Is the Low Savings Rate of Households Indicative of Households in Crisis?

Description

Analysts have pointed towards increasing household debt, increasing personal bankruptcies, and a declining household savings rate as indicators of a financial crisis in Canadian households. Our conclusion is that, at this point in time, none of these constitute clear evidence of a problem. In particular household debt is more than offset by increases in household financial assets, and the low savings rate is driven both by short run dynamics and increasing real net worth of households. The high level of bankruptcies could be driven by a liberalisation of bankruptcy laws (1992). We note, however, that real PDI per capita has declined since 1989. This may be producing signs of crisis elsewhere - perhaps in increased poverty rates, or increased inequality amongst households.