Canadians More in Debt Than Americans: BoC Governor Carney

In a speech yesterday to the Economic Club of Canada, Bank of Canada Governor Mark Carney repeated the warning that Canadians are carrying too much debt.

"The crisis is not over, but has merely entered a new phase," Governor Carney said, cautioning that "low rates today do not necessarily mean low rates tomorrow. Risk reversals, when they happen, can be fierce: the greater the complacency, the more brutal the reckoning.""Cheap money (via low interest rates) is not a long-term growth strategy," he said.

"Monetary policy will continue to be set to achieve the inflation target. Our institutions should not be lulled into a false sense of security due to low current rates."

While the Bank of Canada has done a good job of warning Canadians about the perils of borrowing beyond their means, a National Post article by Nicolas Van Praet says that they have some possible complicity in this: the Bank of Canada has maintained low interest rates to propel the country out of the recession. That has spurred consumers to borrow more because it costs less to borrow. And banks, afraid to cede market share and profits, have been willing lenders.

A lengthy period of low interest rates has prompted Canadians to rack up debt faster than their disposable income is growing. For the first time in 12 years, Canadian households now have a higher debt-to-income ratio than those in the United States. It hit a record 14 per cent in the third quarter, new Statistics Canada data show.

Praet's article went on to say that consumer debt has ballooned, testing the limits of many Canadians' ability to repay what they owe. But everyone seems to think that it isn't their problem.

But it is our problem, and it's becoming a bigger problem. Walletpop blogger Alia McMullen wrote in a recent blog post that 40 per cent of us are retiring with debt, quoting a Royal Bank of Canada survey that shows four in 10 Canadians over the age of 50 and with assets worth at least $100,000, retired with some form of debt, and 22% retired while still paying the mortgage on their home. Her blog highlights the importance of getting control of debt as quickly as possible.

Credit Canada Executive Director Laurie Campbell says that debt is something Canadians need to pay more attention to.

"Anytime you have the Bank of Canada governor issuing warnings like this, then yes, we as Canadians need to take it very seriously," says Campbell, adding that for every dollar a Canadian makes, they owe a $1.48. One thing Campbell recommends for everyone is to take a look at who you owe, and make a plan to pay off the highest interest rates first. These culprits are usually credit cards, some of them with interest rates that can run as high as 28 per cent.

Campbell says Credit Canada, a registered charity, has several great programs to help people get rid of debt. She added that Credit Canada helped more than 60,000 people last year.

"We have a number of different programs at Credit Canada," says Campbell. "We offer free counseling to individuals, budget counseling for people who may not necessarily be in debt but may want to learn how to manage their money better, and we offer a financial coaching series."

More links from Walletpop:

Are You One of the 40% of Canadians That Retire With Debt?
Seven Free Debt Counselling Centres Open Across Canada
What Does a Princess Do When the Bank of Dad Is Closed?
5 Steps to a Debt-Free Life, 10 Fun Careers From Home, and More
Growing Student Debt Changing The Way We Live