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Wednesday, February 21st, 2024

Household Debt Slowing, But Still Growing: BMO

TORONTO, June 21, 2011 – Although the growth in Canadian household debt is slowing and household assets are rising, debt ratios have pushed further above levels in the United States, and more steps need to be taken to repair the household balance sheet, according to Doug Porter, Deputy Chief Economist, and Sal Guatieri, Senior Economist and Vice President, BMO Capital Markets.

New figures released this week show household credit market debt climbed to an all-time high of $1.524 trillion in Q1, or a record 147.3 per cent of disposable income. Further, while household debt growth has cooled notably in recent months, it continues to outstrip income growth.

However, growing household assets remain a bright spot. “We have been much less alarmist than others on the build-up of debt, as in many cases there are solid assets on the other side of the balance sheet,” said Mr. Porter. “Indeed, because of higher house prices and equity markets in Q1, households are wealthier despite carrying more debt, with net financial assets hitting fresh peaks.”

According to Mr. Porter, the increase in debt ratios has slowed in the past year after soaring 35 percentage points in the previous eight years.

“We are encouraged by the recent slowing in consumer debt growth, though some further slowing is needed, especially on the mortgage side, to stabilize debt ratios,” added Mr. Porter. “We’re expecting this to begin when, and if, interest rates climb moderately in the year ahead.”

Furthermore, BMO Bank of Montreal today released results from the 2011 BMO Annual Summer Spending Study, revealing that one in three Canadians are living at or beyond their means, with 27 per cent living paycheque to paycheque – a 10 per cent increase over last year.

Additionally, 24 per cent of Canadians say that they are not doing anything differently from last year as it relates to managing their personal finances, and only 5 per cent have set up a budget to try and change their spending habits. The poll results were released as Canadians head into the start of summer – traditionally a time for spending on recreation and entertainment.

Lynne Kilpatrick, Senior Vice President, BMO Bank of Montreal, says when it comes to balancing household finances, Canadians need to carefully examine their daily spending habits and weigh the wants versus the needs.

“It can seem like a daunting task to pull back the curtain and examine every dollar being spent, but to successfully manage household finances, a number of factors need to be addressed on a regular basis,” says Ms. Kilpatrick. “However, developing and following a straight-forward, realistic budget that includes both monthly expenses and leisure spending can help to simplify your financial picture, keep things on track and identify areas where spending can be scaled back if necessary.”

The survey also showed that Canadians are most likely to go online to track their spending, with 52 per cent checking their bank accounts online on a regular basis. Ms. Kilpatrick notes that web-based personal finance tools, such as BMO MoneyLogic, are becoming increasingly popular, and can provide immediate insights into spending and savings habits.

Ms. Kilpatrick adds that since the launch of BMO MoneyLogic, an online, intuitive personal financial management tool, more than 240,000 customers have set savings goals since the beginning of the year, which is an encouraging sign.

Additional survey findings:

  • One in ten (11 per cent) Canadians say they do not track their spending habits.
  • Only 5 per cent say they have established a budget in order to change their spending habits in the past year.
  • More than half (52 per cent) are not always on budget on a monthly basis.
  • Those who are single are more likely to say they don’t have a budget, and just spend what they have compared to those who are married (31 per cent vs. 25 per cent).
  • Those who are married are more likely to say they are sticking to their budget and are managing their personal finances well on a month-by-month basis (43 per cent vs. 34 per cent single).

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