SURVIVING THE RECOVERY The Distribution of Canadian Household Debt

Armine YalnizyanSenior Economist Canadian Centre for Policy

AlternativesAnnual CEA Meetings

OttawaJune 3, 2011

Household debt stabilizing…..at record highs. Is this a debt wall?

148.87%

19.67%

24.49%

15

17

19

21

23

25

27

80

90

100

110

120

130

140

150

160

I 1990

I 1991

I 1992

I 1993

I 1994

I 1995

I 1996

I 1997

I 1998

I 1999

I 2000

I 2001

I 2002

I 2003

I 2004

I 2005

I 2006

I 2007

I 2008

I 2009

I 2010

Debt to personal disposable income Debt to total assets Debt to net worth

Two Drivers of Debt

How risky is this?

• Aggregates don’t tell the full story• Distributional element is key – incidence of

the problem, depth of problem, “hot spots”

• Debt rising among all income groups according to SFS data, 1999 to 2005

Trend to higher indebtedness by 2005

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

2.10

2.30

2.50

Q1 Q2 Q3 Q4 Q5

Average Debt to Income Ratio

1999

2005

And here’s why – it seemed affordable

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Q1 Q2 Q3 Q4 Q5

Average Debt to Asset Ratio

1999

2005

Oh, and here’s another reason why – no real income growth for most til 2007

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

After-Tax Incomes, All Households, Canada, by Decile, 1976-2008

D1

D2

D3

D4

D5

D6

D7

D8

D9

D10

What’s happened since 2005?

• Lack of data on distribution of debt and assets since SFS 2005. (How about that recession?)

• CFCS 2009 provides a glimpse, no before and after the recession

• Sample size – just over 15,500

• Complaint about constraints on StatCan

Canada: Not just the Land of Debt

66.5% have debt

33.5% Don't Have

Debt

Incidence of Debt in 2009 – By Age

Incidence of debt in 2009 – by quintile

How Deep Is the Hole?

• Only one in five households with debt (21%) owe MORE THAN $200K– highest incidence in Q 4 and Q5 – age sensitive (highest incidence among under 45s)

• Half of households with debt (49%) owe LESS THAN $50K– highest incidence in Q1 to Q3– less age-sensitive

Distribution of Debt over $200K, 2009 by age and quintile

0%

10%

20%

30%

40%

50%

60%

18-24 25-34 35-44 45-54 55-59 60-64 65-70 70+

Q1

Q2

Q3

Q4

Q5

Distribution of Debt Under $50K, 2009 by age and income quintile

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

18-24 25-34 35-44 45-54 55-59 60-64 65-70 70+

Q1

Q2

Q3

Q4

Q5

Who’s most exposed to risk?

• Lower income: more potential for small things to become financial catastrophes

• Big debt: very reliant on job, income security

• Elderly lower incidence, but not risk-free

• Response to recession – are we deleveraging yet? Household financial flows critical

Under 45s hardest hit since recession

Living within their means? Mixed story for 45-64 year olds

0%

10%

20%

30%

40%

50%

60%

All Q1 Q2 Q3 Q4 Q5

Age 45-64, % spending more than income

1999

2005

2007

2008

2009

More people draining savings, borrowing among elderly

31%

35% 34%

31%

23%

17%

0%

5%

10%

15%

20%

25%

30%

35%

40%

All Q1 Q2 Q3 Q4 Q5

Over 65, more spending than income

1999

2005

2007

2008

2009

Caution: Bumpy Road Ahead

• Rising prices • Downward pressure on wages, benefits,

pensions (for some, not all)• Government cutbacks (fewer good paying jobs)• Slow private sector job creation (and more

temporary jobs)• Rising interest rates• Slowth (slow growth) in many places

Good Luck With That Austerity Plan