Canadians have an alarming relationship with debt. Consumer debt in Canada has reached incredible heights over the years. The economic impact of COVID-19 in 2020 has also made a number on these numbers.
Statistics Canada reported that a key measure of household debt increased in the first quarter with the pandemic. Based on household debt in the country’s credit market, disposable income increased to 170.7% in the third quarter from 162.8% in the second quarter. This means that for every dollar earned by a Canadian, they have almost $ 2 in debt.
Canadians already owe more than $ 2 trillion
Canadians owe over $ 1.5 trillion in mortgage debt and over $ 800 billion in consumer and non-mortgage loans. These are staggering numbers for Canadians who owe over $ 2 trillion.
Somewhat positive news
Despite the incredibly high household debt, there is good news for Canadians. With Canadians spending more time at home and spending less money, households have been successful in paying off some of their debts. Household debt of $ 1.77 to $ 1 is less than the $ 1.81 owed for every dollar in the fourth quarter of 2019.
Canadians continue to recover from job losses. However, household disposable income fell 3.1% as unemployment fell. Low-income households have a higher debt-to-disposable income ratio. Unemployment rates fell to nearly 3.7% of pre-pandemic levels in the third quarter.
Government employment insurance benefits fell almost 50% during the quarter. Although many Canadians have started to exit again, overall savings have remained strong. Canadian household savings stood at $ 56.8 billion in the third quarter, down from $ 90.1 billion in the second quarter.
Statistics Canada has also announced good news for mutual fund stocks. A 3.9% return on the TSX over the three months allowed Canadian household net worth to rise to $ 12.3 trillion.
The wealthiest people have had the better end of the stick when it comes to increased savings. In general, wealthier Canadians have had better savings because they are more likely to keep their income while reducing discretionary spending like dining and travel.
A stock to protect your capital
If you are in a low-income household and don’t have significant savings, there is a way to protect your capital and grow your savings to more substantial amounts. It’s about investing your savings in the right stocks traded on the TSX. Hydro one (TSX: H) is one of those stocks you can consider for this purpose.
Hydro One is one of my favorite passive income stocks. It is a utility company that generates its revenues by providing electricity to customers in Ontario. Hydro One’s utility lines cover 98% of Ontario. The highly regulated utility market in Ontario means that Hydro One’s revenue is predictable. Unlike most other companies listed on the TSX, utilities like Hydro One already know what their income will be, regardless of economic conditions.
Hydro One is trading at $ 28.65 per share at the time of purchase. At its current valuation, the stock pays its shareholders a hefty 3.54% dividend yield. Investing your capital in stocks can help you take advantage of company capital gains and reliable dividends.
Take away idea
Paying off your debt and increasing your savings rates should be your top priorities now. With the alarming level of debt in Canadian households, protecting your money can be vital to your long-term financial freedom. Investing in Hydro One can help you increase the value of your savings over the long term.
Silly contributor Adam Othman has no position in any of the stocks mentioned.