StatsCan reports senior households are carrying more debt

On the strength of robust housing markets, Canadian senior households have seen their debt-to-income position deteriorate in recent years, according to new research from Statistics Canada.

In a new study released on Wednesday, StatsCan reports that the median debt-to-income ratio for senior households (whose main income earner is aged 65 and up) has more than doubled from 24% in 1999 to 52% in 2016.

The increase in senior debt is largely being powered by strong real estate markets, which has boosted both households’ mortgage debt, but also the value of their assets.

The study says that, among senior households with debt, about two-thirds of the increase in average debt levels is attributable to mortgage debt, with the other third accounted for by various forms of consumer debt (such as credit cards, lines of credit and auto loans).

Alongside the big jump in the debt-to-income ratio, StatsCan also reports that the proportion of senior families that are carrying debt jumped from 27% in 1999 to 42% in 2016. It also says 36% of senior families had more total debt than income in 2016, up from 21% in 1999.

More worryingly, 14% had more consumer debt than income in 2016, compared with 4% in 1999.

“Having more consumer debt than income can place families in an especially vulnerable financial position,” the study notes. “For these families, meeting financial obligations could be a challenge as a large portion of their income would go towards servicing debt that is not backed by an asset.”

For most households, though, the rise in debt is mirrored by an increase in the value of their assets. The study reports that the debt-to-asset ratio remained relatively stable among senior families between 1999 and 2016, ticking up from 5% to 6% over the period.

“The level of debt and value of assets are especially important for the financial security of seniors. Because income typically declines during the retirement years, seniors often need accumulated assets to finance their consumption, especially if they do not benefit from a private pension plan,” it says. “Debt can also be particularly problematic for seniors as repayment can be more difficult on a reduced income.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.