$2.6 Trillion in Debt and $19 Billion in Bank Profits: The Two Numbers Defining Canada’s Financial Reality

Let’s talk about two insane numbers. The first is the total Canadian consumer debt which has reached $2.6 Trillion. This is mostly mortgage debt, around $1.89 Trillion. The average non-mortgage debt per consumer is $22,321 and the debt-to-income ratio is 176.7%. That means the average Canadian owes $176 for every $100 they make. That isn’t a recipe for success, nor is it sustainable in the long run.

The second set of numbers we need to talk about is the Q1 profit of the big 6 Canadian banks (TD, RBC, BMO, Scotia, CIBC, NB). The total profit of the 6 combined banks was $19 billion. Every single one of the big 6 banks had increased profits from the year before. These numbers are directly correlated because as the consumer debt increases, so too does the flow of interest into these banks.

These are staggering numbers that represent how lending institutions are the winners from the cost-of-living skyrocketing. People need to borrow more money than ever to own a home, buy a car, even pay for their groceries. That means bigger loans and more interest flowing away from average Canadians into the pockets of the banks.

The way to solve this problem is to change the way we think about money. We are taught to live below our means; meaning don’t spend more than you earn. When this is true, you have the ability to save and invest in your wealth. This is excellent advice, but when delivered this way, you are encouraged to focus writing off all expenses as wasteful and to avoid them at all costs. For most people, that’s writing off 80-90% of your after-tax income. That is what is incredibly wasteful.

The biggest chance Canadians have of getting out of debt is by focusing on the function of banking and how we finance things. If borrowing money is causing the issue, then that is where we need to focus on instead of on rate of return from our investments hoping that we make enough to claw out of this hole.

Banks are seeing record profits because we don’t know how to finance things ourselves. The two options most people understand are paying cash, or borrowing money and paying interest. What if we could instead mimic the systems that banks have created and we create an environment where our money is placed somewhere it can compound and grow uninterrupted, and then we can leverage against the value of that money to borrow what we need. Here is where it becomes beneficial for us.

Because we are leveraging against the value of our money rather than withdrawing it, we are not interrupting the growth. That means even though we are accruing interest on our loan, because all borrowed money comes at a cost, our original sum of money is also growing so the net effect is either a smaller loss, or even a gain.

Now comes the most important part. If we are a part owner of the company that lent us the money, and we have complete control over the repayment of that loan because of the conditions we create, then we have the flexibility to pay it back on our terms. That is extremely powerful and something that doesn’t exist when borrowing from a bank. Don’t discredit the power of control. Not only does it allow you to more closely monitor your cashflow and take breaks from payments when emergencies arrive, it also lets you reallocate money in the event a great opportunity to invest comes along.

Right now, that power exists with the banks. They get to take advantage of high caliber opportunities because your payments are their passive income. They have security and control. If you flip that narrative, and you create your own banking system, you get that security and control. You are building wealth, including a passive income stream by simply taking back control of the function of banking in your life.

The way to get out of this hole is to change how we finance the things we need. Imagine what would happen to your financial future if your portion of that $19 billion in profit was redirected towards building your financial future rather than a shareholder. You don’t have to change what you buy, or what you finance. You just have to change whose system you use. It has a massive impact on your financial future.