Silly debt statistic question...

iVillage Member
Registered: 04-08-2008
Silly debt statistic question...
5
Sat, 04-27-2013 - 6:30pm

I have a silly question that I have been trying to figure out. It doesn't make any sense to me. I have read the statistic that Canadian "household debt to disposable income" is 165%. I can't find the definition of this anywhere. Does household debt include mortgage? If so, it would seem low - since everywhere it says mortgage debt should be 2.5-3x your income. Wouldn't you already be 250% then? And DISPOSABLE income? IS this not income after taxes AND fixed expenses? What fixed expenses would they include? Obviously mortgage, but what else?

Income tax rates here are exceptionally high...I bring home 65% of my income after taxes. Then after fixed expenses of mortgage/property tax I am at 49% (taking only half since I split w/DH). This doesn't include any other expenses... I get a debt/disposable income number of 688%! If I take off the mortgage, I get 87%. But that would be putting all the debt on me - if I split it (assuming DH owes half), I get 43% for me & 51% for DH.

SO does it include mortgage? If not, then Canadians are THAT much more in debt than us? We would have owe a combined $80K to be that in debt w/o a mortgage...it doesn't seem possible...especially when you consider there would have to be people much higher than that to average our people like us! What is wrong with my math here....

Thanks,

Dee

iVillage Member
Registered: 11-14-2008
Sat, 04-27-2013 - 7:44pm

Ya, I'm with you. I can't figure this one out either. I think it is how they define disposable income in the first place. I googled it and went cross eyed reading it.

I didn't even think I had a disposble income lol, I thought that was just for teenagers. 

I know I will be out of consumer debt soon and that I am excited about. I do know what that means. And yes, we have mortgage debt but I think if you look at the equity you have as well it should ease your mind a bit. As long as net worth is increasing every year and you are not living above your means, I wouldn't worry too much about comparing yourself to the rest of Canada. I know it is good to have bench mark but I'm not sure this is right one. Everyone has their own situation. I know mine is a heck of a lot better in every area than when I got divorced 6 years ago. Onwards an upwards I say!

Still, curious as to other posts. I'd be interested to know. 

iVillage Member
Registered: 04-10-2003
Sun, 04-28-2013 - 12:16pm
Hiya all, When they are calculating your debt to disposable income ratio they define disposable income as the income you have remaining after you've paid income taxes and CPP, EI. The rest is considered disposable income. Mortgage debt is used as part of the debt portion along with all consumer debts. Keep in mind the number considers ALL Canadians, so an elderly couple who have paid off their mortgage and have no consumer debt would have a small number, while someone who has a HUGE mortgage would have a high number and the average would be somewhere in the middle. I don't believe Stats Canada takes rent into account either (though some banks do) so that would also lower the number. Hope this helps!

Bex -

iVillage Member
Registered: 07-24-2001
Sun, 04-28-2013 - 4:51pm
Actually Dee, I think that stat sounds about right to me. The calculation you want to use is: Total Household Debt (which is all mortgage and consumer debt owed by the adults of the household) Divided by Annual Disposable Income (which is income minus taxes) In my personal case: Total Household Debt = $96,833.68 (mortgage and student loan debt) Divided by Annual Disposable Income = $77,529.10 Gives me a ratio of 125% Note: Disposable income minus monthly fixed expenses = discretionary income (btw . . . I'm always confused by the concept that Canadians pay more in taxes than Americans. . 39% of our income goes towards taxes (fed, state, social security and medicare) . . . and we pay significant "out of pockets" for health care - over $1,200 this month alone. Someday I'm going to have to figure this stuff out.)
iVillage Member
Registered: 04-10-2003
Sun, 04-28-2013 - 8:11pm
I think the "Canadians pay more taxes thing" is likey not in the income taxes alone per se (because from what I can see they are pretty equal) , but all of the extra taxes we have (and lack of tax deductions). Gas is a big one. In my city its 1.25 per litre at the moment which is almost $5 per gallon (and its not even close to the highest its been) and a huge chunk of that is gas tax. We have 13% sales tax on all goods and services in my province (with some exceptions like groceries). No deductions for interest on mortgage. No deductions for property tax (because I make over $45k so apparently I make too much to get a deduction). In fact the only way for me to get any reasonable deduction is to contribute to my RRSPs . . . which I would love to do if I had extra cash flow to do it! Even basic staples like milk, eggs and cheese are way more expensive (I have friends in border towns that cross the border to fill up on gas and grocery shop because the price difference is so significant.) I can't imagine how much extra money I would have if I didn't have to pay so many levels of taxes . . . or at least I didn't have to pay taxes with after tax money (that's what makes me the angriest!!!)

Bex -

Community Leader
Registered: 08-25-2006
Mon, 04-29-2013 - 12:51pm

I wouldn't worry about it.  Although I do like to "figure stuff out."  

Just worry about your own percentages based on your own income and your own expenses.  I used Gail's a while back to see where I fell according to her suggestions.  

Serenity

Serenity