Reassess financial future and reduce personal debt

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Canadians need to step away from poor financial habits that will cause them much harm in the years to come. For many it is not a question of if they will face financial problems; it is when.

For years we have received warnings from Ottawa. The Department of Finance and the Bank of Canada have released key information with a stern warning that trouble was brewing.

A recent speech by the president of Sun Life echoes previous warnings. Dean Connor thinks baby boomers are too fond of debt and an increase in interest rates could cause house values to fall. 

To understand the serious issues we should consider how confident Canadians feel about their financial health. Then look at the facts that suggest confidence is not justified.

Many of us are feeling fairly secure. Our largest asset is often our house. Half of Canadians’ wealth is in real estate.

Low interest rates have enticed many to stretch their budget and buy a bigger than needed house or overpay simply because they could. No issue here, just get a bigger mortgage.

For now this strategy has worked. Real estate values have increased and for many, homeownership has been the best financial move they’ve made.

Let’s dampen the mood by considering the facts. Hopefully, they will encourage you to reassess your own financial future to see if any changes are needed.

The real issue is debt. That is what will cause you the most harm. Connor included many statistics in his speech.

Consumer debt has increased from 87 per cent of disposable debt in 1990 to 164 per cent today. That is the highest consumer debt level of any of the G7 countries.

In 1999 61 per cent of people age 55 to 64 held personal debt. As of 2012 personal debt was held by 70 per cent of Canadians the same age.

Forty-three per cent of Canadians age 65 and over have debt. This is an increase from just 27 per cent in the year 1999. Is that rise in debt just a sign of the times or should we be worried?

Concern is justified because the fastest growing number of bankruptcies are the older Canadians. In the age of retirement there should be enough funds accumulated to pay for your desired lifestyle.

The retirement lifestyle dream is now replaced by bankruptcy at a time when we have very low interest rates. These rates will appreciate but no one knows when.

Interest rates will rise and we won’t be able to afford high priced houses. Real estate values could decline. If the downward cycle starts then the financial pain will spread.

Our recommendation is to take an objective view of your personal finances. Develop a strategy to reduce personal debt.

Do not be lulled into self-complacency and believe that the good times will last forever. They never do.

Previous generations influenced by the depression and having less were more financially realistic. We are not and we often live beyond our means.

Now is the time to change. Pay down your debt. If not now, when?