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

Slow economic growth is leading to an increase in total consumer debt across Canada, according to an economics expert.

“Particularly with respect to inflation and wages, we’ve seen that wage, inflation gap open up a little bit and that’s one of the big reasons,” University of Regina economics professor Jason Childs said in an interview with CTV Morning Live Regina.

Total consumer debt has risen more than eight percent in the second quarter (Q2) of 2022 when compared to last year, according to a recent report from Equifax Canada.

“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,” Equifax Canada said.

Childs said fewer employment opportunities are playing a part in rising debt.

“You’re seeing people roll out of COVID-19 looking for those opportunities while taking on more debt where interest was remarkably low and now it’s started to move [up] and you’re seeing those increased [interest] payments starting to bite,” he said.

The Equifax Canada report said total consumer debt is now $2.32 trillion, however, debt levels vary by age category.

“There tends to be a natural debt cycle and we’re seeing that as younger people take on more debt as they try to buy their first house or vehicle and really start to get rolling,” Childs said.

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

“Those people are generally moving in a different direction [than younger people] they’re going to be starting to build up assets as they get ready for retirement, but they’re going to be subject to shocks both in the stock market and the prices of normal goods,” Childs said.

Savings rates and investment decisions are expected to be affected by those fluctuations in the stock market and changes to consumer prices, Childs said.

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

“Over the last quarter, credit card balances rose to the highest level since Q4 2019 and increased by 6.4 percent compared to the Q1 figures The biggest shift in consumer credit balance has been on those with lower credit scores, who may have a higher risk of missing payments,” Equifax Canada said in a release.

According to Equifax Canada, the average credit limit on new cards is over $5,800 – the highest it has been in the last seven years.

The average monthly credit card spend per card-holding consumer was close to $2,370 in Q2, which is an increase of 22 percent compared to Q2 of 2021.

“Interest rates are going up so debt service cost is going to be a lot higher than it was in the past. We’ve seen interest rates move two to three percent already this year and it’s likely to continue going up,” Childs said.

Childs said if at all possible people need to try and start saving money and get on the other side of the interest equation.

“Credit cards are not your friend,” Childs said.

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