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Should We Really Be That Concerned about Household Debt Levels?

23 October 2012

Should we really be that concerned about the amount of debt we have piling up in this country? Of course we should. Debt in this country is a problem, and that’s why last week we dedicated an entire miniseries to it, talking about debt levels of all kinds; and home refinancing and second mortgage options that can help with debt. But just how alarmed should we actually be?

The stats released by Stats Can showing that our household debt levels have hit 163% are absolutely correct and accurate; but a slight shift in perspective can also skew that data significantly. While at first glance, the number seems like reason enough to panic, other factors need to be taken into consideration that may also suggest that we’re not on the downward spiral that we all watched take place in the States.

One of those factors is the fact that while our household debt may have been rising over the past couple of years, so has our net household income. Sitting at $6.3 trillion in 2010, it increased to $6.6 trillion in 2011. And household net worth climbed from $182,900 to $190,800 when compared year over year. In the second quarter of this year alone, our household net worth has increased by 0.9 per cent. So while our debt may be growing, our income is too, at the same time.

There’s also the argument that it’s unfair to compare a household’s total debt against that same households income for just one year. That’s not how it’s done when determining the GDP for the nation, and many think it’s not the way it should be done for individual households either.

That can be seen by breaking it down further and comparing the current GDP in the same terms that a household’s debt to total assets are. If that were the case, the Canadian government gross debt to revenue would be about 288 per cent. But, because just about every government in the world uses the market debt to gross domestic product, a lesser amount that takes Canada’s gross debt to revenue down to about 33 per cent. The household version of GDP, the household total debt to total assets, was also up about 0.5 per cent in the second quarter of 2011.

None of this seems to be spell the fact that Canadians are really in as deep as the initial Stats Can data would suggest. Take into account as well, the fact that our sub-prime mortgage market is nowhere near the levels seen in the U.S.; and that our government has taken steps to cool the housing market by tightening mortgage rules rather than boosting the market with tax-deductible interest. All of this would suggest that while concerning, our debt should not have us sounding the panic alarm just yet.

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