Another Quarter Richer but Deeper in Debt

You could sing that title to the tune of Tennessee Ernie Ford’s 16 Tons, but Stats Canada published another interesting and information filled report that the main stream media is howling about how Canadians is going to be foreclosed (on). (report National balance sheet and financial flow accounts, fourth quarter 2015)

Sixteen Tons

Tennessee Ernie’s Greatest Hits
from Amazon

The report itself has a great deal of useful information about the Valuation (for lack of a better term) of Canada and Canadians, and well worth having a read.

The major line in one of the tables that is being touted as the reason that Canadians are going too far into debt. While these numbers are quite sobering in that the percentage of Debt to Disposable income is increasing and it is currently at 168% (i.e. for every $1 of disposable income, Canadians owe $1.68), however in another part of the report you can read:

On a per capita basis, household net worth was $263,200, up 1.5% from the previous quarter.

Thus my statement that we are Richer and also more in debt.

Quarterly Table of Debt and Income Comparisons
   3rd Q 2014 4th Q 2014 1st Q 2015 2nd Q 2015 3rd Q 2015 4th Q  2015
% % % % % %
Household sector
Debt to disposable income† 165.07 165.23 163.87 165.14 166.61 167.60
Credit market debt to disposable income 162.75 163.00 161.61 162.96 164.46 165.44
Consumer credit and mortgage liabilities to disposable income 155.36 155.59 154.20 155.50 156.99 157.96

What the ratio tells us: This ratio compares debt to annual household disposable income. In general, the ratio suggests that the lower the ratio the greater the ability to manage debt through current income.” 

The simplistic explanation overall is that Canadian assets have been increasing in value, with the housing bubble (in many areas, not Alberta though), the recovering stock market and the recovering loony as well. Are we actually saving more? I doubt it, I do believe that we are further in debt though (so yes I am agreeing with many financial pundits who are sounding warnings from this data).

The fact that debt is increasing vs. our disposable income is a more sinister issue. Are we simply deluding ourselves that since we are saving, we can also still build up more debt?


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