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Study: Indebtedness and Wealth Among Canadian Households

Released: 2019-03-26

Understanding the health of the balance sheets of Canadian households is a complex issue that continues to generate considerable discussion. A new Statistics Canada study contributes to these discussions by highlighting the extent to which national measures of indebtedness and wealth mask significant variation across the country. The study is largely based on results from the 2016 Survey of Financial Security (SFS), which allow for a detailed profile by census metropolitan area (CMA) and by income groups.

For Canadian households as a whole, debt-to-income levels and debt-to-asset levels have trended in opposite directions over the last decade. Data from the National Balance Sheet Accounts has shown that while households have become more indebted relative to the incomes they earn, sizable increases in the value of household assets, such as housing and equities, have outpaced increases in debt, leading to higher aggregate net worth (that is, total assets less total liabilities) in the household sector.

Analyzing trends in indicators such as debt-to-income, debt-to-assets and net worth can be helpful in identifying potential financial vulnerabilities of specific groups in the face of economic shocks.

Using SFS data, the study showed that total debt-to-income levels (measured on an after-tax basis) and median net worth (a measure of economic well-being among families at the mid-point of the wealth distribution) increased for all major CMAs and for all income groups over the 1999-to-2016 period. However, by 2016, the level of these indicators varied considerably. According to the 2016 SFS, debt-to-income ratios of families living in Victoria (240%), Vancouver (230%) and Toronto (210%) significantly exceeded the national average of 165%. In comparison, families in Moncton (106%), London (113%) and Fredericton (119%) had leverage ratios below the national average.

Chart 1  Chart 1: Ratio of debt to after-tax family income, selected census metropolitan areas, 2016
Ratio of debt to after-tax family income, selected census metropolitan areas, 2016

Families in the CMAs with the highest leverage ratios also had relatively higher median net worth. To some extent, these patterns can be explained by higher real estate values, which contributed to both the accumulation of mortgage debt and higher principal residence assets over the past 20 years. For Canada as a whole, median net worth, measured in real terms, rose from $144,500 in 1999 to $295,100 in 2016, led by gains in Toronto and Vancouver. During this period, median net worth in Toronto grew by 121% to $365,100, while in Vancouver it rose by 188% to $434,400.

Furthermore, the distribution of debt levels relative to incomes varied even more by income quintile. Families in the lowest income quintiles in Toronto carried 420% of debt relative to income, compared with 400% for those in the same quintile in Vancouver. This compares with a debt relative to their after-tax income of about 100% for the lowest income quintile in Montréal. Despite significantly higher debt levels, those at the lowest end of the income distribution also generally had lower net worth, particularly compared with those in the higher income quintiles. For example, in Toronto, net worth for families in the lowest income quintile was $9,000 in 2016 compared with $1.2 million for those in the highest income quintile. This finding was generally similar across the country.

Chart 2  Chart 2: Household debt to after-tax income ratio, 2016
Household debt to after-tax income ratio, 2016

Finally, the study also considered those families at the lowest end of the wealth distribution, defined for the purposes of this study as those with net worth (that is the value of their assets remaining after liabilities are repaid) of less than $500. Based on the 2016 SFS, 8.4% of families in Canada had less than $500 in net worth.

Products

The research article "Indebtedness and Wealth Among Canadian Households," which is part of the Economic Insights (Catalogue number11-626-X), is now available.

Also of interest is the recently released infographic "Spotlight on Canadians and debt: Who's vulnerable?," which highlights debt-to-income ratios in Canada and how they have continued to rise since the 2008-2009 recession, while declining in the United States over the same period.

Contact information

For more information, contact us (toll-free 1-800-263-1136; 514-283-8300; STATCAN.infostats-infostats.STATCAN@canada.ca).

To enquire about the concepts, methods or data quality of this release, contact Guy Gellatly (613-415-6894; guy.gellatly@canada.ca) or Elizabeth Richards (613-863-4623; elizabeth.richards@canada.ca), Analytical Studies Branch.

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