December 13, 2024

Chart of the Week: Canada vs. U.S. household debt ratios

Why has the U.S. consumer been so resilient amid higher interest rates, while the Canadian consumer has reined it in? Part of the story is household debt. As our Chart of the Week shows, the household debt-to-income ratio continued to rise after the 2008 financial and housing crisis. In the U.S. a deleveraging process took place, putting Americans in better shape entering the rate-hiking cycle. Many Americans were also shielded by long-term mortgages (30-year terms are common). Toss in a much stronger labour market stateside and it’s little surprise that the Americans have outpaced Canadians in spending.

The good news is that debt ratios are slowly improving. A recent report from Statistics Canada shows that the debt-to-income ratio in Canada fell for the sixth consecutive quarter. Looking at the full balance sheet, net worth has been improving on the back of rising equity prices.