Canada’s Consumer Debt For 2012 Highest Ever

Posted by Alan Zunec on Monday, December 17th, 2012 at 3:25pm.

Scott Hannah runs Credit Counselling Services, based in Vancouver, British Columbia. His firm has been extremely busy this year, seeing nearly a seven percent increase in business in 2012, compared to 2011. And there is no indication that his business will see a slow down anytime soon. Also consider that the seven percent increase followed the 30 percent increase seen from 2010 to 2011.

Hannah also noted that personal debt reached record numbers in 2012, with the average consumer seeing their debt load continue to edge upwards. This is in spite of repeated warnings from Jim Flaherty, Canada’s Finance Minister and Mark Carney, head of the Bank of Canada. The pair has spent the majority of this past year warning about the country’s debt load.

Most of the debt comes from buying real estate in a booming market that has increased home prices dramatically. The low interest rates made the purchases attractive, despite the increased home prices. Canadians just continued to borrow.

At present, per Statistics Canada, the ratio of income to household debt averages 164.6. That is close to the percentage seen in the United States before their real estate market tumbled back in 2007 and 2008.

Canada does hold far fewer subprime loans, which is only one of the differences between us and our neighbors to the south. And there are no other factors that indicate Canada will be experiencing a real estate fiasco as seen in the United States. Still, all that borrowed money does have to be paid back.

The main problem with such a high debt ratio is that those owing lots of money are vulnerable to any form of economic shock. That could be in the form of higher unemployment rates or perhaps a sudden, high rise in the interest rates. Moderate interest rate increases will be easier to cope with, and that is likely what will happen down the road.

But the bigger worry is the unemployment factor. Considering what is going on in the United States and Europe on the economic front, fiscal cliffs and what have you, which could affect the Canadian economy. If China’s economy slows, that will also affect us, mostly in the export department. All of this can rattle the unemployment picture here at home. We’ve held our own through all of these factors since 2009 and so far there are no indications that will change.

Still, Canadians do need to get a handle on their debt load. The country has depended on the consumer, the government and the real estate market to weather the economic storm. Now the economy needs to find new places to grown while Canadians concentrate on paying bills.

Looking at the numbers, in the 12 months ending in September of this year, insolvencies for consumers decreased by 5.2 percent compared to the prior year. Bankruptcies fell by 10.7 percent, yet proposals for same, from consumers, increased 4.7 percent. This may mean that Canadians are trying to handle their debt earlier, or that they have exhausted other means of doing so.

The Bank of Canada, by holding their interest rates low, is giving Canadians a chance to catch up on those debts. Eventually they will go up, a quarter percent at a time most likely. That will have a greater impact on those who have large amounts of money to pay back.

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