Canadians’ love affair with debt has reached a new high, says a recent government report.
According to Statistics Canada, Canadians’ debt levels have exceeded the nation’s gross domestic product (GDP). The report shows that debt held by Canadian households rose to 100.5 percent of GDP in the second quarter of 2016. This is up from 98.7 percent in the first quarter of this year.
Researchers note that Canadians are taking on debt to maintain their lifestyles since their incomes are barely moving up.
Statistics Canada notes that part of the reason for the dramatic increase in debt is because Canadians’ income levels have stayed flat for the past five years – some suggest that incomes may have even decreased if you add inflation to the mix.
“The slow or no rise in the income of Canadians may be a contributing factor to the increasing levels of debt, but you have to ask the question that if incomes are stalling, why are people taking on more debt?” Doug Jones, a licensed insolvency trustee with BDO Canada said in an interview with Metro News. “When income slows, the last thing people should do is take on more debt. They should review their spending and expenses in relation to their income, but the last thing people want to do is to slow their lifestyle and consequently they take on more debt to sustain it.”
With the Bank of Canada (BoC) installing historically low interest rates, consumers are borrowing more and adding greater levels of debt to the pile. Of course, consumers are just following in the footsteps of the federal government, which is posting a $30 billion budget deficit this year.
The latest reports suggest that if the central bank were to raise interest rates, even by just 25 basis points, many Canadians would be flustered as they wouldn’t be able to sustain their debt.
JRATT says
It is not just Canadians that have taken on more debt. Living in the USA is not any better. I have increased my debt from $1,000 in 2007 to $15,000. It is very easy to do in today’s high priced economy, just $130 per month in extra spending will do it. When you can service the debt with 10% of your income it is easy to do. I am now using 30% of my income to pay down the debt. I will be debt free in 18 months.