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Beyond gov’t debt, our own spending raises concerns

The good news is some of us are starting to tackle our record levels of personal debt. The bad news is that debt has been fueling our economy – two-thirds of it based on consumer spending. The good news is we’re saving more. The bad news is we’re not really optimistic about the future.

And we have no idea what that will mean as the economy continues to struggle.

Canadians have lost confidence that the national economy or their personal financial situation will improve any time soon. Perhaps that’s why more Canadians are indicating that paying down debt is their top financial priority for 2015. A new Nielsen poll for CIBC shows 22 per cent of respondents listed tackling debt as the number-one goal, up from 16 per cent last year. The poll, now in its fifth year, showed 14 per cent of Canadians saw debt as a priority in 2011.

Recent surveys show that Canadians, on average, have reduced their personal (non-mortgage) debt, more than half don’t have any savings set aside for an emergency/rainy day.

Last month, Statistics Canada reported that household total credit-market debt (mortgages, consumer credit and non-mortgage loans) rose to 162.6 per cent of disposable income in the quarter, as consumers continued to borrow to buy homes that grew less affordable. The growth of debt outstripped increases in average income.

Easy credit and low interest rates have fueled the borrowing, with total consumer debt rising 1.5 per cent to $1.81-trillion in the latest quarter, a pace that exceeded that of disposable income. Most of the $27.4-billion in borrowing in the quarter was for mortgages.

Low borrowing costs have made it easier for consumers to service their debts. Interest payments made up 6.8 per cent of disposable income last quarter, Statistics Canada reports, the lowest in records back to 1990. What happens if rates start to rise, however?

As the recent Christmas frenzy reminded us, it’s our spending habits that have got the better of us: bigger homes, new cars, electronic toys and so on. Our wants are limitless, while ability to pay for them is not.

Worse still, our real incomes and net worth are in decline, meaning we’re borrowing just to maintain the status quo. So, even as household debt climbed relative to our incomes, we had less than we did last year. Although residential real-estate assets increased, this was more than offset by the decline in the value of our investment in stocks (including mutual funds) and our pensions.

Caught between falling incomes and growing household debt, we’re using borrowed money to finance day-to-day expenses rather than consumer goodies.

Clearly debt is a problem at the individual level, just as it is with governments. The key to changing the situation rests not only with cuts and austerity – we should, however, be saving for the future – but with seeing actual economic growth that moves us away from a dependence on consumerism as its fuel.

While this week’s CIBC poll indicates we’re concerned about debt — paying it down has become an increasingly important priority for those nearing retirement age, with Canadians aged 45-64 prioritizing debt repayment substantially higher versus last year – there’s still far more talk than action.

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