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Buildings are seen in the financial district in Toronto, January 28, 2013. Moody's Investors Service has cut the ratings of six Canadian financial institutions, including the previously "Aaa" rated Toronto-Dominion Bank, due to concerns about rising consumer debt and high housing prices. TD, the only publicly traded bank that still carried Moody's top rating, was downgraded, along with Bank of Nova Scotia , Canadian Imperial Bank of Commerce, Bank of Montreal, National Bank of Canada and Caisse Central Desjardins, Canada's largest association of credit unions, Moody's said on Monday.Reuters

This article is part of The Paycheque Project: Bold Canadians talk to The Globe and Mail about how they spend their incomes and their tough choices for the future.

Canada's overseas-bound central banker suggests he's got the country's debt problems licked. Those left behind may feel less jaunty.

Bank of Canada governor Mark Carney, who will move to the Bank of England later this year, implied this week that the need for higher interest rates is less imminent as Canadians heed the call to curb borrowing.

But households are still sitting on record levels of debt. And Mr. Carney's usual ally, Finance Minister Jim Flaherty, criticized the Bank of Montreal this week for reducing mortgage rates, saying, "I encourage responsible lending."

Given muted wage growth, tough choices lie ahead: It seems 2013 might turn out to be the hangover after the great Canadian debt party.

A new analysis paints a picture of just how pinched households have become, at a time when house prices are expected to fall and amid weak income gains, poor job prospects for young people and growing income inequality.

For most of the past five years, what stood out was how much better the Canadian economy fared than in most other western nations. Those days might be coming to an end.

"We're in for a difficult time," says Roger Sauvé, economist and author of the Ottawa-based Vanier Institute of the Family's annual studies on the state of Canadian family finances, including the one to be published this month.

Since the recession, Canadians have been saving much less, at rates about a quarter of what they were in the early 1990s. Household debt levels have soared past those of the U.S. and the U.K. in recent years, reaching an average of just over $110,000 dollars per household in the third quarter of last year – more than double the level of $50,691 in 1990.

Meanwhile, disposable income hasn't changed much since 2008. Which means one thing: "Debt that's been created by boomers and older people is coming to roost," Mr. Sauvé says.

One central factor in this is real estate: Canadians have bought pricey homes, taken out big mortgages and used them as cash machines by drawing on home-equity lines of credit to pay for renovations or other purchases.

But an expected drop in house prices – on the order of 10 per cent in some markets in the next year or two, according to some economists – poses another challenge.

Of course, most Canadians bought their houses assuming prices would go up reliably. At 52, Cindi Thompson, in Kamloops, B.C., for example, views her townhouse as a key part of her retirement plan. Now she is worried, as it's lost $35,000 in value since she bought it in 2009.

As the Vanier Institute report warns, many Canadians will see their "nest eggs" shrink, which has all kinds of repercussions, from keeping older people in the work force longer to the need to scrimp on discretionary spending such as vacations and restaurant meals.

Therefore, many economists are predicting this year will see a great pivot, when consumers pull back from spending and focus instead on budgeting – making tough choices between a night out, new clothes or a car repair.

This year is "back to reality," says Benjamin Tal, deputy chief economist at CIBC World Markets.

Consider Stephanie Adams, a 25-year-old kinesiologist who lives in Burnaby, B.C. Having paid off her credit-card debt, she's still saddled with student loans. So she's become thrifty, living in a basement apartment, cooking at home and studying four grocery-store flyers before shopping.

It's not all grim news: Canada's labour market has held up much better than others in recent years, and youth joblessness, although bad, isn't nearly as dire as in other countries.

Some segments of the population are even faring better today – the poverty rate among female single parents, for example, is now less half of what it was in 1990.

But while income inequality – the gap between the rich and the poor – isn't nearly as stark here as in the United States, it is growing in Canada, too. The most recent data on distribution of incomes shows more inequality now than in the entire 34 years for which this measure is available, the analysis says.

Spending habits have changed, too. The fastest growth in spending in the past four years has been in expenses related to higher pension fund fees. We're also spending more of our budgets on new vans and SUVs, parking and funeral services. Spending on pets, curiously, has soared 25 per cent on average per household since its pre-recession peak. By contrast, we're spending less on cameras, toys and appliances.

In the next year or two, "the Canadian consumer will be a shadow of its former self," says the CIBC's Mr. Tal.

That might mean more slow growth. But a return to old-fashioned savings, prudent shopping and more affordable real estate might not be a bad thing, given the excesses of years past.