Canadians and debt: The struggle is getting worse

One in five is borrowing to pay for daily expenses

by Tamsin McMahon

A new study on household finances shows that Canadians are struggling even more with their mortgage and debt than they were two years ago.

The Canadian Association of Chartered Accountants annual survey of household finances found that nearly half of Canadians say they couldn’t manage their mortgage and debt payments if interest rates rose. Nearly 30 per cent of those said they couldn’t even handle an interest rate increase of less than two percentage points.

Those are scary numbers, considering that the Bank of Canada hinted today that it is leaning towards raising interest rates, even as other central banks are moving in the opposite direction in response to a slowing global economy.

Chart: Erica Alini. Photohraphy: Getty Images

Here’s few more jaw-dropping highlights from the survey:

* We’re saving less than we did just two years ago. In 2010, 51 per cent of Canadians saved less than 10 per cent of their income, while 14 per cent saved more than 20 per cent. By 2012, the proportion of Canadians who saved more than 20 per cent of their income had dropped to 11 per cent and the proportion of those who saved less than 10 per cent had risen to 59 per cent.

* Nearly half of those aged 55 or older say they haven’t saved enough for retirement, while 40 per cent of Canadians say they don’t expect to have paid off their mortgage by the time they turn 65 and plan to keep working past retirement age to make ends meet.

* Forty-three per cent of Canadians carry a credit card balance from one month to the next, up from 34 per cent in 2010.

* Almost a fifth of Canadians borrow to pay their daily living expenses and nearly half of them still owe money on those loans.

The one bit of good news was that nearly 40 per cent of Canadians felt they were better off financially this year than last year, with 59 per cent of those saying they had paid down some of their debt and 58 per cent saying they were earning more money.

Click here to see what happens to a $300,000 mortgage if rates rise by 1.5 per cent.




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Canadians and debt: The struggle is getting worse

  1. Yep! Cause everything else keeps going up in price while salaries go down. Gee, I wonder why people can’t save.

    • Waiting for wages to go up or prices to come down is not an effective financial strategy. Every individual is responsible for living within their means and saving for the future.

      • “The markets can remain irrational longer than you can remain solvent” J.M. Keynes

        • Considering the 2010s is turning into a repeat of the 1930s, here are two more sayings from Keynes we should keep in mind: “the boom, not the slump, is the time for austerity” and “the paradox of thrift” (that is, when people cut back on spending and investing this causes GDP growth to decline which sheds economic activity and jobs in a vicious cycle.)

          The free-marketers over the past 30 years gave us supply-side “trickle down” economics that downsized wages and benefits while producing an economic tide that only raised the yachts and culminated in a *2nd* global economic meltdown.

          In the 30-year post-war era, based on centrist demand-side Keynesian economics, we created modern living standards, produced twice the GDP growth, had the mildest business cycles in history and paid down most of our government debt (from 100% debt/GDP to 17% in Canada.)

      • Because the creditors have no responsibility to do any due diligence as to who they lend to?

        Hint: A person’s debts don’t magically decrease as their wages do. A person’s needs don’t magically disappear as prices rise.

        • It looks like banks take on risky loans because they know the government will have to bail them out if they fail. For this reason we need good banking regulations plus its better to break banks up into smaller sizes so that when one fails it won’t cause the entire financial system to crash.

          Central banks also have to keep an eye on inflationary bubbles (something free-market ideologue Alan Greenspan felt unnecessary.) We need regulations that do away with “paper-stretcher” financial innovation schemes that merely fool investors (and apparently bond-rating agencies) about the actual risk. Also if it resembles a bank it must be regulated like a bank (the emergence of an unregulated shadow banking system is what helped trigger the financial market meltdown.)

          BTW, deflation increases the real value of debt; therefore wage deflation will make the debt burden we are facing now much worse. Also long-term inflation is at record lows. Inflation fighting in a slump causes recession. The only way out is with high GDP growth to get the economy back to full capacity and help pay down existing debt (measured in debt/GDP.)

          • this is just silly: look at the cost of housing-look at the cost of rent that has just increased: the increased price of food: transportation: exponentially in a very short time. In Calgary for example you are locked into a lease and must pay it each month until the tenancy agreement is over. University costs ARE super expensive compared to other parts of the world. Just 10 years ago a graduate from college owed 10-20 grand now the average for a BA is 35 grand. NO not enough is done through policy to ensure citizens have money. housing is commodity that should have rent controls. Education has become a profit driven vehicle to keep a population of other wise unemployed busy. Then to top it off interest rates and energy prices are just on the increase next year. Like other nations Canada is set for a hard ride.

    • You serious? Look around you at work, pick out those who have seen multiple vacations in exotic locations and ask them if they are debt free. People by and large are spending more frivolously than ever before where their parents did no such thing. Just as kids haven’t a clue as to their mortality so to are many Canadian adults completely unaware of their finances. It has nothing to do with wages in that those who habitually spend more than they earn continue to do so when earning 1000% more. The trip to Niagara Falls with a trunk full of Samsonite becomes island hopping in the Caribbean and porters struggling to carry half a dozen pieces of Louis Vuitton. Comprehend.

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