Financial Ruin Is Not Empowering

Financial Ruin Is Not Empowering

If you think your finances are entirely ruled by careful consideration and freewill, riddle me this: Why does consumer research show the exact opposite? Why do marketing budgets show the exact opposite? Why are lenders making serious cash hand over fist?

The emotions behind spending are complex, and a shift in technology and communication means that consumers are more informed but also more accessible than ever. Advertisers were quick to identify and exploit this shift – but don’t take my word for it. Next time you see an advertisement for a financial product, ask yourself how it makes you feel. Does it bring out your wanderlust? Did you mentally place yourself in a new situation? Do you feel empowered?

Empowerment isn’t necessarily a new advertising technique. Edward Bernays, hired by the American Tobacco Company after WWI to encourage women to start smoking, sparked the commodification of the women’s equality movement with slogans like ‘torches of freedom.’ With the Internet and streaming video, ads are at our fingertips and they’re more powerful than ever. We don’t have to stretch our imagination based on a tagline or a cartoon image anymore – we are shown aspirational versions of ourselves in vivid sound and color. Check out these ’empowering’ viral ads targeting women.

Despite feeling empowered, are we actually empowered by ever-increasing levels of consumption and debt?

Build Your Future

In Vancouver the housing market has reached an entirely new level of madness. Mortgagors are being encouraged to ‘take advantage’ of skyrocketing real estate prices to borrow against their increase in equity through HELOCs (home equity lines of credit). Canadians owed $211 BILLION DOLLARS on three million home equity lines of credit in 2016, at an average balance of $70,000.

HELOCs are praised as a low interest, convenient, flexible way to borrow, if used responsibly. The assertion that a product like this will be used responsibly completely ignores the realities of consumer behavior. If used responsibly, a liquor cabinet fully stocked with 151 is a low cost, convenient, flexible way for everyone at a house party to enjoy an alcoholic beverage or two. Tell that to my raging hangover tomorrow.


The reality is that about 40% of those with HELOCs are making no regular principal payments! Their home has become an ATM and they have no obligation, or inclination, to make payments above the interest.  

Organizations are obsessed with tapping into the emotions of homeownership – the reason that you don’t see the word mortgagor on an advertisement very often is because the word homeowner invokes a sense of pride. You might only own the welcome mat on the front doorstep after borrowing your down payment and using a HELOC to buy yourself a new kitchen, but congratulations.. you’re a homeowner!

HELOCs are especially terrifying because they’re often on variable rates and they can be called in at any point. This year the Bank of Canada has raised interest rates twice already, with more increases to come. For mortgagors that were already stretched at the time of purchase, it’s about to get desperate.

Reward Your Hard Work

Credit cards have completely revolutionized the way we make purchases. We no longer need money to buy anything – we just need a score that represents how well we handle other money that we don’t have.

If you’re part of the 58% of Canadians who pay their credit card balance in full each month, that’s nice for you. However, studies shows that most people are probably overspending on credit cards. We all like to think that we’re different and in complete control of our decisions, myself included, but the research says that most of us are lying to ourselves. Sorry. If you still think you’re one of the very few that can pay off their credit card balance in full each month and never spend more on credit than with cash, I applaud your superhuman money management skills and I wish you all the best! This is for the rest of us.


Research has shown that it is psychologically less painful to use credit cards than cash. Credit cards are insidious in their separation of the pleasure of the purchase from the pain of the payment. During an experiment on spending, credit card buyers bid more than twice as much (!) as cash buyers at a silent auction, suggesting to researchers that the psychological cost of spending with cash instead of credit could be 50 cents to the dollar.

If you’re enticed by the cash back or free travel, you can bet that credit card companies are not losing money on these reward programs. It’s not just people who pay interest because of outstanding balances that are subsidizing the benefits – it’s also those who pay off their balances but end up spending more than they would otherwise.

Even if you pay the balance in full every month, and live within your means, you’re potentially leaving money on the table by spending more with credit than you would with cash. Consider whether the amount you spend is worth the amount you obtain through rewards. If you spent $5,000 on a 2% card and your cash back was $100, ask yourself whether any amount of that $5,000 was an impulse purchase. If you spent just 1% more than you would have with cash (a much more reasonable figure than the whopping 200% from the experiment above), you’ve now wiped out the benefit of using the card. If you overspent by more than 1%, you’ve actually lost money.

Canadians had a total of 43.4 million active credit cards last year, with increasing balances and delinquency rates. All signs point to the fact that Canadian consumers are overstretched and using credit card debt to tread water.

Ride In Style

We all have basic transportation needs, but what makes some of us choose walking or biking over public transportation? What makes a new vehicle more attractive than a used one?

Advertisements for vehicles tend to include major themes of safety, performance, and emotion. Marketers count on intense images of a sports car drifting around mountain corners to evoke a sense of excitement. We place ourselves in the driver’s seat, and even though we might never do something unsafe, we like that the potential is there.


The Financial Consumer Agency of Canada noted in a 2016 report that the average loan term for new vehicles had reached six years, with some as long as eight! Many aren’t paying off their balance before purchasing a new vehicle either, instead rolling negative equity into a new loan. The percentage of Canadians with negative equity was approaching 30% in 2015, and even those who do have equity are often encouraged by their lender to sell back their ‘in demand’ model and trade up to a new vehicle.

Financial regulators have raised concerns over Canada’s vehicle purchasing behavior, with even Ford Motor Co. worrying that consumers are overburdened with debt. If the vehicle manufacturers are wringing their hands over our financing habits, we have a problem! Consumers are clearly thinking about monthly cash flow and not about the long-term cost or risk of these loans.

Do you feel empowered yet?

Ironically, our drive to satisfy these imprinted emotions by purchasing is just setting us back even further. We’re on the hedonic treadmill and we’re buying into the idea that we can catch up by increasing the speed and incline. That inevitable misstep will send us stumbling, with friction burns from the belt as we’re launched off. It’s time for a cool down – back off the speed, lower the incline, and take a deep breath.    

4 thoughts on “Financial Ruin Is Not Empowering”

  • Wow 58% paying in full seems like a super high number compared to what I’ve seen in the US! I really don’t understand why there isn’t more education about why debt is bad. I guess it might seem obvious, but clearly it isn’t. :/ It’s unfortunate there are ads literally everywhere now selling, selling, selling to you the lifestyle that will finally make your life good. The idea of home ownership these days is crazy, though maybe it’s just the housing markets I’ve been living in recently. I guess the idea of owning a home that I can only afford to pay off in 30 years is crazy to me!

    • It does seem high (I haven’t seen their survey data, but I imagine there is some self-selection and potentially blissful ignorance) but also that means 42% of credit card holders are paying interest! That’s still too high in my opinion. There isn’t more education because people are making serious bank from ignorance. Think billions just in overdraft fees..

      You’re not alone in finding the 30 year death pledge (mortgage) insane! From Toronto and Vancouver where real estate prices are astronomical, it’s downright inconceivable. My father paid off our house in 4 years on one income, but we lived in a small town in the 1990s and housing prices for something modest were ~$100,000. No job security or culture there though. Even taking 10 years to pay off my student loan was like a prison sentence for me – I think I’ll be able to do it in less than 5. Do I want to commit up front to ANYTHING for THIRTY YEARS?! NO. Except my spouse, he’s awesome.

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