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A report that showed Canadian household debt levels have topped U.S. ones should be taken with a grain of salt, according to one economist.

In a note released Monday, National Bank of Canada's Matthieu Arseneau says the Canadian government's indicator on household debt "does not lend itself well to such an international comparison owing to the considerable differences between the social safety nets of the two countries."

At first glance, personal disposable income levels appear much lower in Canada than in the United States. Mr. Arseneau attributes that to higher tax levels in Canada that are used, in part, to fund our national health care system.

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Americans, meanwhile, must allocate nearly 20 per cent of their personal disposable income to paying for health care, he says. "If we adjust for this factor, the debt ratio of U.S. households exceeds that of their Canadian counterparts by 12 per cent."

A report released last week showed that Canadian household debt rose to a record high in the second quarter, surpassing levels seen in the United States since the start of the year.

Statistics Canada said last Tuesday that the ratio of household credit-market debt – which includes mortgages, consumer credit and loans – to personal disposable income climbed to 149 per cent from 147 per cent in the first quarter. That's the highest level since Statscan started gathering figures in this category in 1990.

The government agency attributed the growing debt to higher mortgages and increased consumer credit borrowing.

With interest rates slated to remain at low levels for the foreseeable future, Canadians are taking on both mortgages and consumer loans. Policy makers have expressed concerns about high household debt levels and warned against what could happen if rates were to rise.

In his note, Mr. Arseneau also noted that the Statscan ratio represents only one facet of the financial health of households.

"If we consider the ratio of debt to net worth, which is still markedly higher in the United States, we understand why household deleveraging is ongoing south of the border whereas nothing of the sort is happening in Canada," he said.

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Mr. Arseneau concluded his note by warning of the need to be vigilant, because excessive household debt levels "could represent a risk factor for Canada's economic stability down the road."

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