Household debt on the rise

By Andrew Rickard | September 16 2016 11:30AM

Statistics Canada has released its national balance sheet and financial flow accounts for the second quarter of 2016. While household net worth has increased, primarily due to gains in real estate, so too has household credit market debt.

Statistics Canada says that per capita household sector net worth was $271,300 at the end of Q2, an increase of 1.9% compared to the previous quarter. The increase is due mostly to rising property values, although financial assets also grew by 1.7%, thanks to stronger domestic and foreign securities markets.

At the same time household credit market debt increased by 2.0%; this outpaced weaker-than-normal growth in disposable income which was only up by 0.5% during the period. As as result, the ratio of household debt to disposable income (excluding pension entitlements) rose to 167.6%, up from 165.2% in Q1. This means that Canadian households owed $1.68 for every dollar they had in disposable income.

A false sense of security

Scott Hannah, the CEO of the Credit Counselling Society, expressed concern over the Statistics Canada figures. He suggests Canadians may have developed a false sense of security during a prolonged period of low interest rates, and warns that those who are living paycheque to paycheque may be unprepared to face an increase.

“The low interest rates are certainly helping to keep the economy under control, but the increase is coming,” says Hannah. “A sudden change in interest rates will come as an unpleasant surprise for those who have debt and no savings, so it’s important to start anticipating and preparing yourself for that increase.”