Canadians talk about reducing debt, but spending data says otherwise

More Canadians acknowledge they may be reaching the upper limits on borrowing, but they have yet to act on it, two new reports suggest.

More Canadians acknowledge they may be reaching the upper limits on borrowing, but they have yet to act on it, two new reports suggest.

A survey released Tuesday by accounting firm PwC found that 63 per cent of respondents said they wanted to decrease their debt levels in the next year — up 4.5 per cent from a year earlier — and many indicated they were ready to cut back on discretionary spending.

But in a separate report based on actual spending patterns, Moneris Solutions found consumers had yet to act on their intentions.

The fresh data showed that consumer credit and debit card spending in Canada continued to grow. For the first three months of 2012, spending was up 5.34 per cent and it appeared to be climbing, with spending in March up 6.76 per cent.

The data did not include financing for homes, however, the largest part of household debt.

With household debt at an all-time high above 150 per cent of income, the Bank of Canada has declared it the number one domestic risk to the economy.

In a recent interview, bank governor Mark Carney lamented the comfort level of Canadians with high debt, attributing it to the illusion of affordability at a time of sky-high home values and floor-low interest rates.

If house prices fall, however, Canadians could find themselves in a situation where their net assets decline as interest rates and hence their mortgage payments rise. Even a return to normalized rates would render 10 per cent of households vulnerable.

“If a point comes where house prices adjust downwards, the question is how is that going to impact consumption behaviour,” Carney said.

“There is history in other jurisdictions where this has a bigger impact on consumption on the way down than it does on the way up.”

Overall, 69 per cent said they would be willing to delay the purchase of a new car, up from 64 per cent last year, the survey found.

Meanwhile, 62 per cent would delay buying a new house or upgrading to a bigger home (up from 56 per cent) and 61 per cent would forgo buying new electronics (up from 59 per cent).

John MacKinlay, leader of PwC’s national financial services said the top reasons cited for wanting to reduce debt were fear of not being able to pay off debt (47 per cent), the fragile economy (46 per cent) and uncertainty in the financial markets (33 per cent).