Islanders managing debt better than other Canadians, new StatsCan report shows

Islanders are getting a better handle on their debt than other Canadians, according to new data from Statistics Canada.

Amanda Sinclair, an assistant director with Statistics Canada's national economic accounts division, said the agency measures how manageable debt is for households through two key indicators.

Those are the debt-to-income ratio, which compares how much a household owes each month with how much it earns, and the interest-only portion of the debt service ratio, which indicates how much it costs to service debt.

"Overall, we would say P.E.I. is faring better in terms of these financial indicators than other provinces," Sinclair told CBC News.

Comparing the third quarter of 2024 to the same period in 2023, Sinclair said household debt levels on the Island have remained relatively stable, while household disposable income has grown significantly.

The province, as a result, saw a faster-than-average decline in its debt-to-income ratio and in the interest-only portion of its debt service ratio, Sinclair said.

Across Canada, the household debt-to-disposable-income ratio continued to improve in the third quarter of 2024, falling to 173.1 per cent from 175.3 per cent in the second quarter. This marked the sixth consecutive quarter of decline.

This means that for every dollar of household disposable income, there was $1.73 in credit market debt. According to the report, this decline is primarily due to significant income growth outpacing increases in credit liabilities.

Why P.E.I. stands out

Sinclair said multiple factors are driving the changes on P.E.I., but a major one is that Islanders are earning more.

"Wages did increase more in Prince Edward Island relative to Canada in the third quarter of 2024 compared to a year earlier. Wages were up about 7.7 per cent in Prince Edward Island, and that compares to 3.6 per cent for Canada," she said.

Overall, we would say P.E.I. is faring better in terms of these financial indicators than other provinces.- Amanda Sinclair

Islanders also tend to carry less debt than people in other provinces, especially in places where housing costs are much higher like Ontario and British Columbia.

Another factor, Sinclair said, is that P.E.I. has seen stronger-than-average investment earnings. She said this is linked to lower housing costs.

"The fact that housing might be cheaper, their residents are able to save more money or invest more money, then the interest rates go up, and they're able to then earn bigger returns because they were able to put their savings into financial investments," she said.

"It's sort of like a doubling effect."

National trends

The report also finds for the first time in three years, households across all age groups have kept their debt service ratios stable.

"Regardless of the recent trends of this slowing down, the debt to income ratio does remain quite elevated for Canadian households," Sinclair said.

"When you compare this to other countries, it does stand out as quite high, and the majority of outstanding debt for Canadian households are mortgages."

She added that younger Canadians — households under 35 — have seen significant declines in their debt-to-income ratios.

This is likely due to a conscious effort by younger households to reduce or avoid taking on new debt, particularly mortgages, following interest rate hikes in recent years, she said.

While this trend may have positive short-term implications for the financial health of younger households, Sinclair said it could have long-term implications.

"If they're not able to enter the mortgage market in their younger years, will they have time to accumulate the wealth and the net worth that comes from owning homes? That could be seen as a negative."

In contrast, she said older homeowners in Canada are taking on more mortgage debt.

She noted households over 55 are the fastest-growing group taking on new mortgages, likely for reasons such as purchasing new homes, secondary properties or helping their children with down payments.