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Higher interest rates put pressure on spending

By The IJ Staff | September 17 2018 09:30AM

Photo: Freepik

Canadians are starting to feel the sting of rising interest rates, according to a new analysis by Environics Analytics released Sept. 17. The analysis found that higher interest rates are putting increasing pressure on discretionary spending.

The analysis used the latest release of one of the company's key financial databases, WealthScapes 2018. It found that the average Canadian net worth rose by 8.5 percent to $807,872 at the end of 2017, but much of that wealth was tied up in illiquid assets like real estate. Meanwhile, during the same period, household debt levels have been rising faster than incomes, which could chip away at discretionary spending, says Environics Analytics.

“Even though household debt climbed by a relatively modest 4.5 percent in 2017, the average year-end interest-expense-to-income ratio rose 40 basis points to 6.4 percent, which is the first increase in a decade,” revealed the analysis.

The analysis also showed that increasing debt levels coupled with rising interest rates mean the average Canadian household spent $544 more on interest charges in 2017. The effects of rising interest rates were particularly acute in Vancouver, where households on average incurred an additional $1,152 in interest charges.

"For many Canadians the rising interest rates over the past year have already cost them the equivalent of an extra mortgage payment," says Peter Miron, Environics Analytics' Senior Vice President, Research and Development and the architect of WealthScapes 2018. "As interest rates have steadily increased since late 2017 we expect the strain on household finances will be greater this year."

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