ArticalBy Monica Gutschi
Of DOW JONES NEWSWIRES
The gap between the "haves" and "have-nots" in Canada is deepening as more vulnerable households struggle to manage their rising debts, the Certified General Accountants Association of Canada found in its latest annual survey.
"The haves will hold their own. The have-nots will be in peril," Rock Lefebvre, CGA-Canada's vice-president of research and standards, said in an interview Tuesday. Canadian household debt has now risen to a historic C$1.5 trillion (US$1.54 trillion), or C$176,461 for every family with two children, the study found.
With savings rates falling, more and more Canadians are finding their balance sheets increasingly stretched, the association said. The CGA-Canada report found that one in 10 Canadian households couldn't handle an unexpected expense of C$500. One-fifth would have trouble dealing with an unforeseen expense of C$5,000.
The problems are far worse among those earning less than C$35,000 a year, those under 35, families with young children, single-parent families, and those close to retirement, the study found.
"Some people are in trouble, that's the bottom line," Lefebvre said, noting that 57% of respondents said they were borrowing for day-to-day expenses. That makes them "vulnerable" to an increase in interest rates, he said, potentially leading to rising defaults and bankruptcies.
The Bank of Canada is generally expected to raise interest rates later this year as the country's economy continues to recover from the 2009 recession.
Although the rate of debt accumulation slowed as consumer credit contracted in the first few months of 2011, CGA-Canada found the key percentage of debt to income has risen to a historic 146.9%.
"This is probably getting to the maximum indebtedness we should allow ourselves to have," Lefebvre said.
He said Canadians appear to be using their homes as piggy-banks, in a trend similar to that seen in the U.S. earlier in the decade, and which led to the housing crisis there. At the end of 2010, total owner's equity was at a 10-year low of 67.7% and housing equity was at a 20-year low of 34.6%.
"Houses are worth more, but we own less in them," Lefebvre said, adding that people have been withdrawing the rising equity in their homes to purchase consumer durables and incidentals.
Meanwhile, savings rates have deteriorated, with 27% of non-retired Canadians committing no resources to any type of regular savings, and an additional 14% reducing their savings after the 2008/09 recession.
Still, 82% of Canadians surveyed said they felt confident they can manage their debt and potentially take on more.
The study warned that some households may find their ability to pay at risk, with only 42% of respondents reporting their income has risen in the past year, and half of those surveyed suggesting their finances would be hurt by a 10% drop in income.
I am not sure what this means for SCG but Just as I thought about a year ago I predicted a major housing correction for Canada In the near term.