What are the causes of Canadians’ indebtedness?
Matthew Fabian, Director of Financial Services Research at TransUnion Canadasaid that many households’ incomes couldn’t keep pace with inflation and better rates of interest, in order that they needed to depend on loans.
“Consumers whose mortgage payments have increased significantly have made this conscious trade-off to pay less on their credit card, and in some cases they are missing their payments,” Fabian said in an interview. “We have found a higher rate of delinquency on credit cards among consumers with mortgages than among consumers with traditional credit cards.”
How much debt do Canadians have?
Total consumer debt in Canada was $2.38 trillion in the primary quarter, in comparison with $2.32 trillion in the identical quarter last 12 months, just barely lower than the record $2.4 trillion within the fourth quarter. According to the report, 31.8 million Canadians had a number of credit products in the primary quarter, up 3.75% year-over-year. The increase was mainly as a consequence of latest entrants and Generation Z taking out their first credit products. The report showed that outstanding bank card balances amongst Generation Z increased 30% year-over-year.
“The younger generation is getting access to credit for the first time in their lives,” Fabian said. “They’re still learning how to use it, they’re still learning what it means to pay off their monthly debts.”
At the identical time, millennials hold nearly all of the country’s debt — about 38% of all debt — which the report says is probably going as a consequence of their greater need for credit as they age. “They’re at the stage of life where they’re likely to have kids, buy homes and take out car loans,” Fabian said. “The debt structure has shifted, whereas 10 years ago the majority of them would have had credit cards and car loans.” (Read: “How much debt is normal in Canada? We break it down by age”)
Is there a risk of mortgage defaults in Canada
Fabian said he was not too concerned about households falling behind on their mortgage payments since the banking regulator had introduced a strict selection process for mortgage approval. He also said cash-strapped consumers would often repay their mortgage first, while taking out other credit products reminiscent of automobile loans or bank cards.
While there are concerns about default among the many vulnerable population, Fabian said, “We’re still seeing pretty good resilience in the Canadian consumer base, especially when you look at how quickly it’s grown with Generation Z and the volume of credit.”
He added that rate of interest cuts, expected as early as June, could ease the burden on households over time. “We expect the market to return to normal,” Fabian said.
