Are you looking for a sign that things are getting back to normal as the pandemic recedes? Here’s a classic sign of normal living in Canada: Debt levels are rising again.
Debt levels rose steadily in the years leading up to the pandemic, and then paused as the economy stalled. Now, debt growth is back. Credit reporting firm Equifax Canada says total non-mortgage debt levels rose 8.6 per cent in the first three months of the year compared to the same period in 2021. It was the first increase quarterly year-on-year from 2019.
The average non-mortgage consumer debt at the end of March was $ 20,774. But the assessment of debt levels is best done when looking at people of the same age. Here are Equifax’s numbers for first quarter average debt levels by age group, with year-over-year comparisons:
Average debt (1Q 2022) Average year-on-year debt change (1Q 2022 vs. 1Q 2021) 18-25 $ 8,129 -4.09% 26-35 $ 16,832 $ 2.83% 36-45 $ 25,574% 46-45 $ 25,574% 46- 574% 46-574% 4.09% 26-35 $ 26,165 $ 1.12% 65 + $ 14,386 0.35% Canada $ 20,744 1.54%
Young adults, severely affected by pandemic economic blockages, are still in debt reduction mode. But all other age groups, including the elderly, have increased their debt again. This trend is occurring as the Bank of Canada aggressively raises interest rates to cool inflation. Rising rates mean it’s not a good time not to apply for a loan, but there’s a lot of accumulated demand to spend due to the pandemic.
How do borrowers cope? Default rates, the proportion of debts in which payments are more than 90 days overdue, are still well below the levels of early 2021. But the first signs of stress can be seen in rising rates of delinquency for persons under 35 years of age. This group was also identified. by Equifax for the pact by which they are increasing spending.
A goal for the second half of 2022 for all age groups is to get non-mortgage levels below the average levels of your age group. Low debt means less stress due to rising rates.
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Ask Rob
P: With interest rates rising and CPGs becoming attractive, would you recommend a three-year scale or would you go for a one-year term and wait and see?
A: I’m starting to wonder if we can be close to the peak interest rate on guaranteed investment certificates. There is growing concern that raising rates will create an economic slowdown that will cause rates to flatten and then fall. In a year’s time, rates could be lower. If this perspective is correct, the three-year scale makes sense. Closing money for five years is also worth thinking about.
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