Canadians Accumulating "Smart" Debts

By Andrew Rickard | August 17 2015 01:09PM

While 80% of Canadians are in debt, a report from the Bank of Montreal (BMO) suggests that most of these loans are for "smart" purchases such as homes, renovations, cars, and education expenses.

photo_web_1984Asked about what makes up their current liabilities, 49% of those surveyed cited buying a home as a "significant contributor" to their debt load, while 34% said it was the main factor. In addition, 33% of respondents indicated that a home renovation or repairs had increased their debts, and 10% said it was the major source of new debt this year. Automobiles also figure high on the list of common liabilities; the survey reveals that 46% of Canadians with current debts say the purchase of a car added to the amount they owe, and 18% said this was the top contributor in 2015.

BMO notes that education expenses continue to outpace general inflation, with the cost of tuition, textbooks and supplies rising by around 3% annually. It is therefore no surprise that 37% of Canadians under the age of 35 have student loans, with 32% of all of those surveyed saying that education costs have contributed to their current debt levels.

The other common sources of debt were vacation spending, health care and drugs, entertainment, and home electronics, which were cited by 28%, 25%, 22%, and 20% of respondents respectively. Loans taken out to purchase stocks and investments were the last item on the list, cited by only 15% as a source of debt.

"Given the angst about high debt burdens, it's somewhat comforting to know that Canadians are generally accumulating good debt to finance investments in their homes and educations, as opposed to bad debt such as discretionary spending on vacations and entertainment," comments Sal Guatieri, Senior Economist at BMO Capital Markets.