Even The Recession Didn't Slow Canadians Down
It's official. The average Canadian is now in debt a total of $41,740 according to the most recent report issued by the Certified General Accountants Association of Canada. They have shown that Canadians' household debt load kept rising through the recession and peaked in December at $1.41 trillion making the debt to income ratio 144 per cent. That makes Canadians the worst among the 20 advanced countries in the OECD.
This is an indication of Canada's obvious willingness to 'buy now and pay later' according to the association. Neither rising joblessness, the recession, nor global uncertainty have had an effect on the spending habits of Canadians and many are spending money they simply don't have.
The accountants survey also found that almost 60 percent of Canadians whose debt has increased were still confident they could manage their existing financial obligations or take on more. However, the Bank of Canada is warning Canadians to be careful and to make certain they will be able to make their mortgage payments once the rate increases take effect. Even though Ottawa has put into place a few cautionary measures when it comes to people applying for open-ended mortgages, the Bank of Canada still has its concerns as many households could find themselves struggling to pay the bills once the rate increases are implemented.
A survey done by the Canadian Association of Accredited Mortgage Professionals found that even a two per cent rate increase would mean that middle and higher income households would have to cut some of their non-essential spending by around nine and 11 per cent to meet their current financial obligations. It also showed that while most Canadians appear prepared to absorb the higher rates, a significant number of them would have difficulties in meeting the higher numbers. Mortgage professionals estimate that more that 475,000-mortgage holders would find it a challenge to meet these higher numbers if their mortgage rates rose to 5.25 per cent. It also found that 375,000 of them were already feeling the financial pinch to pay their bills.
Some feel that is the reason Canada did not experience a great recession to the same extent as other countries did was due to the record low interest rates which made it easy for Canadians to continue to borrow and spend. With increased interest rates, most people will have to cut back on spending on things like furniture, appliances and autos, which will have a ripple effect in the economy.
by: Molly Wider
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