Is Canada facing a debt crisis?

Josh GormanThe Canadian population has had a saving culture for many years. This culture is no longer popular as household debt has increased over the years. In 1982, Canadians were saving about 20% of their annual income. This percentage had dropped to about 3.6% in 2014. The growing debt has become one of the worrying Canadian finance issues. Households are turning to debt to maintain a middle-class lifestyle. Part of the debts go to buying cars and furnishing homes. Many students use student loans and credit cards to meet their needs. Hence, young people are embracing a debt culture instead a saving culture. In fact, some studies indicate that Canadians now save less than Americans who spend large amounts of money on luxuries. One of key components of household debt in Canada is mortgage debt. Many households have used mortgages to buy and furnish their homes. At the same time, housing prices have been rising at an alarming rate in Canada.

The high housing prices and demand for mortgage loans have increased the level of household debt significantly. The high prices have favored the old generation that invested in real estate in the 1980s and 1990s. However, young families are rushing to take mortgage loans in fear that housing prices will continue to rise in the coming years. In the last 1970s and 1980s, 34-year old Canadians were spending about 38% of their income to buy houses. By 2010, the same group was spending about 46% of their income on housing. Economies have warned about the adverse effects of the rising debt culture on the economy. The rising housing prices is not only one of the alarming Canadian finance issues but also an indication of higher interest rates in the future. Financial institutions are likely to raise their lending rates as the demand for mortgages and other loans by households continue to increase. Household spending has exceeded disposable income while debt to income ratios have reached their highest mark in history. Many households might not meet their monthly loan repayment in the future if this trend is not reversed. Source:

A Sluggish Retail Sector in Canada: Consumer Confidence At A Low

Josh GormanThe Canadian financial landscape presents a worrisome image right now. The exit of US retail giant target, along with other multi-chain stores sparked a litany of concern. This was on the back of falling oil prices that continued to bring the value of the Canadian dollar down. The real estate market produced an almost artificial boom at the start of the year. And now reports of Mexico’s competitive advantage over Canada in terms of manufacturing are making the rounds. Speculation is rife, and with upcoming elections in October 2015, it is likely that the party with the best plan for economic revival will sway the voters.

The sluggish behavior in the retail sectors is a major finance issue in Canada. It signals the lack of confidence on part of Canadians in the economy. Only two years ago, the same industry was going through a major boom, but with the loss due to falling oil prices, 2015 has been a year of turmoil. The departure of Target was followed by news of Loblaws closing 52 stores across the country. More recently, the retail lease market has shown signs of struggle as Target locations have proven difficult to find tenants.

The retail sector is usually a good indicator of the health of Canadian economy and consumer trends. Moody’s investor service highlights some of the baseline problems causing slow retail sector performance. There has been a slow wage increase relative to inflation. Sustained low oil prices have created a climate of tension amid layoffs, especially in the economic powerhouse that is Alberta. There are also growing trends in household debt. These factors have diminished consumer spending, creating a vicious circle. The low oil prices are believed to slow down dispensable income growth as well. Without a doubt, this is a significant finance issue in Canada. In order to provide the groundwork for resurgence, the interest rates have been at a historic low. The Canadian financial officers have to devise strategies that can increase consumer confidence in the economy. One way to do this is by creating conditions conducive to greater spending. However, there is also a need for a comprehensive long-term strategy, can help with the short ones. And so, a lot hinges upon the upcoming federal elections.