Looking for a signal that things are getting back to normal as the pandemic recedes? Here’s a classic sign of normal life in Canada – debt levels are rising again.
Debt levels consistently grew in the years before the pandemic, then took a hiatus as the economy locked down. Now, debt growth is back. The credit reporting company Equifax Canada says total non-mortgage debt levels jumped 8.6 per cent in the first three months of the year compared to the same period of 2021. It was the first year-over-year quarterly increase since 2019.
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The average amount of non-mortgage consumer debt as of the end of March was $20,774. But evaluating debt levels is best done when looking at people of a similar age. Here are Equifax numbers on the average first-quarter debt levels by age group, with year-over-year comparisons:
| Average Debt (Q1 2022) | Average Debt Change Year-over-Year (Q1 2022 vs. Q1 2021) | |
|---|---|---|
| 18-25 | $8,129 | -4.09% |
| 26-35 | $16,832 | 2.83% |
| 36-45 | $25,084 | 3.57% |
| 46-55 | $31,442 | 2.82% |
| 56-65 | $26,165 | 1.12% |
| 65+ | $14,386 | 0.35% |
| Canada | $20,744 | 1.54% |
Young adults, hard hit in pandemic economic lockdowns, are still in debt-reduction mode. But all other age groups, even seniors, have started to increase debt again. This trend is happening as the Bank of Canada aggressively increases interest rates to cool inflation. Rising rates mean it’s not a good time to not borrow, but there’s a lot of pent-up demand to spend because of the pandemic.
How are borrowers bearing up? Delinquency rates – the proportion of debts where payments are more than 90 days past due – are still well below the levels of early 2021.
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But early signs of stress can be seen in rising delinquency rates for people below age 35. This group was also singled out by Equifax for the pace at which they’re increasing spending.
A goal for the second half of 2022 for all age groups: Get your non-mortgage levels below-average levels for your age group. Low debts mean less stress from rising rates.
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Rob’s personal finance reading list
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A long list of free samples, welcome packages and other deals available to new parents. Stock up on diapers, wipers and other baby necessities
Marginal luxury
Can we all agree that air travel is gross? It’s hard to think of another expense where you spend so much to be treated so poorly. Here’s a smart take on how the airlines are selling a modest upgrade on this misery through a new class of ticket called premium-economy.
‘Everybody flaunts on social media’
Meet Gursahib Singh, a new Canadian who has a popular Youtube channel advising new immigrants not to make the same mistakes he made in getting into debt. He warns how social media can influence people to over-spend.
Ask Rob
Q: With interest rates rising 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 may be close to the interest rate peak for guaranteed investment certificates. Concern is mounting that rising rates will create an economic slowdown that causes rates to plateau and then decline. One year from now, rates could be lower. If that outlook is correct, then the three-year ladder makes sense. Locking in money for five years is also worth a thought.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Struggling to find the GIC issuers with the best rates and arrange your purchases to stay within deposit insurance limits? Try a deposit broker – they specialize in helping conservative investors navigate the GIC market.
The Money-Free Zone
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Who I’m following on Twitter
Blogger Barry Choi, a go-to source on budget travel. Recent posts cover the cost of visiting Portugal and Scotland.
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More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where's the happiness? • Who should and shouldn't worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don't make this potentially costly assumption about the CPP Survivor's pension
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