76 per cent of Canadians in debt

Canadians’ debt is increasing— dramatically. A recent report by RBC shows how debt is increasing disproportionately with inflation.

Only about 24 per cent of Canadians say they have no debt. That means that 76 per cent are being weighed down by debt that is most likely the result of living above their means. This number is up from 74 per cent just last year.

Not only are the number of people in debt increasing— the amount of debt is also on the rise. In 2012, the average person in debt owed $13,141 (not including mortgages). Now that number has risen to $15,920, excluding mortgages.

In spite of this ever-growing debt, anxiety over the issue is remaining relatively stable. 38 per cent of people say that it causes them stress (an increase of four per cent since last year), but the same number of people say that their debt does not cause them significant worry.

Financial policies are partly responsible for facilitating increased spending and creating a social acceptance of debt. After the 2008-2009 recession, banks and governments wanted to stimulate the economy through consumer spending. In order to accomplish this, they significantly lowered interest rates.

Canada’s current interest rate sits at an all-time low of one per cent, where it has sat since 2010. The problem with essentially allowing people to borrow endless amounts of money is that the loans pile up and it becomes nearly impossible to pay off one’s debt. The average Canadian ratio of debt-to-disposable income is roughly 163 per cent. To put it in simpler terms, most households owe $1.63 for every dollar they earn. We owe far more money than we make, meaning that even if households cut their spending on luxuries like eating out, they are still not making enough money to be able to pay back their loans in any reasonable amount of time.

Canada’s household debt is at about $1.5 trillion dollars, which is roughly $176,461 of debt for every family of four. This number is higher than the U.S., whose household debt average is $148,000.

The allure of purchasing consumer products and services is difficult to curb, but the average person knows that they are living beyond their means. 14 per cent of Canadians state that they believe they will never be able to pay off their loans and another 10 per cent are unsure when they will be able to pay off their debt. Overall, 24 per cent of Canadians have no foreseeable or actionable plans to reconcile their financial debt.

Of course, ever-rising tuition rates, increasing unemployment rates and a relatively stagnant minimum wage, make debt an even more grim reality for university graduates who spend thousands of dollars on their education only to find that there are few jobs available. Student loans account for about $14 billion of Canadians’ debt, though this number is much lower than in the U.S. where student loans add up to over $932 billion of debt.

All of this debt has led to increased rates of personal bankruptcies. In 2010, 92,694 Canadians filed for bankruptcy.

The reality of debt is changing the Canadian financial landscape, perhaps in such a way that we may not be able to come back from.

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