surviving the recovery the distribution of canadian household debt
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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
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