Thursday, December 2, 2010

Household finances better than thought

Thursday, 2 December 2010



Canadian household finances may not be as terrible as previously suggested and won’t hurt consumer spending next year, according to a new BMO Capital Markets study.

The negative focus has purely been on household debt reaching a record level of 145 per cent of household income, but was missing the fact that family wealth has risen at the same time, the report said. Rebounding stock markets and an improved savings rate boosted household net worth to about six times disposable income, up from five times in the 1990s.

“While we are not blase, we think the singular focus on debt portrays an overly negative picture and therefore an overly negative take on consumer spending,” BMO deputy chief economist Doug Porter said in a roundtable discussion. “We think households can boost spending by three per cent next year and while we see a mild slowdown, the emphasis is on mild.”

BMO mortgage expert Laura Parsons also said not all debt is bad debt. A mortgage, for example, is seen as a long-term investment, as long as the household monthly budget has been tested to withstand an increase in interest rates.

Parsons added the real debt problem is usually related to credit cards. “Credit cards are good for emergencies and for collecting points but if you do not have the money to pay them off monthly, you can quickly get into trouble,” she said.

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