Canadians lack basic financial literacy, according to a 2014 Statistics Canada Canadian Financial Capability Survey, sponsored by the Financial Consumer Agency of Canada. On a financial literacy test requiring a score of 5/14 to pass, only 22 percent of the male respondents and 15 percent of the female respondents made the grade.

Not knowing basic money management is a main cause of money problems — out of control consumer debt and bankruptcy — not to mention mental and physical stress.

“This low level of financial literacy doesn’t surprise me,” says Alan Farber, Founder and Joint Managing Partner of Farber Financial Group, a licensed insolvency trustee with offices across Ontario and British Columbia, which specializes in helping people get out of debt, and Live Debt Free.

Farber sees the effects of consumer debt on people on a daily basis and considers it a significant social issue with many different causes. The rise in consumer debt is driven by easy access to credit, a live for today attitude, and people confusing a want and a need. “People don’t understand the impacts of taking on debt until they get a call from a creditor stating they are behind paying what they owe,” says Farber.

Sometimes it’s those unavoidable life mishaps — a car accident resulting in insurance deductibles and medical expenses, family breakdown, or loss of a job — that may lead to financial difficulties and ultimately insolvency. “Even a temporary loss of a job of one to six weeks can cause people to spiral into debt,” says Farber. “With high interest rates on credit cards and no reserves, people can find themselves in a financial crisis all too quickly.”

A socially conscious approach

The Farber team counsels clients facing debt and insolvency problems using a socially conscious approach. “We take care of them as human beings first,” says Farber. “When people walk into our offices, they are invariably stressed out and distracted, so the first thing we do is acknowledge and validate their very emotional state.” That validation includes alleviating the stigma and self-blame by reminding clients that, even with the best laid plans, unavoidable circumstances or pure bad luck can put them in debt.

Then they proceed to the financial front. “We may help them with budgeting or an actual insolvency procedure, or we may refer them to someone who can help them with a mortgage loan, personal loan, or consolidation loan,” says Farber.

Farber reports that most people leave the office with a sense of relief. “They now see a light at the end of the tunnel and feel more in control.” Though the firm offers a set of financial solutions, Farber says it’s the human interaction that’s key: “We like to go beyond budgeting, getting them to understand the impact of their behaviour and decisions, and coach them in how to avoid getting into a bad money situation.”

Learning to live debt free

Having seen the suffering that debt causes, Farber wants to help people prevent it. Though seemingly counterintuitive to its business model, Farber genuinely cares about those struggling with debt and believes that better financial literacy and preparation can help them avoid or reduce their suffering when life throws them a curve. That’s why Faber’s mantra is Live Debt Free. For us at Farber, this has become a social cause.

“We like to see Canadians feel better and get back on their feet, so it makes sense for us to want to put our oar in the water to help on the common financial literacy front,” says Farber.
Farber sees budgeting as the cornerstone of living debt free. “We have to know where our cash flow is, what it affords us, and make sure we provide for the absolute certainty that life will surprise each one of us with a hurdle or two.” While it may not be our fault, we need to be prepared for it.

That means living within your means, cutting spending, and building an emergency fund. With a bit of thought, “you can find all sorts of ways to cut spending — such as quitting smoking, cutting back on eating out, buying on sale, and using coupons — plus there are lots of apps to help you reduce your living costs,” says Farber.
It takes work but the payoff is peace of mind and savings for a rainy day.

Even if you do get into uncontrollable debt, Farber says “people shouldn’t hesitate to seek help sooner rather than later to prevent a crisis and regain financial control. There is always a solution.”