Weekly Blog Round: Increasing Canadian Debts

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Low interest rates along with low mortgage rates appear to be the reason for all the debts. It certainly is a facilitator but when did people stop being accountable for their finances? I had a bit of a rant about it a couple of weeks ago by saying we can’t blame the banks and I won’t cover this again

However, on Thursday, CIBC released a report that had all major newspaper writing about it. The key point everyone was writing about is that baby boomers are piling on more debt. What I find astonishing over the past little while is how numbers are always used to prove a point but it’s often easy to use numbers in the wrong context. For example, we heard for a while now that the debt ratio in Canada was increasing and reaching the level the U.S. had before the housing market crash and quickly it turns into a housing market crash and the news sensationalize it. The numbers from CIBC now say that the debt increase is due in majority by the many that currently hold debts and the babyboomers. My question is, do we really see the entire puzzle yet? If we did and it was so easy, couldn’t we fix it? When it comes to the babyboomers, do we know if they have a pension plan? They worked when pension plans were usually provided. What about the changes in life expectancy and retirement? As much as Banks can create reports based on their data, often times their data is out of date (I know my bank doesn’t have an accurate picture of my finances) and they can’t be aware of assets held in other institutions without regular meetings with clients.

Don’t get me wrong, I am the first to say these two things:

Many live above their means
The hot housing sectors need to cool off

With easy access to credits, the only suggestion I can make is to not skip the necessary steps for a successful financial recipe: Save first & spend later. As an example, save for a down payment to have a confortable mortgage payment before buying a place. On my first place, I had 35% down and I only bought because the mortgage payment were the same as my rent. You don’t have to rush into buying a place either. Interestingly, I had a discussion at the office with a co-worker recently who felt he needed to buy a place because two of his friends had just bought ?!? What’s with the environmental pressure? We all need to take a deep breath at times and focus on our situation and not the joneses.

Do you have a good handle on your debt? I personally continue to pay my mortgage and focus on my Financial Freedom goals.

Worthy Readings

On to some worthy readings from other bloggers.

There are a couple of Quicken reviews as well. I am a big user of Quicken and have used it ever since I got my first job after university.

Dividend Ninja with ‘What Should I Invest In for 2012? Part-1‘
Dividend Ninja with ‘What Should I Invest In for 2012? Part-2‘
My Own Advisor with ‘Welcoming Sysco to my portfolio’
Dividend Monk with ’6 Solid Dividend Payers with Particularly Powerful Brands’
Dividend Growth Investor with ‘Active Dividend Growth Investing‘
The Dividend Guy Blog with ‘4 Top Canadian REITs For 2012‘
Boomer and Echo with ‘Using Tax Free Savings Accounts In Retirement‘
Retire Happy Blog with ‘The case for low cost passive investing‘
Canadian Finance Blog with ‘Financial Goals That Are Easy To Accomplish‘
Young and Thrifty with ‘Quicken Home and Business 2012 Review‘
Balance Junkie with ‘Quicken Home and Business 2012 Review‘

Have a nice weekend!

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The Dividend Ninja

January 28, 2012 at 8:21 pm · Reply

PIE Thanx for the mentions! 2 for the price of one

I think you would really enjoy reading David Trahair’s new book Crushing Debt, he pretty well covers exactly these issues. In terms of keeping up with the jonses, its much smaller scale for me – I need (want) a new cell phone, but I’ll pay cash for it

Cheers
The Dividend Ninja

The Passive Income Earner

January 29, 2012 at 9:44 am · Reply

@Ninja

I’ll put the book in the queue Time is at a premium here. I actually believe that smart phones and the internet open immense opportunities but they are also added costs that weren’t present in my parents’ time. Something has to give though … We are inundated with choices and in most cases there are a price tied to them.

I save up front too but I will admit that at times I knew the money would come in and spent knowing that certain income would come. Now I do that a lot less and save first. For example, lots of different annual spending around car/home insurance or property tax that I save up front rather than tying it to future income.

youngandthrifty

January 28, 2012 at 10:01 pm · Reply

Do you save more to pay down debt or are you saving more for your dividend stock investment contributions?

35% down is very impressive! I’m surprised that the big banks decreased the mortgage rates again… considering all that’s going on.
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The Passive Income Earner

January 29, 2012 at 9:53 am · Reply

@YT
I have increased my payments over time as my income increased. I am basically living as if I had an income of 5 years ago. It’s our third place and every time we moved, I reset the mortgage to 25 years (21.4 with bi-weekly payments) and I was determine to catch up the time on the first couple of places. We owned the first one for 1 year and the second one for 2.5 years and we have been here for 6 years. That’s 9.5 years and I have 9.5 years left but I think I can manage to do it in 7 years from now. That would be my Freedome 45

I still save for my TFSA and RRSP but I am not aggressive. That’s why my DRIP with the transfer agents is great because I can throw in $50 or $100 at a time and still earn dividends from them.

I can’t wait to experience the feeling to not have a mortgage I once dreamed of being done in 10 years or so and when I ran the numbers, it was requiring a ridiculous amount every year and it’s important to balance everything.
- youngandthrifty
  
  January 31, 2012 at 9:34 pm · Reply
  
  I was just talking to a few girl friends about the same thing. They were perplexed as to why I would be suffering (haha as a student) by trying to pay extra into our mortgage. They viewed having a mortgage as something typical and that 25 years is reasonable.
  
  I hope to do the same and I think I need to be more aggressive with our mortgage instead of my savings. I just need to convince my BF of the same. It’s hard for him to think about the future. I think young people just dont’ like thinking about the future, period!
  
  Good on you- freedom 45 sounds very sweet indeed!! Think of all that cash flow you’ll have once the mortgage is paid off.
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