Chapter 7 – Consumer Debt: Summary
7.1 General Trends in Debt
While the proportion of Canadians carrying some form of debt remained unchanged when comparing 1984 with 1999 (70 percent), the median outstanding debt of family units more than doubled, from $12 567 to $29 000. Secured debt (primarily mortgages) played an important role in this growth. The use of many forms of unsecured debt also rose rapidly over this period, including personal lines of credit, credit card debt and student loan debt. Other evidence points towards the increasing use of alternative financial services, such as short-term payday loans. While some consumers appear to be taking advantage of current low interest rates, others seem to be using relatively expensive forms of credit in the day-to-day management of their finances.
Research opportunities include the need for a better understanding of the financial situation and debt management practices of new homebuyers, in light of the high media attention given to historically low interest rates. Given the general level of consumer indebtedness, research could also investigate Canadians' vulnerability to interest rate fluctuations, as well as further explore indicators that could assist in defining over-indebtedness. Finally, research should also be geared towards assessing the financial choices of poor Canadians, including what constraints and factors influence their decision making.
7.2 Trends in Consumer Bankruptcies
Compared to the 1980s, there was a very significant (and largely unexplained) increase in consumer bankruptcies in the 1990s. An examination of data over the last 20 years reveals that consumer bankruptcies are both cyclical and on a long-run upward trend. In fact, there were more than two-and-a-half times as many consumer bankruptcies in the 1990s than during the previous decade. While existing consumer bankruptcy research cannot explain this rapid increase, there does appear to be a consensus regarding some contributing factors: in addition to their very weak financial balance sheets, consumers who declare bankruptcy are more likely to be unemployed (or under-employed) and have significant access to credit.
Research opportunities include further examination of the variables that appear to affect consumer bankruptcies, such as the expansion of consumer credit and the dissolution of family units.