Old money

Before taking his leave of the Bank of Canada to take up his new post in the UK, Mark Carney noted a welcome deceleration in the growth of consumer credit.  A fascinating new report by the consumer credit rating agency, Equifax, largely confirms this: growth in consumer indebtedness in Canada is indeed slowing (though not to the degree seen in the United States) and both delinquencies and bankruptcies have been heading steadily lower in the past few years.

There is one exception to this trend, however, and it's a worrying one.  Canadians over the age of 65 are continuing to accumulate debt.  Seniors' average borrowings rose by 6.5% in the year to mid-2013, and have been growing faster than the debts of other age cohorts for the past several years, although for now they remain lower than the average for all other groups apart from the credit-starved under 25s.  It looks as if baby boomers, having failed to put aside enough savings during their high earning years, are now borrowing to maintain the lifestyle to which they consider themselves entitled.

You can maybe see why seniors would want to do this, but it's a bit harder to see why lenders are so willing to accommodate them.  It's true that more and more people are working beyond traditional retirement age, but it remains the case that this is a group of people on incomes that are largely fixed.  It may be some time before interest rates start to rise in Canada, but once that happens,  indebted seniors will be among the first to feel the pinch.  Of course, a lot of seniors have assets to pledge against their debts, mainly the family homestead, but that shouldn't give bankers too much comfort.  You wouldn't want to be the first banker that starts to turn delinquent seniors out onto the streets in order to sell the home and recover the debt.  The squawking would be heard from coast to coast, and since seniors vote in much larger numbers than the young. politicians would be quick to tell the banks to back off.

Then there are the societal implications.  For a good many generations now, Canadians have been passing on to their heirs much greater wealth than they inherited from their own forebears.  It's unlikely the baby boomers will be doing the same: the next generation, those now approaching middle age, are likely to find that the house and everything else that their parents leave behind is encumbered six ways to Sunday, with little net value left once all the creditors have been satisfied.

Did you ever drive down the highway behind a huge Winnebago with a bumper sticker bragging that 'We're spending our kids' inheritance"?  Indeed they are, and at least here in Canada, there's no sign they're about to stop.