Discretionary spending is being cut in households across Canada as budgets are squeezed by rising interest rates.
Environics Analytics crunched numbers from its WealthScapes 2018 database and found that the average Canadian net worth rose to $807,872 at the end of 2017, up 8.5% year-over-year. Most of that was tied up in liquid assets like real estate.
But 2017 also saw average household debt climbed faster than income, up 4.5% year-over-year. The average year-end interest-expense-to-income ratio rose 40 basis points to 6.4%, the first increase in a decade.
“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."
The average household paid an extra $544 in interest charges in 2017 and for those in Vancouver it was more than double that ($1,152).
Overall, Canadians paid $9.0 billion more in interest charges in 2017 than they did the prior year.