Just to be really clear on this – please don’t go out and spend money right now.
Tiff Macklem, the new Bank of Canada Governor addressed the House of Commons Finance Committee last month and said that “we’re in a deep hole, and it’s going to be a long way out of this hole”. He then went on to say that he has no intention of raising interest rates anytime soon.
That last part is likely all that some people heard. Interest rates are going to stay low for a while, so there’s no need to worry about over-extending on a new home purchase, right? Yes, it sounds like borrowing money will continue to be “cheap” for the foreseeable future, but this does not mean you should continue to rack up more debt.
The Canadian consumer has been the primary supporter of the economy for quite some time now but the money they’re spending to prop the economy up is not money that they actually have. Instead, Canadians keep taking on more and more debt in order to live a lifestyle that is well above their means.
Digging our economy out of the mess that’s it is in (and has been in long before COVID came around) will take some time but it can’t be the consumer who continues to propel it along as the majority are quite simply broke. Canadian consumer debt is now a staggering 177 per cent of disposable income and that globally record setting figure is set to climb further still.
As things start to reopen and various industries put out promotional offers to lure you in to spend money, its imperative that you stop and think about what you can really afford. Due to the low interest rates, the monthly payments on that new car, financed purchase item or even a mortgage on a new home might sound “doable” in your monthly budget. But can you really afford it? And will that add to the debt load you are already carrying?
How exactly are you going to save enough for a comfortable retirement if you’re still paying off debt in the later stages of your working years?
The highest risk category is definitely Canadians in their 30s, who are taking on a first mortgage, kids, new cars, etc all at the same time. But this addiction to debt spreads across Canadians of all age brackets. Everyone needs to start spending a little less.
The downside to this is that the economy is heavily relying on consumer spending to have any hope of a quick rebound but to be quite blunt, that’s not your problem. Your responsibility needs to rest solely on your own family and providing for your future.
So, if you’re still reading at this point, and not too mad at me for ruining all your planned fun, please take a few moments before you make your next big (or small) purchase to consider what you can really afford. The interest rates are being kept at historical lows so that the economy can do its best to recover, not so that you can go on another shopping spree.
This column is brought to you by Michelle Weisheit CFP, IG Wealth Management and presents general information only and is not a solicitation to buy or sell any investments. Please contact your own advisor for specific advice about your situation