Households that are optimistic about their future financial prospects are taking on higher consumer and mortgage debt, Statistics Canada reports.
A new study published on Thursday finds that — after controlling for variables such as age, income and education — households that believe their financial situation will improve over the next two years hold significantly more debt than other households.
“Families’ expectations about their financial situation in the near future appear to be a key correlate of their own debt accumulation patterns,” the national statistical agency said.
The study finds that, in the period from 1999 to 2016, optimistic households had approximately $6,800 more in consumer debt than comparable families, and about $27,900 more in mortgage debt.
This added debt represents more than 33% of average household consumer debt, and 38% of average mortgage debt. As a result, optimistic households also have debt-to-income ratios that are about 32% higher than average, the study notes.
StatsCan says that these patterns are consistent with the belief that “families who expect their income to rise in the near future may increase their consumption expenditures in advance…”
While this finding helps explain one of the factors that drives particular households to take on more debt, it doesn’t explain the overall buildup in debt, StatsCan notes, as the percentage of families that are optimistic about their finances has remained relatively constant over time.
“This suggests that other factors — for example, a preference for bigger houses, a lower aversion to high debt levels, favourable borrowing conditions, and relatively low growth in employment income for some groups — may underlie the growth in household debt since the late 1990s,” StatsCan said.