Canada has the highest household debt to disposable income level of any G7 country, according to newly released Statistics Canada data.
Canadian households’ debt-to-income ratio has reached 185 percent—roughly 35 percent above the United Kingdom and nearly 85 percent higher than the United States, StatCan said in its Feb. 28 report. That means Canadians owe $1.85 for every dollar they make after taxes.
That’s up 17 points from the 168 percent ratio in 2018 and is a 119-point leap from 1980’s rate of 66 percent.
Canadians were more focused on saving at the height of the pandemic, as COVID-19 emergency support programming offset income losses, StatCan noted. The pace of savings has continued to accelerate in 2023, but only in wealthy households. Middle and lower-income households are spending more than they earn to withstand rising housing and food costs.
StatCan described housing as a “double-edged sword” that is “critical for wealth creation for middle-class households, but also leading to imbalances between assets and debt.”
The number of residential mortgages lasting more than 30 years has soared since the end of 2021, as more borrowers face renewal pressure and reset their original amortization schedule, the report said. At the same time, mortgage holders’ available cash flow is focused on paying interest rather than paying down the principal.
Real estate represents roughly 55 percent of the average household’s wealth while mortgages represent most of their debt—trends even more pronounced for middle-class or working-age families, the report noted.
While debt ratios have risen across all age groups, it is most pronounced in households headed by those under the age of 45 due to the burden of larger mortgages.
“Looking forward, as almost half of mortgages are renewed in 2024 and 2025, there is a great deal of uncertainty for households that have already cut back their spending, in addition to the potential impact on consumer spending and, as such, economic growth,” authors of the report wrote.
The report also noted that people under the age of 35 are more likely to “turn away from the housing market” due to rising interest rates and mortgage payments.
“Dissaving for owners without a mortgage likely reflects age dynamics, as older Canadians are more likely to have paid off their home and are drawing from accumulated pension assets to support themselves during retirement—part of the life cycle of wealth and debt,” the authors added.
Canadians older than 55 held 65 percent of the country’s total wealth in 2023 which could lead to “major risks for intergenerational mobility” in decades to come, StatCan said.
The biggest problem preventing that mobility, StatCan said, is the current barriers to homeownership. It described housing as “critical to wealth creation and financial security across the life cycle.”
StatCan said the ongoing decrease in homeownership could have future implications for the “upward mobility” of today’s younger generations.
