Canadians’ net worth reaches $12.8 trillion, but consumers still reduce their non-mortgage debts

In 2020, Canadian households raised their disposable income by about 10% due to the government’s support during the pandemic period.

The recent report by Statistics Canada shows that total household wealth was up to $12.8 trillion by the end of the year, with the fourth quarter reporting a $461 billion increase due to housing prices growth. “Over the year, the Canadians’ wealth rose faster in case of the lowest-income earners (+10.7%) compared with the highest-income earners (+9.0%), mostly due to significantly larger increases in housing prices”.

The report says net worth of households in the lowest income category showed the fastest growth pace of 10.7% to $227,611, although others were close, with households with the highest income levels reporting a 9% gain to $1.97 million. Meanwhile, debt-to-income ratio was down from 187.2% at the end of 2019 to still high 172.1% in 2020.

The largest income gains were seen among Canadians younger than 35 years old (12.9%). It’s unknown whether such a pace will remain when the government reduces its support level, which is considered to be one of the most generous among major economies.

“While lower-income households raised their non-mortgage debt in Q4 in order to buy consumer goods, the highest-income earners avoided extra borrowing,” – says Statistics Canada. It turns out Canadians in the three lowest income categories accounted for 83.8% of the $1.6 billion growth in non-mortgage debt in the fourth quarter of 2020. Nevertheless, in case we look at the data for the entire year, we’ll see that households in fact lowered their non-mortgage debt obligations, particularly the lowest-income ones.

The Canadian consumers have been reasonably using the higher income and support programs to reduce their debts. As a result, the average non-mortgage consumer balance was down in the first quarter of this year by 2.9% annually to $28,900, says TransUnion in its recent report.

The Canadians’ savings rate rose sharply to a record high level of 28% of disposable income.

During the previous 12 months, Canadian’s balances on their credit cards were down by 16.4%. In case of lines of credit there was a 3.46% drop, and all trade lines reported a decline by 2.9%.

“The national economy is slowly recovering, and we can see consumers reducing their debts in the Canadian credit market, with the exception of mortgages,” – noted Matt Fabian from TransUnion.

“Consumer spending is falling, and total balances are decreasing, as people stay at home, reduce their entertainment expenses and travel costs, while raising their savings rate,” – Fabian said. “Fewer consumers have been using loans, regardless of their financial situation.”