Back in 2009 we started borrowing again, but it never seems to have stopped.
The CBC pointed me at this report from CIBC about Household Credit Analysis some of the numbers really worry me.
I have been commenting that these historically low interest rates are not an excuse to go out and borrow more money, rather it is a great time to start paying down your debt while you aren’t being choked to death by interest rates (of course I had a mortgage at 12% and thought that was cheap at the time).
Some of the highlights mentioned in the report are:
- On an inflation adjusted basis, credit is rising at the fastest rate seen in any economic recession in the post-war era.
- During the first six months of the year, total debt rose by $44 billion but interest payments on debt fell by $3 billion.
- Non-mortgage consumer credit is still rising by 7% on a year-over-year basis—very impressive given the overall health of the economy.
- During the first half of the year, overall household debt rose by 3.4% while personal disposable income in fact fell by 0.2%. This led to an increase in the debt-to-income ratio during this period.
I would strongly suggest reading the entire report it’s only 10 pages and it is chocked full of really interesting data (but then again I love this kind of data).
There are actual household balance sheets in the report and in there I found two pieces of data that made me worried as well:
- A 4% drop in Financial Assets from Q1 2008 to Q2 2009 (look at the Q1 2009 numbers it is even lower). Our savings dropped by that much? Wow.
- A 6% drop in Net Worth Q1 2008 to Q1 2009, again, not something we didn’t know, but still a worry.
What does this data mean? We are still living outside of our means, and are borrowing to live UP to this lifestyle, but some day very soon, the piper will need to be paid, and he may have a much higher interest rate to dance to. Time to think about paying off debt folks.
Very interesting … at the same time I am reading that investor Canadians are sitting on a huge pile of cash deposits. e.g. Connie Stefankiewicz writes to BMOIL clients “… the ongoing volatility of the markets has continued to cause many investors to sit on the sidelines – as evidenced by the record high cash levels we are seeing”. Is there an increasing divide between owes and owe-nots developing?