Canadians Lead The World In Household Debt

The Organization for Economic Cooperation and Development (OECD) has determined that Canadian household debt levels are greater than any other country. Researchers examined 35 developed and developing countries to make its assessment.

Canadians’ large build-up of household debt may cause problems for the economy, according to OECD: “Although in part this reflects strong population growth, these developments may entail significant risk to financial stability given the direct exposure of the financial system to the housing market.”

Specifically, Canada’s household debt-to-GDP (gross domestic product ratio) has grown to 101 percent, which is much higher than any of the other nations included in the report, according to CNBC.

For example, South Korea came in second on the list with just under 93 percent. The United Kingdom was third with just over 88 percent, followed by the United States (80 percent), and Germany and France (just below 60 percent).

The group noted that there is a link between “high indebtedness and the risks of severe recessions.”

Ten years ago, nearly all nations were subject to rising debt prior to the credit card crisis; however, much of that indebtedness has decreased over time. Canada and some Scandinavian countries are the exceptions. OECD believes inflated housing prices are the cause.

The group explained: “OECD countries that have experienced the strongest increases in household debt since the crisis have also the steepest rise in house prices.”

To combat this problem, the Canadian government is enacting some new rules. As of Jan. 1, 2018, people who take out mortgages must ensure they will still be able to make payments even if rates increase up to 2 percentage points, according to Yahoo! Finance.

During the second quarter of 2017, household debt levels were at 168 percent, according to Statistics Canada. That means for every dollar Canadians made, they owned $1.68.

OCED’s mission is “to promote policies that will improve the economic and social well-being of people around the world.”

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