Canadians fall deeper into debt

If the Bank of Canada was hoping its low-interest rate policy would encourage spending it can relax—it’s working. Canadians are adding to their debt levels at a dizzying rate. According to TransUnion’s latest credit trends report, the average consumer debt, excluding mortgages, rose 2.3% in the fourth quarter to $21,428. It’s a sharp reversal from a year earlier when Canadians were paying down their debt faster than they were adding to it. Jason Wang, TransUnion’s director of research in Canada, doesn’t expect this trend to reverse again any time soon given the recent rate cut by the Bank of Canada, which makes borrowing more affordable. While consumer debt levels are rising nationally, there are a few cities bucking the trend. Consumer debt levels in Calgary and Edmonton fell 0.59% and 0.11% respectively in the latest quarter, although consumers in those cities remain the most indebted in the country. In Calgary the average consumer debt balance, excluding mortgages, is $28,751 while in Edmonton the average consumer owes $24,651. Wang has a theory on why debt levels are starting to crest in Alberta: “People are starting to brace for a somewhat worse economic outlook. That just shows that consumers are being more prudent than ever.” Consumers in Toronto might want to follow the example set by Calgary and Edmonton. The average Torontonian now owes $20,522 in non-mortgage debt, up almost 4% from the same period a year ago. Of course the slide in oil prices will likely have implications well outside of Alberta, it might be a good time for everyone to take stock of their debt levels. “This is a good time for consumers to take a hard look at their ability, their limits and how much they can spend and how much they can borrow because every penny that they borrow they will eventually have to pay back,” says Wang.

Non-mortgage debt levels by major Canadian city

Market	Q4 2013	Q4 2014	Change
Vancouver	$24,439	$25,077	2.61%
Calgary	$28,922	$28,751	-0.59%
Edmonton	$24,677	$24,651	-0.11%
Toronto	$19,743	$20,522	3.95%
Ottawa	$19,637	$20,079	2.25%
Montreal	$15,368	$15,777	2.66%
Canada	$20,945	$21,428	2.30%

Source: TransUnion While debt levels are rising overall, the good news is the 90-day delinquency rate (the ratio of accounts that are more than 90-days past due) has been falling. Over the past year delinquency rates in Canada have declined by 2.6%, with British Columbia and Ontario showing the most improvement. But unlike consumer debt levels, the delinquency rate is driven more by generational differences than geography. According to TransUnion Gen X (those born between 1965 and 1979) have the highest delinquency rate in the country at 2.86%. By comparison Gen Y, despite being perceived to be riskier borrowers, have a delinquency rate of 2.76%. Those born before 1945 are the most on top of their bills with just 1.2% of that cohort failing to make payments to their credit cards within 90-days of their due date. And it’s not just those who have maxed out their credit cards who are falling behind on their bills. “There is no straightforward connection between the level of balance and the delinquency level,” says Wang. “It really depends on a lot of factors.”

Delinquency rates by generation

Group	90-Day+ Delinquency Rate	Average Credit Card Limit
Gen Y (born 1980 - 1994)	2.76%	$8,070
Gen X (1965 - 1979)	2.86%	$16,584
Baby Boomers (1946 - 1964)	1.95%	$20,031
Pre-War/Silent (born before 1945)	1.20%	$16,337

Source: TransUnion

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