TORONTO - Most of the world's wealth is held by a scant 1% of the global population. In Canada, three-quarters of the debt is held by one-third of Canadian households, and according to recent research, is one of the main reasons behind the surge in Canadian borrowing over the last five years.

With household debt at an all-time record high of a debt-to-income ratio of 151%, the CIBC World Markets research report analyzed the distribution of the debt and what is driving its growth.

Canada's debt-to-income ratio is topped by only seven other developed economies - Sweden, Australia, Switzerland, Norway, Ireland, the Netherlands, and Denmark. In Canada, households with a greater than 1.6 debt-to-gross income ratio now hold 73% of all household debt.

"Our new analysis found that all of the rise in debt since 2007 has been driven by borrowing from those with a high debt-to-gross income ratio," said Avery Shenfeld, Chief Economist at CIBC, who co-authored the report with Benjamin Tal, Deputy Chief Economist. "The growth in debt-to-income ratios has come from a piling on of debt by those with high debt burdens, rather than from less indebted households getting drawn to the punchbowl by the promise of low rates. Some 34% of households that have debt are now in the high-debt-burden category and they account for nearly three-quarters of household debt outstanding."

The root of recent debt growth has been the combination of ultra-low interest rates and weak growth in household real incomes. "Borrowing is what fills the gap between what we want to buy and our incomes, particularly for lumpy expenditures like houses, vehicles and other durable goods. Strong growth in real incomes can therefore reduce the reliance on debt by the household sector," Shenfeld added.

Not surprisingly, the share of those with high debt-to-income ratios is greater in B.C., Alberta and Ontario, where housing is the most expensive. More surprising was the growth in Canadians over the age of 45 who hold a high-debt-burden, climbing from 36% in 2007 to 44% in 2011.

"A rising share of the highly indebted are over 45 years old, an age where accumulating net assets ahead of retirement should be paramount. Canadians nearing retirement who should be in their prime savings years are, instead, getting themselves deeper into debt. We are already seeing an uptrend in bankruptcies for those 50 and over, but the more material impact will be that this group's ability to spend could be severely squeezed upon retirement."

In recent years income growth has been weak. Not only was there a sag in nominal incomes during the recession, but in the recovery, consumers faced a much quicker snapback in inflation than in average wages, driven by a jump in global energy and food commodity prices. Real disposable income fell by 0.1% during the first three quarters of 2011. On that score, 2012 looks to be better for the average worker, as a leveling off in energy prices and a likely cooling in food inflation brings the consumption deflator closer in line with sluggish wage gains. But employment growth is likely to remain sluggish.

The report also examined the differences between the spending habits of heavy and non-heavy borrowers. Controlling for family composition and age, the research found that households with lower debt-to-income ratios appear to devote the lower costs they face on debt service to savings, rather than consumption. As a result, high-debt-load Canadians are also being hurt relative to other families in terms of their accumulation of assets. While their debts have grown by 18% since 2007, high debt-to-income Canadians have seen their assets accumulate by less than 4% over the same period. This compares to a roughly 10% growth in assets for those with more moderate debt-to-income burdens.

Shenfeld doesn't think Canada is on the precipice of a sharp run-up in household bankruptcies, which have thus far eased dramatically from the recession's high. "Many Canadians still have room to borrow and take advantage of low rates, as they have eschewed that temptation in recent years. The trigger for a sharp jump in bankruptcies would have to be sharply rising interest rates and a steep climb in unemployment, neither of which seems likely, particularly in combination, given that the Bank of Canada has inflation under wraps."

"But it does raise the spectre of a further deceleration in Canadians' appetite and room for additional debt, as more reach the constraints of their ability to service debt. We have already seen a deceleration in consumer debt. Housing might be next to feel the same pinch, with new construction and prices leveling off in the year ahead. That will leave Canada more at the mercy of the global environment, which remains clouded by the impacts of fiscal tightening across much of the developed world."