Looking for a signal that things are returning to normal with the withdrawal of the pandemic? Here’s a classic sign of a normal life in Canada – debt levels are rising again.
Debt levels rose steadily in the years before the pandemic, then took a break as the economy closed. Debt growth is now returning. Credit reporting firm Equifax Canada says total non-mortgage debt levels jumped 8.6% in the first three months of the year compared to the same period in 2021. This is the first quarterly increase on an annual basis since 2019.
The average amount of non-mortgage consumer debt at the end of March was $ 20,774. But estimating debt levels is best done when looking at people of this age. Here are Equifax’s average debt levels for the first quarter by age group, with year-on-year comparisons:
Average debt (Q1 2022) Average change in debt during the year (Q1 2022 compared to Q1 Q1 2021) 18-25 $ 8,129 -4,09% 26-35 $ 16,832 2,83% 36-45% $ 25,65,25,25,65 .5 $ $ 26 165 1.12% 65 + $ 14,386 0.35% Canada $ 20,744 1.54%
Young adults severely affected by pandemic economic blockages are still in debt reduction mode. But all other age groups, even adults, have started to increase debt again. This trend is happening as the Bank of Canada aggressively raises interest rates to cool inflation. Rising interest rates mean that it is not a good time not to borrow, but there is a lot of stagnant demand for spending due to the pandemic.
How do borrowers behave? The arrears rate – the proportion of debts overdue by more than 90 days – is still well below the levels of early 2021. But early signs of stress can be seen in the growing insolvency rate for people under 35. years old. This group was also separated from Equifax for the pact, which increases costs.
Target for the second half of 2022 for all age groups: Take non-mortgage levels below the average levels for your age group. Low debt means less stress than rising interest rates.
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Rob’s personal finance reading list
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Ask Rob
Question: With rising interest rates and GICs becoming attractive, would you recommend a three-year ladder or go with a one-year term and wait and see?
A: I’m starting to wonder if we’re not close to the peak of interest rates on guaranteed investment certificates. Concerns are growing that rising interest rates will create an economic slowdown that will lead to a plateau of interest rates and then a decline. After a year, rates may be lower. If this perspective is correct, then the three-year ladder makes sense. Locking money in five years is also worth considering.
Do you have a question for me? Send it my way. I’m sorry I can’t answer everyone personally. Questions and answers are edited for length and clarity.
Today’s financial instrument
Are you struggling to find the GIC issuers with the best rates and organize your purchases to stay within the deposit insurance limits? Try a deposit broker – they specialize in helping conservative investors navigate the GIC market.
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