Canadians racking up record debt

Canadians are piling on debt like never before. In fact, the latest figures from Statistics Canada show that the household debt to income ratio in this country rose to a record high of about 149 per cent in the second quarter.

And while younger Canadians — many of whom are entering the housing market for the first time — carry the biggest debt burden, older Canadians are taking on debt more quickly, according to a new TD Bank Report. In particular, people aged 65+ racked up their debt at three times the average pace over the past decade.

More investment in real estate

One reason for the growing personal debt among older Canadians is that more people over 65 are investing in real estate (including the purchase of second properties). In fact, according to the report, the average real estate holdings for this age group have doubled since 2002. The trend is fed by an attractive combination of low interest rates and home price appreciation.

And for those in — or close to — retirement, the recent low returns on interest bearing securities and sharp equity losses have provided an added incentive for many to diversify their portfolios into real estate.

Not all debt is explained by the acquisition of real estate, however. Data from an Ipsos Reid survey indicates that Canadians, on average, are also spending more on cars, either by increasing the number of vehicles they own or opting to drive a more expensive car. The largest increases in automobile assets were by young Canadians (18-24 years) and again, older Canadians over the age of 65.

Another trend that has been witnessed in recent years is the growing popularity among all age groups of personal lines of credit, the report said.

Not surprisingly, experts say this trend of entering the retirement years with a heavier debt load raises questions about long-term financial security, particularly considering challenges many people face including low savings rates, inadequate pensions, and volatility in the stock markets. And of course, as people expect to live longer — which is indeed a good thing! — these longer life spans need to be financed.

View the TD Economics Report here.

Sources: TD Economics; The Canadian Press; Wall Street Journal

Photo © Martin Prescott

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