I visited Ireland a few years ago, and I was surprised at what I found. The bartenders were Polish, the chambermaids in the hotels were East German, and the Irish were all busy speculating in real estate. In fact, real estate in Ireland had the fastest and highest increase in value of all of the world’s inflated real estate bubbles. It was worse than Spain’s Costa del Sol, worse than Portugal’s Algarve, even worse than South Beach in Miami, and that’s really saying something. The Irish banks made the same mistakes as their American counterparts, but there are fewer of them and they have left a much bigger mess. Now they are being bailed out. The resulting debt amounts to an astonishing 25,000 Euros for every resident of the Republic.

Now there is no question that Ireland had a great economic boom for the twenty or so years leading up to the recession. Incomes moved rapidly higher and Ireland was suddenly no longer the poorest country in Northen Europe. But that income growth did not entitle everyone to buy houses for hundreds of thousands of Euros. Ireland made the mistake of confusing a good income with being rich. Now it is paying the consequences, and the humiliating bailout by the rest of Europe will necessitate considerable belt tightening and cutbacks. The Polish barmaids have moved on to greener pastures, as have the German chambermaids. They are being followed by many of Ireland’s young people in a sad reprise of the Irish emigrations of the past.

Ireland is a cautionary tale for those of us on this side of the Atlantic. Many Canadian families have acted like the Irish. They enjoyed good incomes over the past decade or so, and became convinced that they were rich. They bought whatever they wanted – bigger houses, cottages, cars and boats, and piled on the debt. When the recession came and incomes stagnated or went down, or worse still, jobs were lost and careers shattered, they were shocked to find that they were not rich at all. True, they had lots of assets, but they also had lots of debt.

In fact, Canadian households have a record amount of debt, both in absolute amounts, and in comparison to household income. Now they are learning one of the hardest truths of finance: incomes go up and down, but debt remains the same, and must be paid.

The only thing keeping a lot of families afloat is the very low interest rates that have prevailed for the last two years. Make no mistake: rates are on the rise, and they will likely keep rising until they are back to more normal levels, which are at least twice as high as the interest rates of today. Now, while rates are low, is the time for families to get their finances in order, because when interest rates go up, it will be much harder to reduce debt levels.

Unlike countries, families do not get bailed out. Instead, they lose their homes or go bankrupt. So far we have not seen in Canada the mass foreclosures that have become a sad feature of the U.S. recovery. So far, we have been lucky. I prefer prudence to luck. All the four leaf clovers in the land were not enough to save the Irish.

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