DEBT CRUNCH: ADDRESSING CANADA’S RECORD LEVEL OF HOUSEHOLD DEBT

Ottawa, Canada (February 24, 2011) – The Action Canada Task Force on Household Debt will release its policy recommendations to address Canada’s record level of household debt while launching a short animation about unsustainable debt to draw attention to a story that will sound all too familiar to many Canadians.

The launch of the report and video entitled “Joe’s Debt” will be accompanied by a presentation from the Task Force highlighting its proposals. An audience of policy-makers, credit counsellors, members of the financial sector and the general public will be invited to respond to the recommendations.

Admission is free and a buffet lunch will follow.

What: Debt Crunch: Addressing Canada’s Record Level of Household Debt
When: Friday, February 25, 2011, 11:00 AM – 12:15 PM (buffet lunch to follow)
Where: The Canadian Room, The Fairmont Chateau Laurier, 1 Rideau Street, Ottawa

Copies of the report and DVDs of “Joe’s Debt” will be made available to media

Action Canada (www.actioncanada.ca) is a national fellowship program for promising young Canadians. The program enhances Fellows’ leadership skills, broadens their understanding of Canada and its policy choices, and builds an exceptional network of leaders for our future.

-30-

Media Contacts:
Derek Dunfield – 857-244-1446
Kulvir Singh Gill – 416-471-5296
www.debtcrunch.ca
debt@actioncanada.ca

• Canadian monetary policy will continue to be set, as it has in the past, for overall Canadian conditions and guided by our 2 per cent inflation target.
• Household credit has grown by about 7 per cent in Canada since the trough in GDP; in the United States, it has fallen by 3.5 per cent.
• In a series of analyses over the past year the Bank has found that Canadian households are increasingly vulnerable to an adverse shock and that this vulnerability is rising more quickly than had been previously anticipated.14,
• Without a significant change in behaviour, the proportion of households that would be susceptible to serious financial stress from an adverse shock will continue to grow.
• The results suggest that the rise in financial stress from a 3-percentage-point increase in the unemployment rate would double the proportion of loans that are in arrears three months or more. Owing to the declining affordability of housing and the increasingly stretched financial positions of households, the probability of a negative shock to property prices has risen as well.
• Ordinary times will eventually return and, with them, more normal interest rates and costs of borrowing. It is the responsibility of households to ensure that in the future, they can service the debts they take on today.
• Households need to be prudent in their borrowing, recognising that over the life of a mortgage, interest rates will often be much higher.

National Westminster Bank has created a whole financial literacy curriculum that according to their website is being delivered through to 25,000 classes  annually:

Our relationship with money begins before we’ve left school. By working in partnership with teachers, we’ve created an interactive programme for schools, which shows how good money management skills help in everyday life.

About MoneySense

Why did we set up a national financial education programme? It’s a startling fact, but 90% of adults in the UK never received lessons on managing money at school. A staggering 66% feel that having lessons would have better equipped them to deal with the financial challenges of modern life.

In response to this, in 1994 we started our programme to provide financial education for children and adults across the country.

The MoneySense programme is supported and accredited by independent bodies such as Personal Financial Education Group (pfeg) and Consumer Credit Counselling Service (CCCS).

If you think you would benefit from learning how to manage money better, follow the links to find out more about our MoneySense programme.

• TD warned that “the relentless rise in household debt in Canada . . . is a growing cause for concern.” The CGA raised the pitch, adding: “The rapidly deteriorating situation of the household sector’s balance sheet should be viewed as alarming.” The measure that stands out in their analyses is the amount of debt relative to personal disposable income, which Statistics Canada puts at 146 per cent and, according to TD estimates, may reach 151 per cent in the next five years based on projections of two-percent annual economic growth, supporting personal disposable income growth of four per cent a year.
• A debt-service ratio in excess of 30 per cent — that is, more than 30 per cent of household income is required to make debt payments — can signal trouble. The Bank of Canada uses 40 per cent as its threshold of vulnerability and calculates that six per cent of households were under financial stress in 2009, and estimated that the figure would rise to 7.5 per cent if the overnight rate rose to 3.5 per cent, as it is expected to do by 2013. TD says the proportion of those with a debt-service ratio between 30 and 40 per cent has risen from 7.2 per cent to 9.3 per cent in the last two years. However, TD explains, these ratios do not suggest that a major personal financial crisis is brewing. In fact, debt will remain manageable for the majority of Canadian households.
• The CGA used another measure that should calm headline-driven hysteria about debt. It noted that although the debt-to-asset ratio at 19.9 per cent has worsened from the average of 15.2 per cent between 1990 to 2007, it did not deteriorate last year as the market value of financial assets increased. Moreover, the mortgage to residential asset ratio, while worse than the 55 per cent 1990-2007 average at 65.4 per cent, suggests homeowners still have nearly 35-per cent equity in their homes, comfortably above the standard 25-per-cent downpayment. As well, household debt to net worth was unchanged in the second quarter of 2010 from the first quarter of 2009.
• Clearly, households have been piling on debt obligations. As interest rates rise, many Canadians may find themselves constrained from taking on even more debt and will have to curtail spending. That could put a drag on economic growth. For the next few years of a low-interest environment, Canadian homeowners would be wise to use that financial wiggle room to pay down principal and/or reduce unsecured consumer credit card balances.

For Immediate Release

Public Forum in St. John’s Highlights the Canadian Household Debt Crisis

ST. JOHN’S, Nov. 8 – Canada’s large and growing household debt crisis came into focus at a public forum hosted by Action Canada in co-operation with The Harris Centre at Memorial University and the Memorial University Students’ Union on November 5th, 2010 in St. John’s, Newfoundland.

The public forum, entitled “Debt Crunch: The Looming Crisis for Canadian Households”, examined how Canada’s recovery from the recent economic recession and the financial well-being of Canadians is threatened by unsustainable levels of household debt.

The lively forum moderated by Canadian broadcaster Mary Lou Finlay, brought together a crowd of over 60 members of the public who engaged with an expert panel including Dr. Wade Locke (Professor of Economics, Memorial University of Newfoundland), Al Antle (Executive Director, Credit and Debt Solutions), and Neil Mohindra (former Senior Economist, Fraser Institute).

The panelists noted how the growing crisis has been brought on by historically low interest rates, and easily available credit amongst other factors. While some members of the public proposed that we should limit access to credit overall, Neil Mohindra and the other panelists agreed that this could have many unintended consequences. The panelists noted that credit and debt are not necessarily bad, but need to be managed responsibly. A common theme raised by everyone in attendance was how a lack of basic financial knowledge has placed too many Canadians into challenging financial situations. Al Antle stressed that “We need financial education to make more informed debt decisions”. Dr. Locke agreed and stressed that “this education needs to start within our elementary and high schools.”

The Action Canada Fellows organizing this forum will use their findings from this and other work they are doing to develop policy recommendations to be presented to the Canadian Federal Government in February, 2010.

Action Canada is the only Canadian fellowship that offers both senior leadership development and cross-country conferences to enhance an understanding of Canada and public policy choices for our future. Fellows are chosen from all sectors, including business, science, government, academia and the professions.

For further details on the Debt Crunch Forum, visit www.debtcrunch.ca. For more information on the Action Canada fellowship, visit www.actioncanada.ca.

-30-

Contacts:
Derek Dunfield
derek_dunflield@actioncanada.ca
857-224-1446 or 613-888-1579

OR

Kulvir Singh Gill
kulvir_gill@actioncanada.ca
416-471-5296

Des Fellows d’Action Canada animeront une tribune publique sur le taux d’endettement des ménages

ST. JOHN’S, le 3 nov. /CNW/ – L’ampleur et la croissance de l’endettement des ménages canadiens constituent-elles une crise?

Action Canada tiendra une tribune publique le 5 novembre 2010 à St. John’s, à Terre-Neuve, pour analyser la crise croissante générée par les taux d’intérêt historiquement bas, la facilité d’accès au crédit, la souplesse des directives de la Société canadienne d’hypothèque et de logement et la stabilité relative de l’économie.

“Les Canadiens affichent actuellement le ratio d’endettement le plus élevé de l’OCDE”, a déclaré Derek Dunfield, Fellow d’Action Canada qui animera la tribune publique. “Un refroidissement des marchés de l’habitation ou de modestes hausses des taux d’intérêt rendront ces niveaux d’endettement insoutenables. Les spécialistes prédisent que cette situation pourrait faire courir à l’économie canadienne un risque semblable à la crise des prêts hypothécaires à risque survenue aux États-Unis.”

Dans le cadre de la tribune publique, ayant pour titre “Endettement Ecrasant : Imminente Crise Pour Les ménages canadiens?”, les participants analyseront dans quelle mesure les niveaux d’endettement insoutenables des ménages menacent la santé financière des Canadiens et la reprise économique au pays depuis la récente récession. La tribune se tiendra le vendredi 5 novembre 2010, de 9 h 30 à 11 h 30, au Suncor Energy Fluvarium, à St. John’s. Elle est organisée en collaboration avec le Harris Centre de l’Université Memorial et l’association des étudiants de l’Université Memorial.

Cet événement gratuit comprendra une discussion d’un groupe d’experts animée par la journaliste canadienne Mary Lou Finlay, ancienne animatrice de l’émission de radio “As It Happens” à CBC. Le groupe d’experts sera formé de Wade Locke, Ph.D., (professeur d’économie, Université Memorial de Terre-Neuve), d’Al Antle (directeur général, Credit and Debt Solutions) et de Neil Mohindra (ancien économiste principal, Institut Fraser).

Les Fellows d’Action Canada qui organisent cette tribune en utiliseront les conclusions pour formuler des recommandations en matière de politiques qu’ils présenteront au gouvernement fédéral.

Action Canada est le seul programme canadien à offrir en même temps une formation de haut niveau en leadership et des conférences à travers le pays, pour donner une meilleure compréhension du Canada et des choix en matière de politiques publiques pour notre avenir. Les Fellows sélectionnés proviennent de tous les secteurs, dont le milieu des affaires, les sciences, le gouvernement, le milieu universitaire et les professions libérales.

L’événement est gratuit et ouvert au public. Il n’est pas nécessaire de se procurer des billets, mais nous vous invitons à confirmer votre présence. Les places seront attribuées sur la base des premiers arrivés, premiers servis. Les Fellows d’Action Canada et les membres du groupe d’experts seront disponibles pour des entrevues. Pour obtenir de plus amples renseignements sur la tribune publique, veuillez consulter le site www.debtcrunch.ca (en anglais). Pour obtenir de plus amples renseignements sur Action Canada, veuillez consulter le site www.actioncanada.ca.

Renseignements:
Derek Dunfield
derek_dunflield@actioncanada.ca
857-224-1446 ou 613-888-1579

Kulvir Singh Gill
kulvir_gill@actioncanada.ca
416-471-5296

-30-

Voir le fichier PDF ici

Media Advisory

For Immediate Release

Action Canada Fellows to Host Public Forum on Household Debt

ST. JOHN’S, Nov. 1 /CNW/ – Is Canada’s large and growing household debt a crisis?

Action Canada will host a public forum on November 5th, 2010 in St. John’s, Newfoundland to examine the growing crisis brought on by historically low interest rates, easily available credit, relaxed Canadian Mortgage and Housing Corporation guidelines, and a relatively stable economy.

“Canadians now have the highest debt to assets ratios in the OECD,” said Derek Dunfield, an Action Canada Fellow hosting the public forum. “Cooling housing markets or modest increases in interest rates will make these debt levels unsustainable.  Experts predict that this could put Canada’s economy at a level of risk that could rival the US sub-prime mortgage crisis.”

The public forum, entitled “Debt Crunch: The Looming Crisis for Canadian Households”, will examine how Canada’s recovery from the recent economic recession and the financial well-being of Canadians is threatened by unsustainable levels of household debt. It will take place on Friday November 5, 2010, from 9:30 to 11:30 AM at the Suncor Energy Fluvarium in St. John’s. It is being held in co-operation with The Harris Centre at Memorial University and the Memorial University Students’ Union.

This free event will include an expert panel discussion moderated by Canadian broadcaster Mary Lou Finlay, former host of CBC Radio’s “As It Happens” radio program. The panel will include Dr. Wade Locke (Professor of Economics, Memorial University of Newfoundland), Al Antle (Executive Director, Credit and Debt Solutions), and Neil Mohindra (former Senior Economist, Fraser Institute).

The Action Canada Fellows organizing this forum will use its findings to develop policy recommendations to be presented to the Canadian Federal Government.

Action Canada is the only Canadian fellowship that offers both senior leadership development and cross-country conferences to enhance an understanding of Canada and public policy choices for our future. Fellows are chosen from all sectors, including business, science, government, academia and the professions.

The event is free and open to the public. Tickets are not required, but an RSVP is encouraged. Space is available on a first-come, first-served basis. Action Canada Fellows and the panel experts will be available for interviews after the event. For further details on the Debt Crunch Forum, visit www.debtcrunch.ca. For more information on the Action Canada fellowship, visit www.actioncanada.ca.

Contacts:
Derek Dunfield
derek_dunflield@actioncanada.ca
857-224-1446 or 613-888-1579

OR

Kulvir Singh Gill
kulvir_gill@actioncanada.ca
416-471-5296

-30-

Download PDF version here.

Royal Bank of Canada, the country’s biggest bank by assets, expects a decline in consumer lending next year, easing fears that Canadians are ramping up household debt amid rising interest rates.

“We’ve certainly seen growth moderate for a number of reasons, and I think that’s prudent,” David McKay, Royal Bank’s head of Canadian banking, told reporters after an investor event in Toronto. “Unchecked growth from where we are today would be a concern for the economy.”

“Household debt in the US now stands so large, paying it down to 2001 levels – as a proportion of income – would require a drop in consumer spending of $2.7 trillion, some 18% of this year’s gross domestic product. Deleveraging to 1990 levels of gearing (again, a then-record at the time) would cost US households $3.5 trillion, well over a quarter of their 2010 incomes.

It ain’t gonna happen, in other words. Not this side of Paul Krugman joining John Maynard Keynes in that eternal “long run” in the sky. So what’s needed, or so the theory runs, is inflation in prices. It would make deleveraging very much easier, as happened during the last retrenchment, back in the early 1980s. Consumers got to pay down debt without…well, without paying it down! And that gave households enough confidence (and rope) to start expanding their debts again.”