Canadian households are “awash in debt,” warned the Financial Planning Standards Council in mid-March, echoing a drumbeat of similar, dire pronouncements by economists, consumer advocates and media commentators in recent months about the spending habits of Canadian families.
The warnings have been reinforced by a stream of data, including news from Statistics Canada that the ratio of household debt to disposable income increased to a record 178% in the final months of 2018 – double what it was at the end of the 1990s. Meanwhile, insolvencies and delinquencies on consumer debt have both increased since the end of last year, a red flag for the consumer economy.
If Canadian households are trapped in a debt crisis, Atlantic Canadians seem hardly aware of it, or at least don’t believe they’re part of the problem. When the Atlantic Quarterlyasked 1,503 residents across the region in February whether they agreed or disagreed with the statement – “You live within your means, spending no more than your income allows,”nine out of 10 agreed, including 51% who completely agreed that they live within their means.
When asked whether “You have good understanding of how much you spend each month,” 96% agreed, including 59% who completely agreed. And when asked if “you are currently able to pay your regular bills and debt obligations every month,” 95% agreed, including 69% completely.
This is not the picture of a region drowning in a sea of overspending and excess credit – at least not by its own self-assessment.
Equally curious is that the high level of comfort Atlantic Canadians express with the state of their personal finances extends right across demographic lines. While 89% of those with household incomes of $100,000 or more believe they live within their means, so does the exact same percentage of people with incomes of less than $50,000. And while 94% of Baby Boomers and seniors (aged 55 or up) say they spend only what their income allows, so do 88% of Millennials, and 88% of Gen-Xers. The vast majority of Atlantic Canadians clearly see themselves as responsible stewards of their finances whether they’re young or old, wealthy or working-class, university-educated or not having finished high-school.
That’s not to say the region’s families don’t own significant debt. Atlantic Canadian households spend an average of 11.4% of their disposable income just servicing their debts (slightly below the Canadian average of 13.7%) according to a 2018 report by RBC Economic Research. Actual consumer debt ranges from $36,600 per household in Nova Scotia and New Brunswick, to more than $37,000 in PEI and nearly $39,000 in Newfoundland and Labrador (compared to the national average of $39,500), reports the Canadian Council on Social Development. Those numbers triple when mortgage debt is factored in.
Are such debt levels and servicing costs cause for concern? Are the experts and financial agencies raising false alarms, or are Atlantic Canadians in denial about their debt and spending challenges?
Agencies such as the Canada Mortgage and Housing Corporation are warning that rising interest rates could soon bring pain for many. Rates have climbed steadily since mid-2017, and although these now appear to have stabilized, the impact of higher rates will likely start taking effect in about 2020, as people begin renewing fixed-rate mortgages at higher prices.Combine this looming interest rate challenge with the fact that wage growth has not kept pace with inflation. Narrative Research polling shows that Atlantic Canadians received pay increases averaging 1.2% last year, while inflation was 2.2%, according to Stats Can. As a result, people will either borrow more to fill the wage-inflation gap – and have less ability to service their debts at the higher rates – or they’ll consume less, resulting in a perfect financial storm for households and the overall economy.
Despite the sanguine attitude many Atlantic Canadians have regarding their personal finances, there is some awareness that debts could become a problem if family circumstances change.In the latest Atlantic Quarterly polling, 95% say they can pay their regular bills and debt obligations every month, but only 71%, say they could do so if they had an unexpected $1,000 expense. Only 68% (or 57% of those earning less than $50,000 a year) could do so if they missed a single paycheque.
This means nearly one-third of Atlantic Canadians would be in the lurch – scrambling to pay their mortgages, car payments and credit cards – in the event of some emergency.
Rob Carrick, a personal finance columnist for The Globe and Mail, suggests that as money stress mounts for families, debt issues may impact the political calculations of Canadian voters. “Financial stress could become a public discussion in the federal election campaign coming this fall,” he writes.
But how much stress are Atlantic Canadians actually feeling? Only two in ten tell the Atlantic Quarterly that they feel a great deal or quite a bit of stress because of their debts, while as many as half say the money they owe causes them not much or no stress at all. At the same time, only about one in ten Atlantic Canadians express concern that they’ll never be able to pay off their household debts.
Meanwhile, only half of Atlantic Canadians under the age of 65 agree that they are saving enough money for retirement. This is not only a worrisome finding in a region with a large and growing proportion of senior citizens, it also suggests a disconnect with the overall lack of concern about household finances. On the one hand, Atlantic Canadians aren’t stressed out about money, yet they recognize they aren’t saving enough for the future.
Consider also that many of these numbers haven’t changed in two decades. When the Atlantic Quarterly asked the same questions about debt stress and debt repayment concerns in 2000, the result was virtually the same as when we asked them in February this year.
Consumer and mortgage debt may be rising and households may be increasingly challenged to pay for it. But as the experts wring their hands and issue their warnings, the mood of Atlantic Canadians appears largely unchanged, and unmoved.
- Narrative Research
Financial Planning Standards Council: One-in-five Canadians with debt will need to liquidate assets to pay it down in 2019. http://fpsc.ca/alerts-updates/2019/03/13/one-in-five-canadians-with-debt-will-need-to-liquidate-assets-to-pay-it-down-in-2019
CBC: Statistics Canada Says Household Debt Grew Faster Than Income in Fourth Quarter. https://www.cbc.ca/news/business/household-debt-income-1.5056159
Globe and Mail: Delinquencies on Canadian lines of credit tell an intriguing tale. https://www.theglobeandmail.com/business/briefing/article-delinquencies-on-canadian-lines-of-credit-tell-an-intriguing-tale/
RBC Economic Research: Focus on Canada’s Household Debt. http://www.rbc.com/economics/economic-reports/pdf/other-reports/householddebt_apr2018.pdf
Canadian Council on Social Development: Cross Canada Check-up.http://nfhi.ca/wp-content/uploads/2018/12/PRO-025_NFHI-Report_og01.pdf
Canada Mortgage and Housing Corporation: Household Debt to Income Ratio Near Record High. https://www.cmhc-schl.gc.ca/en/housing-observer-online/2018-housing-observer/household-debt-income-ratio-near-record-highGlobe and Mail: This is why Canadians are so stressed out about money despite good economic times. https://www.theglobeandmail.com/investing/personal-finance/article-cars-houses-facebook-and-stagnant-incomes-why-youre-so-stressed/