Many Canadians use debt to purchase their homes, start a business or to receive a post-secondary education. The total household debt statistic takes an accumulative approach to see what households owe in relation to disposable income. Trouble can be brewing on a national level when debt greatly outweighs income.
A recent report by the Organization for Economic Co-operation and Development (OECD) claims that Canada’s household debt levels are higher than other countries. This report acts as a warning sign to our national economy.
This economic report frames the current economic situation through the lens of the 2007 credit crisis. A reason for that crisis was the increase in household debt across the board. Since that time, most nations have lowered their debt load, yet for some reason, Canada has not followed this trend. In fact, it’s done the opposite.
At 101%, Canada’s household debt to gross domestic product ratio ranks last. To compare, the U.S’ ratio is 80%. Italy is barely scratching 40%.
Why are Canadians Relying on Debt?
The easy culprit to pin Canada’s debt crisis on is real estate. As housing prices increase in value, Canadians must borrow more to be homeowners. Borrowing doesn’t end with mortgages, though. From heat to furniture to maintenance, Canadians use debt to keep their homes running.
In places like Vancouver and Toronto, thriving housing markets impacts the rental market, forcing many renters to live off debt. As Canada’s population grows, the debt load per household for both homeowners and renters will rise.
Household debt is a problem that has surfaced for most western countries. The simple solution (if there is one) is for Canadians to spend more within their means, curbing their reliance on debt. It could be as straightforward as families getting by on one car instead of two, but in fairness, this is always easier said than done.
Measures to protect borrowers and lenders from skyrocketing prices is the most immediate way to reduce debt load. The Government has taken steps through implementing a stress test and a recent interest rate hike by the Bank of Canada could provide some relief.
The data provided by this report should be taken very seriously by Canadians and policy makers. It’s a situation that needs to be monitored and handled before the ratio becomes even more out of whack.