As the following chart illustrates, the amount of debt Canadians owe relative to their disposable income rose slightly in the third quarter of 2018.

Statistics Canada data indicates that household credit market debt as a proportion of disposable income was 177.5% in the third quarter. That compared with 177.4% in the second quarter.

In other words, Canadians owed nearly $1.78 in credit market debt, which includes consumer credit and mortgage and non-mortgage loans, for every dollar of household disposable income in the third quarter.

There seems little doubt that Canada’s economy has entered a more uncertain phase of slower economic growth. If slower economic growth and poorer job prospects are ahead, the worry is how Canadians will be able to face a more difficult future with possible job losses and decreased incomes?

Although the interest rate outlook is a bit unclear, the Bank of Canada had gradually raised its policy interest rate from 0.5% to 1.75% over the past year and a half. There could be a few more rate hikes coming over the next year.

A survey conducted for the insolvency firm MNP Ltd. in December indicated that 31% of Canadians reported that they don’t make enough money to cover their bills and debt payments, an increase of 7% from the September poll.

46% of Canadians surveyed also indicated that they were $200 or less away from financial insolvency at month-end, an increase from the 40% which reported three months earlier.

As well, insolvency concerns rose right across the country in the latest survey.

“Saskatchewan and Manitoba residents were the most likely to be near insolvency, at 56 percent, up eight percent from the previous poll, MNP said. Alberta residents were second at 48 percent, up eight points. Ontario and Quebec followed at 46 percent each, up six percent and five percent, respectively.”

Among residents surveyed in Atlantic Canada, 45% of them indicated that they were $200 or less away from the financial brink, but that marked a decrease of four percent from the September survey.

In other words, as the economy slows this year and next many Canadians will find it difficult to keep up with rising mortgage and other debt payments.

As for the actual household insolvency ratio in Canada, the ratio recently increased slightly to 0.44 %.

Although the insolvency ratio seems quite low, matters could become worse depending upon the future growth of disposable income and the increases or decreases in discretionary consumer spending.

Canada’s Household Debt To Disposable Income Ratio

(Click on image to enlarge)

(Click on image to enlarge)