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Wednesday, February 21st, 2024

Younger families most snared by debt

Debt is the slavery of the free, the Syrian writer Publilius Syrus said all the way back in the 1st century B.C.

And here we are, a few millennia later, more ensnared than ever.

Canadian household debt loads hit record territory this year, surpassing even levels south of the border. A new Statistics Canada paper out Thursday sheds some light on just who’s most indebted and why.

First, the aggregate numbers: household debt for Canadians more than doubled between 1984 and 2009 — from $46,000 to $110,000, largely to due a pile of mortgage debt. Growth has accelerated even faster since 2002 (it’s continued to climb this year, though economists expect the rate of accumulation will slow as borrowing costs rise).

The paper, by senior analyst Matt Hurst, lists several reasons for the surge. Some are familiar — low interest rates and a cultural shift to consumerism. Others include increased demand in the housing market from the boomers, heightened competition and deregulation in the banking sector, new financial products, more relaxed credit constraints and more women in the work force.

More than three quarters, or 76 per cent, of Canadians carried debt in 2009 and among those who did, the average load was $119,000.

The debt-to-after-tax ratio swelled to 143 per cent in 2009 from 93 per cent in 1990.

Younger families are much more likely to carry debt because they are buying their first homes and incurring all the related costs of becoming homeowners. Unattached people — singles — are least likely to have debts.

Single parents and couples with children are particularly strained. The 19-to-34 year old crowd has a debt-to-income ratio of 180 per cent, meaning they owe $1,800 for every $1,000 in pre-tax income. Lone parents have an eye-watering ratio of 227 per cent.

That contrasts with a ratio for couples in the 50-to-64 crowd, who owe $1,250 for every $1,000 they earn.

Income is a big predictor of debt — the poorer you are, the higher your debt-service ratio is. So households with incomes of less than $50,000 had more than six times the odds of having a high debt service ratio and 1.6 times the odds of having a high debt-to-asset ratio, compared to people who earned $50,000 to $80,000.

Living in cities is associated with higher debt loads. So is being an immigrant. People born in Canada had 60 per cent lower odds of having a high total debt service ratio compared to immigrants, the paper said — even after controlling for income, education, geographic location and homeownership.

The other factor associated with indebtedness? Living in British Columbia, a report by Toronto-Dominion Bank said in February. Its analysis showed B.C. households are most vulnerable to an unexpected economic shock, thanks to higher homeownership costs.

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