Where has the money gone? Canadian household debt highest ever at $1.3 trillion

On May 26, 2009, the association of Certified General Accountants (CGA) of Canada released a report entitled Where Has the Money Gone: The State of Canadian Household Debt in a Stumbling Economy and the Canadian media covered different angles of this report in the following days. Even so, I wanted to take the weekend to digest the information before blogging about it because some of the key findings are quite profound. Anyone thinking Canadian individuals overall are in a sound state financially are in for a surprise.

In Canada, household debt is at an all-time high, reaching $1.3 trillion ($1,300,000,000,000) in 2008. With an estimated population in Canada of 33,212,696 (July 2008), this means each man, woman and child in Canada is carrying the equivalent of $39,141.66 in household debt. Household debt is used to fund consumption rather than investment and encompasses credit card debt, car loans, personal loans and home mortgages. This raises concerns as Canadians are financing their consumption with unearned money. Families are increasingly reaching for credit to finance day-to-day living expenses.

Also alarming in this report is that 85% of Canadians in debt reported they have outstanding debt on a credit card. Given the high rate of interest on most credit cards, Canadians are giving their money away in interest instead of paying down their debt or using that money for savings. A large proportion of Canadians acknowledged their debt level is increasing. 21% of Canadians who are in debt say they are in over their heads and can no longer manage their debt load.

Even with the temporary relief of a credit card or line of credit, 25% of Canadians would not be able to handle an unforeseen expenditure of $5,000 and 10% would face difficulty in dealing with an unforeseen expense of $500.

Over 30% of Canadians do not commit any resources to savings. Astoundingly, the majority (78%) of those surveyed said they would not change their saving patterns in order to build or rebuild the financial cushion lost from recent economic events and the stock market drop. Is anyone else surprised by this news?

They are probably not changing their habits because the Canadian economy has been recession-free for 17 years before the events of 2008. The most recent recession took place over a 12-month period between April 1990 and March 1991. Therefore, many Gen X and all Gen Y adults today don’t remember the last recession, so they do not understand the impact on their personal wealth, nor the consequences of continuing with the same overspending patterns they are currently accustomed to.

To read the full CGA Canada report in PDF, click on this link: Where Has the Money Gone: The State of Canadian Household Debt in a Stumbling Economy

To read the highlights of the CGA Canada report, click on this link: (Highlights) Where Has the Money Gone: The State of Canadian Household Debt in a Stumbling Economy