Household debt worries exaggerated?

by Justin da Rosa25 May 2015
The Fraser Institute released a study questioning the claim that Canadians are being irresponsible with their debt loads.
“Almost every day we hear analysts warning that household debt levels have reached record highs,” Philip Cross, former chief economic analyst for Stats Canada and co-author of the recently released A Longer-term Perspective on Canada’s Household Debt said in an official release. “While debt levels are growing, those warnings should be tempered by the fact that asset and net worth levels are increasing at a far greater rate.”
According to Statistics Canada, household debt to disposable income reached a record high in Q4 2014 when it increased to 163.3 per cent.
But that doesn’t offer the complete picture, according to Cross.
“You have to account for assets when you’re talking about debt levels, otherwise it’s an incomplete story,” he said.
Meanwhile, household net worth increased 7.5 per cent at the end of last year.
And according to the study, assets owned by Canadian households grew by 31 per cent from 2010 to 2014 to approximately $10 trillion. That compared to a 21 per cent jump in household debt to $1.8 trillion.
“Much of the concern about household debt in this country stems from fears that we will repeat the U.S. experience of 2007 where high debt levels contributed to that country’s financial crisis and housing meltdown,” Cross said. “But their problems were mainly the result of policies that encouraged high-risk borrowers to take on excessive debt … Canada doesn’t have that problem. Our banks have tighter lending standards and Canadians are clearly managing their debt levels responsibly with no evident strain to their incomes or balance sheets.”



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