Canadian Debt Photo: pnwra/Flickr

According to the Bank of Montreal’s annual debt report, the average Canadian is carrying around $93,000 in debt compared to $76,140 last year. The report, released Wednesday, showed that the percentage of Canadians in debt hasn’t changed since last year — about 80 per cent.

While this does not sound like a positive development, the debt that Canadians are accruing is actually “good debt,” meaning it consists of smart purchases like homes and education. Sal Guatieri, Senior Economist at BMO, said that Canadians are generally spending wisely.

“Given the angst about high debt burdens, it’s somewhat comforting to know that Canadians are generally accumulating good debt to finance investments in their homes and educations, as opposed to bad debt such as discretionary spending on vacations and entertainment,” he said.

BMO’s report, which was conducted by Pollara, a Toronto-based market research firm, found that home and auto buying, renovations and education were the top household debt contributors for Canadians. At 49 per cent, home buying was the most significant contributor to debt in the country, followed by buying cars at 46 per cent and home renovations at 33 per cent.

The percentage of debt accumulated by the purchasing of homes was most significant in Alberta and Quebec at 55 per cent.

Indeed, home sales in the first half of 2015 were up six per cent from last year and 34 per cent of Canadians said it was the main factor contributing to their debt. Earlier this year CREA reported that the Canadian housing market broke the all-time sales record for the month of June.

In addition, the number of home renovations in the country is quickly outpacing overall consumer demand. About a third of Canadians said that home repairs and renovations were a significant contributing factor towards their debt, and one in 10 said that it was the main source.

“Home renovations and repairs are running at a near three per cent real rate, in part due to an aging population, as seniors tend to spend more of their income on fixing up their home than younger age groups,” Guatieri said.

Also contributing to debt were car purchases: 46 per cent of Canadians said that the recent purchase of a car was a source of debt. According to BMO Economics, automobile sales are also at record highs and rising steadily.

Expenses surrounding education like textbooks and tuition have also risen three per cent year-over-year. According to the report, over a third of Canadians under the age of 35 are in debt because of student loans.

Sameh Elrefaei, Head of Personal Lending at BMO, warned Canadians against accumulating too much debt.

“While rates are at all-time lows, it’s important that Canadians are aware of the risk associated with taking on additional debt, regardless of its purpose. Having a financial plan which includes careful budgeting and asset allocation can help avoid any risk and uncertainties,” he said.

To see the province-by-province debt breakdown, check out the chart below:


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