Top 6 threats to your finances in 2014

Mounting debt
We’re all another year older, and as the old song goes, deeper in debt. The latest measure of household debt by Statistics Canada shows the average household owes nearly $1.64 for every dollar it earns in a year.

In the 1990s we owed less than a dollar for every dollar we earned but the creeping culture of consumerism has most Canadians living beyond their means.

Late in the year credit rating agency TransUnion reported the average Canadian consumer owes $27,355 – not including mortgages.

2014 could be a year of reckoning for many – a time to say no to the things we want, and perhaps good-bye to some of the things we have.

Deflation risk
Over 60 per cent of all economic activity in the developed world is consumer spending. The economy is built on people going to the mall and charging up their credit cards.

When consumers stop spending, the economy stops growing. The Bank of Canada has repeatedly lowered growth expectations to the point where deflation has become a real concern.

Big ticket consumer items, such as electronics, have been falling in price. Even the basics like food and gasoline began dropping in price toward the end of 2013 as global demand wanes for commodities like oil and wheat.

Deflation has its advantages. Interest rates on all that debt we’ve been accumulating will likely remain low beyond 2014.

Job insecurity
With little to no economic growth, profit margins for companies are being squeezed. The keenest corporate bean-counters are boosting profits by cutting costs.

One of the biggest costs for most companies is labour. That could mean more of the sort of job losses we witnessed at the end of 2013 at Heinz in Leamington, Ont., and Kellog in London, Ont.

If you still have a job, wage growth is expected to be low or frozen. This is when deflation is your friend.

Canadian dollar weakness
At the end of 2013 the U.S. central bank began taking the world’s biggest economy off of life support by trimming the cash injections needed to keep the economy from collapsing since the 2008 financial meltdown.

The process is called tapering and just the thought of it has strengthened the U.S. dollar. Most major economists like TD Economics say tapering will continue to strengthen the U.S. dollar, which means the Canadian dollar will fall further below parity.

That’s good news for investors who took advantage of the strong Canadian dollar over the past few years and invested in U.S. denominated assets.

That’s bad news for snowbirds and cross-border shoppers who will lose Canadian dollar purchasing power when they go to the states.

Government and taxes
Low economic growth and massive stimulus spending has left governments up to their eyeballs in debt.

The federal government is struggling to balance its books by 2015 and provinces like Ontario and Quebec are drowning in it.

Governments will be reluctant to raise taxes when the economic recovery is fragile, but with less revenue coming in they will likely try to squeeze more out of working Canadians.

Bright outlook for stock markets
The old saying that it takes money to make money rings especially true as we head into 2014.

Investors were rewarded with a 29 per cent gain for the S&P 500 in 2013, capping off a 172 per cent advance from its 2009 post-meltdown low.

The Toronto Stock Exchange returned 9 per cent in 2013, and has gained in value by more than 80 per cent from its 2009 low.

No one really knows if the rally will continue but most market analysts believe it has room to run - but at a more moderate pace. Oppenheimer & Company chief market strategist John Stolzfus, for example, expects the S&P 500 to advance another ten per cent in 2014.