According to new data released by Statistics Canada, our country’s record-setting appetite for consumer debt is set to reach a new high for the end of the year. The proportion of Canadian household debt relative to income was reported to have risen roughly 1% to a total of 171%, or roughly $1.71 in debt for every dollar earned, across the country. Overall, total household debt, including consumer credit, mortgage and non-mortgage loans, hit $2.1 trillion at the end of September.
Household debt is often cited as a key risk to the Canadian economy by the Bank of Canada and others. The average household debt rate has been rising steadily for many years, but began to accelerate after 2008. |
The biggest contributor to the increase of household debt was mortgage debt, which reached $1.4 trillion in Q3, up 1.5 per cent from the previous quarter.
Should Canadians expect the debt-to-income ratio to continue climbing next year? In short, it’s possible that the consistent increase of this important metric may begin to level out. This is largely due to the fact that the amount of income needed to service Canadian debt has not climbed at a similarly steep pace as the amount of debt itself. In short, the debt we are accruing is not getting too much more expensive – only 0.1% more in the past quarter, according to StatsCan.
Canadians’ median income has risen steadily, albeit not at a particularly booming pace, since 2005, gaining roughly 11% over that time period for a median value of $70,336. Canadians in a variety of economic strata are continually searching for financial security, but our rising appetite for debt is ever more rapidly eroding the security that increased income may bring. The pressure is on to plan and practice good financial management principles both in the long and short term in order to offset the effects of rising household debt, even when it’s due to big picture factors like mortgage rates.