Canadian Household Debt:

McKinsey and Company  released a study on global debt yesterday called: Debt and (not much) deleveraging.

more at http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging

One of the more  interesting parts of the report is that:

 "Household Debt Is Reaching New Peaks"

• Of developed nations: Australia, Canada, Denmark, Sweden and The Netherlands have actually seen their household debt to income ratios rise (since the peak of the crisis in 2008). The US, Ireland, Spain and the UK have been "deleveraging".

We have all seen this chart before, but it is telling!

• most recent data put the Canadian Household Debt to Income ratio approx 162%
• and still climbing.
• lower interest rates do not add much incentive to pay this down.

However!

• buried in the McKinsey report was another interesting statistic: Canadian Debt Servicing Ratio is one of the lowest in the world at 8%.
• Debt Servicing is defined as Interest plus Principle payments / Household Income.
• In other words, Canadians have less to pay vs. their incomes.
• By comparison, Australia's debt servicing ratio comes in at 26%, one of the highest in the world.
• Should allow a little breathing room, until the costs of borrowing start to rise.
• With the BOC lowering rates, this is not likely to be a significant factor in the near term.
• The message is clear though, taking on more debt is not going to be helpful for economic recovery.

It is not just about debt to income:

• In December, Moneysense put out an article that looked at Canadian Income and Net Worth (Assets - Debt) levels
• more at ; http://www.moneysense.ca/planning/the-all-canadian-wealth-test-2015-charts
• Key data show that in Canada (data from Dec. 2013) show that Real Estate assets were 60% of the average household's total assets.
• Debt against total assets was 22%.
• Average Net Worth was approx. $442,000.
• Trouble is: that 60% of your assets (or 76% of your total net worth) in one asset class is not very good diversification and the housing market looks over-valued and due for a correction.

The views expressed are those of the author, Scott Tomenson, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.