Amid challenges, the average Canadian credit card balance is at its highest levels, and young adults are the ones struggling the most!
Canadians are facing mounting financial stress, particularly younger adults, as average credit card balance has reached its highest levels in at least 17 years, according to recent data from Equifax Canada.
Despite signs of stabilizing inflation and easing interest rates, financial stress remains high, as evidenced by Equifax’s second-quarter Market Pulse report. The report highlights ongoing struggles with credit cards, mortgages, and auto loans, which are partly due to worsening employment conditions in Canada. Overall, consumer debt grew to $2.5 trillion, marking a 4.2% increase from the previous year.
Rebecca Oakes, vice-president of advanced analytics at Equifax Canada, noted that “unfortunately, rising unemployment has offset some of the positives and is driving increased financial stress”. She further explained that higher unemployment tends to have a more immediate and severe impact on credit data.
“When inflation is high, we tend to see credit increasing, more money being put on things like credit cards, we see, potentially, payment rates coming down and a little bit of delinquency, maybe. Ultimately if a consumer loses their job or they are unemployed, they can’t make any payments – and that has a more immediate, shock impact to the credit situation”, she added.
Fewer People Are Paying Off Their Entire Balance
The average credit card balance surpassed $4,300 in the second quarter, the highest since Equifax Canada started tracking this data in 2007. This surge pushed overall outstanding balances to $122 billion, a 13.7% increase compared to a year ago. Oakes mentioned that while consumer spending has remained mostly stable, rising balances are primarily due to fewer people paying off their entire balance. Monthly payments have decreased across all age groups, with the most significant drop among individuals under 35.
“Now, hopefully inflation stabilizing is going to prop up some of that. But for a lot of younger consumers in particular, there’s no buffer”, Oakes said.
Overall, the non-mortgage balance delinquency rate sat at 1.4%. For Canadians aged 26 to 35, the rate of missed payments remained the highest at 1,99%. Among them, delinquency rates for car loans (1,45%) and lines of credit (2.19%) are notably high, “reflecting the broader financial pressures faced by this demographic”, according to the report.
The initial easing of interest rates by the Bank of Canada has “not yet fed its way through to benefiting consumers”, as Oakes stated on the report. She added that if rates were to decrease by a full percentage point, some relief could be expected for businesses, but the housing market would still face challenges. “I think it’s going to be quite a slow journey, to really see the impact of rate cuts come through”, she concluded.