A few myths about Canadian household debt
Canadians are obsessed with debt — snapping up loans with record low interest rates to get in it — and then fretting, as debt ratios rise — about getting out of it.
In a recent report written by McKinsey Global Institute, Canada was grouped with six other countries as having the worst debt problems in the world. But is our debt really that bad? Here are a few popular myths about Canadian debt:
1)Canadians today are more indebted than Americans just before the financial crisis
Canadianhousehold debthit 161% of disposable income at the end of 2014. The United States was at 165% right at the end of 2007.When further research was done, and using the U.S.'s method of calculating their household debt, the Canadian ratio dropped to 151%.
2)Debt is skyrocketing
Debt has only been rising slightly quicker than our incomes. Compared to two years ago when household credit had been rising 9% a year. Canadians are borrowing at the slowest pace in more than a decade (4.5% as of November 2014). Tighter mortgage rules, warnings from the Bank of Canada, Ottawa and the IMF have kept borrowing on a tighter leash.
3)Household finances are under severe strain
Generally, most households in Canada are not burdened with debt. It may come as a shock, but 33% of households in Canada are debt free, slowly but steadily rising from 29% back in 2002. Financial assets are on average three times greater than debt, consumerbankruptcyrates are at record lows and delinquency rates on loans have consistently fallen.