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A now-normalized dependence on debt

Canada has record-setting rates of household debt, particularly consumer debt in the form of credit cards and lines of credit. Over the last decade, the cost of servicing that debt is increasing and putting an uncomfortable strain on many Canadian households. Our research has turned up two particularly worrying debt-related trends over the last decade: an increasing dependence on home equity lines of credit (HELOCs), and a rate of insolvencies that’s starting to rival the 2008/2009 downturn.

Over the last decade, the main driver of the rise in household debt was home equity extraction; borrowing through HELOCs has grown even faster than residential mortgages since 2017. Thanks to the strength of the Canadian housing market, many Canadians have found that they’re sitting on increased equity and have started to draw on that equity to finance everything from kitchen renovations to private school tuition. In the last decade, the number of households that have both a HELOC and mortgage has increased by almost 40 per cent.

Some borrowers are biting off more than they can chew. Younger Canadians, in particular, are struggling to keep up. More than other age groups, Canadians 25-34-year-olds increasingly make interest-only payments on their HELOC, use HELOCs to meet payments on other debt, and say that they would struggle if their payment increased by even $100 per month.

A growing inability to service debt payments is contributing to concerns about the number of insolvencies, which have steadily crept up over the past decade. In 2009, at the height of the economic downturn, almost 160,000 Canadians filed for insolvency in the form of either personal bankruptcy or a consumer proposal; that number inched down during the recovery, but was back up more than 127,000 Canadians in 2019. And an increasing number of Canadians is also declaring insolvency not just once, but two, three, four, or even five times.

The economic instability associated with Covid-19 could certainly exacerbate these debt trends. The most obvious potential threat to Canadians who carry a lot of debt is job loss, and few industries have proven completely immune. As of early August 2020, Canada had only recouped 55 per cent of the job losses from the first wave.

While some Canadians have been able to use the pandemic to reduce spending and chip away at personal debt—thanks, in part, to massive government aid and loan deferral programs—others may soon find themselves more strapped than ever, and possibly out of options.

Housing is reaching a breaking point in parts of the country

Spending on housing—whether in the form of mortgage or rent—has increased significantly over the past five years in major cities across Canada. It has absolutely transformed major parts of the country, and the idea of affordable housing is presently the topic of much policy debate on municipal, provincial and federal levels—especially in particularly pricey markets like Vancouver and Toronto.

We found that three particular trends have emerged in the last decade: the cost of homeownership rose steeply in Canada’s biggest cities; the economic disparities between renters and owners increased; and some Canadians fled certain cities in pursuit of more affordable housing.

Thanks to these trends—spurred by an 80 percent rise in the cost of housing in Canada since 2009—home ownership in the country has remained at just under 70 percent. Renters, too, are faced with rising housing costs, as more than 40 percent of Canadians now spend over the recommended one third of their income on rent; 15 percent of Canadians spend almost half of their income on rent.

In search of greater affordability, young families have been leaving Toronto, Montreal, and Vancouver; the net outflow from these cities has tripled since 2015. And as the pandemic increases pressure on the market for single-family homes—with prices defying an initial prediction of depression—as some families fleeing major cities in pursuit of space, housing prices even in previously more affordable markets are being pushed up. But with this shift, a silver lining may be emerging: rents in major Canadian cities appear to be stabilizing or declining—though for how long presently requires a wild guess.

Childcare expenses are increasingly onerous

As Canadian families have increasingly become dual income—according to StatsCan, the percentage of families with two parents working outside the home doubled between 1976 and 2015—the costs of childcare have become particularly onerous. Canadian families spend up to a quarter of their income on childcare—a particularly high percentage compared to other OECD countries. By analyzing available data, we were able to identify three key findings that characterize the last decade: the cost of daycare varies significantly from province to province; women’s careers are disproportionately affected by child care; and Canadian families may choose to have fewer children because of concerns about the expense.

As with housing costs, childcare costs also tend to be most expensive in Canada’s largest cities—with some exceptions. In southern Ontario, infant care can cost almost $2,000 a month, while Quebec subsidizes childcare and sets fees below $200 a month.

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The high cost of childcare further exacerbates the so-called “motherhood penalty,” which sees an immediate drop in income for women after having a child. Women are far more likely than men to work part-time in order to care for children. But in places with highly affordable daycare—such as Quebec—women’s labour participation rate is much higher compared to the national average.

These factors put Canadians in a serious bind—and there are some signs that, as a result, some Canadian families are having fewer children because of the prohibitive expense. One in five Millennials are delaying having a child because they can’t afford it, and Canadians more broadly cite the anticipated costs as the biggest barrier to having a child.

The pandemic has put an enormous strain on families, and particularly working mothers. Closed schools and childcare centres have created a brutal choice for women, some of whom are quitting their jobs or reducing work hours in order to deal with the additional burden of full-time childcare. While the actual amount of money being paid to childcare centres will naturally go down during this time while children are at home, the broader costs of caring for children—at the expense of women’s workplace participation—are likely to be steep.

Rising food costs will continue rising

Canadians have consistently reported spending more and more money on food over the past decade—and they anticipated spending even more money in 2020 and beyond. In 2009, Canadian households dedicated 10.2 per cent of their spending to food, while in 2017 that figure rose to 13.4 per cent.

But not all food costs are equal, and we identified three major trends when it comes to how Canadian spending on food has shaped up over the past decade: food staples are increasing in price; Canadians are spending more than ever on eating out; and prepared meal kits are having a moment.

Even before the pandemic, food prices were expected to rise in 2020—especially when it came to staples like meat, produce and seafood. This is a trend that has accelerated in the last decade; between 2001 and 2015, for example, the Consumer Price Index for bread rose 96 percent.

And while trips to the grocery store are getting more expensive, Canadians might be making fewer of them; the largest increase in food-related spending over the last decade has been dining out. Before the pandemic, almost half of Canadians reported getting takeout or eating at a restaurant once or twice a week—and that trend is particularly acute among younger Canadians.

Restaurant meals might be particularly appealing to Canadians who are increasingly short on time, but that reality is also fuelling another growing spending category: prepared meal kit services that offer pre-portioned ingredients and semi-prepared dishes, an industry that has more than doubled since 2014.

As the pandemic has closed restaurants, meal kit services have continued to thrive—a growing category of food spending that might be with us for some time. Canadians can also expect food costs to rise even more in 2021, as the pandemic accounts for disrupted supply chains, enhanced cleaning protocols, and production and distribution challenges.

Travel remains a big priority

Canadians love to spend money on travel, and often top global lists of the most frequent flyers. While this has been the reality for a long time, the research on travel spending demonstrates three major changes in the last decade: Canadians are traveling more often; affluent Canadians are spending more on travel; and Millennials choose to spend on international travel.

While there’s no question that Canadians have a strong desire to see the world, they’re also interested in exploring their own backyards—though they’re spending much more on the former category. While the number of trips Canadians took abroad doubled between 2005-2015, and they spent considerably more on those trips than on domestic travel. In 2018, Canadian travellers spent $3,985 on their last international trip, but just $330 for each domestic overnight trip.

Covid-19 has had a major impact on Canadian spending on travel. Canada’s favourite destination—the United States—is all but off limits at the moment, as are many other travel markets where Canadians tend to vacation. Furthermore, economic uncertainty might make some Canadians more reticent to spend money on big-budget international vacations.

But many experts predict that Canadians will develop an even greater taste for domestic travel—which could present an opportunity to help boost local businesses, and present more affordable options for day, weekend, and other short trips.

An uncertain future

As Canadians move forward to an uncertain future, some may use this opportunity to rethink the personal debt levels—especially on more frivolous expenditures—that have reached unsustainable levels. Other expenditures, such as housing and childcare, are far less negotiable.

The pandemic has touched every element of life for Canadians, and every Canadian has been touched by this crisis—though certainly some more than others. Regardless, we anticipate a reckoning for Canadians, even in the event of a rapid economic recovery. As we continue to adapt to the unimaginable, Canadians can no longer spend as though they can see into the future.

About the Author

Sarah Treleaven

Sarah Treleaven

Freelance Contributor

Sarah Treleaven is a travel and finance writer who has contributed to the BBC, Harper’s, the Guardian, the Atlantic, Vogue, Marie Claire, the Independent, ELLE Canada, Canadian Business and many other publications.

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