What would you be doing if you had some disposable income? Would you be paying off household debt, or getting further into debt?
Canada’s Debt Ratio
Statistics Canada says the ratio of household debt to disposable income hit a record high in the fourth quarter. As incomes increased at a slower pace than consumer borrowing.
The agency said leverage, as measured by household credit market debt to disposable income has reached 163.3 percent in the quarter.
However that means households owed about 63 cents more in credit, mortgage, and non-mortgage loans for every dollar that they have of disposable income.
Also BMO chief economist Doug Porter said the increased debt is not surprising given the Bank of Canada’s decision to cut its key interest rate. They cut it by a quarter of a percentage in January.
However, Porter also noted that even though debt has been rising, financial assets are also rising. As stock markets have rebounded. Canadians have been putting more away in their savings accounts.
Household net worth rose 0.9 per cent in the fourth quarter, the slowest rate in six quarters.
On a per capita basis, household net worth was $233,000 in the fourth quarter. I wish I was making that much!
Canadians’ finances are in for a shock, unfortunately. For instance a sudden rise in interest rates or overall weakness in the economy. A slowdown in household debt growth would be “welcome”, Porter said.
“Still, the singular focus on debt portrays an overly negative picture of Canadian household finances, which have proven incredibly resilient this cycle and likely still have enough cushion to provide a soft landing for spending in the year ahead.” Porter said.