According to a report recently released by Statistics Canada, “Changes in debt and assets of Canadian families, 1999 to 2012,” more than a third, of families had a debt-to-income ratio above 2.0 in 2012. In other words, their level of debt was at least twice that of their annual after-tax income. In 1999, that share was 23%.
Such high levels of debt leave many families at the mercy of shifting economic tides, which may include sudden loss of employment, illness or the skyrocketing cost of borrowing.
According to the Globe and Mail, “The Statscan paper come as Canada’s debt-to-income ratio has risen further, hitting a record 163.3% n the fourth quarter of last year. The central bank has long cited household debt as a key risk to the economy, though it cut interest rates in January to counter another threat: lower oil prices.”
This Statscan paper looks at changes in debt, assets and net worth among Canadian families with debt from 1999 to 2012, using selected family characteristics. It also examines the extent to which two key ratios of indebtedness, the debt-to-income ratio and the debt-to-asset ratio, varied over the period.
Among the paper’s highlights:
- In 2012, the percentage of Canadian families with debt was 71%, up from 67% in 1999. The median debt held by these families was $60,100, up from $36,700 in 1999 (in 2012 constant dollars).
- Between 1999 and 2012, median debt and median assets increased for most types of families, but not equally for all categories of families. Median debt, for instance, increased faster among those in the 35-to-44 age group, among couples with children under 18, and among mortgagees.
- Between 1999 and 2012, the median debt-to-income ratio rose from 0.78 to 1.10, while the median debt-to-asset ratio remained stable, at around 0.25. Families in the 35-to-44 age group witnessed significant increases in both their debt-to-income and debt-to-asset ratios.
- In 2012, 35% of Canadian families had a debt-to-income ratio above 2.0—meaning that their debt was at least twice the level of their annual after-tax income. This compared with 23% of Canadian families in 1999.
- In 2012, 14% of families had consumer debt (i.e., debt other than mortgage debt) that was larger than their annual after-tax family income. In comparison, 8% were facing the same situation in 1999.
If you find yourself in a sink-or-swim position with your family debt load, come into Richard Killen & Associates for a free consultation. A debt consultant will outline your options and their consequences, so you can start swimming in the right direction.