Canada has the third highest household debt in the world — here’s who it is pinching the most
The group that is being hit the hardest is not inconsequential.
The three lower-income groups in Canada make up 60 per cent of the population and hold 45 per cent of the household debt.
The debt-to-disposable-income ratio is a lot higher for these households and it’s rising, but that’s not the most important indicator for determining financial vulnerability, said the economists.
“What matters is that households have enough money to cover the costs of servicing their debts,” they said.
While the percentage of income going to interest payments has increased for everyone, the ratio has increased sharply for households in the lowest income group, reaching more than 18 per cent of income in 2023, said the study.
Spending more to service their debt and to keep up with the cost of living has left these households with little to no room to save.
Data show that households are already having to make tough choices.
Real consumer spending per person fell in 2023 and by March 2024 credit market debt had grown for the fifth month in a row, said the study. The 60-plus delinquency rate for non-mortgage loans is now back to 2019 levels.
Meanwhile, the gap between the richest and poorest continues to widen. The 60 per cent of Canadians in the three lower-income groups have just 35 per cent of the income and assets.
“This population is therefore more vulnerable to various economic or financial shocks, a situation that threatens broader financial stability,” said Drapeau and Tessier-Moreau.
“That’s why this issue must be addressed, ideally by improving income for the demographic groups in question.”
“Limiting the rise in these costs could help bolster real income for households for whom housing is the main expense,” said the economists.
Once a quarter, the IMF releases its Currency Composition of Official Foreign Exchange Reserves, known as COFER, which gives a look at where countries’ reserves are allocated.
The IMF’s latest data shows that the allocation of the Canadian dollar has increased and now ranks fifth in the basket of eight currencies.
The United States leads, of course, followed by the euro, Japanese yen and pound sterling. Canada’s allocation of 2.57 per cent puts it ahead of the Chinese renminbi, Australian dollar and Swiss franc.
That allocation adds up to a lot of Canadian dollars — $400 billion, which is fourfold the reserve interest since the end of 2012, said National Bank economist Warren Lovely.
“Given the relative size of the Canadian economy, the country’s available financial assets and outstanding debt securities, the still-growing pool of FX reserves allocated to CAD can only be labeled ‘material’.”
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