Household Debt Rising Fast | General financial discussion | Discussion forum

Vatox said
This is 2018 data. But I’m sure that there haven’t been drastic changes to the distribution. The overwhelming majority of the Canadian population is in the first three quintiles.

https://www.statista.com/statistics/484838/income-distribution-in-canada-by-income-level/  

Looks like a fairly typical Bell Curve.

That's not true.

By definition, there is exactly 1/5 of the population in each income quintile. The top three quintiles have 3/5 of the households and all three quintiles have saved in 2020.

The data shows that the middle 1/5 saved 9.1% of their income in 2020 instead of overspending 15.6% the year before. That middle quintile saved about $23 billion.

It looked like every had some time to read The Wealthy Barber and ended up overspending less or saving more in 2020 as a result!

Some used it wisely to pay down debt or add to savings, while others (some portion of that 53%) just p***ed it away. Some of what I have been trying to say for some time but got slapped with a fish instead.

I also don't think much of the theory that rising interest rates will help solve the debt problem. It will help arrest the creep in new debt, but what we will mostly see is debt servicing problems of existing debt instead, including consumer proposals and personal bankruptcies. That trend may shop up by Summer 2022. We shall wait and see.

There is another reason.

The larger contributor is the pandemic’s distortion of disposable income readings. Government transfers at the start of the pandemic were much larger than the income lost at the time. It initially averaged two dollars of income support, for every dollar of income lost.

Prime Minister Trudeau argues that much of the CERB money found its way into the banks and telcos and that is why he is proposing to levy even more taxes on the banks.

canadian.100 said

Yes, the Liberals are planning to levy more taxes on the Banks.
I understand that the Banks are planning to protect their bottom line by laying off staff and boosting borrowing costs, if required.  

And in addition, continuing to pay us 0.01% interest on savings after borrowing costs rise. Or, at the very least, just wait and see how they don't match the extent of deposit rate increases with the extent of borrowing rate increases.

I simply said it was likely more consumer proposals and personal bankruptcies would occur with rising rates. That will hurt a lot of families and individuals.

From a personal perspective, I do hope BoC will do what needs to be done and that is to raise rates when and if it is clear certain aspects of inflation are not transitory and some heat needs to be taken out of the market.

The fear is rising rates may have to punitive enough to cause an economic slowdown in consumer demand to alleviate pressures in supply chains, reduce oil prices, etc. and trigger a real recession. OTOH, Omicron may take care of that for BoC. These are rather uncertain times. I would not want to be making those decisions.