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May 30, 2011

Canadian Debts piling up

CANADA - 51% of Canadians feel uncomfortable about their debts and 33% are embarrassed by their level of debt, according to a survey released by Investors Group.

Almost everyone in Canada has debt, says Jack Courtney, assistant vice president of advanced financial planning, of Investors Group. Many Canadians have been "spending beyond one’s means and without foresight."

The survey found many Canadians borrow in an effort to cope with day-to-day expenses. The biggest debts are still mortgages, but borrowing to just get by (living paycheque-to-paycheque) is a bad sign that Canadians aren't making enough money and have too much debt. The third biggest category is debt accumulated by spending on holidays, entertainment, recreation and vacations.

The problem however exists in that many Canadians aren't taking their debts seriously. They figure that if worst comes to worst, they can just declare bankruptcy. That is bad news for banks which will end up holding the bag if too many Canadians default on their debts.

33% of Canadians admit to losing sleep over their debt problems.

25% say debt talk has lead to arguments with their partners.

28% have gone into debt to make a investment.

18% have taken on debt to upgrade their skills or return to school.

33% have used debt to invest in home renovations.

25% are considering drastic steps to reduce what they owe, either by delaying retirement or working at more than one job.

51% of Canadians with debt say their personal and household debt has decreased in the past year.

31% say their debt makes them feel as though they have achieved acceptable financial status because they are considered credit worthy.

40% think they have less debt than their friends while only 19 per cent think they have more.

15% say it is the result of bad budgeting and overspending and eight per cent say they believe they will never climb out of debt.

Some Canadians are hoping to cut back on their debts and are poised to cut their spending after two years of wracking up record debts during the Great Recession.

Still it could be worse. The USA is in far worse state than Canada is.

According to a separate report from the Boston Consulting Group, Canadians are facing a period of belt tightening.

51% of Canadians believe that the worst of the economic downturn has passed.

However 90% of Canadians report they will spend the same or less compared to last year.

44% plan to decrease their spending.

46% plan to spend the same amount.

Only 10% plan to spend more.

Canadians spent their way through the recession and are now feeling the pinch, says Cliff Grevler, a Partner and Managing Director in the Toronto office of BCG. In an effort to avoid the poor house many Canadians just kept spending during the Great Recession, raising household debt in Canada to record levels. Canadians took advantage of low interest rates and their debts skyrocketed.

The average Canadian credit card debt was $4,600 in 2010, up approx. 10% from $4,200 in 2008. And there is another problem... less Canadians are paying off their credit card debts. In 2008 only 23% of Canadians carried a balance on their credit card. In 2010 38% of Canadians now have credit card debts that they aren't paying off.

It should be noted that America's average credit card debt has been going down. $8,200 in 2008 to $6,700 in 2010.

But that is small peanuts compared to the amount of debt Canadian mortgages has piled on.

Which means if economic bumps happen a larger percentage of Canadians are now in a position to renege on their credit card debt (this is what happened in Asia in the late 1990s during the Asian credit crisis).

Last year, 38% of Canadians reported reneging on their credit card balance at least one month. That is a dramatic increase from 27% in 2008.

In the USA in 2008 50% of American households were reneging on credit card balances. In 2010 Americans have gotten better, down to 46% reneging.

An economic bump like raising interest rate could spell economic disaster. 15% of mortgage holders say they could not sustain a rise in interest rates of 2% or less. That 15% would effect about 850,000 homes.

80% of Canadians think they’re better off than Americans.

66% think they’re better off than Europeans.

Only 33% of Americans express optimism about the economy.

75% of Canadian consumers report spending more time shopping around for better prices.

75% of Canadians report buying "fewer things" over the past 12 months.

86% of Canadians report to have bought more often “on a deal” or "on sale" over the last 12 months.

More Canadians also said they plan to cut spending on non-essential spending and delay big ticket items.

80% of Canadians believe they’re better off than Americans.

78% of Canadians buying fewer luxury products

75% of Canadians spending more time shopping for better prices.

66% of Canadians believe they’re better off than Europeans.

51% of Canadians agree the worst of the downturn is behind us.

20% of Canadians say they’re not financially secure.

36% of Americans say they’re not financially secure.

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