Friday, February 18, 2011

Average Canadian Family Debt Up

The average Canadian family is dealing with $100,000 in debt and owes far more than it earns, according to a new report released by the Vanier Institute of the Family suggests the debt-to-income ratio is a record 150 per cent. So a Canadian family owes $1,500 for every after tax $1,000 it earns.

As per Katherine Scott, director of programs for the Vanier Institute of the Family "As governments at all levels craft their budgets for the coming year and look at cutting programs to reduce their deficits, they need to be mindful that the state of Canadian family finances continues to be fragile in many households."

Now that’s the average. A lot of families may be dealing with debts much higher than that. Primarily a lot of this can be handled effectively by consolidating loans. I recently did that for a client. High interest payments can drag the benefit of making payments down. A lot of home owners can leverage their house, although this is effective on a case by case basis as every situation is different. More so, the six digit loan amount is a psychological mark that has now been crossed in our society.

The figure includes mortgages, student loans, credit card debts and lines of credit. In cities like Toronto or the Greater Toronto Area, real estate is generally more expensive than other parts of Canada. The cost of owning a home is getting more expensive as real estate brokers try to help clients deal with two land transfer taxes, HST, lower mortgage amortization periods and stringent lending guidelines.

Not all debt is bad. Handled correctly the good debt can help with the bad. It’s like cholesterol. Housing and education related debts are considered good debts as they increase your personal and financial net worth. The historically low interest rates will inevitably rise, which will put some in a precarious situation. Consult with a professional such as a real estate broker or a financial planner if you find yourself on the verge of being overwhelmed. If you are already overwhelmed with debt, you are probably late in taking action.

The Institute suggests the level of debt most families are dealing with has been on the rise for the past 20 years. In 1990, the average family debt stood at $56,800, with a debt-to-income ratio of 93 per cent. According to the report, when the debt ratio began to rise, the savings rate began to fall. In 1990, the average Canadian family put $8,000 into savings, or 13 per cent. In 2010, families managed to save $2,500, or 4.2 per cent.

Other data compiled by the Institute suggests 17,400 households were behind in their mortgage payments by three or more months in 2010, up by 50 per cent since the recession began. Credit card delinquencies and bankruptcy rates also remain higher than before the recession.  

Jagdeep Singh, B. Arch.

Real Estate Broker


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