Skip To Main Content
couple sitting at table looking at papers, man pointing with pen

Canada continues to be a world leader — in debt

With $4.4-trillion in combined corporate and household debt, ‘we’re in a bit of an economic trap,’ expert says

Canadians continue to give other developed countries a run for their money as world leaders in debt. 

Recent figures from Statistics Canada show the ratio of household debt compared to income at 170.4 per cent in the final quarter of 2017, a hair down from the previous quarter. At the same time, real debt rose 1.1 per cent during the quarter, with mortgage debt totalling $1.397-trillion, and consumer credit at $630.4-billion.

Addicted to Debt, a recent report from the Canadian Centre for Policy Alternatives, sounds the alarm on combined corporate and household debt, which grew from 182 per cent of GDP to 218 per cent of GDP—or $3.4-trillion to $4.4-trillion—in the five years since 2011. While debt-to-GDP ratios ranked eighth among advanced economies, the growth in that ratio led those countries.

“One driver of increased debt has been very low interest rates,” says David Macdonald, senior economist with the CCPA and author of the report. “This is exactly what low interest rates are designed to do—encourage households and corporations to take on debt and spend it to drive economic growth.”

But that party may end if the Bank of Canada increases interest rates significantly. 

“Many of us have never lived in a period of increasing rates and it will be difficult for households and corporations to think about living in a world where they’re going up,” says Macdonald. “We’re now in a bit of an economic trap. We’ve become addicted to low interest rates to fuel short-term economic growth. It’s unlikely that we’ll be able to increase interest rates without substantially reducing consumer spending and economic growth.”

However, even if rates remain low, borrowers may find it difficult to maintain payments on increased debt when the economy slows. Central banks will have no room to ride to the rescue by lowering rates further.

“We’re likely at the peak of what we can indebt the private sector with,” Macdonald says. 

Joel Lazer, FCPA, FCA, has seen the results of unsustainable debt. He’s a senior partner at Lazer Grant LLP in Winnipeg and a Licensed Insolvency Trustee. He notes that debt may become a problem long before consumers and companies who are over-indebted know it.

“Eventually they realize that they can’t take the stress of not making ends meet month after month,” he says. “They’re often alone in their problem because you tend not to tell anyone about it.”

Whether indebtedness is personal or related to business, he notes that people require honest advisors who aren’t afraid to broach the subject, whether that person is a spouse, a professional or a member of the company’s management or financial team.

CPA Canada offers educational resources to help deal with debt, including money management worksheets, free financial literacy sessions and publications.

“I’m a proponent of an annual personal retreat to assess where you are in life,” Lazer says. “Part of that retreat should be a realistic net worth statement, preferably compiled with paper and pen, to see how you’re doing year after year. Are you doing better or worse than previous years? That way you can see if you’re going forward or backwards—and going backwards is simply not sustainable.”