The Guv'nor of the Bank of Canada has been in the news of late, worrying about the indebteness of Canadians, rising house prices, the coming collapse etc etc. House prices do seem to be unsustainable in the longer term in some places and for sure the boom and bust cycle of resource industries will have an impact. So I've read various articles over the past few months in Macleans, on the CBC etc that have discussed this in varying degrees of forboding doom.

One statistic that I've seen quoted frequently, and that puzzles me is "the average Canadian householdhas debt that is equivalent to 150% of their income." Now this puzzled me at first as, for most of us with a mortgage, having debt that is a multiple of income is nothing surprising. Today, I read, the same statistic in a editorial article in the local paper, except that the author clarified the statistic as "the average Canadian household has unsecured debt levels that are 150%" of their income. And that, frankly, baffles, staggers and is hard for me to believe.

I mean, owing money on a car(s), a credit card, a line of credit of 150% of income? If your household brings in $100k (not difficult with two earning) you owe $150k plus your mortgage? Who the hell lives like that? OK, I can understand that if you have a household income of $40k, it might be easy to get to a $60k figure if you have two cars etc etc, but who the hell would lend so much money to such a low income household? Not the ultraconservative Canadian banks surely?

If I look at my household and take the lease on the Mrs car into consideration, plus the line of credit I'd say we're at 25% or less. And we don't live large at all. Perhaps, in this time of low credit and easy borrowing, I should just be buying more toys, putting it all on the never never, and presumably leaving the legacy of debt to my children. Is this, as the commentators imply, the new Canadian way?

Yours in bafflement, AX.

Most of my clients do. Statements of assets, income and liabilities never cease to amaze me. The lack of retirement funds (RRSPs, pensions, etc) is also shocking.

They were, of course, in this position before they ever met me

I'm puzzled by this 150% number, I think it'd be a struggle to get there and I suspect the number is either not true or works only because one person owes 10,000 times the value of their assets in Canada.

Think about it, you have no assets and an income of $50,000. If you get 10 credit cards each with a limt of $7,500 and you max them all out, can you make the payments? No, you can't. And the card companies would notice not getting paid.

It cannot be true that most people have such a level of debt.

As a long time resident, I have always believed that, apart from a mortgage , if I could not pay cash, I could not afford it.

An admirable sentiment, but not practical for most. Buying a car invariably means credit, replacing the furnace when it breaks down, invariably requires credit. It's not that credit exists that I wonder, nor at it's availability, rather, just how much debt the average citizen takes on. Some of the articles reference student debt which is of course something I hadn't considered. The Mrs has relatives who have studied in the US & have Masters degrees that have cost them $70k+. I suppose that, allied with the conventional car loan and a modest credit card balance could tip you into that 150% bracket. Or, if you were unfortunate enough to be out of work for a period and lived off your line of credit. But those circumstances can't be the mean. Can they?

I also find that statistic utterly unbelievable. It might might be true of AC's clients (though I doubt it) but they are by definition people who have ****ed up, one way or another.

I don't even think it's possible to have unsecured debt of 100% of annual income (problem gamblers and drug addicts apart), but surely they're still a minority?

I tried to reply awhile ago, but my post has not appeared.

What I said then;-

I saved to buy a car

I had my furnace checked regularly so that it did not cause a crisis

I too, have a Master's degree from a U.S. University. I worked all kinds of jobs, some of which would be considered menial, in order to pay my way.

I had a very frugal life style I guess it is a matter of priorities

Good to see people on here thinking outside of the bubble. Those quoted debt levels are incredible but there are many, many people out there who need protection from themselves. They will max out every avenue of credit - with the drive of an addict - to obtain the things they really shouldn't have.
It's got so bad here in the UK that it's now very difficult to obtain any sort of credit from the banks due to the number of toxic accounts they have. I recently noticed that my credit card company are currently, not accepting any applications from new customers (MBNA).

Don't know about over in Canada but bankruptcy is the latest buzz here and it doesn't sound an awful a measure as it should be. I think it's now being abused by the very idiots who couldn't control themselves in the first place.

Maybe the writing is already on the wall for many Canadians. Massive debt levels on an artificially low base rate of 1% . That rate will have to go up eventually.

I like this thread! 150% of household income, easy in UK. Irresponsible lending by banks. Get ave income for the north £40-£45k for a couple, £60k of debts. Student loans, credit cards, personal loans, car finance, store cards, really easy to do. It is all live for today, tomorrow doesn't come.

What is more, the poorer you are, the worse it is. I know loads of people with £40k to £50k of debt and are going bankrupt. None of the debt is business related, just personal debt. £700 for a bankruptcy order, some are maxing the CC to pay it. 2 years of pain (restricted lending) and it is written off, it is the bank shareholders that pay in the end, pension funds and ordinary investors that pay, not the banks. They will continue and so will the greedy bankers.

In the meantime, those with nothing will continue to be given more, is this happening in Canada?

Household debt as a proportion of disposable income was close to 151 per cent at the end of last year.

http://www.cbc.ca/news/business/stor...hold-debt.html

The house which backs onto our house has over $190,000 worth of top of the range vehicles on their drive way, 2 adults 2 kids age 9 & 6! We call them trophy collectors - jetski, snow mobile, camping trailer with one truck just used for pulling the trailer, 1 truck for his job, 2 big SUVs (top of the range) and a soft stop summer car, pool and deck area used once in the summer, three pedigree dogs (rather large ones) which never leave the garden etc etc 150% maybe a conservative figure I think! They are not the only ones.

Now that is a different issue. Now i would suggest £10k of disposable income would give you £15k debts, that for many is very affordable!

Just as an afternote to my previous post, i also know some that have equity in their house say £30k and personal debt of £25k, cant afford to service the mortgage and debt, but can't go bankrupt because they would have the house taken away. How do you make ends meet? Get more debt! Make the repayments more unaffordable - spiral.....perhaps you can see I am risk averse.

"Equity" is an illusion, and hopefully people are beginning to learn that with the property crashes in the UK and US recently.
You only realize any profit (or loss) in your property when you come to sell it.. until such time, there is no profit and to assume otherwise is reckless IMO.

Of course you can have equity in a home. if you think it is worth £350k and you owe £50k, you can assume you have some equity. Even in a housing crash, it is going to be worth at least what you owe, assuming your house is not within a few miles of the next chenobyl!

I have to admit I'd not accounted for student loan debt. Perhaps it's not so unbelievable after all.