Canadians are carrying a super-sized debt monkey on their backs.
Driving the news: Canada’s consumer debt levels reached another record high last quarter, hitting ~$2.5 trillion, per new Equifax and TransUnion reports. The rise was driven by a jump in auto loans as well as more Gen Zers and newcomers to Canada entering the credit market.
- Consumer debt is money owed to a lender or creditor on loans used for personal purchases like credit card debt, home equity lines of credit, and student loans.
- It’s different from household debt, which is consumer debt plus mortgage debt. Per Statistics Canada, household debt hit a new high in September, topping $3 trillion.
Big picture: Canadian debt loads have grown exponentially since the 1990s, largely due to a surge in credit cards and homebuyers relying on heftier and heftier mortgages. Last year, Canada became the G7 nation with the most household debt, with such debt exceeding the GDP.
- All this debt isn’t a bad thing in itself, but it signals that Canada could be particularly vulnerable in a global economic downturn given the financial inflexibility of indebted households.
Why it matters: In its annual report on the nation’s financial stability, the Bank of Canada found Canada’s system remains resilient but flagged debt serviceability as a main risk.—QH