Canada, prepare for a decade of thrift and lower living standards

Globe and Mail

3 hours ago

John Turley-Ewart is a contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian.
We are poorer than we think. Canadians running their retirement numbers are shining light in the dark corners of household finances in this country. The sums leave many 'anxious, fearful and sad about their finances,' according to a Healthcare of Ontario Pension Plan survey recently reported in these pages.
Fifty-two per cent of us worry a lot about our personal finances. Fifty per cent feel frustrated, 47 per cent feel emotionally drained and 43 per cent feel depressed. There is not one survey indicator to suggest Canadians have made financial progress in 2025 compared with 2024.
The federal government was elected this spring promising to mitigate the threat of U.S. President Donald Trump's tariff war and implement a transformative economic agenda. If it succeeds, the effects will be felt in the medium to long-term. In the near term, Canadians know that their financial reckoning adds up to years of debt repayment, reducing expectations, making compromises, retiring later (or not retiring at all) and lower living standards.
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Our debt-to-household disposable income has bumped up against nearly 200 per cent for years now, putting Canada in first place among G7 countries. Canada's is 185 per cent; the average for all G7 countries is 125 per cent according to Statistics Canada. Canadian households collectively owe about $3-trillion, almost three-quarters of it is mortgage debt.
Today's Canadian dream is to make the next mortgage payment without having to borrow it. The housing crisis hasn't just hobbled the hopes of many Canadians seeking affordable housing; it is undercutting middle-class living standards.
Earlier this year at a conference with Canadian bank CEOs, Peter Routledge, who leads Canada's bank regulator, the Office of the Superintendent of Financial Institutions, alluded to the bleak financial reality many Canadian are facing this year and next as the cost of high household debt will take a bigger bite out of their disposable incomes.
Mr. Routledge said 2025 and 2026 will be challenging years. 'As of September 2024, 65 per cent or 3.8 million mortgages are set to renew by the end of 2026. Of these, approximately 62 per cent (or 2.4 million) have yet to experience increased payments.'
With higher mortgage payments layered atop elevated living costs that Canadians have endured over the past five years, materially increasing the price of basics such as food, there is much less money to put aside for retirement. Using the Bank of Canada's inflation calculator, what cost $100 in 2020 now costs $120.
Climbing costs associated with inflation and higher debt service payments are slowing savings and investment rates in Canada, which reduces funds available to pay for retirement. Statistics Canada's first quarter of its 2025 national balance sheet and financial flow accounts report, released on June 12, is a telling document.
Household savings and investment rates are 'down for a second consecutive quarter' because 'household spending (+1%) outpaced disposable income gains (+0.8%).' The rising net worth of Canadian households is showing signs of stalling, up 0.8 per cent in the first quarter of 2025 versus 1 per cent in the last quarter of 2024.
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But that growth is misleading, given that it is the wealthiest 20 per cent of households that own 68.1 per cent of all financial assets and 51.2 per cent of real estate. Even the rich are not getting richer at the pace they are accustomed to.
We are starting to hit the credit wall in Canada. In the first quarter of this year mortgage demand declined as did demand for non-mortgage debt. Statistics Canada accounts for this by concluding that 'household borrowing slows as debt continues to outpace income growth.'
Mortgage interest payments are up this year by 0.3 per cent as mortgage renewals push households into higher interest rates versus those that prevailed during the pandemic when they were running at historic lows. If there is a bright spot in 2025, it is that decreases in the Bank of Canada policy interest rate this year has helped reduce interest payments on non-mortgage loans, many of which are home equity lines of credit. This helps pay for higher mortgage payments.
What all of this tells us, and what those wondering what retirement might look like are realizing, is that paying down household debt for the foreseeable future is where much of our disposable income as Canadians must go.
That thinking of retirement provokes anxiety in surveys on the matter shouldn't be surprising. It is one more item on a growing list of aspirations many Canadians cannot afford.