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December 10, 2019 | Why Consumer Insolvency Rates are Leaping in Canada

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

The latest Canadian consumer insolvency report is available here from Hoyes, Michalos, and includes a list of their top 10 debt statistics for 2019 as follows:

  1. Ontario bankruptcies and consumer proposals increased by 15.9% in the first ten months of 2019, while Canadian insolvencies increased 9.7%. The pace of growth is accelerating.
  2. Average weekly earnings have only risen 2.5% in the first 9 months of 2019.
  3. The average insolvent debtor spends 31% of their household budget on food.
  4. Food costs have increased by 3.4% in the first 10 months of the year and were up 3.7% year-over-year in October 2019.
  5. The average insolvent debtor spends 40% of their household income on housing costs.
  6. 95% of insolvencies involve renters. Almost half of renters in Ontario (46%) spend over 30% of their income on rent and utilities, with 21% spending more than 50% of their income on housing.
  7. Median rental rates in Canada were up 8.9% in October 2019.
  8. The balance of consumer credit reached $640 billion in October 2019, up 2.7%, from October 2018.
  9. The interest-only portion of debt servicing costs increased by 7.6% in the first half of 2019.
  10. Outstanding balances on unsecured lines of credit increased by 2.4% in the first 9 months of 2019.

Trustee Doug Hoyes predicts insolvencies are likely to accelerate further in 2020:

“…financial institutions and low-interest rates helped create a consumer credit binge we thought would never end. People don’t borrow money expecting they won’t repay it. Yet that is what is happening. As debt repayment and every-day living costs outstrip earnings for an ever-increasing portion of middle-income earners, who cannot rely on asset growth to fund the gap, insolvencies will rise.

That is why I believe that this uptick in filings won’t be slowing down anytime soon. This is only the beginning. And if we see a recession, if housing prices fall or stagnate, that opens the risk to a whole new rung of asset-owing Canadians who may need to file insolvency to dig themselves out.

The downpour will become a deluge.

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December 10th, 2019

Posted In: Juggling Dynamite

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