Credit

Canadians have a serious debt problem

(Special) – Stated quite simply, the debt load of Canadian consumers is becoming alarming.

Two new reports show that Canadians are living under so much debt that delinquency rates are expected to start increasing in the coming months and many Canadians are so burdened with debt they don’t know what to do about it.

A report on consumer credit trends by Equifax Canada has found that total Canadian consumer debt including mortgages climbed to $1.864 trillion in the second quarter of 2018, up two per cent from the first quarter of the year and up 5.4 per cent from a year ago. The agency predicts that higher interest rates, slower economic growth and a dampening effect on new mortgage volume will spur an increase in delinquency rates.

In its inaugural affordability index, BDO Canada has found that 74 per cent of Canadians live under the burden of debt, so much so that 30 per cent don’t have enough money for basic needs and a quarter are so overwhelmed with debt that they don’t know what to do about it.

Although their numbers differ slightly, taken together the reports show that among those who have debt, Canadians’ average debt load is anywhere from a little below $20,000 to a little more than $23,000 a person.

“It’s no surprise that Canadians are overburdened by debt, but what our affordability index sheds light on is how serious the affordability challenges are for so many Canadians,” says Doug Jones, president of BDO Canada’s financial recovery services practice. “This lack of affordability suggests that a significant group of Canadians rely on various forms of debt to cover their spending and many find themselves feeling lost and overwhelmed by this debt.”

The debt dilemma appears to be affecting most segments of Canadian society, most notably women and millennials but also gen-Xers and Canadian families in general.

Women in Canada are more likely to struggle with affordability than men, the BDO report shows. Women find it more challenging than men to save for retirement, save for a major purchase and afford transportation costs and they are more likely to carry heavier debt than men.

“The report did not delve into the reasons behind many of its findings but I would speculate that the reason women struggle more than men when it comes to debt is because women generally earn less than men and the ability to afford things is based heavily on income,” Jones said in an interview.

Millennials aged 18 to 34 also are significantly impacted by affordability in Canada with 18 per cent saying they are actively delaying having children due to affordability. Women and millennials reported being poorly or terribly prepared for purchasing a home, dealing with unexpected costs, having children and saving for retirement.

Gen-Xers and families also are struggling.

One third of gen-Xers aged 35 to 54 report having no savings at all while another 37 per cent beyond that say they have too little in retirement savings. Among the 83 per cent of this group — the age group most likely to have debt — six in 10 report carrying a credit card balance and 37 per cent have between $5,000 and $24,999 in non-mortgage debt.

“What this can lead to is an increase in seniors who are unable to finance their final years and must rely on credit cards and other forms of debt to support their living expenses,” Jones says.

Canadians with children are far more likely than those without children to say their debt is so overwhelming that they don’t know what to do about it. They are more likely to find it challenging to pay for living expenses such as food, housing, utilities, transportation, retirement, leisure and clothing than those without children.

Across the country BDO Canada has more than 60 Licensed Insolvency Trustees (LITs), the only professionals licensed by the federal government who can file consumer proposals or bankruptcies on behalf of individuals, to help people work through their debt problems.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Talbot Boggs , The Canadian Press