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Canada: Household Debt; Comparing Apples With Apples

ByThe National Bank of Canada
Published 11/28/2012, 01:40 AM
Updated 05/14/2017, 06:45 AM

The Wall Street Journal published this morning an alarming article on the Canadian Economy which is considered “facing its strongest economic headwinds in years.” In our view, the Canadian economy is indeed facing challenges, including a high household indebtedness, but the situation described in the article is exaggerated showing a 1.63 debt to disposable income ratio for Canada compared to a meagre 1.08 south of the border.

As today’s Hot Chart shows, a comparison between debt levels in Canada and in the U.S. should be done with caution. First, to be comparable with Canadian data, unincorporated businesses sector should be added to the household debt in the U.S., which raises the U.S. ratio to 1.40. Secondly, personal disposable incomes (PDI) are not comparable owing to the considerable differences between the social safety nets of the two countries as mentioned in a report we published in September 2011.

At first glance, PDI seems much lower in Canada on account of the heavier tax structure serving, among other things, to fund public healthcare. Americans, instead, must allocate a chunk of their PDI to healthcare spending. After adjusting for healthcare spending, U.S. debt-to-PDI ratio remain 4.6% higher than Canada’s.
Canada Household Debt – Comparing Apples With Apples

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