Recent figures suggest that the current level of personal debt in Canada is on the highest level for the past 8 years. The average non-mortgage personal loan of a Canadian is approximately $26,221 in the second quarter of 2012 suggesting that the overall debt levels are on the rise. (Johnson, 2012) There can be various reasons for this including the general trends and preferences of the consumers as well as the ability of Canadian banks to remain profitable and continue to supply consumer debt despite the fact that overall global scenario may not be encouraging. These trends are considered as troublesome as persistently high levels of personal debts can actually create serious consequences for the economy as a whole. This paper will discuss about the personal debt in Canadian society as a whole and will discuss the concerns as well as solutions for it. Personal Debt in Canada The recent trends of personal debt in Canadian society as a whole have been alarmingly high. The current average debt level in the second quarter of 2012 stood at $26,221 higher by $192 from the previous quarter. This figure is also considered as the highest during the last eight years since Credit Bureau actually started to track the personal debt levels. (Johnson, 2012) Studies have shown that debt to income ratio is on the rise as well as the debt-to total assets is on the rise too. These trends indicate that more and more portion of consumers’ income is taken by the debt and higher debt payments can actually reduce the disposable income for the individuals. Average annual growth rate of household debt in Canada grew by 7.4% in nominal terms and 5.3% in real terms during 2000-2011. Such consistent level of increase in household debt has actually put personal debt at the level which may not be sustainable for consumers in the long run. It is also important to note that this rise in the consumer debt is mostly in the non-mortgage debt class and is also secured against the household items. Such characteristics of the personal debt may therefore create significantly more economic consequences for the households. (Crawford & Faruqui, 2012) It has been suggested that such high level of personal debts can actually put Canadians at more vulnerability towards the economic shocks as any adverse change in employment dynamics can put lot of stress on the disposal income of the consumers. Sharp decline in home values as well as increase in interest rates as well as relatively higher level of unemployment can put individuals at more risk considering the current levels of debt in the country. (Chawla & Uppal, 2012) IMF has also shown its reservations over the higher levels of personal debt in Canadian economy and indicated that higher levels of personal debt can actually reduce the economic growth of the country. IMF has even cut its economic forecasts for Canada owing to higher personal as well as mortgage loans and suggested that higher debt levels at consumer level can actually create more risk for the economy as a whole. (BABAD, 2012) Some data indicates that this trend is on the rise across all ages and there are different factors which are actually at play causing the consistent rise in the personal debt levels. It has also been suggested that the persistent increase in the level of income as well as low interest rates have also contributed towards these trends. Some theoretical
Introduction Consumer debt or personal debt is the debt outstanding against the individuals and not to the businesses or governments. In economics terms, it is also called the debt which is basically used in the consumption rather than making the investments…
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