Tuesday, April 17, 2012

Canadian Consumer Debt - Too Much of A Good Thing?

Thanks to a link provided by a reader, the subject of this posting will be the debt level of Canadians with statistical data provided by Statistics Canada.  The National Balance Sheet - Credit Market Summary provides all debt data for individuals, businesses and corporations and governments and is a veritable gold mine of data that shows changes in the level of debt that is being accrued by Canadians and Canada.  This facet of the Canadian lifestyle has been in the news a great deal lately, particularly as both Minister of Finance Jim Flaherty and the Governor of the Bank of Canada Mark Carney grow increasingly apoplectic about the debt level of Canadians.

For the purposes of this study, I'll be looking at the consumer credit, loans and mortgage data for the three decade period of time from 1981 to 2011 with an emphasis on the last two decades.  To put all of these numbers into perspective on a per capita basis, here is a graph showing Canada's population growth since 1960:

In 1960, Canada's population was 17.9 million.  In 2011, this rose to 34.28 million, an increase of 91.5 percent over 50 years.

Here is a bar graph showing Canada's population for the last 10 full years:

In 2001, Canada had 30.77 million people, rising to 34.28 million in 2011 for an overall increase of 11.4 percent.  As you will note later, the increase in Canada's population is nearly an order of magnitude smaller than the growth rate of its personal debt levels, indicating quite clearly that per capita debt is rising and that it has risen at a more rapid rate in the first decade of the new millennium than it did in the previous decade.

Now, let's look at Canadian consumers and their debt levels.  First, here is a graph showing the growth in consumer credit:

Notice how consumer credit rose more quickly after the beginning of the new millennium?  Between 1991 and 2001, consumer credit rose from $99.17 billion to $187.13 billion, an increase of 88.7 percent over the decade.  Between 2001 and 2011, consumer debt rose from $187.13 billion to $452.42 billion, an increase of 141.8 percent, a rather dramatic increase in the growth rate.  Consumer credit rose even during the Great Recession, increasing from $345.995 billion at the end of 2007 to $413.055 billion at the end of 2009, an increase of 19.4 percent in two short, very turbulent years.  Hey, it's almost as though the Great Recession never happened in Canada!

Next, here is a graph showing the growth in mortgages:

Mortgage growth is the other "big ticket item" when it comes to consumer debt.  Please observe how steeply the curve rises in the last decade and how the increase in the growth of mortgage debt even in the last year has not subsided despite numerous warnings from the powers that be.  Between 1991 and 2001, mortgage debt rose from $291.11 billion to $465.79 billion, an increase of 60 percent.  Between 2001 and 2011, mortgage debt rose from $465.79 billion to $1.02716 trillion, an increase of 120.5 percent, a rate of mortgage debt growth that is twice that seen just a decade earlier.  I guess all of those million dollar mortgages in Vancouver and overpriced homes in Toronto have had an impact on Canadians' debt levels.

Next, here is a graph showing the growth in consumer loans:

Finally, here is a graph showing the growth in total personal and unincorporated business debt (i.e. the sum of all aforementioned debts):

Notice once again that the slope of the graph increases after 2001 indicating an increase in the rate of debt accrual by consumers.  Between 1991 and 2001, total personal debt rose from $435.65 billion to $748.006 billion, an increase of 71.7 percent.  Between 2001 and 2011, total personal debt rose from $748.006 billion to $1.5928 trillion, an increase of 113.2 percent reflecting more rapid growth in debt levels in the last decade.  It's also interesting to note that mortgage debt is by far the largest portion of total consumer debt, ringing in at 64 percent of all debt.

Canadians, like the rest of the developed world, are currently experiencing nearly the lowest interest rates in generations as shown here:

We really are living in a dream world (or a nightmare) where Canada's central banker is providing what appears to be an endless source of cheap credit to Canadian credit junkies and then telling us that too much of a credit high is a bad habit that will lead to no good.

With the growth in per capita debt levels rising faster in the latest decade than in the decades before, a sudden rise in interest rates even by a couple of percentage points could make it very, very difficult for Canadian families to service their debts.  A housing market price correction of as little as 15 to 20 percent could create a wave of foreclosures as indebted households would find themselves unable to  meet their monthly mortgage obligations.  We could quite easily experience a repeat of what happened in the United States when the personal debt bomb exploded in 2008 as the Great Recession entrenched itself in the American psyche.  Always remember; what goes up must eventually come down.  Some of Canada's largest and most unaffordable housing markets may provide painful proof of that adage in the months and years ahead.


  1. This is very ironic. When I was an economics undergrad at a US college in 2008, our labor economics professor (who is quite brilliant) lectured us on how the Canadians managed to avoid the financial crisis because of the heavier regulation of the Canadian banking system.

    It's shocking to see, in real time, similar events that preceded the American crash. I hope Canada has learned enough over the past five years to avoid the same fate.

  2. The indebtedness is really high. What surprises me is that rise of mortgage debts after 2008 have not fallen either due to write offs or just because of fall on housing market.

  3. I always enjoy your posts junkie p. just wanted to share an ad that i see at the bottom of your page that made me laugh having read this post:

    'Clear debts with a loan'

  4. I wish that I could pick my ads but Google does it for me. That said, I do love the irony of some of their selections!