#Monthly Lesson

#Monthly Lesson: Finances at a national level

As the first month of 2016 is almost over, it’s time to check how the new year resolutions (or goals) are taking shape. One important aspect of many people’s goals tend to be financial. Potential sub-topics under finance may include saving, investing, budgeting, borrowing and spending. Among which, I’d like to touch on the cost and implication(s) of borrowing, not at an individual/personal or household level but a national level (and provincial level).

Why national level?

Most of us tend to think of borrowing mainly at a personal level and household level, some professionals may also handle borrowing at an organizational level such as for the department or the entire company but rarely at a national level (except for some economists and public policy-makers/implementers). However, as an ordinary and average citizen,  often it is important to look at finance and borrowing (costs) at a national level to understand the implications such as what percentage of our tax payment to the government is going towards debt-repayment including the interest payments instead of the necessary services.

Why am I talking about the cost of borrowing on this online space, which is about “Live a life you love,” inspirations and positivity?

Because it’s good to be pragmatic. Not everything in life is always a rosy picture with eternal sunshine and clear blue sky. Only when we acknowledge the reality and the challenges that affect our lives and livelihood, we can seek meaningful and effective solutions, which would allow us to truly live a life we love.

As most North Americans Household Debt to Income Ratio is somewhere around 150-165%, it’s important to talk about the borrowing aspect of finance. There are two reasons why national debt or borrowing at a national level would be explored. First, most of us pay taxes to the government. As a general rule of thumb, the more you earn, the more you pay. So it’s good to know and understand 1) where our tax money is going towards — in this case debt repayment of the principal amount borrowed and the interest amount, 2) if the way the tax money is spent on the debt repayment makes sense 3) whether there are other better ways to make better use of the tax money.

Another reason why it’s important to look into the national level borrowing is that often the attitude and behaviors of the government (whether national, provincial or municipal) towards the borrowing can influence not only the financial (borrowing) attitude and behaviors of the citizens and residents who live there. In a very simplified sense, the thinking can go something along the line of “The govt has debt. My neighbor has debt. I have debt. Everyone has debt. So it’s okay. The govt is borrowing more. I can borrow more. And it’s okay. Why? Because that’s the norm.”

As I live in what my childhood Science teacher would say “Great Canada,” the focus would be on Canada. Many of the information including the timeline discussed here are from the original post published in Business in Vancouver (BIV) by three Fraser Institute analysts; Charles Lammam, Ben Eisen and Milagros Palacios. Click here for the original post.

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