PARLIAMENT HILL, Ottawa—Canadians need a lesson in money management according to Finance Minister Jim Flaherty and others.
As Christmas approaches and charge cards heat up from being run through terminal machines, personal debt levels have the government and Bank of Canada worried, but not the average Canadian.
A generational shift has seen people moving from saving for purchases to carrying more debt than ever before and that has Patricia White, executive director of Credit Counselling Canada, concerned.
Her group, an umbrella association of not-for-profit credit counsellors and government agencies, has been raising a red flag over debt levels and a trend that sees more Canadians borrowing against their mortgage to consolidate other debt.
She said it came as no surprise when Statistics Canada said Monday that the ratio of credit market debt-to-disposable income has hit a record high of 148 percent. That’s the highest since Stats Can started recording the statistic in 1990 when the ratio was 87 percent. That's a trend that has economists worried.
Roughly translated: the average Canadian owes almost 50 percent more at any given time than their annual after-tax income.
White says few have extra cash on hand for an emergency, let alone long-term savings.
“We just seem to be in a culture that says we don’t even want to think about saving for retirement.”
A trip to the school of hard knocks may be the only solution, she suggested.
“This is a ticking time bomb,” said Liberal Deputy Leader Ralph Goodale, a former finance minister under Paul Martin.
“For every dollar of disposable income in the hands of the average Canadian family today, there is $1.47 in household debt. That is a ratio that is simply unsustainable.”
Goodale said the average family has debt very close to $100,000. “That is why the governor of the Bank of Canada has been very vociferous on this subject,” he said.
“He is quite right to raise the alarm bells.”
On Monday, Bank of Canada Governor Mark Carney told the Economic Club of Canada in Toronto that turbulence in Europe is a reminder how fragile the global economy remains and said it will take years to fix a world “awash in debt.”
Carney said low interest rates lure households and business to take on more debt than they can carry.
“Low rates today do not necessarily mean low rates tomorrow. Risk reversals when they happen can be fierce: the greater the complacency, the more brutal the reckoning.”
