The Household Debt Myth


Run — don’t walk!
It oozes!
It creeps!

Justin Trudeau wants you know that it might be coming to a town near you.

Thomas Mulcair warns you that it might be right outside your house.

They both caution that it could be inside your room!!!


The two opposition leaders have used their duelling national platforms of late to convince the country that our economy is tanking, the jobs aren’t reappearing, wages are slumping and, worst of all, household debt is skyrocketing.

The one problem is that it’s not really true.

Like much of the inane grandstanding that defines Canadian economic policy, this one just doesn’t hold up.  And none of them have a clue on how to fix it, as evidenced by my grilling of Trudeau economic czar Bill Morneau.

At first blush.  Things seem not-so-good.

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Statistics Canada data shows that household debt is, in fact, rising.

Let’s take credit card debt — which Thomas Mulcair has targeted as the rent-charge scourge of capitalism — is it really sucking us dry?  Well, no.  Not at all.

Credit card debt for the 40% of Canadians who have credit card debt (yes, amazingly, 60% have none) has not exactly skyrocketed.  The median amount of credit card debt for Canadians is $3000 — up $300 from 2005, exactly the same amount it rose from 1999.

And what of our fragile youth?  Well the entirety of Canada’s student debt — which Trudeau has signalled out as a particularly wily enemy — is hardly out of control: it’s increased only 30% in 13 years.  The median amount of student loan debt is only $600 higher than it was in 1999, and $200 less than it was in 2005.

What about, say, the increase in debt due to lines of credit?  Must be that Canadians are borrowing to feed their kids and keep away the icewolves, right?

Perchance not.

Ontario and the Atlantic Provinces, the two areas arguably most affected by the recession, saw a marginal increase in that field.  Line of credit debt jumped only about 20% from 2005 to 2012, yet it was 250% in British Columbia.  (The jump was roughly the same in Quebec, for untold reasons.)  The accumulated debt in the Prairies, meanwhile, tripled.

So is it, perhaps, that much of this debt is thanks to line-of-credits for Canadians to renovate or upgrade their homes in booming housing markets like Calgary or Vancouver?  (Thanks a lot, HomeEco Energy Tax Credit!)

The same story is seen in Canadians’ mortgage debt.

Look at it from another angle — the median amount of mortgage and line of credit debt has gone up about a third since 2005.  The average amount of debt, meanwhile, has nearly doubled.  What does that mean?

Rich people have a lot of debt.


Yes, this should surprise absolutely no one, but rich people like to borrow money.  Why?  Because they can.  And when interest rates are cheap, it’s like free money.  If you can afford to pay it back when rates rise back to normal, why wouldn’t you?

Let’s not discount that Canadians have more debt than they did in 2005.  That’s no good.  But isn’t there another part of the equation that we’re missing here?

Oh, right: wealth.

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Well would you look at that.

The value of Canadians’ stock portfolios, pension plans, and physical assets (houses, cars, etc) is on steady incline.

The median value of Canadian private pension plans, which 70% of the country has, has jumped a third.

As for physical assets: after posting modest increases in value from 1999 to 2005, by 2012 Canadians could report a huge jump in their wealth — an increase of about 40% (and 5% more of the country had physical assets to report.)

Now, this is a bit of a double-edged sword — Canada’s heated housing market drives up debt, but it also boosts assets.  That’s certainly a problem that needs addressing, as we lift interest rates and try to bring the country back from the brink of popping the housing bubble.

But the point here is that things aren’t that bad.

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Consider, too, that these debt numbers are now nearly two years out of date.

Canadians might not be making it rain with gold-played $100 bills, but the danger that the opposition is warning of is vastly overrated.

And the worst thing is that there are serious problems.  Canada’s exports, for example, are slumping amid a restarting of manufacturing abroad.  Our energy products can’t get to market.  Huge bottlenecks in our rail systems are stalling grain out West.  Our painfully low interest rates, coupled with the promise of huge government spending next year, threatens to kickstart inflation in the next few years.

Maybe we should talk about those things.

I leave you with one more graph:

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Follow Justin Ling on twitter: @Justin_Ling


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