Debt-to-income ratio is a measure of the total amount of debt that an individual, family or business owes in relation to their income. This blog post will examine three trends that are affecting Canada’s debt-to-income ratios. The first trend is the increase in consumer spending, which has left many Canadians with high debts and low savings. Another trend is the rise in house prices, which have increased substantially over recent years making it more difficult for homeowners to afford their mortgage payments. Lastly, one other significant trend is the increase in student loan balances as tuition rates continue to climb each year.
What is the Debt to income Ratio?
It is a measure of the total amount of debt that an individual, family or business owes in relation to their income.
This is a formula used to calculate the ratio:
Debt-to-Income Ratio = Total Debt / Gross Annual Income
Why Analyze this?
This is an important indicator of financial health because it represents how much debt Canadians are taking on relative to their income. It can also be a warning for problematic levels of indebtedness, which may lead to financial distress, higher default rates and loss of confidence in the lending system.
Why is it important?
It can tell you a lot about your financial health and if you are prepared for future expenditures such as education costs, retirement savings, medical expenses and unexpected emergencies. It also lets you know how much disposable income is available to spend.
Increase in consumer spending
The high level of consumer spending has led many Canadians to accumulate large debts. Many individuals have increased their debt by using credit cards or lines of credits in order to purchase items which they cannot afford under normal conditions. This is especially true for young adults who are just starting out after university, with a low income and an emphasis on higher education costs.
Increase in house prices
Households are also feeling the pressure of increasing home values. Although this is good news for homeowners, it still leaves them with higher mortgages making their debt-to-income ratio high. A recent study by RBC showed that more than 90% of Canadian households have a mortgage on at least one property. RBC also found that the average household debt is over $100,000 and rising rapidly.
Increase in student loan balances
The high cost of education has caused students to accumulate more debts than ever before. The total amount owed by Canadians for post-secondary education now exceeds $28 billion across Canada . That number continues to climb as tuition fees increase each year. With higher education costs rising at roughly three times the rate of inflation, many graduates are feeling the pressure to find well-paying jobs in order to pay off their student loans .
The debt-to-income ratio is an important indicator of financial health. It can tell you a lot about your financial situation and help you make better future decisions for yourself. The first step to improving the ratio is by taking control of spending habits, making sure that income completely covers expenses .This can be done by paying off debts, saving money for the future and living within your means. We hope this article has provided you with some insight into the new trends of Canada’s debt-to-income ratios.