Behind the numbers: Understanding Canadian debt challenges

If you’re like many Canadians, you’ve likely been hearing about high interest rates, household net worth, and the performance of financial markets. Maybe you’re even feeling the squeeze of prolonged high interest rates.

But what do all these numbers mean? And how is it impacting your money management?

To understand how these factors impact Canadians like you, you must first understand the underlying financial realities that impact households across the country. Especially when it comes to interest rates and their effects on personal finances.

Understanding the numbers

Let’s breakdown some key metrics that shed light on the current state of Canadian debt dynamics. From debt-to-income ratio to debt service obligations, these Statistics Canada figures from the fourth quarter of 2023 offer insight into the financial challenges you may be facing today.

Debt-to-income ratio

This is the amount of debt you owe for every dollar of disposable income. This ratio is like a snapshot of your financial health and ability to manage debt. Current data indicates this lowered slightly over the last quarter, and for every dollar of disposable income, Canadians owe $1.79.

Debt service ratio

This ratio measures the proportion of disposable income allocated to paying off principal and interest on debt. This data points to the affordability of debt repayments. This rate rose in the fourth quarter to 15 percent, likely due to high interest rates.

Credit market debt

This rate represents the total amount of money owed — in mortgages and consumer credit — by Canadian households to creditors. The fourth quarter saw that number increase by $29.5 billion. Of that, $8.2 billion came from consumer credit, which rose for the second straight quarter. This surge in borrowing may be an indication that many households are stretched financially.

Saving rate

Canada’s saving rate stayed relatively steady at 6.2 percent, meaning that most households are still managing to save money despite facing financial challenges.

Total financial assets

This number refers to the combined value of all household assets. And it rose to $9.7 trillion in the fourth quarter — a record high. This value was driven primarily by stock and bond markets that rallied after a drop in the last quarter.

Perceptions and realities

Did reading those numbers make you feel a little bummed? That’s completely understandable. But here’s something to cheer you up: findings from the recent MNP Consumer Debt Index suggest that Canadians are feeling better about their debt situations.

There remain some looming concerns around mortgage renewals, rental agreements, pandemic-related setbacks, and the cost of living. However, after a full year of low scores and with interest rate cuts on the horizon, the general sentiment is one of optimism.

Here are some positives:

• The index jumped by eight points since last quarter
• 27 percent of Canadians perceive their debt situation to be better
• 16 percent fewer households rated their debt situation as worse than a year ago
• 41 percent fewer households are concerned about their level of debt with interest rate cuts
• 44 percent fewer households regret the amount of debt they’ve taken on
• 25 percent feel better equipped to absorb an interest rate increase of one percentage point

And one factor that’s helping these households feel more confident about their future? They asked for help managing their debt trouble.

Achieve peace of mind

No matter how you’re feeling about the facts and figures facing Canadian debtors, seeking professional guidance can help you feel hopeful about your financial future.

You may feel hesitant at the idea of seeking out insolvency services, particularly if you’re overwhelmed with mounting debt. But these advisory services are tailored to help you navigate difficult financial times with confidence.

By engaging an experienced advisor early in your journey, you can develop a financial management plan that works for you and helps you stay on track through fluctuations in the financial landscape.

Don’t wait until the eleventh hour, when you’re facing limited options and may need to file for Bankruptcy or a Consumer Proposal.

Reach out to us today for a free, no-obligation consultation to discuss your debt management needs.

Grant Bazian is President, Insolvency, at MNP Ltd.