Rising Debt Levels: Bad News (and Good News) About Family Debt in Canada

A flurry of recent media activity has raised the red flag on how deep in the red most Canadians are, reporting that more people are carrying higher levels of debt than at any other time in history.

Household debt, including mortgages, is at a record high of 163% of disposable income; and consumer debt levels, excluding mortgages, were at an average of $20,967 for every Canadian at the end of 2014 (Globe and Mail, “Canadians Take on Even More Debt,” March 3, 2015).

As alarming as these kinds of reports are, a recent report from Statistics Canada, Changes in Debt and Assets of Canadian Families, 1999-2012 (published April 29, 2015), helps to put some of these reports into a bigger perspective.

Debt, in the StatsCan report, includes mortgages as well as consumer debt (such as vehicle loans, lines of credit, personal loans, and student debt). The study showed that 67% of all Canadian families carried some debt in 1999, increasing to 71% by 2012. Over the same period, the median family debt shot up by $23,400 to $60,100 (in 2012 constant dollars).

However, the report also reveals that not only debt, but also the value of assets held by Canadian families rose over those years. (Assets, in this study, include financial assets as well as non-financial assets such as real estate.) In fact, the median assets of Canadian families with debt increased by $179,800 to $405,200 (in 2012 constant dollars)—an increase of 80% in asset value compared with a 64% increase in median debt.

Real estate is at the heart of these numbers, with most of the increases in debt levels linked to higher mortgage debt and, correspondingly, much of the appreciation in assets being attributable to rising real estate values.

Almost all types of families saw both their debts and assets increase between 1999 and 2012, but the degree of change in each varied among different categories of families. Next week we’ll delve into the numbers in a little more detail to see who was most affected by changing levels in debts and assets.

Advisor Alert: It’s always important to help your clients minimize debt to achieve financial success, but it’s also essential to keep the big picture in mind—not just looking at debts in isolation, but also in relation to the value of assets your clients hold.

Consumer Alert: It’s true that consumer debt levels are at historic highs in Canada, and we all have to do our best to control our level of indebtedness to obtain financial freedom. However, sometimes you have to borrow money to make money, and nowhere is that more true than in the real estate market. This report highlights that increased debt sometimes does pay off in the real estate market, as asset values rose higher than the debt levels over the period of the study.