Household debt hits record $1.5-trillion

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Extrait de: Household debt hits record $1.5-trillion, Julien Russell Brunet, Globe and Mail, Jun. 14, 2011

Household debt has hit a troubling $1.5-trillion, sparking new fears that the heavy burden on Canadian consumers could hurt the economy, particularly as fiscal stimulus fades.

The figure, from a report Tuesday by the Certified General Accountants Association of Canada, means that if household debt were distributed evenly across all Canadians, a two-child household would owe an estimated $176,461, including mortgage costs.

 “The debt of a typical household is rising,” said Rock Lefebvre, CGA-Canada’s vice-president of research and standards and co-author of the report. “And the financial situation of certain groups of households is much worse than average and continues to deteriorate.”

The study highlights some disconcerting trends.

·         About 27 per cent of working Canadians aren’t saving, while single-parent families, retirees and households with an income of $50,000 and under are in particularly dire straits.

·         Single parents were the only family category listed in the report where debt climbs with age, and one-third of retired households are burdened by an average debt of $60,000.

·         Households with an income of less than $50,000 are “six times more likely to be financially vulnerable in terms of their debt-service ratio,” the study said.

The debt-service ratio assesses the ability to honour debt obligations.

Several observers have warned that a rise in interest rates, expected later this year, will further squeeze consumers as borrowing costs – from credit cards to lines of credit – go up.

Typique, du discours officiel, le risque d'augmentation des taux d'intérêt peut créer une crise immobilière, quand en fait c'est la confiance du consommateur qui est le deuxième facteur principal, le premier,
c'est le taux d'endettement.

Évidemment, personne dans les médias traditionnels n'ose en parler pour ne pas créer une panique générale, une personne n'achètera pas une maison à 300,000 $ s'il n'est pas sûr d'avoir un emploi l'année prochaine.

“Exhausted consumers will be more sensitive,” said Benjamin Tal, deputy chief economist at CIBC World Markets. “A high level of debt means interest rates will be very powerful in slowing down the economy.”

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There are, however, signs of change. After five years of serious debt accumulation, Toronto-Dominion Bank said in a report, Canadian households are “finally tapped out,” and there has been a “notable scaling back in the pace of borrowing over the last six months.”

The debt-to-income ratio is now stable at 147 per cent. And the rate of debt accumulation is slowing, too, Mr. Tal added, now the lowest in nine years.

TD expects households to continue to work off some of their debt.

Il semble que ces prédictions soient fausses, au mois de septembre
nous sommes déjà rendus à 149 %.

‘Le taux d'endettement moyen des ménages par rapport au revenu disponible
a atteint 149,47%, en hausse par rapport à 147,64% un an plus tôt.’

But the weary consumer is already curbing economic growth. Consumer spending was flat in the first quarter of this year, the weakest showing in two years. Consumers typically account for 60 per cent of the country’s gross domestic product, but rising living costs, along with elevated debt levels and rising interest rates, suggest they won’t be much help this year.

Les gens vont devenir prudents, devant autant d’incertitude.

Finance Minister Jim Flaherty took the opportunity Tuesday to remind Canadians interest rates will inevitably rise.


Byron Rottweiler June 14, 2011

I believe that we have gradually become accustomed to borrowing money to pay for our lifestyles (in general), often with a 'herd mentality' where we simply follow everybody else, assuming that it is ok.

Unfortunately if a majority of consumers follow each other into a debt hole, a real estate bubble, a stock market bubble or another such pitfall, they will collectively suffer the consequences once a correction happens.

If people haven't learned this lesson yet from the 2000 tech bubble crash, or the US housing crash, they are in deep denial, IMO. Currently in Canada we seem to have a collective 'it can't happen here because....' attitude of denial. But it can and it is becoming increasingly likely that we are in for a deep correction.

Sometimes when you throw traditional caution and values out the window you end up regretting it. I think this will be one of those examples. What is wrong with 'buy what you can afford and pay cash'?