New data shows Canadians are now the most indebted people in the world

By: Dominic Licorish on March 16, 2017

The latest data from Statistics Canada shows that Canadians now owe more than $2 trillion in debt as of the end of 2016, driving the country’s debt-to-disposable income level to previously unseen highs.

Debt is growing so fast, we’re in uncharted — and downright dangerous — territory. The household debt-to-income ratio reached 167.3% by the end of 2016, surpassing the previous quarter’s record-breaking (adjusted) 166.8%.

That means Canadians owe $1.67 for every dollar earned. Income during that time grew by 1.1%, but was outpaced by debt, which grew by 1.2%.

The good news is that the wealth of Canadians has grown during the current debt binge, with national net worth increasing by 2.3% in the fourth quarter.

Household debt includes mortgage and non-mortgage loans, as well as consumer debt such as credit cards. Total credit market debt was valued at $2.029 trillion. Mortgage debt makes up about $18.9 billion of that.

The Bank of Canada has flagged the dangerous levels of debt as a potential vulnerability to the country’s financial system, as many people would be unable to service their debt if faced with a financial shock such as loss of income or emergency expense. Despite this vulnerability, low interest rates have helped keep Canadians on top of their debt.

The ratio of those who only service only the interest on their debt fell to a record low of 6.1%,  and the household debt service ratio, a measure of obligated payment as a percentage of disposable income, fell to 14% from 14.1%

That means that not only are more people servicing their debt well, it is relatively easy to do so with the average person needing only to pay 14% of their disposable income to do so.

On the other hand, data still shows that too many Canadians still don’t understand why paying more than the minimum payment is important. Smart use of credit products, such as low interest balance transfer credit cards, can help save money on interest payments and reduce debt loads faster.