01/19/2012 02:50 EST | Updated 03/20/2012 05:12 EDT

Household debt still at safe levels, bank economists say

Several prominent economists say they think Canadian households may not be as overburdened with debt as conventional wisdom — and the Finance Minister and Bank of Canada governor — have suggested.

Alarms went off again this week after the Bank of Canada warned that household debt will likely increase this year, a worrying signal given that debt is already at record highs.

Bank governor Mark Carney and Finance Minister Jim Flaherty expressed some concern, given that at 153 per cent, household debt to income is closing in on the 160 per cent ceiling that preceded the U.S. and United Kingdom meltdown in 2008.

But several economists are challenging that, saying that Canada's households remain on very solid financial ground.

Scotiabank's Derek Holt says debt-to-income is one of the worst measures of the soundness of household finances.

TD Bank's chief economist Craig Alexander agrees, noting that comparing a fixed statistic, which is debt, to a flow of income that is repeated annually is a bit like comparing apples and orange groves. He also says that while Canadians may have high levels of debt, they have something to show for it — namely valuable assets like homes.

The value of assets to income that Canadians have are also at record highs, they point out, and household net worth remains relatively high despite the depressed stock market.

That doesn't mean Canadians shouldn't worry about debt, but they argue that Canada would not face a U.S.-style crisis if debt levels were to reach 160 per cent and beyond.