MNP Consumer Debt Index - January 2018 | General financial discussion | Discussion forum

Our debt ratio has been climbing a bit almost every quarter. No wonder many people are on the precipice. People just have to stop taking on more debt.

Hopefully, slow federal tightening of maybe 50-75 bp per year for the next 2-3 years will cause people to pull back on additional credit and start paying off debt instead.

https://www.thestar.com/business/economy/2017/12/14/canadas-debt-to-household-income-ratio-rises-to-171-per-cent-statcan-says.html

Though I know trends are the key, I do notice that pretty well every stat cited in TopItUp's link above indicates the majority of Canadians are not indicating they are having financial difficulties. So that's heartening, those in trouble are in the minority.

AltaRed, I never understand what these numbers mean. Does it mean that, if I'm average, my debt (including mortgages) is $171% of my annual income? If so, doesn't sound so bad to me, especially if my house is worth $800K or more.

It also says "Statistics Canada said the household debt service ratio, measured as total obligated payments of principal and interest as a proportion of household disposable income, was relatively flat at 13.9 per cent, while the interest-only debt service ratio was 6.3 per cent, down from 6.4 per cent in the previous quarter." That says to me that for every $100 of disposable income (per year? per week?) I'm paying $13.90 in principal and interest. That doesn't sound too bad to me either.

voodoo22, seems to me we don't handle our finances better because we do what we see our friends and neighbours around us doing, pretty much. Few humans live very differently from the others in the same tribe, so it doesn't matter how wealthy our society is, we all pretty mimic what each other is doing, whether we live in the 3rd or the 1st world.

I agree, AltaRed, but I think it's always the case that 35 year-olds have debt while 65 year-olds don't, takes a few decades of working to get in the clear, always been like that. And, a new historical phenomenon: actually a lot of boomers still have debt because many of them got divorced along the way and I'm told by one of them that there's quite an exit fee from the marriage toll road, never mind the cost of setting up another household at a later age. But the millennials, due to boomers being the first generation with the norm being both spouses in the workforce full time for decades, stand to inherit large amounts compared to previous generations (especially those whose boomer parents live in GTA, etc) so maybe they're racking up debt knowing the ship will come in some sweet day.

Bill said
voodoo22, seems to me we don't handle our finances better because we do what we see our friends and neighbours around us doing, pretty much. Few humans live very differently from the others in the same tribe, so it doesn't matter how wealthy our society is, we all pretty mimic what each other is doing, whether we live in the 3rd or the 1st world.  

Interesting observations in this thread. I see no problem with people carrying debt to accomplish what is important to them, but the extra level of doing it just to follow the herd or go on vacation, just because others are doing it. It's unthinkable to me and seemingly to you all as well. I've even seen this attribute in people who are extremely wealthy. Never satisfied, not because of what they have, need or want, because that person down the street has more than them so they have to spend more or even go into debt to have it.

We worked extremely hard to be debt free by our 40's with no intention of going back. If that means 1 economy car instead of 2 luxury cars, a smaller house, less things.. who cares! I'm most grateful my wife thinks this way as well, so no tension in our relationship.

I think the idea that this problem appears worse than it is, because those in debt are really in debt, is correct. Debt seems to be like plastic surgery, once you think it's ok everyone in that group ends up looking like Mr. Jackson.

Save2Retire@55 said
I think we just need to start teaching our kids money management and finance lessons starting at primary school ages. We are a very consumer based society. Many of my friends have incomes of up to $200K (House-hold income) and they still can't finish the month just relying on that monthly income. People keep buying stupid new electronics they would never utilize 20% of the potential features. Let's just buy this iPad and that new iPhone, etc. Let's just get a new car or replace this and that. Let's buy fancy clothes and furniture using our credit cards.

I don't believe the problem is about not having sufficient income. It is about knowing how to spend your money. People need to get their finance together.

** I wrote this with anger **  

The problem is how you calculate your disposable income. You can live far above your means if you finance your purchases. Why pay cash for anything when you can spread it out over the year or even years. Car insurance, house insurance, new car, new furniture, latest $1000.00 cell phone, vacations. Soon the monthly payments eat away at any left over income. Buy now- pay later-no interest for the first year (unless you don't pay it off...then it's all backdated), 84 months is the new standard for car loans so why buy a Corolla when you can get Lexus? Meanwhile your total debt compounds quietly in the background until it can't be ignored any longer. Unfortunately, that is also the mindset of our politicians. I fear what will happen when our collective federal/provincial debt becomes too onerous to ignore.

One problem is the way our economic system is organized, from what i can see. Count me naive, but I was astounded to realize a few years ago that GNP is dependent to a significant degree on consumer spending! If we don't spend, apparently our GNP goes down, and our economy is considered to be in worse shape. Similar comments are to be found in today's announcement about Bank of Canada rate rise - see Peter's post. I had stupidly assumed that that "Product" in "GNP" meant actually producing something.

Seems to me, we give people two opposite messages. Save. Spend. In both cases, the more the merrier. Adding in the impact of advertising etc., the latter tends to win out whenever financially do-able.

Until we find some other way of measuring things, and perhaps even of organizing our lives and our society, we're going to be in trouble. it's a much bigger problem than debt, big though that is.
Even if GNP only referred to Production and did not include Consumption, a lot of what is produced is absolute junk that nobody really needs , uses up irreplaceable natural resources ( in its production, packaging, transport, use and disposal) and contributes to climate change etc etc. I read that a lot of people buy a new cell phone every few months! No doubt this contributes to GNP. And, at the lower end, just look at the amount of junk for sale in dollar stores, which seem to be doing very well financially.

If I were a young person looking at all these factors, I might be tempted to despair and just go shopping!

voodoo22, not disputing anything you say but be aware that video was produced by Tides Foundation, an npo with a specific political viewpoint. One needs to be aware of any messenger's bias before digesting what is presented.

dot!

Family may help. Gov't won't do much. Most likely banks will extend their mortgages to even out the payments so that they are affordable. Banks like people with debt as long as it's manageable and preferably with a hard asset behind it. For riskier loans, like cars, where the asset is of diminishing value, they simply charge more, to allow for losses.

I think it would take a fiarly extreme rate rise to cause a big problem. Most people will find a way through this, especially with a supposedly booming economy. People always have to adjust to change in costs - hydro, gas etc., as well as interest rates. The paycheque-to-paycheque lifestyle has been in place for quite a long time now.

I'm not recommending a lot of debt, however. Buy what you can truly afford, not necessarily what you want.

Your second para makes a lot of sense to me, voodoo., although I'm sure they have economic data to back up their decision as well, but at some point, it's a judgment call. I hadn't thought of it that way.
If true, we should be loading up on GICs this year perhaps. Would you take your thought that far, if you had the resources available? BrimleyChen, on the other hand, said he/she won't put anything into GICs this year , in anticipation of higher rates yet to come. Hard to know what to do, so we go back to the traditional GIC ladder?

Nothing destroys your plans more efficiently than debt.
I know someone who, in his early 80s, still had two mortgages on the house he bought maybe 50 years ago! His son, who lived with him, finally took it over as he wished to remain there. The father died essentially penniless. He was fully employed well into his 70s at a reasonable-pay job, and there was no need for this, but he and his wife simply spent far too much - and had nothing to show for it in the end. Pathetic, really, but the bank was happy as long as it was collecting interest and a small amount of principal, which would be regularly leveraged again. It's for reasons like this that i think there is a lot of elasticity in the system, even with a slight tightening of the reins.