More Canadians Vulnerable to Economic Shock
Canadians have set a new record for household debt, leaving many vulnerable to an economic shock.
Dorian Blinko, President of Full Circle Debt Solutions, located near Vancouver, has seen his business expand year over year for the past five years. “The numbers show that we have three to four million Canadians who can no longer keep up with their bill payments. Some of those people will be able to turn to family, or will be able to sell assets to make ends meet. But for a lot of people, the need for reliable debt management and credit counseling services is very real. That factor has been driving rapid growth in our industry,” Blinko says.
Canadian household indebtedness has now surpassed levels of both the United States and the United Kingdom new Statistics Canada data show.
Any sudden negative event – a jump in unemployment, falling house prices or rising interest rates, for example – could put many thousands of families in financial stress.
Blinko has also seen the demographics of his clients shift. The average age has risen from people in their 30s to those in their 40s, as this demographic gets squeezed by caring for aging parents as well as for children.
Bank of Canada Governor Mark Carney has also sounded an alarm over burgeoning household debt. “Our greatest domestic risk relates to household finances,” Carney recently told CBC radio.
Roughly one in 10 Canadians find themselves in a vulnerable financial position, Mr. Carney said – meaning that the cost of servicing their debt consumes more than 40 per cent of their income – “and that, historically, is where people start to have issues in making their debt service payments.”
Household debt levels have become “excessive,” according to Derek Burleton, deputy chief economist at Toronto-Dominion Bank. “There’s a growing vulnerability to an unanticipated event.” Virtually all measures of household debt are “flashing warning signs,” he added. Credit market debt, at a record 150.8 per cent, is approaching comparable levels to the U.S. just before the housing market crash.
To complicate matters, Canadians now face falling real wages, job creation that has stalled, and the value of stock and pension holding have been eroded.
“The experts now say that we are vulnerable to economic shocks. Falling real estate prices, the European situation, or a jump in interest rates could push hundreds of thousands more Canadians over the edge—so the time to address your debt issues is now,” Blinko says.
