Canadians Are Starting to Feel the Sting of Rising Interest Rates
TORONTO: New analysis by Environics Analytics shows that Canadians are starting to feel the sting of rising interest rates.
An analysis using the latest release of one of the company's key financial databases, WealthScapes 2018, found that the average Canadian net worth rose by 8.5 percent to $807,872 at the end of 2017, but much of that wealth was tied up in illiquid assets like real estate. Over the same period, household debt levels have been rising faster than incomes, which could chip away at discretionary spending. Even though household debt climbed by a relatively modest 4.5 percent in 2017, the average year-end interest-expense-to-income ratio rose 40 basis points to 6.4 percent, which is the first increase in a decade.
Increasing debt levels coupled with rising interest rates mean the average Canadian household spent $544 more on interest charges in 2017. The effects of rising interest rates were particularly acute in Vancouver, where households on average incurred an additional $1,152 in interest charges. Overall, Canadians paid $9.0 billion more in interest charges in 2017 than they did the prior year.
For many Canadians the rising interest rates over the past year have already cost them the equivalent of an extra mortgage payment, says Peter Miron, Environics Analytics' Senior Vice President, Research and Development and the architect of WealthScapes 2018. As interest rates have steadily increased since late 2017 we expect the strain on household finances will be greater this year.
This financial snapshot emerged from data in WealthScapes 2018, now in its 11th year documenting the financial well-being of Canadian households. The database includes 178 key financial and investment statistics updated to the end of December 2017. It includes data on all aspects of household finances, including real estate, employer pension plans, tax-free savings accounts and credit card debt.
Environics Analytics, the Toronto-based marketing and analytical services company, created WealthScapes to help financial institutions, retailers and charities analyze the fiscal profile of current and potential customers, identify promising markets and develop business strategies. WealthScapes is built using sophisticated modelling techniques and aggregated, privacy-compliant, small-area data from a variety of authoritative sources, such as the Bank of Canada, Equifax, Statistics Canada and the Teranet-National Bank Regional and Property Type Sub-Indices.