Canadian consumer debt just keeps growing — but here’s why it’s not a problem yet
Consumer debt balances just won’t stop growing in the Great White North, according to a new report by Equifax Canada.
Canadians owed $1.821 trillion in the fourth quarter of 2017, up from $1.797 trillion in the third quarter.
Installment loans (10.3 per cent), auto loans (6.5 per cent)and mortgages (6.2 per cent) saw the most significant increases year over year, the report noted.
The average Canadian debt balance was up by 3.3 per cent to sit at $22,837 in the fourth quarter.
But Regina Malina, a senior director of decision insights at Equifax Canada, said that shouldn’t be as concerning as it might sound.
“Increasing debt is creating some potential risks and some concerns, but at the same time, it’s helping GDP and can clearly be handled by consumers,” Malina told Global News.
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She said delinquencies and bankruptcies are down, and Canadians generally aren’t becoming more dependent on high-interest products such as credit cards.
Canadians’ personal debt is actually falling, the report noted.
Forty-six per cent of Canadians saw their amount owed fall over the past few months, while debt levels remained steady for 16 per cent of them.
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Consumer debt is growing as a whole because the 37 per cent of Canadians who added more debt did so in larger-than-average amounts.
Rising home prices could be leading to increased mortgage payments, Malina explained.
Malina added that while the economy seems fairly strong, Canadians should still be cautious because that could change.
An RBC forecast from Monday morning showed that Canada’s economy is expected to slow this year.
“Just make sure that each consumer, within their own household, thinks about the fact that they should be comfortable not only paying their bills in the current situation, but also in the situation that might deteriorate potentially,” Malina said.
An Ipsos Global News poll conducted in December 2017 found that the average Canadian owed $8,539.50 in non-mortgage consumer debt.
But in general, Canadians overall felt better about their financial situation than they did in the previous year.
The poll, conducted between Dec. 10 and 14, found that 12 per cent of Canadians report consumer debts above $25,000, while 14 per cent have debts between $10,000 and $24,999.
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Nearly half of respondents (46 per cent) in that poll said they don’t have any consumer debt.
While that makes for encouraging reading in isolation, it also suggested that Canadians who are carrying debt have large balances.
The average amount of consumer debt was $15,473, according to the poll.
Sean Simpson, vice-president of public affairs for Ipsos, added at the time that Generation Xers, or people aged 35-54, owe the most consumer debt.
“They’ve got kids, they’ve got parents and they’ve got a home, so not only do they have an average $10,000 in consumer debt, but they likely have the biggest mortgages as well,” Simpson explained.
That contrasted with Equifax Canada’s data, which showed that people aged 46 to 55 carried the highest average debt balances exclusive of mortgages.
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Meanwhile, millennial-aged people had the highest delinquency rates — or rates of people who are not making their payments.
The rate was 1.49 per cent for people aged 18 to 25 years old, and 1.54 per cent for people aged 26 to 35 years old.
However, those rates are dropping, Malina said in a news release.
“Millennials have had the highest delinquency rates in terms of age, but we’ve seen a nine-per-cent reduction in their delinquency rate from a year ago,” she said in a statement.
“Their overall debt has continued to increase, but they seem to be handling their payments better.
International organization flags Canadian debt
A report from the Bank for International Settlements (BIS) on Sunday was less optimistic about Canadian debt than Equifax was.
The bank, which is comprised of 60 national banks around the world, published a report flagging that Canada is among countries with a high risk of financial crisis.
The BIS cited personal debt as one cause for concern.
The report indicated that housing prices and rising household debt in Canada are making the problem worse.
— With files from Global News reporter Rahul Kalvapalle
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