Canadian Household Debt Will Have The Last Laugh

When done sensibly, borrowing has its uses. It allows us to buy big ticket items by spreading the payments over a period of time. But what happens when lending gets out of control and your drowning in debt without a life jacket in sight?

That’s the reality that most Canadians are living with today. Canada’s household debt to GDP ratio is at 101 percent, the largest of any developed country. In comparison, the U.S. debt to GDP ratio is below 80 percent, while Germany and France have a household debt to GDP ratios of 60 percent.

Canadian households have been steadily increasing their debt for 30 years, and living on credit has become a way of life. Canadians owe over $2 trillion, with mortgages making up the majority of that debt. Canadian household debt amount to 170 percent of disposable income. Simple math will tell you if you have almost twice the amount of money going out than coming in, you could be on the precipice of a crisis.


As bad as these numbers are, countries such as Australia, Sweden, and Norway have an even greater debt to disposable income ratio. All these countries, including Canada, have dealt with years of rising home prices, higher mortgages, and decades of interest payments.

Owning a home is a time-honored way to create security for the future. The price of houses has traditionally risen faster than household income, so it’s considered an excellent investment. One reason Canadians have found home ownership easy to attain is tlow interest rates. Canadians value home ownership, so mortgages has been a debt they have willingly incurred, especially with low interest rates making the purchase so easy and attractive. Low interest rates have been stimulating the housing market since the 1990s, creating an ever-greater demand.

Canadians in the 90s expected low inflation and low interest rates to continue and felt comfortable borrowing and creating debt. The crisis of 2008 stirred Canadians out of their comfort zone as the Bank of Canada and other central banks lowered interest rates to zero, where they remained for some time. Canada became a country financed through debt, and it remains so.

Canada is still struggling to recover from the policy of creating economic growth through easy credit. Canadians have used low interest rates to finance their future and incur an ever-growing mountain of debt. And debt is making Canada vulnerable to uncertain global economic forces.

The Bank of Canada has raised its interest rates 3 times in the last year. It remains to be seen whether these borrowers will be able to handle the increased payments.

Over half of Canadians are worried that the higher interest rates will make it harder for them to repay their debts, while 47 percent believe they will need to go further into debt to cover basic living expenses. Thirty-three percent fear that bankruptcy may become a possibility.

There is no easy solution for Canada’s out-of-control debt crisis. Easy credit has created a housing bubble that could fall like a house of cards at any time.