Tackling debt a growing priority

More Canadians are heeding the interest-rate warnings and focusing on curbing their debt loads in 2010.

A Manulife Financial poll released Tuesday found that paying down credit cards and lines of credit is growing as a financial priority among Canadians. In fact, more than a quarter, 28 per cent, pegged debt elimination as their main goal, up from 24 per cent in 2009 and a five-year high.

The results come at a time when households are tackling post-Christmas credit card bills and struggling with record debt, both mortgage and consumer. With interest rate hikes on the horizon, Bank of Canada Governor Mark Carney last month cautioned Canadians against taking on more debt than they can handle.

Despite this red flag, Canadians dug deeper this December, with spending in the holiday period rising 3.44 per cent in volume over the previous year, according to Moneris Solutions, which processes credit, debit and online payments.

The central bank estimates there was nearly $1.4-trillion in total household credit outstanding in October, the most recent data available, up from $1.3-trillion a year earlier. Much of the growth stems from mortgage debt, which stood at roughly $950-billion in October, compared with less than $890-billion a year earlier.

The Manulife national survey of 1,000 people, conducted last month by Research House, found that the second most-cited financial priority among Canadians was paying down the mortgage. It was chosen by 14 per cent of respondents, up from 11 per cent last year.

The third priority - saving for retirement - was listed by 11 per cent of those polled, down from 14 per cent a year ago.

"Paying down debts is understandably a priority, particularly at this time of year," Paul Rooney, chief executive officer of Manulife Manulife Canada, said in a news release. "Given the economic challenges in 2009, we shouldn't be surprised to see more Canadians focused on ensuring their financial house is in order."

Only 5 per cent of respondents listed saving for a child's education, through a tool like a registered education savings plan, and saving for purchasing a home, as financial priorities, on par with last year's results.

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In their personal finances, 46 per cent said their position is better than it was five years ago, 28 per cent said it was the same while 25 per cent feel they are worse off.

Jamie Golombek, managing director of estate and tax planning with CIBC Private Wealth Management, said Monday in an interview on the topic of debt that market conditions have improved vastly since 2008, making people feel more confident about their personal investing situation. "There have been more discussions about financial planning and lots of options out there that people are taking advantage of."

With interest rates still sitting at rock-bottom levels, people are getting secured lines of credit at the "very affordable" rate of prime plus one per cent, Mr. Golombek said, adding that his clients are not listing debt as a major concern.

Canadian house prices surged 20 per cent last year, and the market shows no signs of slowing down. Finance Minister Jim Flaherty has warned that he will tighten the rules for borrowers by increasing the minimum down payment and shortening the maximum length of mortgages if he feels that a bubble is forming in the market.

Bank of America's new chief executive Brian Moynihan noted in a speech in North Carolina Monday that U.S. consumers are increasingly eschewing debt.

"Customers, even the mass affluent, are shifting their spending from credit cards to debit cards, showing a reluctance to incur more debt and a desire to clean up their personal balance sheets," he said, according to a copy of his speaking notes.

"During the last few years many consumers borrowed more than they should have, and we helped them do it," he acknowledged on behalf of his industry.

Mr. Carney has noted that Canadian household finances were in better shape than those south of the border heading into this crisis, and incomes have not dropped by as much here.

Because of uncertainty about the economy, Canadian consumers saved more in the early part of 2009, with the personal savings rate rising to an eight year high of 5.5 per cent in the second quarter.

But Mr. Carney also noted that more households are more vulnerable. The number of personal bankruptcies as a proportion of the population hit its highest level since 1991 in the third quarter, and the proportion of mortgages with payments that are three months or more overdue increased by half over the past year.

With files from reporter Tara Perkins.