The effects of low interest rates

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Interest rates in Canada are low. Rock bottom low.

You might expect people to be ecstatic at being able to pay such historically low interest rates on household debt. This is not the case.

The current day financial environment for Canadians can be summarized in one word. Worry.

A September 4, 2019 survey by the Canadian Payroll Association found 43 per cent of workers are so stressed about their finances that it has resulted in poor workplace performance.

The roller coaster ride of interest rates has had and will continue to have many casualties.

Most people with an informed opinion, including political leaders, senior members of the Bank of Canada, and financial journalists, have warned about the dangers of over borrowing.

Intellectually I think many consumers understand the risk of potentially higher interest rates in the future. Unfortunately, emotionally, they can’t resist the temptation to push up household debt to historically high levels because it is relatively inexpensive to carry.

Overspending is an epidemic. It is just a matter of time before interest rates increase. This will lead to financial devastation for many.

Families will lose their homes because of an inability to make regular mortgage payments in a new higher interest rate environment.

Personal stress will be through the roof. It is well known that stress can influence everything from marriage breakdowns to declining health.

On the other side of the spectrum, there are those who have paid down personal debt over several decades in the workforce and are looking forward to a happy and secure retirement. This group would love to have high interest rates similar to those available to previous generations. Many of their parents retired with the ability to invest in safe fixed income products that paid a double-digit rate of interest.

Those days are gone.

One of the biggest personal financial planning dangers of our time is extremely low interest rates. I recommend understanding how this will impact your financial health.