Personal debt, measured relative to income, reached an all-time high in the third quarter of 2009 according to Statistics Canada. The agency reported that the average debt-to-income ratio among Canadian households reached 145% (including both consumer and mortgage debt). That record high came during a quarter in which household net worth grew 1.8%.

Gail Vaz-Oxlade, author of Debt-Free Forever and host of Til Debt Do Us Part, has made it her mission to help. “I got a letter from a man this week who says that between himself and his wife, they’re making about $230,000 a year,” she told me during an interview this week. “He has an upside-down mortgage though. He owes three years’ worth of income tax, $60,000 on credit cards and hasn’t paid off his student loan yet.”

A mortgage is upside-down when you owe more than the house is worth. It’s sometimes referred to as being “under water.” Regardless, it’s a potentially catastrophic situation that can cost you your home. Sadly, too many Canadians in this unenviable position are also carrying credit card and other personal debt.

“We have been lulled into a sense that things will always be better and we will always make more money,” said Vaz-Oxlade. “So we actually never have to deal with anything other than the minimum payments. Some magic wand is going to be waved above our heads and all the debt is going to evaporate one day.”

Vaz-Oxlade’s frustration is shared by credit counselors across Canada. It points to an increasingly important question raised by the downturn. Who is to blame for this emerging personal debt crisis? Is it consumers themselves, too many of whom fail to understand or take responsibility for their use of credit? Is it the financial services industry, which has made unprecedented levels of personal credit available in recent years? Does a share of blame fall on parents and teachers, who have failed to teach their children how to manage money?

If you have read or watched the charmingly plain-spoken Vaz-Oxlade, you won’t be surprised by her pointed observations.

• On minimum credit card payments: “Most people don’t know what they’re doing. Most people think that’s all that is required of them. That’s how naïve people are.”
• On privilege: “I work with a lot of young people who think they’re entitled. If you make $4 or $5 million a year doing endorsements, you can afford to go out and spend $1,500 on a pair of shoes. Especially if you’re an heiress. If you’re working as a shop girl, and you’re making tops $35,000 a year, where do you get off thinking you’re entitled to wear a $1,500 pair of shoes?”
• On responsibility: “I’ve had women as old as 40 who have three handbags that total $6,000 and no RESP savings for their kids.”
• On shopping: “It’s so easy to do it on plastic. There’s no pain. If we go shopping, we actually release endorphins. That hunting and gathering thing works for shopping malls. If we pay with cash, the thrill we feel is offset by the pain we feel of having to part with cash.”
• On appearances: “Keeping up with the Jones’s has always been a problem. But the Jones’s are using credit to buy what they want now. So keeping up means we’re going further and further into debt, just to maintain what we think is a normal status.”
• On teaching kids about money: “When your kids are in grade 12, someone should come and talk to them about the student loan system. How it works, what the pitfalls are, how to use it to your advantage and so forth. But you can’t teach a fifth grader to save at school. Saving does not come naturally to everyone. It’s a habit that can be learned. You need to have them in an environment where you can influence them on a daily basis, hold them accountable; give them some money so that they can have something to work with. That can only be done at home.”
• On getting out of debt: “First, you have to figure out where your money has been going. You can make a conscious choice about what you’re going to do with your money in the future. You have to make a budget that balances. You have to create a debt-repayment plan if you have debt. And that means listing all the debt that you have, including what your minimum payments are, what your interest rates are. Figure out what percentage of your income you’re going to have to commit to debt repayment in order to get that debt gone in 36 months or less. Then you have to apply the payments in a really smart way. That means making the minimum payments on all your debts, except for your most expensive debt. Apply everything else you have to that debt until it’s paid off. And then take that money and applying it to your next most expensive debt, and so on. And you have to save. Even as you’re paying down your debt, you have to save.”
• On saving: “The rule of thumb is to save 10%, but the 10% rule really only applies if you’re in your 30s. If you’re in your 20s, you don’t have to save that much because you have compounding on your side. If you’re in your 40s, you have to save more because you’ve already lost 20 years of growth. The 10% rule is just a guideline. I tell people to start with $100 a month. Almost every budget I build, I build in $100 a month, at least until the debt is paid off. And then I say take half the debt payment amount, and stick it in savings and apply the other half back into your budget so you can free up some money for a life.”

Baby boomers may finally be getting the message. “I think what’s happening is that we’re watching the boomers age. As they get older, they’re looking around at their life and saying they’d rather have the time than the money for yet another pair of shoes,” she said. “As you get older, your stuff gets less important to you. You start to value the time you have with your children or your friends far more than you did when you were sort of single-mindedly focused on career-building and the image you were portraying.”

What about younger Canadians? Less cause for optimism there, unfortunately. Vaz-Oxlade is working on a new show that will air this fall called Princess. Its focus is “Paris Hilton wannabes,” as she put it. “They have no problem spending $100 to get eyelashes stuck onto their eyes, or spending $1,500 to have hair extensions done,” she said. “Stuff that just blows my mind.”