Younger Canadians are falling behind on bills at the fastest pace in the country, their finances strained by a weak labour market and rising costs even as mortgage holders show early signs of stability.
Payments overdue by at least 90 days have jumped nearly 20 per cent from a year ago, a new Equifax Canada report shows, as Canadians under 36 struggle with the highest levels of credit-card and auto-loan missed payments in the country.
Overall, about 1.4 million Canadians missed a credit payment in the second quarter – 7,000 fewer than in the first quarter but still 118,000 more than a year ago.
Rebecca Oakes, vice-president of advanced analytics at Equifax Canada, said the strain is most visible among non-mortgage holders – a group that largely includes younger Canadians and renters. The delinquency rate among that segment is nearly double that of mortgage holders – a gap that has widened steadily in recent years.
About one in 19 non-mortgage holders missed a payment in the quarter, compared with one in 37 mortgage holders. In 2019, the difference in missed payments between the two groups was about 45 per cent; it now exceeds 96 per cent.
“Younger consumers may not have the savings to offset higher costs, so credit use can increase out of necessity,” Ms. Oakes said in an interview with The Globe and Mail ahead of the report’s release. “If you haven’t got a job, it’s very difficult to make payments.”
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Recent labour-force data show job losses concentrated among younger Canadians, compounding the pressure from higher living costs.
Canada’s employment market stumbled in July, but the summer months have been especially punishing to youth aged 15 to 24. Statistics Canada reported 34,000 lost positions last month while the employment rate for the age group fell to 53.6 per cent – outside of the pandemic, the lowest level since 1998.
The combination of rising living expenses, limited savings and a slower job market makes younger borrowers especially vulnerable, Ms. Oakes said.
“The widening gap between people doing okay and people struggling is still growing, and that’s our biggest concern,” she said.
Spending patterns show that mortgage holders are cutting back on credit-card use, while non-mortgage holders – especially younger consumers – are spending more. Credit cards are potentially being used to cover essentials rather than discretionary items.
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Business investment will be a key factor in whether youth job prospects improve, Ms. Oakes said, since reduced spending by companies can limit job creation and disproportionately affect younger workers.
“As businesses grow and invest, you get job creation,” she said. “If there’s less investment, maybe there’s less job creation – and that is likely to hit that group first.”
Economic uncertainty continues to drive cautiousness for hiring and investment, the Bank of Canada reported in its most recent business outlook survey. Most companies expect to maintain current staffing levels and limit investment to regular maintenance over the next 12 months.
A recent pullback in immigration could help ease some of the pressure in the youth job market by opening up positions that younger Canadians are more likely to hold – particularly part-time or entry-level roles, Ms. Oakes said.
“The positive side of me says maybe there’s a bottoming-out effect for younger consumers, and they’ll start to recover as the job market balances.”
Auto-loan balances are also climbing. The average new auto loan reached $35,586 in the quarter, up $1,567 from a year earlier.
There are tentative signs of stabilization in overall delinquency rates, Ms. Oakes said, but that outlook hangs on avoiding deeper economic shocks.
“We’re back to our cautiously optimistic phase,” she said. “That doesn’t mean it’s an improving position yet, but certainly stabilizing – and hopefully, depending on what happens in the economy, we might turn the corner.”