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Canadians still borrowing more, but at a much slower pace Add to ...

These are stories Report on Business is following Tuesday, April 30, 2013.

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Credit growth slows
Canadian consumers are still borrowing more, but they’re doing it at a noticeably slower pace.

Total household credit rose over a 12-month period ending in March by 4.4 per cent, the same pace as in February, Royal Bank of Canada said today.

While that’s still an increase, it’s down from the 5.6-per-cent pace of March, 2012, said economist David Onyett-Jeffries.

Canadian policy makers, such as Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney, have been pleading with consumers to pull back on their record debt levels.

Mr. Carney went so far as to signal an increase in interest rates to make that happen, though he has since pulled back on that warning as debt growth slowed.

“Household debt growth holding steady at the previous month’s more than decade-low rate reflected both mortgage and non-mortgage debt growth remaining unchanged from February, registering annual increases of 5.3 per cent and 2.5 per cent, respectively,” Mr. Onyett-Jeffries said.

“The year-over-year increase in mortgage debt outstanding in the first quarter as a whole does, however, represent the sixth quarter of moderation and the slowest year-over-year growth rate since the fourth quarter of 2001.”

The annual pace of growth in non-mortgage debt, such as credit cards and lines of credit, was at its lowest in the first quarter of the year since late 1993.

Canada’s housing market has cooled since last summer, when Mr. Flaherty brought in another round of mortgage restrictions to stop any bubble from bursting.

The Bank of Canada expects the key measure of household debt to disposable income to stabilize around its current record of 165 per cent.

“The indications of a further moderation in housing market activity support our view that demand for housing, and consequently demand for mortgages, will weaken slightly throughout 2013 as the Canadian housing market continues to transition to lower, more sustainable levels,” the RBC economist said in his report.

What makes us happy
It turns out money actually can buy happiness.

Two prominent U.S. economists have found that our sense of happiness, or well-being, rises with income.

That may not seem surprising to some people, but the study by Betsey Stevenson and Justin Wolfers dispels the long-held belief that money doesn’t buy more happiness after a certain income level is reached.

It’s what is known as the Easterlin Paradox, named for Richard Easterlin who in the early 1970s found that higher income doesn’t equate to being happier.

“However, in recent years new and more comprehensive data has allowed for greater testing of Easterlin’s claim,” Ms. Stevenson and Mr. Wolfers write in a study for the American Economic Review, Papers and Proceedings.

“Studies by us and others have pointed to a robust positive relationship between well-being and income across countries and over time.”

Ms. Stevenson and Mr. Wolfers, by the way, are a well-known couple in economic circles, both at the University of Michigan.

They cite earlier studies that claimed that happiness doesn’t rise once a certain level of income is reached, and that level bounces around depending on the research.

They’ve done a thorough economic study too deep to go into here, but here's the bottom line:

"We find no evidence of a satiation point. The income-well-being link that one finds when examining only the poor, is similar to that found when examining only the rich. We show that this finding is robust across a variety of datasets, for various measures of subjective well-being, at various thresholds, and that it holds in roughly equal measure when making cross-national comparisons between rich and poor countries as when making comparisons between rich and poor people within a country."

Every dollar more brings a "greater increment to measured happiness" for both poor and rich, with "no satiation point," according to the study published by Brookings.

“While the idea that there is some critical level of income beyond which income no longer impacts well-being is intuitively appealing, it is at odds with the data.”

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