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The Progressive Economics Forum

Reduce Student Debt to Reduce Household Debt

At this year’s Annual Conference of the Canadian Economics Association, Armine Yalnizyan gave a presentation entitled “Surviving the Recovery:  The Distribution of Canadian Household Debt.” The panel was co-sponsored by the Canadian Association for Business Economics and the Progressive Economics Forum.

As Armine made clear in her presentation, household debt in Canada has steadily risen over the past two decades.  In 1990, the average Canadian household had debt representing just under 90% of its personal disposable income.  Today, that figure stands at roughly 150%.

But some groups are affected more than others.  The chart below (used in Armine’s presentation) gives a breakdown of which age groups in Canada are most likely to hold household debt.  Clearly, those Canadians most likely to be in debt are over the age of 25 and under the age of 45.

 

Incidence of Debt in 2009 - By Age

I can’t help but make two observations here.  First, this is precisely the age group most likely to be struggling with student debt.  Second, student debt in Canada has risen quite dramatically in recent years.  According to the Canadian Federation of Students, average student debt for a four-year degree in Ontario has increased by 175%—from roughly $8,000 to roughly $22,000—in the past 15 years.

It therefore seems to me that one very direct way for senior levels of government to tackle rising levels of household debt in Canada is to reduce student debt—by reducing tuition fees, improving student financial aid programs or both.

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Comments

Comment from Mike
Time: June 5, 2011, 5:15 pm

But isn’t the 25-44 age group also more likely to be using a lot of debt to purchase homes?

Comment from Jeff Dean
Time: June 6, 2011, 8:41 am

Most debt is in the form of mortgages, especially out here in BC where our housing prices necessitate huge debt.

One way the provincial government could address this is to raise property taxes and use the revenue to eliminate inefficient taxes… yes, property taxes are actually very progressive. It would be best if you untax buildings and just tax the land values. A higher property tax liability will get discounted from present sale prices and will necessitate lower mortgages and lower debt. The lower interest payments from lower mortgages would pretty much exactly offset the higher tax liability, too – at least for new entrants into the market.

Comment from Herbert Pimlott
Time: June 6, 2011, 11:50 am

Student debt is debilitating when it comes to life chances. For example, I point out to the students that I teach that 30+years ago, it cost me four (4x) weeks at full-time work (40 hrs @ week) at minimum wage ($3 @ hour) to earn one year’s tuition fees. Most students in Ontario have to work 15-18 weeks at full-time hours on minimum wage.

Never mind other differences, it meant that I could leave university at the end of five years (in my case) and NOT be tied to having to work for whichever employer could pay me the most money. Now, these students are saddled with mini-mortgages (students tell me that the average is $25-42,000.

What do they hope to do when most jobs pay $25-30,000 (even after getting a one-year diploma in addition to a four-year degree)?? (http://herbertpimlott.wordpress.com/)

Comment from Tito
Time: June 7, 2011, 6:07 pm

“What do they hope to do when most jobs pay $25-30,000 (even after getting a one-year diploma in addition to a four-year degree)??”

Leftists Revolution 2.0!

Comment from Travis Fast
Time: June 7, 2011, 7:00 pm

“Leftists Revolution 2.0!”

I thought that was the internets!

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