The Bank of Montreal recently released its annual debt report, which finds the average household debt in Canada to be $92,699. This figure hovers above the four year average of $88,303, dating back to 2012 when annual polling first began. According to the report, sixty-four percent of Canadians would be stressed if interest rates jumped two percentage points, while one quarter say they would be very stressed.
“The sizeable number of indebted households that would feel very strained by a relatively moderate increase in interest rates is concerning,” cautioned Sal Guateri, senior economist at BMO Capital Markets. “This is a worrisome side effect of a prolonged period of low interest rates and needs to be closely monitored, especially if rates continue to fall.”
Christine Canning, head of Everyday Banking at BMO, agreed with Guateri, stating that:
“Interest rates have been hovering around historic lows over the past few years, so many Canadians may have become more comfortable over time with managing their debt.”
Canning stressed that advisors need to help clients assess their spending habits and determine fiscal priorities, navigating ways to pay down debt while saving for the future. One technique she suggested was for advisors to stress-test a client’s ability to afford their current debt, so that they’re prepared to manage their finances in a higher rate environment.