The report that was released by RBC recently seems encouraging enough at first – showing that we’ve had the slowest growth of debt in more than a decade. But dig deeper, and you’ll see why Canadians might not be as well off as this report suggests, and that unless our incomes start rising accordingly, that debt-to-income ratio is only going to continue to grow.
The RBC Economics report shows that in February the amount of total household debt in Canada stood at $1.67 trillion. That’s up 4.5 per cent from the last count, but it’s also the slowest annual growth we’ve seen since June of 2001 – over eleven years ago.
When you breaking the numbers down further, it’s shown that debt in Canadian mortgages was $1.16 trillion, up 5.4 per cent when compared with the same month last year, but also the slowest growth seen since November 2001.
Non-mortgage debt which includes everything from credit cards to personal loans, to lines of credit and other loans, totaled $512 billion. That’s still an increase of 2.5 per cent, but this type of debt takes the prize when it comes to slowest overall growth. This is the smallest increase seen in this type of debt since July 1993 – 20 years ago!
The RBC Economics report indicates that the federal government will be happy to hear the news, as they’ve been trying to curb household debt for two years now. The slow growth first started being noticed early last year, and the fact that it’s continuing will only encourage them further.
But, it’s not all cheery news. The same RBC report also says that partly due to this slow growth of household debt, the household sector also won’t be there to contribute to the GDP as much as has been seen in years past.
And in addition to that, BMO Nesbitt Burns also says that even taking that slow growth into consideration, it does us little good if our incomes are not increasing at the same time to balance out the ratio. It’s because of this reason, they say, that Canadians will see this ratio continue to rise, even though they’re busy bringing down their household debt.
Benjamin Reitzes, senior economist at BMO Nesbitt Burns, says, “Barring a negative economic shock – which would prompt – which would prompt deleveraging – the household debt ratio isn’t likely to turn lower until income growth picks up meaningfully. Expect this trend to continue, as households stay cautious amid elevated debt levels and modest economic growth.”
Unfortunately, it’s often easier for us to control our debt levels than it is our income levels.