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article imageRatio of debt to income of Canadian households at record high

By Ken Hanly     Sep 15, 2017 in Lifestyle
Canadian household debt as a share of income rose to a record high in the second quarter of 2017 as consumers increased spending on consumer goods. As interest rates rise this could create a challenge for the economy as consumers need to curb new spending
The ratio of debt to income rose to 167.8 percent from 166.6 in the first quarter, according to Statistics Canada. This means that for every dollar of income, Canadian households had $1.68 of debt. The Bank of Canada increased interest rates both in July and September. The early September hike was from 0.75 percent to 1 percent. Many economists predict more increases in the future. The debt ratio has been high for some time. In the third quarter of 2016 a record was also reached at 166.9 so the present debt level is not a huge increase.
Paul Ferley, assistant chief economist at the Royal Bank of Canada (RBC) said: "Certainly it's confirming that debt levels remain high and (are) creeping up a little bit higher. That's been an ongoing vulnerability for the Canadian economy." Ferley thought that the higher interest rates might dampen consumer demand but he thought that most households would be able to cope. However, Scott Hannah of the Credit Counselling Society warned: "Canadians continue to 'tread water' and are at risk of reaching their tipping point where they can no longer manage their debt payments."
Canadian households borrowed $28.9 billion on a seasonally adjusted basis, up considerably from $25.4 billion in the preceding quarter. Mortgage borrowing actually declined from $19.2 billion to $16.5 billion in the second quarter. Consumer credit and other non-mortgage loans showed a sharp increase to $12.3 billion from just $6.2 billion as Canadians bought more durable goods including autos. The debt service ratio is unchanged at 14.2 percent. The ratio measures debt principal and interest payments as a proportion of income.
A recent survey carried out by the Canadian Payroll Association show that almost half of all Canadian workers are just living from paycheck to paycheck as their spending soars and debts increase. The poll found that 47 percent of those polled said it would be difficult for them to meet their debt obligations if their paycheck was delayed by just a week. 35 percent of respondents felt overwhelmed by debt. The survey was of 4,766 Canadian employees and was taken between June 27 and August 5. 32 percent of those polled said that mortgage payments were most difficult to meet while 23 percent thought credit card debt was the hardest to manage. 32 percent said that high living costs was their main reason for increased spending while another 25 percent cited unexpected expenses. This was an online survey and is not assigned a margin of error since the sample is not random.
More about canadian personal debt, interest rates in Canada, canadian consumer spending
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