Canadian household debt ratio hits highest level on record

Households in Canada had the highest debt level ever when measured as a portion of... 


Households in Canada had the highest debt level ever when measured as a portion of disposable income in 2015’s second quarter, Statistics Canada announced September 11.

The ratio of household credit market debt to disposable income rose from 163% in Q1 to 164.6% in Q2. This means that for every dollar of disposable income households brought in, they owed almost $1.65.

As interest rates have fallen in the country, more Canadians have gone further into debt. Households borrowed a total of $26.3 billion in the quarter, which was up $3.7 billion compared with Q1. One of the reasons Canadians have gone further into debt is because interest rates have fallen, making borrowing more attractive.

Here in the Lower Mainland specifically, more individuals are becoming concerned about their finances as a result of owing so much more, said Lana Gilbertson, personal bankruptcy trustee at MNP Debt.

Gilbertson said she is seeing an increase in the number of families and individuals looking to file consumer proposals. These proposals are administered by bankruptcy trustees but are not full bankruptcies; they involve offering to pay creditors a percentage of what is owed or extending the time it takes to pay debt.

“[These families] are working, so they haven’t seen job losses or other life events that would cause an interruption in income, but they’ve been carrying high levels of unsecured debt for so long and they simply can’t do it anymore,” she said.

“I see people’s day-to-day living expenses all the time, and what I’m seeing is households that can afford to pay their rent and food and other basic living costs, but there isn’t a lot of room in the budget so credit is looked to for consumer goods or when there’s an emergency.”

Benjamin Reitzes, senior economist and vice-president economic research at BMO Capital Markets, said the StatsCan data isn’t as alarming as it sounds.

“There’s little need to fret about households’ ability to carry all that debt, as the household debt service ratio – interest and principal as a share of disposable income  - rose a modest 0.2 percentage points to 14.1%, not far from the 10-year average, though further increases would start to ramp up our level of concern,” Reitzes said.

“Fortunately, the increase in the total debt service ratio is being driven by higher principal payments, as interest payments as a share of disposable income hit a new record low 6.37% in Q2.”

Household net worth also hit an all-time high, reaching 768% of disposable income. This is up 0.7 percentage points compared with the previous quarter.