Canada's Prime Minister Justin Trudeau speaks during a meeting with members of the China Entrepreneur Club with at Willson House in Chelsea Thomson Reuters Consumer debt in Canada is, frankly, a problem.

According to a recent report from credit monitoring agency TransUnion, the typical Canadian now owes $21,686 excluding their mortgage — a number that has not stopped increasing for over a decade now.

To give you a sense of the severity of our consumer debt situation, for every $1 of disposable income, the average Canadian owes $1.65.

In fact, Canada’s household debt — the amount of money that all adults in a household owe financial institutions—is the highest among its Group of Seven peers, even exceeding the size of our own economy!

So what exactly is the issue here? Are we fundamentally not living within our means, because we’re too comfortable taking on debt? Or has life become too expensive that we’re compelled to be in a never-ending cycle of debt?

Take a look at this chart. It shows Canada’s interest rate over the last ten years. The sharp dip in 2009 was when the Bank of Canada, along with other Western central banks dramatically lowered interest rates as a policy tool to boost economic growth.

The technical term for that is “monetary policy”, but the idea is pretty simple. Lower interest rates mean that is it cheaper to borrow money from banks or other financial institutions, reducing the incentive to save. Interest rates are currently at historically low levels, and that’s a deliberate move by central banks to encourage businesses and consumers to spend more money to get the economy moving.

But there’s a darker side to cheap money. Consumer debt climbed gradually from the 1980s till the early 2000s as wages rose and our spending patterns changed — those debt levels shot up dramatically between 2009 and 2015.

“There’s definitely a new acceptance of carrying more debt because of low interest rates. It’s considered normal now to take on say $800,000 in mortgage debt. I never saw those kinds of mortgages back in 2007-2008,” says Shannon Lee Simmons, personal finance expert and founder of the New School of Finance, a financial planning firm targeted at Canadians who feel they are overly indebted and have very little idea what to do about it.

It’s OK to be in debt, if you have the ability to pay it off

In 1980, the ratio of household debt to personal disposable income was 66 percent. That means for every dollar earned, two-thirds is owed. That ratio recently skyrocketed to pass the 150 percent figure, implying that debt is becoming a bigger financial burden for Canadian families.

Bank of Canada Governor Stephen Poloz takes part in a news conference upon the release of the Monetary Policy Report in Ottawa January 21, 2015. REUTERS/Chris Wattie

One of the biggest problems in this whole debt-to-income equation is stagnant wages. We’re earning roughly the same amount, but we’re spending more because we have more access to credit. According to Statistics Canada, wages have increased 30 percent between 1981 and 2011. That sounds like a hefty amount, but it doesn’t exactly translate into higher savings because of the way our cost of living has gone up. Bank of Canada inflation data tells us that if you earned $50,000 annually in 1992, you should be earning about $75,000 in today’s dollars — in reality you’re probably only making an average of $65,000, or less.

I asked Simmons why people continue to borrow, when it is unlikely they will be able to repay their debts and accumulate enough savings for a comfortable retirement, at today’s wage growth levels. Her answer? Credit cards.

“You don’t feel the pinch when you’re paying with credit cards. So let’s say you have taken out a hefty mortgage. You’re essentially house poor, and your disposable income for everyday items is vastly reduced. What I see some people do, is they take out more credit, either in the form of a line of credit, or an extra credit card to keep up with their expenses.”

As of October 2015, credit card debt in this country was $77 billion, an increase of about 3 percent from the year before. According to debt management firm Bankruptcy Canada, only 25 percent of Canadians pay off their credit card bills every month in full. That number is debatable based on source (The Canadian Bankers Association says 56% of Canadians pay off their credit card balances in full), but the general trend is skewed towards treating credit cards as an additional source of income, instead of an emergency injection of cash, when needed.

Simmons is frank in her advice to clients about trusting big financial institutions, who have a very enthusiastic approach to lending. “Look, debt is a product for banks. When they offer you a line of credit, a credit card, or a mortgage, they’re making money on that. For the most part, I wouldn’t trust banks to tell you what you can afford. That’s why limits on borrowing need to come from government regulation. Human beings want things. If money is available, we’ll use it.”