Canadians surpass free-spending Americans in taking on debt

OTTAWA — Canadians have surpassed Americans for the dubious distinction of being the most indebted and policy-makers are warning they may need to take action.

OTTAWA — Canadians have surpassed Americans for the dubious distinction of being the most indebted and policy-makers are warning they may need to take action.

Fresh data from Statistics Canada found the ratio of debt to disposable income rose to 148.1 per cent in Canada in the third quarter — a close to five point jump — slightly ahead of the U.S. ratio of 147.2 per cent.

The numbers come amid reports the federal government is talking to lenders again about the possible need to clamp down on credit.

Meanwhile, Bank of Canada governor Mark Carney suggested in a speech that he could resort to monetary tightening should the “cheap money” ride continue.

However, federal Finance Minister Jim Flaherty said during a scrum with reporters in Ottawa that he does not see a crisis in household debt levels at this point.

Flaherty said he has been talking to the banks about the situation and is monitoring debt levels, but does not believe that any action is needed at the moment.

TD Bank chief economist Craig Alexander said it was natural that the Finance Department would explore ways to constrain borrowing, but said he also doesn not believe the situation has reached a crisis.

“Debt relative to income has gone up a little faster than it should have, but the problem is not excessive … we don’t have a U.S.-style problem,” he said, referring to the better quality of Canadian debt.

What’s more, he added, credit expansion has slowed of late and many economists believe it will return in line with income growth going forward.

There are a number of measures Finance Minister Jim Flaherty can take, and he has already acted twice in two years. To restrain further borrowing on housing, Ottawa can require that the income test for mortgages be tightened, or it can lower the maximum amortization from 35 years to 30 or even 25, which would have the effect of increasing monthly payments.

In his speech to a business audience in Toronto, Carney warned that although he intends to set interest rates based on inflation, he is also aware that the United States sowed the seeds of the financial meltdown with extended low interest rates.

“While the bar for further changes remains high,” he said, “the bank has the responsibility to draw the appropriate lessons from the experience of others who, in an environment of price stability, reaped financial disaster.”

One reason for the tough talk, say analysts, is that Carney wants to discourage reckless borrowing among consumers with words because his hands seem to be tied on action. Raising rates would further slow an already slow-moving economy.

And there is considerable disagreement about whether Canadian households have a debt problem needing to be addressed.

In a recent analysis, the CIBC made a distinction between what it calls bad debt — the bete noire in the U.S. — and good debt, the situation of many Canadian households who have borrowed to buy homes, not speed boats and luxury cars.

CIBC economist Benjamin Tal notes that Canadians generally put more money down than Americans and don’t refinance their homes to purchase consumer goods.

While the debt-to-income ratio has risen in the latest quarter, Statistics Canada pointed out that the main reason is not because of more borrowing, but due to a 1.5 per cent decline in disposable income.

Still, the Bank of Canada says an economic shock would put many Canadians into financial trouble, unable to make monthly payments or repay loans.

Alexander says Carney is in a “bind ” because the weak economy requires him to keep interest rates at near-floor levels for an extended period in order to lure businesses into spending on investments. But those same low rates may cause households to overextend themselves, which could result in difficulties later on when interest rates rise.

He said the government may need to take steps to rein in consumers if house prices begin rising again.

In a related element of the release Monday, Statistics Canada said national net worth edged up 0.7 per cent to $6.3 trillion in the third quarter.

On a per capita basis, national net worth reached $183,500 in the third quarter, up from $182,800 in the previous quarter. Household net worth grew 2.7 per cent, or $162 billion, to $6.1 trillion, following a 0.5 per cent decline in the second quarter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Conservative leader Erin O’Toole holds a press conference on Parliament Hill in Ottawa on Tuesday, April 6, 2020. THE CANADIAN PRESS/Sean Kilpatrick
Conservatives plan to introduce $20-per-tonne carbon price in climate plan

OTTAWA — Conservative Leader Erin O’Toole is pitching a $20-per-tonne carbon price… Continue reading

(File photo contributed by Red Deer Public Schools)
Red Deer Public Schools say no to piloting new curriculum

Alberta Teachers’ Association support boards

Education Minister Adriana LaGrange says she has not received an official request from any other school board for a similar move to online learning. (Advocate file photo)
’Operational pressures:’ Calgary schools shift to at-home learning for grades 7 to 12

School boards can ask to move online for a number of reasons

In this photo taken Sunday, May 17, 2020, U.S. and Canadian flags fly atop the Peace Arch at Peace Arch Historical State Park on the border with Canada in Blaine, Wash. THE CANADIAN PRESS/AP/Elaine Thompson
A electric car is seen getting charged at parking lot in Tsawwassen, near Vancouver B.C., April, 6, 2018. File photo by THE CANADIAN PRESS/Jonathan Hayward
‘Wrong signal:’ Federal ministers protest Saskatchewan’s electric vehicle tax

Two federal ministers are protesting Saskatchewan’s plan to bring in a tax… Continue reading

Deputy Prime Minister and Minister of Finance Chrystia Freeland responds to a question during Question Period in the House of Commons Tuesday December 8, 2020 in Ottawa. Canada’s charities are looking to next week’s federal budget with hopes the Liberals will extend their sector a helping hand as they face the possibility of a prolonged and protracted road to recovery even after the economy reopens. THE CANADIAN PRESS/Adrian Wyld
Charities hope Liberals’ budget lends helping hand as sector eyes long recovery

OTTAWA — Canada’s charities are hoping the Liberals extend them a helping… Continue reading

Deputy Chief Public Health Officer Howard Njoo responds to a question about vaccines during a weekly news conference, Thursday, Jan. 14, 2021 in Ottawa. Njoo says a faster vaccine ramp-up alone would likely not have thwarted the third wave of COVID-19 in many parts of the country. THE CANADIAN PRESS/Adrian Wyld
Faster vaccines alone could not have stopped third wave: deputy public health officer

A top federal public health official says a faster vaccine ramp-up alone… Continue reading

WestJet president and CEO Ed Sims addresses the airline’s annual meeting in Calgary, Tuesday, May 7, 2019. THE CANADIAN PRESS/Jeff McIntosh
WestJet CEO Ed Sims finds Air Canada aid package ‘bittersweet’ as talks drag on

OTTAWA — WestJet CEO Ed Sims says the federal government’s aid package… Continue reading

British Columbia Premier John Horgan (centre, blue jacket) is drummed into the Lower Post Residential School by Kaska drummers in Lower Post, B.C. on Orange Shirt Day in a 2019 handout photo. A former residential school building known as a place of pain and fear for residents of the remote British Columbia community of Lower Post will be demolished and replaced after decades of lobbying efforts by local Indigenous leaders. The federal and B.C. governments say construction on a new $13.5 building project is set to start in June and expected to be complete next year. THE CANADIAN PRESS/HO-Manu Keggenhoff MANDATORY CREDIT
Residential school building at Lower Post, B.C., to be demolished, replaced

VICTORIA — A former residential school building in the remote British Columbia… Continue reading

A 60-year-old COVID-19 patient fights for his life, desperately gasping for air as head intensivist Dr. Ali Ghafouri, centre, provides life saving medical care in an emergency situation in the intensive care unit at the Humber River Hospital during the COVID-19 pandemic in Toronto on Tuesday, April 13, 2021. The patient was intubated and put on a ventilator successfully. THE CANADIAN PRESS/Nathan Denette
‘Sicker and younger’: Toronto ICU copes with pressure during third wave of pandemic

TORONTO — Intensive care nurse Jane Abas is assessing her patient, checking… Continue reading

FILE - NHL Commissioner Gary Bettman speaks during the “Topping Off” ceremony of the New York Islanders new home, the UBS Arena at Belmont Park in Elmont, N.Y., Friday, Oct. 9, 2020. THE CANADIAN PRESS/AP-Mary Altaffer
Islanders close to selling out inaugural season at UBS Arena

Arena capacity of about 17,000 for hockey

Most Read