Unveiling the co-holding puzzle: insights from two decades of Canadian household data

Purpose This study investigates the “co-holding puzzle,” a phenomenon where households simultaneously hold high-interest debt and liquid assets. Despite extensive international research, this behavior remains unexplored within the Canadian context. The study aims to identify the prevalence, patterns, and determinants of co-holding, with a particular focus on the role of financial distress in shaping household financial behavior. Design/methodology/approach Using 2 decades of data from the Survey of Financial Security (SFS), the analysis applies eight definitions of the co-holding puzzle from the literature. Both descriptive and econometric approaches are employed to examine its prevalence, patterns, and key determinants. Instrumental variable probit models are used to account for potential endogeneity. A central focus is the impact of financial distress on co-holding behaviors. Findings The results reveal that while certain co-holding patterns have remained stable, others have shifted, reflecting changing financial habits among Canadian households. Significant regional, demographic, and socioeconomic differences are observed. Financial distress consistently emerges as a key determinant, substantially increasing the likelihood of co-holding across all definitions, with age, gender, education, and employment status further influencing this relationship. Originality/value This study provides the first comprehensive empirical examination of the co-holding puzzle in Canada. It highlights the central role of financial distress in household financial management. The findings offer policy insights for mitigating financial inefficiencies and distress among Canadian households.