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Pattie Lovett-Reid

Chief Financial Commentator, CTV


It is often referred to as good debt – money borrowed to advance your overall financial situation.

Good debt is an investment that will grow in value or generate long-term income. Taking out student loans to pay for your education is the perfect example of good debt. Student loans typically have a very low interest rate compared to other types of debt, and a post-secondary education increases your value as an employee and raises your potential future income.

While it's possible to live completely debt-free, it's not necessarily smart. Very few people earn enough money to pay cash for life's most important purchases: a home, a car or an education. The most important consideration when buying on credit or taking out a loan is whether the debt incurred is good debt or bad debt.

Bad debt, simply put, is often consumption-oriented. It adds little value and can often a drag on your financial life.

The Fraser Institute’s report suggesting concerns about Canada’s $2 trillion in household debt is overblown because net worth has increased to $10.3 trillion. While our debt levels have increased since 1990, so have our household assets (real estate, pensions, financial investment and equity in business). The report goes on to highlight that mortgages made up just over two-thirds of Canadian household debt (65.5 per cent) in 2016, compared to 29.4 per cent in consumer credit and 5.1 per cent for other loans (the same percentage allocation as in 1990).

This suggests Canadians have been increasing their good debt and the personal balance sheet is improving. While no one can guarantee our assets will increase in value at the same pace when compared to government debt, the Fraser Institute points out governments have been racking up debt, too. However, the net worth of governments has actually decreased.

Maybe the wrong alarm bells are ringing.