Canadians fall deeper into debt

Millennials doing a better job of staying afloat than Gen X however

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(Mike Kemp/Getty Images)

(Mike Kemp/Getty Images)

If the Bank of Canada was hoping its low-interest rate policy would encourage spending it can relax—it’s working. Canadians are adding to their debt levels at a dizzying rate.

According to TransUnion’s latest credit trends report, the average consumer debt, excluding mortgages, rose 2.3% in the fourth quarter to $21,428. It’s a sharp reversal from a year earlier when Canadians were paying down their debt faster than they were adding to it. Jason Wang, TransUnion’s director of research in Canada, doesn’t expect this trend to reverse again any time soon given the recent rate cut by the Bank of Canada, which makes borrowing more affordable.

While consumer debt levels are rising nationally, there are a few cities bucking the trend. Consumer debt levels in Calgary and Edmonton fell 0.59% and 0.11% respectively in the latest quarter, although consumers in those cities remain the most indebted in the country. In Calgary the average consumer debt balance, excluding mortgages, is $28,751 while in Edmonton the average consumer owes $24,651.

Wang has a theory on why debt levels are starting to crest in Alberta: “People are starting to brace for a somewhat worse economic outlook. That just shows that consumers are being more prudent than ever.”

Consumers in Toronto might want to follow the example set by Calgary and Edmonton. The average Torontonian now owes $20,522 in non-mortgage debt, up almost 4% from the same period a year ago.

Of course the slide in oil prices will likely have implications well outside of Alberta, it might be a good time for everyone to take stock of their debt levels. “This is a good time for consumers to take a hard look at their ability, their limits and how much they can spend and how much they can borrow because every penny that they borrow they will eventually have to pay back,” says Wang.

Non-mortgage debt levels by major Canadian city


Market Q4 2013 Q4 2014 Change
Vancouver $24,439 $25,077 2.61%
Calgary $28,922 $28,751 -0.59%
Edmonton $24,677 $24,651 -0.11%
Toronto $19,743 $20,522 3.95%
Ottawa $19,637 $20,079 2.25%
Montreal $15,368 $15,777 2.66%
Canada $20,945 $21,428 2.30%

Source: TransUnion

While debt levels are rising overall, the good news is the 90-day delinquency rate (the ratio of accounts that are more than 90-days past due) has been falling. Over the past year delinquency rates in Canada have declined by 2.6%, with British Columbia and Ontario showing the most improvement.

But unlike consumer debt levels, the delinquency rate is driven more by generational differences than geography. According to TransUnion Gen X (those born between 1965 and 1979) have the highest delinquency rate in the country at 2.86%. By comparison Gen Y, despite being perceived to be riskier borrowers, have a delinquency rate of 2.76%.

Those born before 1945 are the most on top of their bills with just 1.2% of that cohort failing to make payments to their credit cards within 90-days of their due date.

And it’s not just those who have maxed out their credit cards who are falling behind on their bills. “There is no straightforward connection between the level of balance and the delinquency level,” says Wang. “It really depends on a lot of factors.”

Delinquency rates by generation


Group 90-Day+ Delinquency Rate Average Credit Card Limit
Gen Y (born 1980 - 1994) 2.76% $8,070
Gen X (1965 - 1979) 2.86% $16,584
Baby Boomers (1946 - 1964) 1.95% $20,031
Pre-War/Silent (born before 1945) 1.20% $16,337
 

Source: TransUnion

 

3 comments on “Canadians fall deeper into debt

  1. Could the debt be related to car loan as well? In the US, 5 year car loan is becoming the norm. Many people see car loan as “good debt” and don’t mind it.

    When I buy my car last year, the dealership was not pleased that I paid cash. I thought I would have more leverage in negotiation. Turns out they only offer discounts for loans. They often push customer to buy the most car that they can borrow.

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  2. Of course millenials are doing a better job staying afloat. Many still live at home with their parents, are younger and do not own a home or have children. In a few years, they will be in that time of life when mortgages, insurance, daycare, etc. pull their money in many different directions. It’s not that they are spoiled, etc. they just aren’t currently in the time of life when their money has so many demands on it. It will happen as their life dynamics change.

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  3. I have a problem with any stats that remove a portion of ones debt. In this case, the mortgage. In two years from now, my mortgage will come up for renewal. I will have a small balance on it and to provide myself more flexibility and lowest fee options, I may opt to just pay it off and put 20K on a line of credit that I can pay off at my will/timeline. If I were to do this, all of a sudden I would be a Gen Y’er with 20K in non-mortgage debt. Looks bad at first glance, until you realize I have a 275K house paid for.

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