Inflation, slower economic growth partly responsible for rising national consumer debt

According to an economist, slow economic growth is causing total consumer debt to rise across Canada.

“In terms of inflation and wages in particular, we’ve seen the gap between wages and inflation opening up a bit, and that’s one of the main reasons,” University of Regina economics professor Jason Childs said in an interview with CTV Morning Live Regina.

According to a recent report from Equifax Canada, total consumer debt increased by more than eight percent year-on-year in the second quarter (Q2) of 2022.

“The average non-mortgage debt per consumer is now more than $21,100, an increase of 2.4 percent compared to the second quarter of 2021,” said Equifax Canada.

Childs said fewer job opportunities play a role in rising debt.

“You see people coming out of COVID-19 and looking for these opportunities as they take on more debt where rates have been remarkably low and now it has started to move [up] and you see this increased [interest] Payments are starting to bite,” he said.

The Equifax Canada report states that total consumer debt is now $2.32 trillion, but the amount of debt varies by age category.

“There tends to be a natural cycle of debt, and we see that when younger people take on more debt when they’re trying to buy their first home or vehicle and really get rolling,” Childs said.

Childs said more people are seeing more atypical debt trends in their peak earning years — their 50s and 60s.

“These people are generally moving in a different direction [than younger people] They will start to accumulate wealth as they prepare for retirement, but they will face shocks in both the stock market and commodity prices,” Childs said.

Saving rates and investment decisions are expected to be affected by these fluctuations in stock markets and changes in consumer prices, Childs said.

Credit card demand and balances also continue to rise, according to the Equifax report.

“In the most recent quarter, credit card balances rose to the highest level since the fourth quarter of 2019, with a 6.4 percent increase in missed payments compared to first-quarter numbers,” Equifax Canada said in a press release.

According to Equifax Canada, the average credit limit for new cards is over $5,800 — the highest in the past seven years.

Average monthly credit card spend per consumer with a card was nearly $2,370 in the second quarter, a 22 percent increase from the second quarter of 2021.

“Interest rates are rising, so debt servicing costs will be much higher than they have been in the past. We’ve already seen interest rates rise by 2 to 3 percent this year, and it’s likely to continue to rise,” Childs said.

Childs said that if at all possible, people need to try to save money and get on the other side of the interest rate equation.

Credit cards are not your friend,” Childs said.

About Thelma Wilt

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