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18 Feb

Average family debt in Canada hits six figures

General

Posted by: Mike Hattim

Canadian families’ average debt has hit six figures for the first time — and what they owe now amounts to one and a half times what they make, according to the latest family finance checkup from the Vanier Institute of the Family.

The Ottawa-based think-tank’s 12th annual report, released Thursday, finds that average family debt, including mortgage, has hit $100,000 and the debt-to-income ratio is 150%, meaning that for every $1,000 in after-tax income they make, Canadian families owe $1,500.

“The fact that so many families are still reporting very shaky economic prospects, I think, reveals the disparities that are growing,” says Katherine Scott, director of programs and research. “Sometimes I think we get hung up on the good story or the aggregate numbers, so we don’t look below to see that a significant number of families do continue to struggle economically.”

In 1990, the average household debt was $56,800, the institute said, which means family debt has grown 78% over the past two decades.

At the same time, savings have shrunk, with the average 1990 family managing to sock away 13% of their income, or $8,000, compared with a savings rate of 4.2%, or $2,500, in 2010.

Canada’s debt-to-income ratio is now about even with that of the United States — a finding Ms. Scott said may come as a surprise.

“There is still this sense that we are a more frugal nation and that’s simply not the case,” she said. “It was the case 20 years ago, but it’s certainly not anymore.”

The latest employment and GDP figures point to continued improvement from the low point of the recession, she said, but the momentum of early 2010 slowed near the end of the year, and some areas of the country continue to struggle.

The report said that multiple surveys and reports from the past few months reveal that individual Canadians and families aren’t feeling any more confident.

“The story right now is that Canadians are still holding their breath and waiting to see how the next year plays out,” Ms. Scott said. “Many are sitting precariously at this point.”

Kurt Rosentreter, a Toronto-based certified financial planner known as the “Family CFO,” said the most common problem he sees with family finances is that people don’t have a plan or a clue of how to reach their goals.

He calls 50 the “deer in the headlights” age because people who start their careers, marry, buy houses and have kids around age 30 finally have time to take a deep breath — only to realize major expenses, such as retirement and children’s educations, are looming.

“No one has a focus on their goals; they don’t know what their goals are,” he said. “They spend more time on their vacation planning than they do on sitting down with someone and going over their finances once a year.”

Contemporary families are also saddling themselves with the biggest mortgages any generation has struggled with, Mr. Rosentreter said, as they try to keep up with the people down the street or land a desirable postal code. But they’re leaving little money for vacations and car payments — or RRSP and RESP contributions, he said.