Baby boomers and those already in hock are going deeper into debt, a new analysis of Canadians’ household finances shows.
Canadian households owe on average $1.53 for every $1 of after tax income they earn, CIBC said in a report called Beyond Debt-to-Income: New Light on How Canadians are Really Doing.
At 153%, Canada’s household debt to income ratio is at a record high, the report released Thursday said.
That’s still below the 160% level that preceded the housing collapse in the United States four years ago.
However, some Canadian households are more indebted than others.
As well, rising household debt loads threaten to become a drag on the economy if consumers curb their spending, the report warns, especially since governments are poised to cut their budgets and business remains reluctant to invest amid global economic uncertainty.
The report found.
• One third of the most indebted households in Canada are carrying nearly three-quarters of all household debt.
• Instead of saving for retirement, more boomers age 45 are taking on more debt. Bankruptcy rates for those 50 and over are rising, while overall bankruptcy rates are down since the recession.
• The most indebted households are in Ontario, British Columbia and Alberta, where house prices are rising faster than incomes, the report notes.
Households with lower debt loads are diverting more of their income to savings, the report found.
The report blames stagnating incomes, noting real disposable incomes fell by 0.1% during the first three quarters of last year.
"Borrowing is what fills the gap between what we want to buy and our incomes, particularly for lumpy expenditures like houses, vehicles and other durable goods," the report says.
Low interest rates remain a good policy, the bank says, especially if it encourages business to begin borrowing and helps exports by keeping the dollar in check.
Meanwhile, at least one major bank is hoping to spur Canadian business to borrow more to boost the economy.
BMO Bank of Montreal said Thursday it’s making an additional $10 billion available to businesses across Canada over the next three years. That represents an increase of 9% per year.
The announcement comes a day after the U.S. Federal Reserve said it planned to leave its key interest rate near zero through to at least the end of 2014, a move likely to mean Canada’s interest rates remain low until the end of next year.
Despite attractive lending rates, Canadian business has been slow to come off the sidelines and invest in more machinery and equipment since the recession in 2008/09.
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