As a collection agency with offices in Edmonton, Calgary and the GTA we recognize that the vast majority of consumers we inevitably end up dealing with are good people, with good intentions that have now simply arrived at the tipping point of having to either try to continue to rob Peter to pay Paul or, in the alternative, to make some hard choices in monthly budgeting in order to honour their outstanding financial obligations.
Statistics Canada released its latest report on household debt on Friday. A copy of the complete report can be downloaded by clicking here:
Some keys points the writer found of interest:
- In 1980 the ratio of household debt to personal income was 66%; this ratio recently passed the 150% figure in 2011. This means that Canadian households owed more than $1.50 for every dollar of disposable income.
- The total amount of household debt was particularly concentrated among those with at least $100,000 in household income as they accounted for 37% of all debtors but held 56% of all household debt.
- Households in British Columbia, Alberta and Ontario held 3 out of 4 dollars on debt in the country based on 2009 surveys.
- Those who were more likely to correctly answer questions related to financial knowledge and had higher levels of self-assessed financial knowledge were also more likely to have higher levels of debt, even when other characteristics such as income, age and education were taken into account.
The increases in aggregate household debt underscores the risk to household balance sheets in the event of rising interest rates and/or falling asset prices. When only months ago bond and futures markets were anticipating the possibility of the Bank of Canada cutting lending rates, they are now pricing in the possibility that borrowing costs will rise before the year is out. When rates eventually do rise, many debtors may very well be hard-pressed to be able to meet their obligations.
If enough Canadians become hard-pressed to meet existing obligations then demand cools and the cycle of falling asset prices begins. After being warned for years about the impact of rising intrest rates, over-indebted Canadians suddenly find themselves at a point where the day of reckoning is drawing near.