Canada just ranked #1 in a metric we’d probably love to forget. Or pass onto our children.
According to the Organization for Economic Cooperation and Development (OECD), Canadians carry more consumer debt than citizens of any other country in the world.
It’s a pretty alarming figure: our household credit burden now totals more than Canada’s annual GDP.
Following Canada on the list of most indebted nations are South Korea, the United Kingdom, and the United States, respectively.
The OECD attributes this development to low interest rates over the past seven years, which has allowed Canadians to borrow money well beyond their means.
It doesn’t help that we’re home to a highly unsustainable rental market, either. Canadians are borrowing more money than ever before in order to finance real estate, which the OECD calculates is overvalued by 50 per cent compared to what they would fetch on the rental market.
“Although in part this reflects strong population growth,” writes the OECD. “These developments may entail significant risk to financial stability, given the direct exposure of the financial system to the housing market.”
What makes the situation even more problematic is that real estate debt doesn’t contribute as much to the economy as other types of borrowing, like businesses who need money to grow.
So, are we doomed? At the moment, no, but any economic fluctuations beyond what would be considered mild could lead to significant repercussions.
“While higher indebtedness does not necessarily imply that problems are just around the corner, it does increase vulnerability to shocks,” reads a report from the OECD.
That shock could be coming – every economic downturn over the past 50 years was preceded by higher than average housing prices. Canada is certainly in that situation, but so are most other developed nations.
Maybe take it easy on the Christmas presents this year.