Governments Playing The Role Of Personal Financial Advisor

The role of government lately, is treading into the realm of personal finance advisor. On both sides of the 49th parallel governments are either commenting or implementing policy based on how they feel people should be managing their household finances.

Obama’s fresh new $75B mortgage relief plan includes the following goal:
Convince lenders to cut monthly mortgage payments to sustainable levels, defined as no more than 31% of a homeowner’s income. Write it down, the magic number, Barack is playing Suze Orman.

Let’s assume this means 31% of gross income. If so, our lender needs no incentive as our mortgage payments represent about 12% of our income.

North of the border in Canada, Bank of Canada Governor Mark Carney came out and said that he is concerned about the level of household debt in Canada. Household debt in Canada currently sits at 130% of people’s disposable income (a higher ratio than the United States). Average household debt in Canada rose to more than $90,000. Debt is apparently rising faster than income is in Canada.

Carney would not like the moneygardener’s household finances. Our household debt represents about 175% of our income. I’m not concerned with our level of debt. Our Debt/Asset ratio is 0.54, meaning we have almost twice the assets as we do liabilities. Servicing a mortgage which comes in much less than Obama’s 31% of income, means we are able to move the needle in the right direction by accumulating more assets while reducing debt slowly. Our income may pale in comparison to our debt now, but we’re young and I’m confident that our debt is manageable given our assets and income.

What would Obama and Carney think of your personal financial situation?

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