Study
| EST. READ TIME 1 MIN.Concern about Canadian household debt levels overblown when assets, other measures taken into account
There is much concern about the increase in Canada of household debt to record levels. However, consumer credit is such a new device that debt has hit a record level in almost every year since 1961, so it is difficult to judge what is the optimal level.
By several metrics, household debt in Canada is not excessive. The burden of servicing debt is at a record low. Debt is often used to create wealth, and household assets and net worth have increased much faster than debt. Despite lower interest rates, the rate of growth of debt has slowed by one-third since the recession.
By international standards, the ratio of Canadian household debt to income is similar to that in the US but below that in many European countries. The problem with US debt leading up to its financial crisis was not that its ratio to income was high by international standards, but that its distribution was flawed, with too much issued by poorly capitalized financial institutions to high-risk borrowers. Lending standards have been tightened in Canada to prevent record low interest rates from tempting people and firms to take on excessive risk.
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Philip Cross
Senior Fellow, Fraser InstitutePhilip Cross spent 36 years at Statistics Canada, the last few years as its Chief Economic Analyst. He wrote Statistics Canada'smonthly assessment of the economy for years, as well as many feature articles for the Canadian Economic Observer. After leaving Statistics Canada, he worked for the Macdonald-Laurier Institute. He has been widely-quoted over the years, and now writes a bi-weekly column for the National Post and other papers.… Read more Read Less…
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