Is It Possible to Live Without Debt In Today’s Economic Environment?

Most who read any amount of financial news know that, on average, Canadian households are highly levered; the typical metric spouted by most financial news reports is the debt to disposable income ratio: on that basis, the average Canadian owes $1.70 for every $1 of disposable income, a number which is intended to shock.

The Bank of Canada has reiterated concerns about the highly indebted nature of the average Canadian household, hinting that interest rate increases are on the horizon, and households will need to de-lever to avoid running into serious problems down the road. A recent survey was conducted on behalf of MNP to study what it would take for an average household to pay off debt, and live debt-free on a sustainable basis.

The results were interesting. According to most respondents, the average monthly household income increase which would be needed for the average Canadian household to live debt-free is 37%. In other words, if all Canadian employers, across the board, gave every Canadian a 37% raise, the discussion around debt utilization and rampant levels of highly indebted workers would abate.

Absent massive across-the-board raises for Canadians (37% is out of the realm of reality for most companies), heeding the sage advice from most regulatory agencies including the Bank of Canada and the Canadian Mortgage and Housing Corporation for Canadian households to de-lever is likely the only way forward in this current environment.

Invest wisely, my friends.