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John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
Behind the good news that credit delinquencies for some Canadians are stabilizing is sobering reports that the financial prospects of some young Canadians are perilous. Last week, Equifax released its quarterly consumer credit trends and insights report. It tells a tale of two Canadas.
One is an older Canada where home ownership, standards of living that equalled or exceeded that of their parents, and ample work experience offer a fighting chance to hold onto to the lives they have built. The other is a younger Canada comprising 18- to 35-year-olds whose efforts to launch successfully are being hindered by a persistent cost-of-living crisis and high unemployment.
What both Canadas need is clear economic direction. Since January, when former prime minister Justin Trudeau said he would resign, Canada has been in an economic holding pattern. We have a new Prime Minister, Mark Carney, but we don’t have a new budget laying out the economic game plan to thrive in a world where trading relationships are in turmoil.
We have talk of national projects from Mr. Carney, but nothing concrete. Trade negotiations with the U.S. have gone from a black to grey box, given Friday’s news conference by the Prime Minister where he announced an elbows down, sleeves up approach to negotiations.
Meanwhile, the EU appears to be successfully finding common ground with the Americans on trade. Standing still is taking a financial toll on Canadians, especially young adults, who can ill-afford more hits to their personal budgets.
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The state of consumer credit reflects the impact of economic and other realities on people’s lives. It is, more importantly, a measure of challenges associated with income and employment.
Those challenges continue. Statistics Canada’s July Labour Force Survey reported 41,000 jobs losses last month, most full-time and almost all (95 per cent) in the private sector. Bearing the brunt of the losses were 15- to 24-year-olds, who accounted for 83 per cent of the newly unemployed. For older Canadians, the employment picture is largely stagnant.
The causes behind income and employment problems among the young and job stagnation for others aren’t hard to find. The Bank of Canada’s recent business outlook points to many. It noted that “wage growth expectations continue to trend lower” and business “plans to expand capacity are on hold.” Without a game plan, many Canadian businesses are not hiring while tempering increased wage demands.
Importantly, the Bank of Canada goes on to report that “fewer firms than last quarter expect tariffs and trade tensions to negatively affect their investment plans.” Businesses increasingly have a good take on how world trade is shaping up in the wake of the tariff war initiated by the U.S. They can’t say the same about Canadian economic policy. So they are sitting on their investment plans that would otherwise help create new jobs and generate new revenues to support wage gains.
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This is the backdrop to Equifax’s August report revealing that 1.4 million Canadians could not meet all their obligations between April and June this year, an increase of nine per cent year-over-year. In plain terms, about five per cent of Canada’s adult population today are now struggling with debt payments. Those facing the toughest times are young Canadians.
For 18- to 25-year-olds, the debt delinquency rate has jumped year-over-year by almost 19 per cent. For those 26 to 35 it is up 20 per cent. “The affordability crisis seems to be hitting younger consumers the hardest,” said Rebecca Oakes, vice-president of advanced analytics at Equifax Canada, in a news release. “Between rising costs, employment uncertainty, and limited access to affordable credit, many are struggling just to stay afloat.”
There is no good time to default on one’s debts, but the worst time is early in life, given the lasting impact it has on social mobility and financial well-being. It makes it difficult to rent and secure credit at reasonable rates, and robs people of money to invest in their own growth and development.
What the Equifax consumer credit report, Statistics Canada’s July Labour Survey and the Bank of Canada’s business outlook results all indicate is the corrosive effect uncertainty is having on the Canadian economy, from corporate head offices to individual consumers who, in growing numbers, can’t pay their bills.
If Mr. Carney’s Liberal government thinks that time is on their side, they are mistaken. It’s certainly not on the side of Canadians. The Prime Minister and his government need to urgently kick-start the Canadian economy by producing a budget that prioritizes competitiveness, national projects with tangible plans that deliver critical infrastructure and open wide Canada’s doors to direct foreign investment.
Canadians can’t afford anything less.