John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
The debt crisis is getting real for Canadians. But it’s neither a financial crisis that threatens the banking system, nor an economic one that will upend the country’s bond markets.
It is a personal one for people who dreamed too big and extended themselves too far. They are now reckoning with the consequences of going all in on real estate during the early 2020s boom – crushed credit ratings, legal action, consumer proposals, powers of sale and bankruptcy.
We are seeing the fear of missing out giving way to the fear of losing everything. The Financial Consumer Agency of Canada’s five-year plan to improve financial literacy, which launched in 2021 and cost taxpayers millions over the years, can’t compete with the stickiest financial lessons that hard times will teach.
Canada won top prize at the International Monetary Fund last year for the most household debt as a percentage of GDP in the G7, surpassing with ease the U.S., the United Kingdom and Germany. Italian households carry about a third of the household debt to GDP that Canadians do. In laymen’s terms, Canada is the most vulnerable G7 country to an economic recession and falling housing markets.
That vulnerability is now playing out as the Canadian consumer does not have the cash to fight the economic effect of U.S. tariffs and slow growth.
Canadian small businesses see it in their bottom lines. Last week, Equifax Canada reported that 286,000 businesses in this country missed a loan payment last quarter. Household pocketbooks stuffed with cash are hands-down better at mitigating tariffs than elbows up.
The falling housing market is most evident in Toronto and surrounding areas where the number of mortgage lenders repossessing homes and selling them has climbed roughly 60 per cent year over year.
Powers-of-sale properties in the Greater Toronto Area are now estimated to be as high as 3 per cent of total listings. And 90-day-plus mortgage delinquency rates are climbing in Greater Toronto, Greater Vancouver and Canada generally, according to data from RBC.
Anecdotal reports from Toronto-area mortgage brokers regularly suggest that they’re coming across individuals with modest incomes who scrounged together multiple deposits on preconstruction condos three or four years ago hoping to flip the sales agreements to buyers for a profit before construction finished. That condo prices could drop, and they would be on the financial hook, didn’t occur to them.
Insolvency trustees bear witness to the toll that insurmountable personal debt takes. Scott Terrio, an insolvency expert, recently told The Globe and Mail that he is talking to homeowners who are “teachers, firefighters, cops. Two years ago, I was doing two to five meetings a day, now I’m doing 10,” said Mr. Terrio.
Young Canadians falling behind on payments as debt divide widens, report shows
The debt crisis is increasingly a middle-class experience. He is “talking to people who have not one but three rental condos … [who] would have been fine if they had not done this.”
Mr. Terrio believes, based on the numbers of people filing through his office every day, that his business this year will “exceed the biggest insolvency year ever in 2009.” Almost 160,000 insolvencies of various types happened that year.
The Bank of Nova Scotia has a marketing campaign that explores how money makes people feel. Called Money Styles, the bank highlights the emotions we associate with money. When we have what we need, money can offer feelings of belonging, certainty, connection, contribution, independence and potential.
Without money, or at least enough of it, which the bank does not explore, it provokes feelings of isolation, hopelessness, complacency, dependency, lack of motivation and being life’s bystander.
Those negative emotions are bundled into anxiety. People enduring financial stress are, as the Financial Consumer Agency of Canada points out, “twice as likely to report poor overall health,” “four times as likely to suffer from sleep problems [and] headaches” and less able to perform at par at work.
What those advocating for, and spending taxpayer money on, miss about financial literacy is that emotion typically explains the difference between good and bad financial decisions.
The financial psychology research suggests believing money will solve all one’s problems, or boost one’s social status, are likely to produce poor financial decision-making. Such views are common. Learning to manage risk isn’t the start of financial literacy. Learning to manage what we imagine money can do for us is.
What will this period of financial stress and insolvencies teach us? Another generation will learn this lesson again.