Two seemingly contradictory reports evaluating national debt levels tell the same stark truths about the rising severity of the financial straits facing many Canadians, analysts said Wednesday.
A poll released by the Royal Bank of Canada exposes the complacent attitudes that many Canadians have adopted as a result of months of rock-bottom borrowing rates, they said, adding the findings take on added significance when contrasted with recent debt data from Statistics Canada.
The Royal Bank survey, conducted by Ipsos Reid, found nearly 70% of those who responded were comfortable with the amount of non-mortgage debt they were carrying, while 75% believed they were in better financial shape than their friends and neighbours.
Twenty-two percent of those surveyed said they were debt-free, while 45% reported a debt level that they felt able to manage, the poll said.
The numbers stand in stark contrast to StatsCan figures released on Tuesday. They indicated national debt levels had hit a new record high and documented the first decline in household net worth in a year.
The ratio of credit market debt to personal disposable income edged up to 148.7% in the second quarter of this year, StatsCan said, noting mortgage debt was included in their calculations. The ratio was 147.3% in the previous quarter.
Declines in the value of pension assets forced average household net worth down 0.3% to $184,300, Statistics Canada said.
Francis Fong, economist with TD Bank Group, said the RBC survey suggests Canadians may have been lulled into a false sense of security by the extremely low interest rates that the Bank of Canada has maintained for the past several months.
“Not everyone can be better than everybody else,” Fong said in a telephone interview.
“It certainly sheds a lot of light on how people consider their own situation. A lot of this has to do with sentiment….I feel the fact that interest rates are so low is fuelling the fact that everyone feels that they’re better off than everybody else.”
A clear picture of national indebtedness is nearly impossible to gauge without accounting for mortgages, which have been the most consistent source of debt growth over the past decade, he said.
Even with mortgage figures stripped away, Fong said, the RBC survey suggests a significant number of Canadians do have concerns about their debt and may be at risk when borrowing rates eventually increase.
“We were always worried about people at the margins,” he said. “How big is that pool of people? When interest rates do eventually rise, are those people going to be at risk? This does indicate that there are a lot of people who are anxious about their debt level.”
Richard Goyder, vice-president of personal lending at RBC, said the survey indicates that Canadians are taking heed of warnings that have been resounding through the financial community for months.
The Bank of Canada raised the alarm on national household debt in a report tabled in June, saying record high levels were in danger of being exaserbated by interest rate hikes and an economic downturn. That report came at the end of a quarter that saw the Toronto Stock Exchange retreat nearly 6%, according to StatsCan, and before a volatile month of August that saw markets further roiled by financial uncertainty abroad.
Canadians have been paying attention to the market turmoil, Goyder said, adding the survey suggests they’re taking steps to protect their finances.
“Canadians have seen all the coverage that’s been in the press about high debt levels,” he said. “They’ve taken those messages seriously and are taking the necessary steps to manage those debts. I think that’s why they’re able to feel comfortable.”
The survey was not intended to downplay the debt crisis, Goyder said, but rather to highlight the fact that at least a third of the population is still at financial risk.
“We don’t shy away from the fact that a significant number of people are postponing major purchases because of concerns about the level of debt, and also that a good third of Canadians feel concerned about the level of debt that they have,” Goyder said.
“At the end of the day it isn’t in our interest to have people unduly concerned about the level of debt, but we certainly wouldn’t disagree with any of the messages that have been in the market.”
The survey suggested indebtedness has registered on the national consciousness. The poll found 93% of respondents believed paying down debt was just as important or more critical than saving money for the future.
Young Canadians were particularly anxious about getting out of debt, the survey found, saying 39% of respondents between 18 and 34 reported feeling anxious about the money they owe. Anxiety levels fell to 21% in those 55 or older, the poll found.
Debt concerns are prompting greater caution among Canadians, RBC said, adding 39% of those surveyed reported delaying vacations or major purchases because of their financial burdens.
The survey also highlighted regional differences in Canadians’ approach to debt repayment.
Anxiety about debt levels is highest in Alberta, where 36% of respondents reported being concerned about their outstanding balances. Quebecers were most likely to focus on paying down deb instead of saving for the future, with 54% saying repayment was their more pressing focus.
Comfort with debt levels is highest in Manitoba, where 62% of respondents said they were content with their current financial situation.
The online poll of slightly more than 2,000 Canadians conducted Aug. 18 to Aug. 23 is considered accurate within plus or minus two percentage points 19 times out of 20. Regional results may be less accurate because of smaller sample sizes.