hard to teach them the lessons of my parents and grandparents.  We developed this attitude that more personal debt can be incurred since it is so cheap to manage over time. Yet nobody should take on more debt than they can manage. It is not in the interest of Canada or the financial institutions to have people in a position where they can’t pay their bills.

These lessons need to be taught over and over. If you’re in the workforce and it’s been 20 years since graduating high school math, you may have forgotten what compound interest actually means. Our financial institutions are responsible, but there are cases where due diligence is lacking. Personal debt should not be a permanent reality.

In 2003 I bought a home in Edmonton and the mortgage officer told me, “You can afford twice what you’re putting down.” I replied, “But I don’t need it.”

(Editor’s note: the author is former of the Commons finance committee and five-term Conservative MP for Edmonton-Leduc, and current Senior Representative for the Government of Alberta in Washington. Mr. Rajotte’s commentary was originally published May 18, 2014)

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