Stop me if you’ve heard this before. Canadians are spending money they don’t have. Yes, the broken record keeps playing but Canadians are not listening to the music. Economists have been warning consumers for the last few years to pull in the reins on spending.
Despite the warnings, a new Statistics Canada report suggests Canadians are still over extending their spending habits and borrowing more than they can afford to pay back.
“If you’re in debt, it means that you don’t have a positive flow of income…You borrow $1,000 and you pay it back. Next month, you borrow $1,000 and pay it back. There’s going to be a month where you can’t pay it back,” says Ed Portelli of OCCA Consumer Debt Relief.
Rather than spend less or tackle looming debt, Canadians would rather behave scared ostriches and still their heads in the sand and ignore reality. According to a recent report by credit monitoring firm Equifax, the total amount of Canadian credit market debt — a figure that includes mortgages, non-mortgage loans and consumer credit — rose to $1.529 trillion at the end of 2014.
The bulk of this increase was new mortgage debt, suggesting Canadians are continuing to take advantage of lower interest rates to dive into the ever-burgeoning housing market. Credit card companies are practically begging consumers to take on more credit with credit card.
According to Statistics Canada, Canadians’ debt-to-income ratio in the fourth quarter of 2014 was at an all-time high of 163 per cent. That means for every dollar of income, Canadians carry $1.63 of debt.
Ed Portelli sees thousands of consumers flood the doors of OCCA Consumer Debt Relief every year looking to get the debt monkey off their back. It’s too easy obtaining credit from banks and credit card companies and the average consumer has not been educated on proper credit responsibility or spending practices. Most consumers are not even aware the average interest rate is 20%.
It’s never been easier to buy a car, get a mortgage, obtain a credit card or borrow money from any of the world’s top banks. Banks want you to believe you are richer than you think, when in reality…you are not.
By far the biggest component of household debt, however, is mortgages. Given the seemingly unstoppable rise in home prices in Canada’s biggest cities, consumers are taking on massive mortgages to get into the housing market.
According to a new report by the Royal Bank of Canada, mortgages are responsible for the recent jump in household debt. New residential mortgages rose 5.4 per cent in January compared to a year earlier, to over $1.2 trillion.
The main reason Canadians have been able to take on more mortgage debt is because interest rates are at an all-time low, thanks in part to the surprise cut in January to the prime rate set by the Bank of Canada, which is currently 0.75 per cent.
Ahmed-Haq says the previous Bank of Canada governor, Mark Carney, was “like a father figure,” constantly reminding Canadians to be aware of household debt and the fact that interest rates would eventually rise.
There was always this underlying feeling that he’s aware and he’s concerned,” she says.
She doesn’t see the same level of concern from current governor Stephen Poloz. But Ahmed-Haq also admits that people may have the wrong impression of the central banker’s mandate.
“People always think the Bank of Canada is there to help us borrow money,” she says. “But the Bank of Canada is really just there to make sure inflation stays in check.”
Are you tired of hearing the Bank of Canada, or “Big Brother” as some may refer, continually warn us to stay in check with our spending? It’s time to start to listen, my fellow Canadians, to that broken record!
For more information about how you can control your spending or how to resolve any debt, visit our blog at www.occa.ca/blog.