More debt for Canadians, corporations

By John Powell | October 11, 2011 | Last updated on October 11, 2011

  • Clients in debt? Here’s help

    Everyone is feeling the pinch.

    According to two separate reports, individual Canadians and corporations are having more and more trouble trying to gain ground in this weak economy.

    According to a Conference Board survey, of the 49 industries covered in the board’s leading indicator of industry profitability index, more than half (28) posted a drop in their indexes last month with small and medium-sized businesses feeling the brunt of the downturn.

    Even though the domestic economy started the third quarter on a positive note, the weakness in the outlook for corporate profitability implies greater risks for economic growth going forward, the Conference Board said.

    Sliding commodity prices has caused many oil companies to re-evaluate their expansion plans and weaker demand, lower prices has led to drops in the profitability indexes of the oil and gas extraction, mining, and utilities industries last month.

    Meanwhile, pessimistic about the labour market, most Canadian consumers are scaling back their spending.

    In response, retail sales have dropped 0.6%.

    The negative spending news comes on the heels of a new study from TD Bank that suggests debt accumulation has been rising faster among those 65 and over than for the population as a whole.

    The bank believes even though those who are preparing for retirement usually shy away from acquiring new debts, older Canadians have been buying up more and more property due to the low interest rates.

    The latest figures from Statistics Canada shows that debt to income rose to a record high 149% in the second quarter. But the surprise is that Canadians 65 years and older are among the most active in the credit market. .

    With a squeeze on the value of their investments in recent years and rising food and energy costs, many seniors have resorted to so-called reverse mortgages to help finance their lifestyles. Such loans are becoming increasingly popular and allow people over 55 to borrow against their home’s equity to get money for renovations, travel, paying off other debts and day to day living expenses. Borrowers keep full ownership of their homes and can continue living in them with no repayments until they sell or move out. However, the debt piles up.

    As well, much of the debt appears to be going into purchases of real estate, including second properties, and debt used to fund asset accumulation is more sustainable than taking on debt to buy consumer goods. Still, the paper points out that seniors risk over-extending themselves, since property values go up and down, but debt remains.

    And not all the debt is going into real estate. The research shows seniors have also been buying more, or more expensive automobiles.

    With low savings rates, inadequate pensions, volatility in the stock markets and longer life spans needing to be financed, Burleton says studies show that many seniors already face the prospect of a declining standard of living.

    – with files from the Canadian Press.

  • Clients in debt? Here’s help

    John Powell