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This video explains how consumer credit and the economy works together.
I included this video as the first one to look at because I felt it was a good summary of how the economy works.

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WHAT IS THE HIDDEN FORCE OF ECONOMIC GROWTH? - IMPORTANCE OF CREDIT

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How consumer spending impacts the economy

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Why Consumer Debt is Canada's Greatest Economic Risk

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Mar.15 -- Bloomberg's Michael McKee and Citigroup North America economist Dana Peterson discuss Canada's economy and progress in the latest round of Nafta negotiations. They speak with Bloomberg's Alix Steel on "Bloomberg Daybreak: Americas."

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Consumer credit is what supports the economy. The economy is in a very fragile state right now. With consumers loosing jobs due to Covid-19 and less consumer credit accumulating we in turn have less money in the system and are facing the economy crashing.
I chose to include this because I feel it is important to note how fragile and dependent our economy is on consumer credit.

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It is important to use your credit cards wisely and not spend money just because it is important to the economy.
Debt can be a very dangerous road if you don't be careful. High interest rates make it incredibly difficult to pay off debt once it starts to accumulate. This can leave you struggling to put food on the table or even homeless.

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We're often told a lot of statistics about debt in our economy. For example, it's said the average consumer owes $9,000 in debt to credit card companies. Unfortunately, these statistics often lack context and end up misleading us about the true impact of consumer credit card debt on our economy.

While the average credit card debt might be around $9,000, the median consumer credit card debt is much lower: $2,200. The median is lower because a lot of consumers (more than 50%) don't owe any credit card debt at all.

Some economists don't think this is a good thing. Consumer spending drives our economy forward, and when people aren't using their credit cards, the economy isn't growing.

Of course, if everyone follows our advice, there won't be a problem; we advocate that people use their credit cards, but pay off their balances in full every month. This means no credit card debt dragging individuals down, but plenty of consumer spending and economic activity.

We don't think you should use credit cards just because the economy needs to be stimulated, though. We recommend prudent credit card use because it's good for your individual credit rating. Having a good credit score is crucial to many aspects of modern life, and using credit regularly (and paying off balances in a timely fashion) is the best way to establish a solid credit history.

If you're someone who simply can't have a credit card at the ready because you know you'll max it out and get yourself deep into consumer credit card debt, then you should definitely destroy your cards and not use them. Until you're in a position to use a credit card the right way, keep that temptation under lock and key. There are other ways to improve your credit history that don't carry the risk of a tempting credit card.

Since over half of all consumers don't have any consumer credit card debt, we know it's possible for the other half to get there as well. Our counselors have been helping consumers like you achieve financial freedom for four decades. Call us for a confidential counseling session that is offered free of charge.

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How Does Consumer Credit Card Debt Affect the Economy? | Credit.org

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We're often told a lot of statistics about debt in our economy. For example, it's said the average consumer owes $9,000 in debt to credit card companies. Unfortunately, these statistics often lack context and end up misleading us about the true impact of consumer credit card debt on our economy.

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Canadian households cooled on borrowing, but mostly just in one segment. Bank of Canada (BoC) data shows household debt stalled in May, after peaking in March. On the breakdown, mortgage debt is seeing growth boom as hundreds of thousands of Canadians stop making payments. Consumer credit on the other hand, made the first contraction since the 1980s.

Canadian Household Debt Is Flat From A Month Before

Household credit growth has begun to stall, a first in a very long time. The balance hit $2.29 trillion in May, virtually flat from a month before. This represents a 3.6% increase compared to the same month last year. This is the lowest growth since June 2019, which doesn't sound that bad. Until you realize February to June of last year saw alarmingly low growth, not seen since the 1980s.

Canadian Household Debt Outstanding, Percent Change
The annual percent change of total debt held by Canadian households, in Canadian dollars. Source: Bank of Canada, Better Dwelling.
Mortgages Debt Is Soaring, As Fewer People Make Payments

Slowing growth isn't due to mortgage credit, which more than made up for a drop in consumer credit. The balance of mortgage debt reached $1.68 trillion in May, up 0.6% from the month before. This represents an increase of 6.0% compared to the same month last year. An important note here is the dynamics of this increase are a little wonky. Over 740,000 mortgages are on payment deferral, helping to push balances higher. This helps to offset the fact real estate sales are facing reduced volume.

Canadian Household Debt Outstanding In Dollars
Total debt held by Canadian households, in Canadian dollars. Source: Bank of Canada, Better Dwelling.
Consumer Credit Makes First Annual Decline Since 1983

Consumer credit on the other hand has been crashing to multi-decade lows for growth. The balance fell to $614,980 in May, down 1.59% from a month before. This represents a decline of 2.33% compared to the same month last year. Negative prints for consumer credit are extremely rare. Last month was the first since May 1983.

Canadian Household Debt Change
Annual percent change in debt held by Canadian households. Source: Bank of Canada, Better Dwelling.
Household credit growth is slowing, despite heavy growth in the mortgage segment. Mortgage credit growing while hundreds of thousands of households are on payment deferrals isn't an optimistic scenario. Negative growth for consumer credit is likely to reverse as lockdown conditions are lifted. However, the lack of spending is still likely to ripple through the economy.
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Canadian Consumer Credit Is Contracting For The First Time Since The 1980s | Better Dwelling

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Canadian households cooled on borrowing, but mostly just in one segment. Bank of Canada (BoC) data shows household debt stalled in May, after peaking in March. On the breakdown, mortgage debt is seeing growth boom as hundreds of thousands of Canadians stop making payments. Consumer credit on the other hand, made the first contraction since [...]

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This image shows the stress of debt on consumers. I chose this image because it shows in a sense how as individuals our debt is holding up the economy. It also shows the stress of carrying this debt.

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What did you learn about your topic that surprised you the most?
I was most surprised by just how fragile our economy is. I didn't know things were this unstable and reliant on consumer spending. I don't think I ever really thought about deeply before but it all makes sense now that I've been learning about it.

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There are different types of consumer debt. This includes debt collected from making purchases and debt collected from bigger things like buying a house or taking out a loan. If consumers stop spending money and collecting debt then the economy could crash and we could go into a recession.
I included this because it is important to know how serious this is. If the economy crashes it will have many consequences for everyone including famine, people loosing their houses and belongings etc.

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Consumer spending is vital to the economic growth of nations worldwide, Canada included, as long as we don't find ourselves in over our head. While corporations are often chastised for holding a record amount of cash on their balance sheets, it's actually consumer spending that accounts for the lion's share of economic growth. Let's take a closer look at Canada's latest consumer debt numbers from RBC Economics and what they mean to the future of our economy.

Mortgage and Non-Mortgage Debt

There are two main types of consumer debt: mortgage and non-mortgage debt. If you're like most Canadians and you aspire to one day own a home, you'll most likely need a mortgage. Residential mortgage debt includes mortgages with the big banks, as well as non-bank lenders and securitized mortgages. Non-mortgage debt includes all other types of consumer debt, including installment and revolving credit. Common examples of non-mortgage debt are credit cards, lines of credit, and personal loans.

Consumer Debt: By the Numbers

Household credit grew in April by 4.0 per cent year-over-year, following increases of 4.1 per cent in March and 4 per cent in February, according to RBC Economics (Source: RBC Economics - Canadian Credit PDF).

With home prices heading for the stratosphere, residential mortgage growth continues to outpace household credit, as homeowners take on larger mortgages. Residential mortgage growth edged down slightly to 4.9 per cent year-over-year in April, after four straight months of 5 per cent growth.

"Residential mortgage growth has stabilized in recent months and upside risks of renewed momentum are likely to be contained as housing activity is forecast to gradually moderate after a prolonged period of robust price and sales gains," RBC said.

The outstanding balances on non-mortgage debt, including credit cards, lines of credit, and personal loans grew by a modest 1.9 per cent in April year-over-year, following increases of 2 per cent in March and 1.9 per cent in February. When we drill down the numbers even further, we discover that while personal loans are up a whopping 11.8 per cent in April year-over-year, lines of credit and credit card debt are actually down 0.5 per cent and 1.4 per cent, respectively.

"In contrast, the emergence from cycle-lows for consumer credit indicates households have increased their appetite for non-mortgage loans," RBC said. "With offsetting effects, overall low rates of household credit growth will likely be sustained."

Why Consumer Spending Matters

GDP - short for Gross Domestic Product - is a measure of the market value of all final goods and services produced in a country. In developed countries like Canada, the United States, and the United Kingdom, GDP growth is primarily driven by consumer spending. In Canada household final consumption expenditure accounted for 57 per cent of our GDP, according to the World Bank.

A country's GDP figure is often used as a barometer for the overall health of its economy. When consumer spending grows steadily upward, it's usually indicative of a healthy economy. It's important for consumers to keep spending; any slowdown in consumer expenditures will be felt throughout the economy and can lead to higher unemployment rates. With sub-three-per-cent GDP growth forecast for the foreseeable future, it will be challenging for the Canadian economy to grow, especially if households stop spending and taking on debt.

Although consumer spending is important, there can be too much of a good thing. If consumers find themselves saddled with too much debt, it can lead to a slowdown in consumer spending and an uptick in bankruptcies and overall delinquency rates. The Bank of Canada has kept the overnight lending rate frozen at 1 per cent for nearly four years to help encourage consumer spending. If consumer spending slows to a crawl, it can lead to job loss and eventually a recession.

The Bottom Line

Consumer spending is an integral part of a growing economy. If consumers stop spending, it can lead to all sorts of unpleasant consequences, including unemployment and a recession. Through monetary policy, governments can encourage consumers to continue to spend by lowering interest rates and tax rates. Just remember to spend responsibly; only spend money you'll be able to repay when your bill comes due.

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How the Canadian Economy Benefits from Consumer Debt, CreditCardsCanada.ca

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Consumer spending is vital to the economic growth of nations worldwide, Canada included, as long as we don't find ourselves in over our head. While corporations are often chastised for holding a record amount of cash on their balance sheets, it's actually consumer spending that accounts for the lion's share of economic growth.

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This padlet will teach you all about consumer credit and the economy, why consumer credit is important, how debt positively and negatively affects the economy, covid-19 and the fragile state of the economy, the domino effect of the economy and a little bit about debt.

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Provide a real life example at how this topic is relevant or interesting for you.
A real life example of the importance of consumer credit and the economy is the current situation with Covid-19. I find this all relevant and interesting because I never knew before how the economy worked and how our banking system worked. I understand now how Covid-19 could cause the economy to crash because if consumers aren't working they aren't making money and therefore not using their credit cards which the economy needs to stay afloat.

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This image represents a current example of the importance of consumer credit and the economy regarding Covid-19. The economy is in a very fragile state right now because with the virus taking away many consumers incomes, they are unable to make purchases therefore it is going to affect the economy negatively. Less purchases means less jobs therefore causing even fewer purchases and so on.

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If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?
I personally was never taught about the economy and more deeply into our money system, banking system etc. When I have kids one day I want to make sure they learn everything I've learnt in this course. As to consumer credit and the economy I want to make sure they understand
1. How the economy works.
2. The danger of credit cards and debt - with the understanding the economy requires us to be in debt. Credit card companies and such will try to get you to spend money but to be careful.

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Consumer debt is the debt held by individuals, not by governments. Consumer debt can come in the form of credit card debt, home mortgages, student loans, auto loans and other loans. Consumer debt is also known as household debt. According to statistics from the Federal Reserve, the total household debt of the United States in 2007 was $13.3 trillion. The household debt of the average American in 2007 is equal to 14.29 percent of his total income, a figure called the household debt service ratio (DSR) [source: Federal Reserve].

But the DSR doesn't include mortgage or rental payments. Those numbers are calculated in a figure called the financial obligations ratio (FOR). The latest figures from the Federal Reserve have homeowners spending 18 percent of their income on debt and renters spending 25.9 percent.

It's widely reported that the average United States citizen owes over $9,000 in credit card debt alone. That's actually a misleading statistic. True, if you took the total credit card debt of the United States and divided it by the number of U.S. citizens, it would be $9,000. But a more accurate statistic is the median credit card debt -- half of households owe more, half owe less -- which is $2,200. According to statistics from the Federal Reserve, 56 percent of U.S. households owe nothing in credit card debt (25 percent have no credit cards at all) [source: MSN Money].

Americans aren't the only ones up to their neck in consumer debt. According to 2005 statistics from England, British citizens owe an average of $6,500 in unsecured debt (primarily credit cards). That's over twice the European average of $3,200. In Greece, unsecured borrowing rose 29 percent from 2001 to 2005, and new lending has jumped 52 percent in Turkey over the same time period [source: BBC News].

On the flip side, around 70 percent of the United States and British GDP is fueled by consumer spending [source: Money-Zine.com]. A nation's GDP is often used as a measurement of the health of its economy. Consumer debt begins to negatively affect the health of the economy when it forces consumers to spend less. This is why some governments do everything they can to encourage consumer spending (and borrowing), including lowering taxes and lowering interest rates. If consumers spend less, the economy is said to have stalled, possibly leading to a longer-term recession.

Complicating the matter is that the United States is entering a housing crisis (see How Subprime Mortgages Work), which will only make consumer debt problems worse. The UK already experienced this exact situation. The UK housing boom (and resulting slump) happened 18 months ahead of similar economic developments in the States. Since the end of 2005, British credit card delinquencies have risen 50 percent, causing banks to lose billions of dollars [source: Fortune]. According to a recent survey, credit-crunched homeowners in the UK are even beginning to use their credit cards to pay off mortgages, a dangerous economic precedent that will only lead to deeper debt and more defaulting on credit card payments [source: Fortune].

A big fear of United States economists is that the economy could be entering a powerful recession equal to the 13-year Japanese economic crisis of the 1990s, also sparked by the collapse of the credit market [source: TheStreet.com].

On that cheery note, let's look at public debt and its effect on the economy.

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Consumer debt is the debt held by individuals, not by governments. Consumer debt can come in the form of credit card debt, home mortgages, student loans, auto loans and other loans. Consumer debt is also known as household debt. According to statistics from the Federal Reserve, the total household debt of the United States in 2007 was $13.3 trillion.