Canadian household debt is far higher than previously thought relative to income, Statistics Canada’s historical revisions showed on Monday.
A new record!
The main reasons for the revisions were that the new methodology resulted in a higher calculation of household credit market debt and lower disposable income. Statscan also removed non-profit institutions serving households from the household sector when making its estimates.
The soaring debt levels, fueled in part by a hot housing market, have led Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty to warn Canadians repeatedly against getting too deep into debt at a time of ultra-low rates.
The problem is that interest rates are so low – young 20 and 30 year olds have never seen double-digit interest rates (I haven’t paid lower than 5% for a mortgage being a home-owner), so the appetite for debt is everywhere.
What is the answer?
1 Comment
I think it’s time for the Bank of Canada to raise interest rates. Young people (myself included) need to learn that money doesn’t grow on trees. Although we’ll more than likely never see double-digit inflation again, we need to remember that interest rates are normally at 5%-6%. It would be prudent to pay off your major debts like your mortgage aggressively while rates are low in anticipation of a rate hike. Mark Carney is chomping at the bit to raise rates – do you really want to get squeezed when he finally moves?