We keep hearing that Canadians have been increasing their debt and that this could spell catastrophe (read “Why Does Pessimism …”)
Our household debt relative to income is the highest of the G7 countries. But the truth is 77% of the total debt Canadians owe is mortgage debt which is considered good debt. As long as this debt can be serviced – low interest rates and low unemployment are necessary, mortgage debt is no different than an RSP contribution. It’s an investment in an appreciating asset. So let’s worry when interest rates rise above 6% and unemployment is closer to 10%!
Canadian Household Debt Article
Conflicting reports in the media suggest an interest rate hike would severely impact Canadians. A study by the Fraser institute suggests otherwise: Investment Executive Canadian Debt Article
The message we get regarding the indebtedness of an increasingly greater number of Canadians may not be the case.
The article below refutes four myths about Canadian debt. The one area of concern is the 12% of Canadians that have more debt than assets. I see this an the unfortunate result of low interest rates, a free economy, the ensuing marketing messages to over spend and, frankly, lack of discipline and financial literacy. What I have not been able to confirm (but suspect) is 12% the standard number of Canadians who have always had more debt than assets which the economy is able to manages – just like the average bankruptcy ratio.
Link to Article