As post-Christmas credit card bills invade households across the country, ’tis the season — for a financial hangover. Even before the latest orgy of holiday spending, Canadians were carrying more household debt than ever before. And all this borrowing puts us at risk of a gut-wrenching crunch.
It’s a worrisome situation. For every dollar we bring home, we owe almost $ 1.65, according to Statistics Canada. That puts us depressingly near the household debt-to-income ratio in the United States when its housing bubble burst in 2007.
No wonder federal Finance Minister Jim Flaherty, departing Bank of Canada governor Mark Carney, and a legion of financial analysts have repeatedly warned Canadians to get a handle on their debt. The message is sinking in. According to a survey released by CIBC this past week, Canadians have named paying down debt their top financial priority for 2013. That’s good news — as far as it goes.
A Harris/Decima poll commissioned by the bank found that 17 per cent of respondents listed reducing their debt load as their foremost goal. Building savings was the main target of another 10 per cent, while 8 per cent planned to focus on better managing their day-to-day spending.
Amassing savings is especially worthwhile for those who have tamed their debt, given that a similar CIBC poll this summer found that 45 per cent of Canadians have no money set aside to deal with emergencies. Ontarians and Albertans were the most inclined to live paycheque to paycheque, with 53 per cent lacking a rainy day fund.
Unfortunately, a cloudburst is approaching Canadians who are barely making ends meet right now. They’re afloat only because record-high household debts are subject to record-low interest rates. But those rates must, at some point, inevitably rise. The Bank of Canada has repeatedly warned that its overnight lending rate of 1 per cent can’t last forever.
With that in mind, Canadian awareness of a need to lower soaring household debt is a silver lining in the CIBC survey. The cloud is that we’ve been well aware of this, and expressed it as a top priority for three years, only to fail to change our free-spending ways. Canadians’ well-intentioned goal of reducing debt tends to go the way of so many New Year’s resolutions — we might try for a while, especially on opening those credit card bills, but then fall back into our old habits.
Consumers aren’t entirely to blame. In the depths of the recession, Flaherty encouraged Canadians to spend more and helped them along with measures like the federal home renovation tax credit. Carney delivered rock-bottom interest rates for years and banks have been eager to lend. It should be no surprise that Canadians responded to this stimulus by splurging on mortgages, loans and credit card debt.
That needs to change if a harsh reckoning is to be averted. Good intentions aren’t enough. Priorities matter only when they’re acted upon. Canadians need to get serious about ending their dangerous infatuation with borrowing.