Families who are positive about their finances have larger debts

by Steve Randall05 Apr 2019

A study looking into the correlation between household financial expectations and debt accumulation shows that those with more positive outlooks tend to have larger levels of debt.

The Statistics Canada study examined data from 1999 to 2016 and found that – after accounting for socio-economic factors including family income and age of primary earner – homeowner families with a positive expectation for their finances over the coming 2 years had, on average, $6,800 more in non-mortgage debt than other homeowner families (average $18,100).

Those optimistic households also held larger mortgage debt than the other households, averaging $27,900 or 38% more than the $74,400 mortgage debt held by less optimistic households.

These stats mean that, those households where financial expectations are higher, have an average debt-to-income ratio 32 percentage points higher than the 89% of less optimistic households.

Not the reason for rising indebtedness
That said, Statistics Canada says that its study of the 1999-2016 period does not show a link between rising household indebtedness and families’ expectations.

“The reason is that the percentage of families with positive expectations remained relatively stable over the reference period, at 46% in 1999 and 44% in 2016. This suggests that other factors—for example, a preference for bigger houses, a lower aversion to high debt levels, favourable borrowing conditions, and relatively low growth in employment income for some groups—may underlie the growth in household debt since the late 1990s,” the study states.

The full study, Financial Expectations and Household Debt” is available from Statistics Canada.

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