Canadian line of credit debt increased by 50% since 2007
The Certified General Accountants Association keep track of Canadian household debt. Their latest report looks at Canadians attitude to debt, what they use it for, and how the money was borrowed. It is full of sobering statistics, but this one leapt off the page.
That sharply increasing blue line represents line of credit debt per capita. It is not just increasing it is increasing sharply. The change between the beginning of the credit crisis and now represents a 50% increase.
It is worth noting that the reason banks encourage the shift to lines of credit is often to get better collateral usually over a home. This is encouraged by low rates. The flip side of that coin is that the debt often becomes entrenched and permanent and the statistics bear that out. So even at low interest rates, there will be a lot of interest paid over many years, unless a concentrated effort to pay the debt down is made.
The report notes:
Ironic as it may be, the dynamic of the Canadian households’ use of financing
is one of the few things that did not, at least to the end of 2009, noticeably
adjust to a changing economic reality. The growth in household debt had been
strong during “good times,” showed a remarkable resilience during “challenging
times,” and seems to be set to continue its upward trend as we navigate
“interesting times.”
In other words the statistics suggest that Canadians are following the opposite of the advice that would be expected in times of economic doubt. Again this from the report:
Fewer Canadians report positive changes in their income and wealth. As well, few Canadians realize that negative economic shocks may affect their financial wellbeing.
if you were surveyed today, how might you answer this example question from the CGA survey?
Q.24 Please indicate which of the following statements applies to you…
- I have a clear idea of the amount of personal savings I need
to accumulate in order to assure that my financial situation at
retirement will be adequate- I am wealthier today compared to 3 years ago
- My parents or other individuals provide a substantial financial
and/or in-kind support of my household’s day-to-day living
