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Debt and Bankruptcy in Canada: 4 Pillars’ 2018 Report

By Paul Murphy

This report was written by Paul Murphy, a 20-year financial veteran and managing partner at 4 Pillars. 

In this report, you’ll find a data-backed picture of household debt and bankruptcy in Canada.

Key questions answered in this report:

  • What is the average household debt in Canada?
  • What are the signs of a typical Canadian family facing bankruptcy?
  • Why don’t more Canadians seek professional help with financial issues?

About 4 Pillars

With 60 offices across Canada, 4 Pillars helps Canadian families understand and overcome unmanageable levels of debt.

4 Pillars also helped to create a financial literacy program with United Way called Empower U.

This program offers financial education and matched savings programs for people experiencing low income and poverty. If you live in Edmonton, you can find more about this program here.

The warning signs of bankruptcy in Canada

What are the signs of a typical Canadian family facing bankruptcy?

We analyzed 3,000 files from Canadians that we helped in 2017.  Based on our data, here is what a Canadian facing potential bankruptcy looked like in 2017.

average debt in Canada by household

The average Canadian family facing potential bankruptcy owes $43,706 in debt.

The average Canadian owes debts to 6 lenders. The 6 largest sources of debt were 47% credit card debt, 8 % CRA, 8% line of credit, personal loans 8%, overdrafts 7%, and payday loans 6%.

2% of clients had debts in collection. 4 % had already been sued, and .4% had unpaid utility bills.

bankruptcy solutions

The majority are married (40% percent). 28% are single. 8% are common law. 10% divorced and another 12% are separated. Only 2% are considered widowed. The average family Size is 2.45.

The average income per person is $1,728 and the average income household income is $4,234.

13.5% have also filed bankruptcy before. Over 14% have filed for unemployment insurance in the last 12 months.

Household debt levels in Canada

The threat of debt impacts the majority of Canadian households. As data from Statistics Canada reveals, the ratio of household debt to disposable income grew to 167.3 percent from 166.8 percent in the third quarter (Statistics Canada, 2017).

Household debt has three components: consumer credit, non-mortgage loans, and mortgage loans.

According to the Fraser Institute’s 2017 report “Household Debt in Canada,” consumer credit currently makes up about 29% of total household debt, non-mortgage loans about 5%, and mortgage loans about 66%.  

Household debt in Canada has increased over the last two decades. From 1991 to 2016, the annualized quarterly nominal growth rate for debt was 7.4% for consumer credit, 4.9% for non-mortgage loans, and 6.8% for mortgage loans.

According to the Fraser Institute, two-thirds of this debt is for mortgages. The other third is split between consumer credit (29%) and loans (5%).

Consumers struggle to manage their debt. But the government doesn’t offer much of an example to follow. Over the same period as above, the total financial liabilities of the government sector grew from approximately $700 billion to $2.5 trillion while its net debt grew from over $400 billion in 1990 to reach nearly $970 billion in 2016.

Debt is dangerous—but it can also build wealth

Debt can be dangerous. But it’s also an effective tool to build wealth if Canadians have the tools and education to properly manage their debt.

As Livio Di Matteo, the author of the report mentioned above, puts it, “debt has been a long-term feature in human economic history as a tool to facilitate commerce. Ultimately, it is not debt itself that should be of concern but the ability of both households (and government) to manage their debt responsibly.”

However, high debt levels have made millions of Canadians particularly vulnerable to economic fluctuations. At 4 Pillars, we often see the impact of unexpected events—such as temporary job loss—that can quickly reduce a household’s ability to service debt.

Some regions are more vulnerable to economic shocks than others. For example, Alberta has been recently hit by the downturn in commodity prices. Consumer insolvencies in Alberta were up 34% over the previous year (Source: Office of the Superintendent of Bankruptcy Canada, 2017).

Average debt levels and net worth of Canadians

debt in Canada

debt in Canada

Source: Livio Di Matteo. Household and Government Debt in Canada. 2017. 

Debt and the median net worth of Canadians continue to rise in tandem. This is driven by the twin forces of increased mortgage debt and increased home values.

Data from Statistics Canada shows that total debt reached $1.76 trillion in 2016, an increase of 24.4% from 2012 and 183.8% higher compared with 1999. The median value of total debt owed by families rose 27.1%, from $63,400 in 2012 to $80,600 in 2016.

Predictably, mortgage debt remains the top debt held by Canadians. Total mortgage debt rose by $330 billion, up 30.4% from 2012 and 196.0% higher compared with 1999.

In 2016, 38.4% of Canadian families held a mortgage. The median value was $190,000, an increase of 20.0% from 2012 and twice that of 1999.

Alberta families held the highest median mortgage value at $245,000, followed by British Columbia ($230,000) and Ontario ($211,000).

How many Canadians are debt free?

According to Statistics Canada, 29.6% of Canadian families were debt-free in 2016.

Obviously, seniors are the majority here as they’ve had time to pay down mortgage debt. In 2016, 58% of seniors were debt free. But it appears that seniors are having more trouble becoming debt free than in previous years. In 1999, for example, 72.6% of seniors were debt-free.

In 2016, only 15% of Canadians aged 35-44 were debt free.

Your postal code also matters. For example, 23.9% of Canadians in Newfoundland and Labrador were debt free and 32.8% in Saskatchewan were debt free. (Source: Stats Canada, Survey of Financial Security, 2016. Released 2017-12-07).

The economic outlook for Canadians

While debt levels and mortgage interest rates will continue to rise. Canadians have a lot of job opportunities.

Employment increased for the second consecutive month, up 80,000 in November. The unemployment rate fell by 0.4 percentage points to 5.9%, the lowest rate since February 2008 (Source: Statistics Canada).

As Statistics Canada reveals in the chart below, “in the 12 months to November, employment was up by 390,000 (+2.1%), with all the gains attributable to full-time work (+441,000 or +3.0%) as part-time employment was down slightly. Over the same period, total hours worked grew by 1.0%.”

Unemployment rate in Canada

Why Canadians don’t seek help with debt

The Manulife Bank of Canada surveyed 2,409 Canadian homeowners and renters in all provinces between ages 20 and 69 with household income of more than $40,000. The survey was conducted online by The Nielsen Company between October 11th – 23rd, 2017.

Manulife found that nearly one-third of debt holders are embarrassed or don’t know who to talk to about debt management. 55% of respondents also said they seldom discuss their debt situation with friends or family.

When it comes to budgeting or debt reduction tactics, Canadians lack confidence. Manulife found that nearly half of Canadians didn’t feel they had a good knowledge of debt management. Finally, 62% of Canadians are not satisfied with their overall financial health or access to money for emergencies.

About 4 Pillars

4 Pillars is the largest independent full-service debt restructuring firm in Canada focusing on financial education and financial literacy.

Our role is to provide solutions for consumers facing financial challenges and help them deal with debt as part of their long-term financial plan. You can read unbiased and genuine consumer reviews of 4 Pillars through the third-party site TrustPilot.  






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