Monday, April 19, 2010

Canadians Debt Hit Record: Owe $1.47 for Every $1 of Disposable Income; Day of Reckoning Approaches

Canadians have been lured by cheap money to buy, expand and make over, and have pushed credit levels to a record high. However, interest rates have started to go up. The Globe and Mail reports that Canadian borrowers are fast approaching a day of reckoning.

Interest rates:

The Globe says that Canadians owe about $1.47 for every dollar of disposable income.

"The end of the free-money era has left consumers more vulnerable than ever, and those who threw caution to the wind could soon face costs they can't handle. Household debt has surged three time faster than income in recent years and now stands at a record high of more than $1-trillion.. Even more remarkably, they took on more debt during the slump – a first for a recession – because borrowing was so cheap".

"With debt levels this high, even a small hike in interest rates will be ugly for those whose incomes aren't rising fast enough to meet their day-to-day expenses. Their woes could have a snowball effect: As debt-strapped consumers pull back, their credit woes spill over into the broader economy and risk putting a damper on the recovery".

"For some, the trouble has already begun. John Silver, who runs Community Financial Counselling Services in Winnipeg, has seen his caseload increase 20 per cent from last year. “We re seeing more people coming in with more stress with regard to their debt,” he said.
Much of the recent rise in debt in Canada has been due to low interest rates, generally easier credit terms and fierce competition among lenders. Even when the recession hit in late 2008, Canadians remained far more confident than Americans in part because of a better housing market and stronger financial institutions. Consumer confidence in Canada is only about 20 per cent below where it was in 2007 whereas it's 60 per cent lower in the U.S. "

"Canadians used to be big savers and cautious borrowers. In 1982, Canadians socked away 20 per cent of their disposable income and per capita debt stood at about $5,500, according to Statistics Canada. By contrast, Americans were saving just 7.5 per cent of their disposable income at that time and borrowed $6,500 per capita.

Savings and borrowing soon went in opposite directions in both countries and by 2002 debt levels surpassed disposable income for the first time. In 2005, the savings rate in Canada fell to 1.2 per cent, about the same as in the U.S. Meanwhile, per capital borrowing jumped to $28,390 in Canada and $48,700 in the U.S. "


  • 68%: Average amount of disposable income households in Vancouver spend on the cost of a home; 44%: Average in Toronto; 35%: Average in Calgary; 36%: Average in Montreal; 30%: Average in Ottawa
  • 21%: Percentage of Canadians who say they can’t manage their debt load
  • 147%: Debt-to-income ratio in Canada, a record high
  • 157%: Debt-to-income ratio in the United States
  • 70%: Percentage of debt held in mortgages in Canada

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