Debt Warnings Following on Deaf Ears According to New Survey

By: Daniel Rattanamahattana on September 25, 2012

As Canada finds itself swamped in record levels of household debt, a new survey suggests a majority of Canadians are comfortable with going into debt to cover an unexpected cost. The poll was done by Harris/Decima, asking respondents how confident they were raising $2,000 in a month if an unexpected expense affected their budgets.

What the results show is that warnings of getting debts in line seem to be flying over heads. 55 percent of respondents said they were extremely or very confident they could raise the necessary cash for unexpected expenses; however, 92 percent of respondents said they were comfortable doing that by borrowing money to make it happen. Also only 45 percent said they had never had a debt problem; all this at a time when Canadian debt-to-income ratios have broken records to a massive 152 percent of disposable income.

Analysts are worried these results indicate Canadians are unworried about the warnings to get debts paid down before interest rates rise, and that a lack of action to do so could sink the budgets of households barely treading water.

Douglas Hoyes, a bankruptcy trustee with Hoyes, Michalos, and Associates Inc. who commissioned the Harris/Decima survey, says it’s “frightening” that Canadians don’t seem to care about the debt warnings. He says that it is now common for debt to be used not only for big ticket purchases but day to day expenses as well.

“It’s becoming their new normal and they’re numb to this dangerous trend.”

Canadians have become comfortable with the low rates since the recession in 2008 and the Bank of Canada has been forced to keep the central rate at 1 percent as a result of deteriorating global economic conditions. This has now become Canada’s number one economic concern according to Ted Michalos another trustee with Hoyes, Michalos, and Associates; Canadians have become far too comfortable with debt accumulation.

The poll also found that 70 percent of respondents needed help with getting budgets in line including paying down debts, increasing their savings, and improving their access to cash flow. Almost one in five respondents said they would need two months or longer to come up with that  $2,000 and 26 percent said they couldn’t get that money no matter how much time they had.

Michalos says it’s alarming that 62 percent of Canadians are fine with their financial situations, that debt doesn’t bother them; Hoyes says this reflects Canada’s overburdened debt problem.

“That’s a lot of people who are already at their maximum borrowing capacity.”