Consumer debt rising fastest among seniors
Good news is lower delinquency rate among debt holders
Canadian households have returned to their free-spending ways and seniors have joined the party lately by borrowing to finance their post-retirement lifestyles, a new report says.
The report from Equifax Canada shows that despite recent efforts by policy-makers to clamp down on borrowing, total consumer debt in Canada rose $77 billion, or 6.1 per cent, in the second quarter of 2013 from last year, and by 6.5 per cent among those 65 and over.
The increase in debt among seniors was the biggest year-over-year of all age groups.
'Seniors are carrying more debt into retirement. They are trying to maintain a lifestyle they had pre-retirement but on post-retirement income'—Jeffrey Schwartz, Consolidated Credit Counseling Services of Canada
Jeffrey Schwartz of Consolidated Credit Counseling Services of Canada says the finding on seniors' debt is in line with other reports that show bankruptcies among retirees is on the rise.
"That's what scary about this," he said. "Seniors are carrying more debt into retirement. They are trying to maintain a lifestyle they had pre-retirement but on post-retirement income, and if income has dropped, they are increasing their debt to cover off their spending. It's a very dangerous strategy."
He added another possible cause is that seniors are supporting their grown children in greater numbers.
Savings climbing, but slowly
In a separate analysis from the TD Bank also released Monday, economist Leslie Preston noted that although savings rates have risen in recent months, it will take a long time for Canadians, including seniors, to pay off their mountains of debt.
"The moderate jump in savings is unlikely to address the broader challenge of insufficient retirement savings for a large slice of Canadian households," she said.
Overall, the Equifax data suggested most of the new debt came from an increase in mortgage credit, up 7.4 per cent, and in auto loan balances, which increased 8.6 per cent over the past year.
Other data from Statistics Canada and the Bank of Canada have tended to show a decrease in credit accumulation, although the last release was for the first quarter of 2013, which found the debt-to-income ratio falling to 161.8 per cent from 162.6 per cent.
However, the pace on home purchases picked up during the spring.
Despite the increase in debt, Equifax also found that delinquency rates fell over the past year to 1.19 per cent in the second quarter of this year, one of the lowest values on record.
The fraction of mortgage loans that were 90 or more days delinquent slid to 0.27 per cent from 0.33 per cent a year earlier.
Low rates helps keep delinquency low
Toronto had the highest delinquency rate among major metropolitan areas at 1.56 per cent of non-mortgage balances, but has continuously improved since hitting a peak of 2.53 per cent in 2010.
The low delinquency rates suggests that with interest rates at super-low levels, and incomes rising even if moderately, Canadians are able to service their high levels of debt. But Christian deRitis, a senior director of consumer credit at Moody's Analytics, warned all that could change with economic conditions or a shock in the housing market.
"Stable home prices and improvements in the labour market should continue to support the market in the future, while the outlook for consumer credit remains positive," he said. "A sudden rise in interest rates or deterioration in fundamentals in key export markets are risks to this forecast, however."
The Bank of Canada has long warned that as interest rates rise, many more Canadians become vulnerable to an economic shock.
Last week, Finance Minister Jim Flaherty said he was satisfied that overall the housing market had responded appropriately to the tightening of lending rules introduced last year and that he planned no more interventions to cool mortgage credit.