Officials have been warning Canadians to cut back on borrowing as consumer debt levels rose but a report issued by TransUnion today (August 23) shows debt is at record levels.
The report shows average non-mortgage debt of Canadians is $26,221 in the second quarter of 2012. This is an increase of 192 dollars from the first quarter. The Credit Bureau began tracking average consumer debt levels only in 2004. The present level is the highest yet.
This is the second consecutive quarter of growth in the average. The growth in debt is happening across Canada except for a slight dip this quarter in Saskatchewan and Alberta has a decreased annual growth.
Mark Carney has consistently warned that the increasing consumer debt levels are a threat to the economy and that levels are too high. However, in the short term this spending will keep the economy afloat. Thomas Higgins of Transunion said:“When I look at the recent comments from the Bank of Canada, that they don’t foresee there will be a change in interest rates for 12 to 18 months, and now that some of the media attention on Europe’s issues has died down, I would not be surprised to see the latest rise [in debt levels] continue...Maybe people are thinking that they don’t need to tighten their borrowing too much, that they have a bit of leeway.”
The data used to analyse the data includes credit card debt and car loans, installment loans and lines of credit. Although lines of credit are the largest source of non-mortgage debt, in the most recent quarter the largest increase in debt was for car loans. Higgins suggested that during the recession people put off buying big ticket items. Now the the economy is recovering somewhat they are beginning to buy them again.
In spite of the high levels of debt Canadians are repaying debt. Bankruptcies are at historic lows! However if the economy should take a turn for the worse or interest rates rise many Canadians could fall behind in payments as debt payments became much more burdensome. On the other hand if Canadians all suddenly started paying off their debt warns analyst Ben Rabidoux economic growth could slow.
Jeffrey Schwart of Consolidated Credit Counseling Services warned that Canadians need to include debt repayment and savings in their budget and must learn to live within their means. A Bank of Montreal poll showed that 27% of Canadians between 18 to 34 have not started any savings for retirement. Many Canadians also have no money set aside for emergencies.
Given the constant advertising that produces desires for the latest goods and given often readily available credit with low interest rates it should not be too surprising that many Canadians find themselves unable to save any money from one paycheck to the next. Often each month they may find themselves sliding further into debt.