Debt psychology: How Canadians feel about their debt burden

Low interest rates and a more positive economic outlook appear to be inspiring Canadians to pile up debt and pay it off in five-to-eight years, likely crossing their fingers that interest rates won’t rise too much in the interim.

Millennials are most ashamed of borrowing money, while people aged 35 to 54 don’t see it as a problem as they use the cash to help support their families, a new survey suggests. Baby Boomers also plan to rack up debt but aren’t losing as much sleep over it as younger Canadians.

A Bank of Montreal “Psychology of Debt Report” released this week says Canadians expect to take on an average of $19,534 in debt over the next year, with a goal to be debt-free in seven years.

Just how much debt and when they play to pay it off varied by age. Not surprisingly, Canadians aged 34 to 54 expect to take on the most debt, or an average of $25,415, and take the longest to pay it off at jut over eight years.

Baby Boomers, who are aged 55 and over, expect to take on $17,935 in debt over the next year and pay it off in about five years. That’s more money than Millennials, those aged 18 to 34, plan to borrow over the next year, at an average of $14,402. They expect to take 7.6 years to pay it off.

"Household debt levels at various ages reflect the financial obligations and milestones at different times in one's life," Bank of Montreal regional vice president Tony Tintinalli stated.

Millennials are likely borrowing the money to pay for school, their first home or car or a wedding, while Boomers could be taking on debt to help their children with the same expenses.

Canadian's aged 35 to 54 are in the middle of their “financial milestones,” BMO says, still carrying school and mortgage debt, while also trying to save for retirement and their own children’s education.

The survey follows one BMO did earlier this month showing average household debt in Canada has risen to $76,140 in 2014, up from $72,045 last year, including mortgages, credit credits and student loans. It says household debt has increased in each region across Canada, except for the Prairies and Ontario. Alberta had the highest household debt, nearly $50,000 above the national average.

Historically low interest rates are attracting more Canadians to take on debt. The Bank of Canada has kept its benchmark interest rate at 1 per cent since September 2010. Some economists believe the central bank will start increasing rates next year, as the Canadian economy starts to pick up. Those opinions will likely be bolstered after Statistics Canada reported Friday that gross domestic product jumped 3.1 per cent in the second quarter, the strongest pace in nearly three years.

Stress and debt

In its latest survey, BMO also looks at how debt is affecting Canadians and found it varied by generation.

Millennials were the most stressed by debt, with 66 per cent saying it has caused them to miss out on social gathering and trips, and 56 per cent saying they think about the money they owe multiple times a day. Half of those surveyed also said they lose sleep from stress over their debt.

That compares to 43 per cent of those aged 35 to 54 who lose sleep over debt, and 22 per cent of Baby Boomers. Only 23 per cent of Boomer said they were ashamed of their debt, compared to 39 per cent of people aged 35 to 54 and 50 per cent of Millennials.

Financial experts suggest setting a budget and making a plan for paying off debt to help reduce stress. It can also help people in debt figure out in which areas they can cut expenses to pay off the debt sooner.

You can also seek help from a credit counsellor.

Patricia White, executive director at Credit Counselling Canada, says their member agencies are seeing older consumers coming in for advice and support.

White says the average client age has increased from 38 years to 44 years in the last five or six years, and most people come when they’re having a significant financial crisis.

“It takes a great deal of courage to ask for help with your personal finances,” White says.

“The first step is the hardest; to call for an appointment.”

She says credit counsellors look at each case individually and discuss the pros and cons of the various options to reduce and eventually eliminate debt, allowing consumers to pick a solution that is best for them. Then a plan is developed together to their goals.

“Once people see how they can improve their situation their stress is reduced and they can move forward with confidence and the support of their counsellor,” White says.