Monday, September 26, 2011

The Sky Isn't Falling

As Canadian consumer debt levels creep higher and higher, many articles have been written about how a U.S.-style recession is destined to hit Canada. That's why it's refreshing to come across the odd article that opposes this Chicken Little-type view - like this one in the Montreal Gazette .

The article brings up a number of good points as to why Canada isn't like its American counterpart. Among the highlights:

- While Canadians' debt-to-income ratio is now equal to that of Americans' when things went south back in 2008, this ratio isn't an accurate tool to predict a Canadian recession. After all, when looking at income, Canadians don't have the burden of healthcare costs to pay for. With the average American spending approximately 19% of their take-home pay on their health, their income is actually much less than ours - and their debt-to-income ratio, therefore, much higher.

- You shouldn't just look at debt and income when measuring the debt burden - you have to look at assets too. When you incorporate this into the equation, you'll find that Canadians are typically much better off than Americans. Here, debt amounts to just 24% of a household's average net worth, compared to 29% in the U.S.

- Canadians are still more conservative when it comes to mortgage borrowing - and while some of us are using our homes like credit cards, most of us aren't. In fact, an average of 63% of a household's home value is equity in Canada, compared to 39% in the States. Forty percent of Canadians also don't have any mortgage debt, compared to 31% in the U.S.

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