Report Warns of Severe Financial Vulnerabilities in Canadian Household Data
Canada’s national measures of household debt, already some of the highest among advanced economies, conceal growing financial pain among lower-income households, young people and highly indebted homeowners, according to new research.
An analysis by Mawakina Bafale and Peter MacKenzie at the C.D. Howe Institute found that Canadians’ ability to save and repay debt is sharply divided across income and generational lines. While households in the top 20 per cent of earners saved about a third of their disposable income last year, those in the bottom 60 per cent were spending beyond their incomes, according to the report.
At the same time, adults under 25 on average reported at the end of 2025 a 50-per-cent chance of missing a debt payment, the authors noted, citing Bank of Canada data. By comparison, those over 54 rated that chance at less than 1 per cent.
While Canada isn’t teetering on the verge of a broad household debt crisis, pockets of financial distress among lower-income and young borrowers remain a vulnerability for the economy, according to Mr. Bafale and Mr. MacKenzie.
“Canada has a real but concentrated debt problem,” they wrote.
National household debt statistics paint a picture of a country that successfully rode out the period of rapidly rising interest rates that followed the peak of the pandemic, the analysis noted.
Despite a spike in mortgage and other interest rates in 2022 and 2023 fuelled by market and central bank responses to soaring inflation, Canadians largely kept up with their debt obligations. And now that interest rates have come off those highs, Canada’s main measures of household debt are no longer flashing red.
For instance, debt-to-disposable-income, which compares the size of households’ debt to their disposable income, currently sits at around 176 per cent, down from a high of 188 per cent in 2022. Similarly, the debt-service ratio, which measures the share of household income that goes to debt payments, has edged lower since its 2023 peak.
But those high-level indicators of household financial health are papering over signs of worsening distress among vulnerable groups, the report shows.
While the highest-income households saved 34 per cent of their disposable income in 2025, those in the middle 20 per cent spent 12 per cent more than their after-tax earnings, the authors calculated based on Statistics Canada data. Those in the next lower 20 per cent spent almost a third more than their income, while the bottom 20 per cent spent more than twice their disposable income.
That divide runs across generations, too. In a quarterly Bank of Canada survey of consumers, Canadians aged 18 to 24 have been reporting increasingly higher chances of missing upcoming debt payments since the end of 2020, according to Bank of Canada data.
Responses among those aged 25 to 54 show a similar pattern of growing financial pain. As of the end of last year, Canadians in that age group reported a 27-per-cent probability of falling behind on their debt payments, a record high.
A third group of troubled borrowers are those with large mortgages who are facing markedly higher interest rates at renewal, a problem largely concentrated around Toronto and Vancouver.
Mr. Bafale and Mr. MacKenzie called on Ottawa to adopt targeted measures that would help ease financial hardship where it is concentrated.
Amending existing rules to make it cheaper for lenders to offer mortgage terms longer than five years would help households better weather cycles of rising interest rates, they wrote. Supporting economic growth in mid-sized cities would help ease housing prices in the biggest cities, and more granular statistics on consumer insolvencies would help better track and respond to financial distress, the report said.
This article was first reported by The Globe and Mail
