Debt levels rise for Canadians and especially seniors, report suggests

Canadian retirees might be still supporting grown children


OTTAWA – Canadian households have returned to their free-spending ways and seniors have joined the party lately by borrowing to finance their post-retirement lifestyles, a new report says.

The report from Equifax Canada shows that despite recent efforts by policy-makers to clamp down on borrowing, total consumer debt in Canada rose $77 billion, or 6.1 per cent, in the second quarter of 2013 from last year, and by 6.5 per cent among those 65 and over.

The increase in debt among seniors was the biggest year-over-year of all age groups.

Jeffrey Schwartz of Consolidated Credit Counseling Services of Canada says the finding on seniors debt is in line with other reports that show bankruptcies among retirees is on the rise.

“That’s what scary about this,” he said. “Seniors are carrying more debt into retirement. They are trying to maintain a lifestyle they had pre-retirement but on post-retirement income, and if income has dropped, they are increasing their debt to cover off their spending. It’s a very dangerous strategy.”

He added another possible cause is that seniors are supporting their grown children in greater numbers.

In a separate analysis from the TD Bank also released Monday, economist Leslie Preston noted that although savings rates have risen in recent months, it will take a long time for Canadians, including seniors, to pay off their mountains of debt.

“The moderate jump in savings is unlikely to address the broader challenge of insufficient retirement savings for a large slice of Canadian households,” she said.

Overall, the Equifax data suggested most of the new debt came from an increase in mortgage credit, up 7.4 per cent, and in auto loan balances, which increased 8.6 per cent over the past year.

Other data from Statistics Canada and the Bank of Canada have tended to show a decrease in credit accumulation, although the last release was for the first quarter of 2013, which found the debt-to-income ratio falling to 161.8 per cent from 162.6 per cent.

However, the pace on home purchases picked up during the spring.

Despite the increase in debt, Equifax also found that delinquency rates fell over the past year to 1.19 per cent in the second quarter of this year, one of the lowest values on record.

The fraction of mortgage loans that were 90 or more days delinquent slid to 0.27 per cent from 0.33 per cent a year earlier.

Toronto had the highest delinquency rate among major metropolitan areas at 1.56 per cent of non-mortgage balances, but has continuously improved since hitting a peak of 2.53 per cent in 2010.

The low delinquency rates suggests that with interest rates at super-low levels, and incomes rising even if moderately, Canadians are able to service their high levels of debt. But Christian deRitis, a senior director of consumer credit at Moody’s Analytics, warned all that could change with economic conditions or a shock in the housing market.

“Stable home prices and improvements in the labour market should continue to support the market in the future, while the outlook for consumer credit remains positive,” he said. “A sudden rise in interest rates or deterioration in fundamentals in key export markets are risks to this forecast, however.”

The Bank of Canada has long warned that as interest rates rise, many more Canadians become vulnerable to an economic shock.

Last week, Finance Minister Jim Flaherty said he was satisfied that overall the housing market had responded appropriately to the tightening of lending rules introduced last year and that he planned no more interventions to cool mortgage credit.


Debt levels rise for Canadians and especially seniors, report suggests

  1. You are not economically ready to retire if you are in debt. If you want to be at all setup for retirement you need to be debt free of all debts, mortgage included by the time you hit 40.

    I mean this seriously, as once you have no debts, you begin to pay yourself towards financial independence and retirement. Imagine making mortgage like payments to savings between 40-60 years of age? 20 years of investing too….mice retirement sum.

    But undisciplined over taxed people just don’t save and ignore the need to plan realistically until it is too late. And trust me when I say government is going to line their own pockets before they pay back into your retirement. CPP increases and tax table creep are far below real inflation and being in debt on retirement is going to fast track to poverty many a seniors.

    • Dave777 – your comments are bang on.

      In my opinion, most Canadians today are living in a debt-fueled dream world. My wife and I were debt free in our early thirties, thanks to living far BELOW our means, and also earning a good income with our small business. We resisted the urge to buy bigger homes, exotic cars, etc, and were in a position to retire at about the age of forty. Now in our mid-forties, we continue to work and live below our means, but also enjoy life to the fullest.

      I honestly do not understand how people in Canada can live so close to the financial edge and sleep at night. In my opinion, that would suck every once of enjoyment out of life. To us, debt equals slavery. I think a lot of Canadian folks will be getting a serious wake up call at some point.

  2. Boomers are the people who believed in ‘Freedom 55’….so it’s no wonder that they are now dumb enought to retire while in debt.