Tag Archives: debt

The problem with low debt levels

We’ve seen lots of warnings about dangerously high consumer debt levels in Canada for years now, but here’s something new: Millennials lack of debt may be a sign of trouble.

Insolvency filings by consumers have started to edge higher after a long decline that began after the last recession. As has already been widely noted, the share of insolvencies accounted for by seniors is growing faster than any age group. What has not had much attention is the fact that the young-adult share is falling. Could this be a rare bit of good news for a cohort of the population that has been struggling financially?

Falling insolvencies among young adults definitely sounds good, but every silver lining must have a cloud right?  What’s the chicken-little take on this situation?

Hoyes Michalos recently produced an analysis called Joe Debtor that looked at people who make insolvency filings. The firm says 86 per cent of debtors ages 18 to 29 are working, but their average income is the lowest of all groups at $1,996 on a net basis per month. The average unsecured debt for the group is $32,229, also lowest of all age groups.

Personal loans are the biggest debt component at $11,841 for young adults making insolvency filings, followed by credit cards at $9,858. Almost 30 per cent have student debt, with the average amount owed averaging $3,716.

Their problems in today’s economy may have kept millennials from worse debt problems, Mr. Hoyes suggests. “If you haven’t been able to get a decent job, then it’s a lot more difficult to get into a huge pile of debt.”

In today’s debt-hungry world a lack of bankruptcies is indicative of a low income, how’s that for a bummer?

Time for another recession?

It seems like it was just a few years ago we had a recession, could it really be time for another already?

The Canadian economy has now contracted four months in a row and if that trend continues will Poloz have to cut rates again?

Economists have already written off the first half the year, but something better was still expected for April.

This also brings into question the outlook that had been painted by Bank of Canada Governor Stephen Poloz.

A recession is typically defined as two consecutive quarters of contraction, meaning May and June will have to be stronger to avert that in Canada.

Even if the May showing is flat, said Andrew Grantham of CIBC World Markets, there could still be a “modest negative” for the second quarter.

“It probably already feels like a recession for people in Alberta and Saskatchewan,” he said.

Read the full article here.

Who’s worried about debt?

According to this article over at the CBC, Canadians love a good home equity line of credit – they’re practically addicted to that sweet sweet HELOC money at rock bottom rates.

“We are addicted for sure. Who wouldn’t be addicted to something so easy [to get]?” says 35-year-old Ali about the free-flowing lines of credit that have enabled him to splurge on the finer things in life.

“It’s easy, accessible cash at a very cheap price. The banks make it so easy for you to obtain it,” says the software engineer.

Some people say the national reliance on debt is a risk to our economy and to the lifestyles of the indebted.  But the Canadian Bankers Association isn’t worried and spenders say they are aware of the risks:

While Ali and Haji like to spend, they believe they’re behaving responsibly and say they’re aware of potential pitfalls. That’s why they’re still undecided about another loan.

“If you get a line on this [house] and God forbid something happens to me or [my wife] and we are unable to sustain our lifestyle or stream of income that we have, then we would be in trouble and that may lead to us losing this house,” says Ali.

And that’s why some rooms in the family’s home remain empty. Ali shows CBC News his large, mostly barren master bedroom and talks about his grand plans to furnish it — sometime in the future.

“Without the credit line, it’s slow,” he laments.

But things could always change. The couple says just last week the bank called, inquiring if the family was interested in another loan.

Read the full article here.

 

Canadians deep in debt and getting deeper

The Globe and Mail nicely sums up the current Canadian obsession with taking on household debt. This infographic has all the pretty charts related to the current situation in which current debt totals a record $1.8 trillion. Just over a trillion of that is Mortgage debt, with the other big growth seen in lines of credit and car loans.

One Trillion is a big number and it can be hard to visualize.  Here’s one way to put it into perspective:

If you spent $1-million every day, it would take you 2,740 years to spend $1-trillion.

Albertans carry the largest debt to income ratio followed by BC. It seems the nation loves debt, but the west loves it best.

Read the full article here.

Friday Free-for-all!

It’s that time of the week again!

Friday free-for-all time!

This is our regular end of the week news round up and open topic discussion thread for the weekend. Here are a few recent links to kick off the chat:

How much is Canada overvalued?
More on debt levels
CMHC rates correction risk low
Raise taxes?
Everyone wants to live in… LA?
Poloz: no risk of bubble
Developer is corruption suspect?
What if you could only get 5 mortgages?
Yellens’ zombie economy

So what are you seeing out there?

Post your news links, thoughts and anecdotes here and have an excellent weekend!