Newspaper article The Canadian Press

Canada's Key Vulnerability of Household Debt Highest among Younger People: BoC

Newspaper article The Canadian Press

Canada's Key Vulnerability of Household Debt Highest among Younger People: BoC

Article excerpt

Young Canadians carry household debt burden

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OTTAWA - The most-important weak spot in the armour of the country's financial system -- climbing household debt -- is increasingly concentrated among younger Canadians, the Bank of Canada said Tuesday.

In its latest assessment of Canada's financial health, the central bank said the most indebted borrowers tend to be under 45 years old and usually earn less money, which puts them more at risk in an economic downturn.

The bank's semi-annual financial system review was released as the economy struggles to build momentum after contracting over the first two quarters of 2015. The lack of economic growth early in the year was largely due to the sharp tumble in commodity prices.

The Bank of Canada, which lowered its trend-setting interest rate twice in 2015 to cushion the blow of the resources slump, projects the economy will strengthen with lots of help from improvements in the United States.

In the meantime, Canadian borrowers have helped carry the load and, as a result, the key vulnerability of household debt has continued to rise.

The bank said, however, that while income growth has failed to keep pace with mounting mortgage credit, the chance of household debt becoming a serious problem remains low and is likely to fade as the economy picks up steam. It added that so far there has been little evidence of significant increases in delinquency rates.

Still, the report contained numbers that show the proportion of households in the shaky position of holding debt higher than 350 per cent of their gross income has doubled to about eight per cent since the 2008 financial crisis. The increase is mostly due to the extended era of low interest rates.

Meanwhile, the share of Canada's household debt held by these higher-risk borrowers has risen to 21 per cent or close to $400 billion from a pre-crisis level of 13 per cent. These households tend to be in British Columbia, Alberta and Ontario.

The likelihood that a household would be unable to make its debt payments following an adverse economic event increases significantly when its debt reaches above 350 per cent of gross income, the bank said. …

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