But federal financial aid programs helped stimulate greater savings and debt service ratios
Household debt as a percentage of disposable income rose to 170.7% before 2020 drew to a close, according to Statistics Canada.
Priscilla Thiagamoorthy, economist at BMO Capital Markets, said that this was markedly higher than the 162.8% level seen in the second quarter, although still below the peak of 181% during Q4 2019.
“With more cash and less spending, households were able to pay down some consumer debt,” Thiagamoorthy wrote in a mid-December client note. “And while there has been a recent pickup, it remains below levels seen earlier this year.”
The household debt service ratio rose from 12.36% to 13.22%, recovering from the declines during the first few months of the COVID-19 pandemic.
“Canadian household finances are in better health this year thanks mainly to unprecedented government transfers which lifted overall incomes,” Thiagamoorthy added.
Mounting household savings to the tune of $56.8 billion in Q3 alone also helped, although widespread lockdowns meant that a significant proportion of Canadians were unable to fully leverage their hoarded funds.
“Clearly, cash is not always king, and having wealth – whether it’s financial or real estate assets – has really paid off this year with equities and real estate prices rallying,” said Ksenia Bushmeneva, economist at TD Economics. “Wealth distribution tends to be highly unequal across income groups, as a result, recent gains in net worth have disproportionally benefited Canadians who were already better off.”
“Generally speaking, wealthier individuals experienced larger increases in savings as they were more likely to retain their jobs while also cutting back on discretionary spending such as travel and restaurants which remain largely unavailable,” Bushmeneva said.
Borrowing activity continued reaching new heights, with mortgage debt touching nearly $1.63 trillion as demand for loans rose to a record $28.7 billion, StatsCan data showed.
