credit and debt
WE MAY NOT HAVE THEIR K-POP, BUT WE HAVE THEIR DEBT LEVELS In a global context, Canadians are borrowing with the best of them. However, with interest rates and unemployment rates low, the situation is tenable.
Money is cheap, and Canada’s debt service ratios have been rising for many years. In large part this trend reflects falling interest rates, but it is not without significance that Canada has enjoyed one of its longest (almost) uninterrupted runs of economic expansion in history since the market bottomed-out in 2009. Such is Canada’s current situation that our collectivedebt level, expressedas apercentage of net after-tax income, is at 181.8% (in other words, it would take almost two years to pay
off all existing household debt if every cent of Canadians’ after-tax income was put towards debt repayment, interest notwithstanding). Compared to other rich, industrialized countries, Canada's debt load is significant, behind only South Korea’s at 184.2%. It took a painful economic reckoning for the United States to get its financial house in order (its current debt-to-income ratio is a more modest 108.7%). Canadian households will need to act prudently, and maybe get a bit lucky, to avoid a similar fate.
CANADIAN HOUSEHOLD DEBT LEVELS ARE VERY HIGH
200%
184.2 184.2
181.8 181.8
180%
160%
147.5
143.6
140%
120.7 120.7
120%
95.3 118.4 94.8
107.3 117.1 102.3
108.7
102.9
100%
86.8 91.1
94.3
80%
68.6
60%
40%
38.4
20%
0%
ITALY
GERMANY
JAPAN
USA
FRANCE
CANADA
KOREA
MINIMUM LATEST
MAXIMUM
SOURCE: ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT (OECD) DATA: HOUSEHOLD DEBT AS A SHARE OF NET AFTER-TAX INCOME, 1995-2018
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