Canadian Household Debt Ratio Eases Slightly In Q1 To 165.3%
(NEW WESTMINSTER, BC, June 14, 2016) According to a report released by Statistics Canada on Tuesday, Canadian consumers’ appetite for credit paused in the first quarter of 2016, dropping slightly from 165.4% of disposable income to 165.3%.
“It’s good to see that Canadian consumers haven’t take on more debt,” states Scott Hannah, President of the Credit Counselling Society. “A decrease is typical in the first quarter. While the ratio did edge down, it didn’t go down by very much. People still owe a lot of money.”
The new household debt ratio means the average Canadian still owes more than $1.65 for every $1 in disposable income they earn in a year. Earlier this month, the Organisation for Economic Cooperation and Development (OECD) noted in its latest economic outlook report that “very low borrowing rates have encouraged household credit growth and underpinned rapidly rising housing prices.”
Although the OECD report acknowledged that regulators have strengthened mortgage rules to abate homebuyers from piling on debt they may not be able to manage, the Paris-based organization concluded that “in relation to household incomes, both house prices and household debt are high.”
The Bank of Canada has echoed similar sentiments, consistently expressing concern that the elevated levels of household debt could pose a risk to Canada’s financial stability in the event of an economic downturn. Financial vulnerabilities – such as a quick jump in interest rates or a slowdown in job creation – could strain the ability of many consumers to meet their debt obligations.
“The low interest rates are certainly helping to keep the economy under control, but given that the Canadian household debt ratio has been on an upward trend for some time now, it also shows that Canadians haven’t been making the most of this opportunity to pay down their debts,” said Hannah.
One of the best things you can do, according to Hannah, is to develop a plan for your money.
“While interest rates are low, chip away at your debt as best you can and put together a spending plan,” Hannah said. “It’s certainly tempting to take out loans and put purchases on credit because of the low interest rates, but if you haven’t put together a plan to pay it off, you could find yourself in financial trouble when interest rates eventually rise.”
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About the Credit Counselling Society (CCS)
The Credit Counselling Society is a non-profit organization dedicated to helping consumers manage their money and debt better. CCS provides free, confidential credit counselling, debt repayment options, budgeting assistance and financial education.