Skip to main content
subscribers only

I question the Canadian national myth that as a nation, we can really hold our liquor. Just put your Molson Canadians aside and quaff a few Belgian brews, for instance, and you'll soon realize we're lightweights.

It appears, though, that we may be pretty good at holding our debt.

The latest quarterly report on Canada's consumer credit trends from Equifax, a leading global consumer-credit rating agency, found that "serious" delinquencies on non-mortgage credit hit a record low of 1.19 per cent in the fourth quarter of 2012. ("Serious" is defined as payments that are overdue for 90 days or longer.)

The numbers may seem hard to reconcile with the relentless hand-wringing in Ottawa about Canada's alarmingly high levels of household debt, which topped a record 164 per cent of annual disposable income in the 2012 third quarter. (Fourth-quarter numbers haven't been published yet.) However, they are entirely consistent with one rarely quoted statistic in the consumer-debt hubbub: Statistics Canada's debt service ratio, which measures monthly interest payments as a proportion of disposable income, is at a record-low 7 per cent.

Continued low interest rates are a significant contributor to this; Canadians can afford more debt when the cost of that debt is historically puny. But there's more going on here than that. Equifax said non-mortgage consumer debt (which includes loans, credit cards and lines of credit) rose just 3.2 per cent in 2012 – far below the pre-recession annual pace of more than 11 per cent.

Debt on lines of credit was unchanged year over year; debt on credit cards declined nearly 4 per cent. Demand for new credit is at its lowest level in five years, down 11 per cent from the end of 2007. And this has been happening even while interest rates remain at historically low levels.

Granted, non-mortgage consumer credit represents only about 30 per cent of household debt; mortgages make up the other 70 per cent. And according to Statistics Canada, Canadians' mortgage debt rose 1.7 per cent in the third quarter of 2012 alone (fourth-quarter numbers haven't yet been published).

But the non-mortgage debt is the most expensive portion of consumers' debt to service. Statscan's data show that non-mortgage interest paid in the third quarter was almost as much as mortgage interest – despite the fact that total mortgage debt is more than twice the size of total non-mortgage debt. Equifax's findings indicate Canadians are tackling their most expensive debt first – the debt most at risk in the event of an unexpected shock, or a sudden rise in interest rates.

Whether this is a sign that consumers are paying heed to the warnings from Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty, or simply feeling the squeeze between their high debts and a deteriorating economy, hardly matters. The tide of consumer credit has taken a positive turn. While Ottawa has focused its debt-wrangling efforts on tougher mortgage rules, the non-mortgage side of the equation is finding a more prudent path on its own.

The lack of delinquencies is also a reminder that while debts are elevated, Canadians' capacity to manage those debts is in impressively good shape. This, more than any finger-wagging from Ottawa, will keep the country's household debt problem on course for a soft landing.