Concerns about Canadians' record-high debt levels are overblown, according to a contrarian study being released today by the Fraser Institute.

Household debt may have reached $1.8 trillion - twothirds of it being mortgages - yet, "Despite the lure of recordlow interest rates, households in Canada have demonstrated a prudent attitude to debt," says author Philip Cross, the former chief economic analyst for StatsCan who, since leaving the agency, has written studies for several think-tanks.

"The growth of household debt has slowed markedly since 2009, notably for consumer credit," he said. "Together with record-low interest rates, this has reduced the burden of servicing household debt to a record-low share of incomes.

"Households also have prudently shifted the mix from consumer credit to mortgages, locking in lower interest rates. Most Canadians are managing their debt levels responsibly, with no evident strain to either their incomes or their balance sheets."

Cross doesn't address the question of what an appropriate level of debt might be, except to say it is complex , but he notes the much-lamented "record-high" debt levels are nothing new. With the exception of 1982, a year of severe recession, the debt level has set a record every year since 1961, when StatsCan began tracking the number.

Households commonly use debt to create or acquire wealth - for investments such as postsecondary education, starting a business, or buying a home, he noted.

"The use of debt to acquire or create wealth is why, even with rising debt liabilities, the net worth of Canadian households continues to soar, as the value of both their financial and nonfinancial assets has risen several times faster than nominal debt. Statistics Canada's National Balance Sheet Accounts show that in 2014 Canadian households held $10 trillion of assets (mostly in the form of equities and real estate) and $1.8 trillion of liabilities (almost all mortgage and credit card debt), for a net worth of $8.2 trillion."

As well, Canada's household indebtedness, measured as the ratio of debt to income, is lower than several financially strong European countries', he noted, and about the same as in the U.S. Any comparisons with the Americans should take into account that "the problem with U.S. 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."

And if debt levels do get out of whack, the problem can be corrected in short order, he said. "It is striking that U.S. households, long regarded as among the most profligate, have reduced their ratio of debt to income from 143 per cent in 2007 to 115

per cent in 2012, by far the largest drop in the OECD (Organisation for Economic Co-Operation and Development)."

So does this mean Cross sees no debt problem at all in Canada? Well, no, not quite.

"Government is the only sector of our economy that has a structural problem managing its debt, notably the provinces, where debt levels continue to rise even before the largest demands of an aging population are made on our antiquated health care system," Cross concludes. Nor does Cross' broad-brush analysis mean that all Canadians are managing their debt well. With personal bankruptcy filings totalling 120,000 or so a year and with countless thousands more who are house poor and/or struggling to cope with high-interest credit card debt, this is clearly not the case.

But it's comforting to be reassured, especially in the face of frequent dire warnings, that most Canadians have their finances under control.

dcayo@vancouversun.com