Economists have been sounding the alarm about consumer debt for the last few years. It was also a recurring mantra of our late finance minister, Jim Flaherty.
Yet despite all the warnings, a report released last week suggests Canadians continue their free-spending ways, which experts say is due to a carefree outlook on borrowing money.
According to a recent report by credit monitoring firm Equifax, the total amount of Canadian credit market debt — a figure that includes mortgages, non-mortgage loans and consumer credit — rose to $1.529 trillion at the end of 2014.
The bulk of this increase was new mortgage debt, suggesting Canadians are continuing to take advantage of lower interest rates to dive into the ever-burgeoning housing market.
The result, though, is that Canadians' debt-to-income ratio sits at an all-time high of 163% That means for every dollar of income, Canadians carry $1.63 of debt.
One credit counselor says that the biggest problem for most people remains credit cards, which she says are too easy to obtain and so encourage people to fulfill all of their consumer desires.
She says many cardholders don't know that the average interest rate is about 20%.
But credit cards are only one small part of the larger picture. Another reason Canadian consumers are so debt-laden is that banks are coming up with all these unique and different ways of lending money all the time, according to one finance expert.
Home equity loans, which allow consumers to borrow on the value of their homes, have been especially popular in recent years, and so have bank car loans.
Moody's Investor Service reports that bank car lending — which typically has modest interest rates and long amortization periods, thus keeping monthly payments low — has grown at an annual rate of 20% since 2007.
By far the biggest component of household debt, however, is mortgages. Given the seemingly unstoppable rise in home prices in Canada's biggest cities, consumers are taking on massive mortgages to get into the housing market.
According to a new report by the Royal Bank of Canada, mortgages are responsible for the recent jump in household debt. New residential mortgages rose 5.4% in January compared to a year earlier, to over $1.2 trillion.
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