Advanced Search
MyIDEAS: Login to save this paper or follow this series

Indebtedness and the Household Financial Health: An Examination of the Canadian Debt Service Ratio Distribution

Contents:

Author Info

  • Umar Faruqui
Registered author(s):

    Abstract

    The household debt-to-disposable income ratio in Canada increased from 110 per cent in 1999 to 127 per cent in 2007. This increase has raised questions about the ability of households to service their increased debt if faced with a negative economic or socio-economic shock. The debt service ratio (DSR) measures the proportion of disposable income that households must devote to servicing their debt obligations. The aggregate DSR for Canada, as reported in the Bank of Canada's Financial System Review, has drifted up recently but remained below its historical average in 2007Q4. This would suggest that households' debt burden has remained broadly manageable. However, the aggregate DSR could mask potential vulnerabilities for the most heavily indebted households. The main contribution of this paper is that it examines the distribution of debt service burden amongst Canadian households using micro-data. This work shows that the density of households in the vulnerable tail of the DSR distribution has actually decreased somewhat since 1999, especially for lower-income households. Overall, our micro data analysis support inferences based on the aggregate data that, despite the increase in the debt-to-income ratio since the late 1990s, households remain well positioned to manage their increased debt levels. The paper also compares the DSR distributions for Canada and the U.S. The cross-country comparison suggests that, in 2004, the household sector in Canada seemed to be in a better financial position than U.S. households.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp08-46.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 08-46.

    as in new window
    Length: 26 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:bca:bocawp:08-46

    Contact details of provider:
    Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
    Phone: 613 782-8845
    Fax: 613 782-8874
    Web page: http://www.bank-banque-canada.ca/

    Related research

    Keywords: Financial stability; Monetary and financial indicators;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Felipe Martínez & Rodrigo Cifuentes & Carlos Madeira & Rubén Poblete-Cazenave, 2013. "Measurement of Household Financial Risk with the Survey of Household Finances," Working Papers Central Bank of Chile 682, Central Bank of Chile.
    2. Thorvardur Tjörvi Ólafsson & Karen Á. Vignisdóttir, 2012. "Households’ position in the financial crisis in Iceland. Analysis based on a nationwide household-level database," Economics wp59, Department of Economics, Central bank of Iceland.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:08-46. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.