View Full Version : Canadian personal debt now exceed U.S. at it's worst
iris lilies
1-5-14, 5:12pm
This article
http://www.cbc.ca/news/business/personal-debt-ratio-hits-record-high-of-163-7-1.2462954
states that the average credit market debt for Canadians is 163.7% of income. "That means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year."
Someone on Mr. Money Mustache commented that this is higher than the debt ratio in the U.S. when it was at its worst a few years ago but I didn't google to verify.
Some of the comments on this article are good to place this one single measure in perspective, but still--it's not exactly good news for Canadians. What's driving the consumerism up north?
I don't know exactly. But there doesn't seem to be any fear, at least in my area. There's been virtually no economic downturn here at all. 2008 had no effect on Manitoba. I haven't heard of a single economic related lay-off in my province or social circle. House prices continue to sky-rocket. Banks are still allowing you to borrow insane amounts of money. We got a mortgage 1/3 the amount we were actually approved for, because that's the amount that made sense for us, and neither of us (DH and me) count on our jobs being there tomorrow, even if losing them makes no sense. But others don't seem to think of those things at all. It's still spend, spend, spend. I suspect a lot of people are thinking their home equity is guaranteed and are using credit lines against their houses.
It's all about cross-border shopping, clothes, shoes, toys, vehicles, etc. Of course DH and I aren't poor so have our fair share of toys, but our net worth is high and our saving rate is still around 50%.
I wouldn't mind a crash because personally, we may be in a good position to take advantage of it, and buy more Canadian stocks and/or some rental properties. But generally, I wish it wouldn't take a major financial disaster for people to realize the error of their ways.
With a lot of retirees in my circle, we are all pretty thrifty and aware of spending so not sure what is happening. I do see a lot of people with the latest gadgets, smart phones and large TV's. There are a lot of new cars on the road so that is part of it, I think.
Just a caution re statistics, I have $$ registered in a car loan but ...when I was research/shopping in the spring, I got quotes. In September, I was in the market to buy and did a lot more research. I could cash in a GIC or get a interest-free loan. The actual final cost was the same for cash sale or interest free loan. Why would I cash in my GIC that was earning interest? So stats don't tell about the loans that are cheaper than the rate of interest being earned on investments. Is that distortion part of the issue?
With a lot of retirees in my circle, we are all pretty thrifty and aware of spending so not sure what is happening. I do see a lot of people with the latest gadgets, smart phones and large TV's. There are a lot of new cars on the road so that is part of it, I think.
Just a caution re statistics, I have $$ registered in a car loan but ...when I was research/shopping in the spring, I got quotes. In September, I was in the market to buy and did a lot more research. I could cash in a GIC or get a interest-free loan. The actual final cost was the same for cash sale or interest free loan. Why would I cash in my GIC that was earning interest? So stats don't tell about the loans that are cheaper than the rate of interest being earned on investments. Is that distortion part of the issue?
Good point about the loans. That's what we did as well. Could have paid for the car with cash, but the interest rate was less than half what our savings accounts were making, so we took the loan. Net worth stats would help with that discrepancy, but then you get the overvalued housing market skewing the numbers.
What's driving the consumerism up north?
Guns. They're all buying guns while they still can. :devil:
When our mortgage was new, we were probably close to that or worse. That doesn't seem to be such a shock unless there is a bunch of credit cards and car loans thrown into the mix. Our debt to income for last year was 8.7%, and that was all mortgage.
Nicely done pcooley, very nicely done.
Like previous posters have mentioned, it's all about what the debt is. Currently SO and I have no debt and have a decently positive net worth. Not millionaire next door net worth, but we're working towards that. However, we don't own our home, we rent. In a very pricey city. We've crunched the numbers and it makes more sense for us to rent.
If we were to take every penny of our savings and put it toward housing and then borrowed the rest of the purchase cost of a house we would be as bad as the average of the people in the article. But with our current financial situation we wouldn't register in the article.
ToomuchStuff
1-7-14, 7:15pm
This article
http://www.cbc.ca/news/business/personal-debt-ratio-hits-record-high-of-163-7-1.2462954
states that the average credit market debt for Canadians is 163.7% of income. "That means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year."
I went and read the article, thinking you quoted it; you didn't. (thankfully)
The above statement "credit market debt for Canadians is 163.7% of income", would't be disposable income but total income.
Simply Divine
1-7-14, 9:31pm
I went and read the article, thinking you quoted it; you didn't. (thankfully)
The above statement "credit market debt for Canadians is 163.7% of income", would't be disposable income but total income.
That's still not good. From the article:
Policymakers are fixated on the debt ratio in part because it was at above 160 per cent that households in the United States and Britain ran into trouble about five years ago, contributing to defaults and the financial crisis that triggered the 2008-09 recession.
ToomuchStuff
1-7-14, 9:45pm
That's still not good. From the article:
Never said it did.
A misquote of that magnitude, makes me doubt the math or any "science" of the article.
iris lilies
1-7-14, 10:41pm
Never said it did.
A misquote of that magnitude, makes me doubt the math or any "science" of the article.
I am not sure of your point and I don't understand what "misquote" you are seeing.
How is it good to have more debt that income? Is it that you think this article includes mortgage debt (and it likely does, but that's not entirely clear to me.)
Perhaps the main takeaway is the comparison to U.S. citizens and their debt when things sent sour a few years ago.
Credit Market Debt may have need of clarity in definition. If you are in accounting, you may see it differently than the general public. According to the definition, it seems to be anything that involves payment of interest to a corporation so my fully funded auto debt would be part of it as may be many other debts which are interest-free (still have a hard time believing this but I checked and doublechecked) but somehow payment of interest is being made by someone. I bought a Toyota Prius V and am paying off an interest-free loan to Toyota Finance so they have an interest-free scheme that makes financial sense to them.
With the general low rate of interest, corporations have become creative to generate income for their shareholders. This would be included in the credit market reports, I would think.
CBC writers may not be quite clear on their use of language.
Identification
Credit market securities identify loans that make interest payments. These investments include bonds, certificates of deposit and commercial paper. The credit market is significantly larger than the stock market.
Read more: http://www.ehow.com/facts_6098818_definition-credit-market-debt.html#ixzz2poWWS7Mn
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