Don Cayo: In my opinion
Optimistic outlook: Our expectations don’t match reality when it comes to our future finances
A new poll suggests younger Canadians are optimistic about debt and their ability to handle it. But how realistic is their optimism?
The headline from a new CIBC poll of Canadians’ views on debt is encouraging: Most of us expect to be free of debt by age 56.
But drill into the numbers and a murkier picture emerges. The short story is that, although a surprisingly high percentage of younger Canadians are optimistic about their ability to manage their debt, a worrisome percentage of older Canadians are not. And for good reason — they have already zoomed past that exit.
The survey found Albertans and Ontarians are slightly more optimistic than the rest of us, British Columbians are in the middle, and the remaining provinces are a little more pessimistic than average.
But it is in the age breakdown where differences really stand out. Those 18-24 expect to be debt-free by age 39; those 25-34 by age 47; those 35-44 by age 52; those 45-54 by age 58; those 55-64 by age 64; and those 65-plus by age 70. As well, 13 per cent think they will never pay off all they owe.
This last gloomy number is balanced by a cheerier one — the finding that 29 per cent of Canadians don’t owe any money at all. But this, too, is complex and less heartening on closer examination.
Even though a worrisomely high level of student debt — an average approaching $30,000 — is carried by many recent graduates, fully 50 per cent of respondents aged 18-24 reported having no debt at all. It may well be that these young people don’t owe anything because they don’t own much — they haven’t established a work history that makes them creditworthy. But, regardless of the reason, the high percentage of debt-free young Canadians drags up the average and makes it look better.
Only 17 per cent of respondents aged 25-34 and 18 per cent aged 35-44 report being debt-free — no surprise when you consider these are prime years for taking on things like car loans and mortgages.
The numbers remain low — 24 and 31 per cent — for those aged 45-54 and 55-64. This, too, is no surprise given the many years it takes most families to pay off a mortgage.
More surprising to me — and more alarming to anyone worried about the strain aging baby boomers will put on public spending if they can’t fund their retirement — is the finding that only 44 per cent of those aged 65 or older are debt-free.
It’s hard to know what to read into these numbers, especially in the face of conflicting analyses that have proliferated in recent years. The average debt load carried by Canadians, which has topped 160 per cent of disposable income for several years, is seventh-highest among the 27 members of the OECD. And it’s not just mortgage debt driven by sky-high real estate prices. TransUnion credit-rating agency recently pegged a Vancouverite’s average non-mortgage debt at more than $24,000 — second only to Calgary among major Canadian cities.
This level of indebtedness has prompted tut-tutting from both former federal finance minister Jim Flaherty and his replacement, Joe Oliver, and some measures to tighten the rules for mortgage eligibility.
But in the other side of the debate, analysts such as StatsCan’s former chief analyst Philip Cross, writing for the Fraser Institute, downplays the issue. Household debt may have reached $1.8 trillion, he wrote this spring, but the rate of growth has slowed, interest rates are rock-bottom low, good lending standards are in place, and most Canadian families aren’t showing signs of strain. So don’t worry, be happy? Maybe so. But I’m a boomer who lived through the doubledigit interest rates of the 1980s and who over the years missed more than one naive financial goal. And if I were in my early 20s, I wouldn’t be planning a mortgage-burning just yet. Not for my 39th birthday. Or, given today’s house prices and the likelihood that interest rates will eventually rise, not even for my 56th.
I’m a boomer who lived through the double-digit interestrates of the 1980s and who over the years missed more than one naive financial goal.