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October 27, 2017 4:50 pm

Canadians Concerned About Increases to Interest Rates

Monday, July 3, 2017 @ 7:10 AM

Prince George, B.C.- According to a new survey by MNP, a personal insolvency practice, 45% of  Canadians  are concerned  about the impact of rising interest rates on their financial situation.

“We’ve been living with this ‘minimum payment mentality’ for so long because of low interest rates” says Grant Bazian, President at MNP LDT “Many have taken on debt without considering the affordability if and when interest rates rise,”.

72% rate their ability to cope with a 1% interest rate increase as less than optimal. Just one in four Canadians (23%) say they could absorb an additional $130 per month in interest payments on debt.

The survey  also  revealed  other financial concerns. 30% agreeing they’re worried that they or someone in their household could lose their job.

Though a majority of Canadians (56%) say they won’t be going on vacation this summer, the time off won’t come cheap for the 44% who will.

Canadians who plan to spend money on a summer vacation this year will, on average, spend $2,149.20, when all expenses such as travel, accommodation, meals and entertainment are factored in. Just 8% say they’ll spend less than $500 on their summer vacation (including 2% who claim they won’t spend a dime), while 10% say  they will fork out $3,000 or more.

Summer holidaymakers will primarily finance their vacation with cash and savings 84%.  The  balance say they will  finance their vacation  through  debt, such as borrowing, a line of credit, or a credit card.

“Summer is a lot like a holiday season; there is more spending and most people haven’t saved for it,” says Bazian. “My advice is simple: do not go into debt to pay for a vacation.”



It would be interesting to see some analysis on the extent to which the debt crisis is self induced (e.g. purchasing more house than what one needs, expensive new vehicles when more modest choices would be fine, etc.), as opposed to those who are legitimately living paycheque to paycheque, all the while being fiscally responsible but having to use short-term debt for various needs (e.g. school supplies, car repairs, daycare, etc.).

My gut tells me that a significant portion of the population is over extended because of spending habits, not out of need.

Of course this would open up an entire debate about what is a “need” vs. what is a “want” . . .

    Easy one to analyse. Its 100% self induced because behind every dollar is a person making a decision on how to allocate that dollar.

    Take a walk/drive/bike through some of these new neighborhoods and count the depreciating assets sitting siting in the driveways upon the gigantic mortgage for the new houses. Although you cant gain insight on anyone’s personal financial situation in this case but one thing is for certain. The banks lately have been lending quite recklessly to the point where they are lending above personal income.

    The pinch is coming..

      It would be interesting to know how many depreciating assets you own, while criticizing others for owning a car, truck, boat, trailer or combination thereof. Let me guess. You bought all of your depreciating assets and your place of residence with cash and without need of borrowing, right? :rolleyes:

    It would indeed be interesting to see an analysis of that, NMG. My own suspicions are that a lot of today’s burgeoning personal debt is caused by well-intentioned government mandated regulations that no one has ever taken the time or effort to properly cost out and see whether those they apply to, (all of us, virtually), have the necessary disposable incomes to afford them.

    A few examples would be the current cost of installing a modern septic tank system as per today’s requirements on any rural property not serviced by sewer. That runs around $ 25,000 where we are. Quite a sizeable chunk of change to come up with for most people. Versus the average of around $ 700 prior to that regulation taking effect. Another one would be the cost of staying in compliance with AirCare regulations if you have a vehicle in the Vancouver area. The requirements for builders to come up with literally obscene Development Cost Charges exacted by many municipalities, and added onto the price of new houses. There are probably dozens and dozens of similar rules, most likely put in with the best of intentions, but none the less costly for the regulated to be in compliance with.

    As regards the cost of housing, I had several relatives who moved into their houses once they were framed up to the lock up stage, and then finished them off themselves, one room at a time, as they could afford to. One uncle took 25 years to get the steps in to the front door! But they were mortgage free long before that. Nowadays you can’t do that. The house has to be finished, or you don’t get an Occupancy Permit, and can’t move in. So people are pushed further and further into debt. They’re not all prolific spenders.

      AirCare ended Dec 31, 2014, so that cost no longer exists.

      Well, maybe there’s hope for us after all. Faint hope. I wonder how many were forced into debt trying to get the old clunker to exhaust within the AirCare limits? Or buy a new one, when the risk of not being able to get into compliance with the car they had was judged too high?

      Air Care had a limit on how much you were required to spend trying to meet the standards, it was something like 200 bucks. All you needed was to show you spend that paltry sum and you were issued a pass. If a couple of hundred bucks was going to force you into destitution you probably should have ditched the clunker long before that.

      Cars are not needed in Vancouver.

      I agree 100% that the associated costs of owning your own home such as those outlined by socredible are huge, and are basically a rip off.

      Notice that the comments delve into air care, and ignore the bigger costs mentioned.??

the good thing about this is investments and savings accounts will finally be getting an increase in interest paid to them. 1/2 of 1% a year is ridiculous

    The “1/2 a percent a year” in interest PAID on your bank deposits is about as low as it could get if the myth that the banks are loaning out YOUR money when they make a loan is to be maintained.

    Banks are not, as many people still believe, simply intermediaries between lenders and borrowers. They are, rather, the manufacturers of financial credit. Whenever they lend, or spend, for any purpose whatsoever, (buying securities, government or private, or to meet their own operating expenses), they are creating entirely new money.

    There is no longer any ‘reserve ratio’ requirement in Canada, as there once was. When that was in effect, banks had to attract more customer deposits to be able to write more loans. And one of the ways they did that was to offer a better interest rate on your savings deposits than their competitors. That’s long gone. The reserve ratio used to be somewhere around 10%. Meaning, not as most people still believe, and as is still taught in some economic textbooks, that a bank could lend out 90% of what it had on deposit from customers, but rather that it could lend out however much its customer deposits were 10% OF.

Kind of a double edged article . The winners will be the ones free of debt and Meyers , Norris and penny , now MNP LTD . bcracer if that’s what you are getting for lending your money , you need help .

    they aren’t getting that much for that rate.

I know this may sound odd, but the big players to debt is the “Banks”. They know what they are doing in understanding human nature (make credit readily available and we’ll have people eating out of our hands). As a result of this financial assault we have over priced homes and cars (the two biggest ticket items for the average worker). Of coarse anyone having a 300 or 400 and up mortgage, or big lines of credit will feel a 1 percent increase in interest. They the “Banks” want financial slaves.

    Human nature ? I’d say the problem is rampant financial illiteracy . You don’t have to be Financially Illiterate to be a rat racer but it sure helps .

    I honestly think the game the banks are playing these days is free cash flow from service fees. If a debt/liquidity crisis were to strike they can amortize the debt longer on their balance sheets while issuing more stock/options to keep the lights on during a crisis.

I have to agree with both your posts Ataloss! Most people have time for Netflix or reality TV, but can’t bother to read a couple financial books that can save thousands if not millions over their lifetime.

You had us guessing on your favourite book awhile back. Did you ever divulge the name?

    I didn’t divulge because everyone wanted to make it a guessing game and no one asked .

      I’m positive people asked but you refused to share that info.

Maybe the NDP could propose that the tax payers pick up the extra interest payments on these peoples loans.

    Don’t give them any ideas! :)

Okay I guessed Affluenza! What is your recommendation as a good financial book to read?

    If you have swallowed the RRSP mutual fund scam , read The Naked Investor . If you are a rat racer ( which I was ) read ” What the rich teach their kids , that the poor and middle class don’t by robert kyosaki . Roberts book is a primer for financial literacy . It’s written so that a ten year old can understand it and has other book recommendations and other books . If you have multiple debt streams and you want out , don’t look at the balance of each stream . Look instead at the highest interest rated debt and go after that one first . When you put that one to rest go after the next highest . It’s like the debt snowball in reverse . The further out of debt you become , the faster it works . I owe Suzy Orman credit for that gem . Being out of debt opens the door to serious investments . The most important gem is understanding the difference between assets verses liabilities . The banks call your cars , boats and houses etc assets . This is true but not for you . They are assets for the lenders because they put money in the pockets of the lenders . Assets put money in your pocket , liabilities take money out of your pocket . I hope this helps some . It has made us comfortable .

      I have to give Robert K and Suzy O credit for sharpening my financial literacy back in my early 20’s. Having said that there are limitations to their teachings and they are pretty much only good for a quick shot of adrenaline when you get side tracked. One has to remember that they didn’t get successful just based on their theory’s alone. They are both well seasoned entrepreneur’s and essentially walking billboards. I actually think Robert K lately has been more of a snake oil salesmen lately though..

      I both agree and disagree with their definition of an asset. I agree when they are applying the accounting definition to it in order to get out of debt. However a seasoned investor has a totally different definition of an asset which can be anything that one can use for utility in order to achieve a gain or use. Robert K says your house is a liability..However if a creditor were to seize your house, car, property ect..They aren’t there to seize your “liabilities” they are there to seize your “assets”. I’m not critizising this, I just think people need to be cautioned and use the term asset to its definitions.

      If someone wants to turbo charge their financial situation put Rober K and Suzy O on the back burner and dive into Begamin Graham. The term “enterprising” is a pretty powerful overlooked term..

      When the lenders come to seize their assets , your liabilities on those assets remain and they are free to sell their assets once again . Suzy and robert were only the very beginning of my finacial literacy . It took a great deal of reading before I could spot the man behind the curtain .

      Ataloss, according to you, “The most important gem is understanding the difference between assets verses liabilities” and “Assets put money in your pocket , liabilities take money out of your pocket”.

      So. let me get this straight, “income generating” assets, some of which are currently financed, are not actually assets but are instead liabilities? And here I thought that I was doing ok by carrying some “tax-deductible” debt!

      When speaking of debt as a liability, you can’t forget to differentiate between good debt (tax-deductible debt) and bad debt (non-deductible debt)!

      The most important gem is understanding the difference between assets verses liabilities . The banks call your cars , boats and houses etc assets . This is true but not for you . They are assets for the lenders because they put money in the pockets of the lenders.


      Who do they become assets for once they are paid off and no longer putting money into the pockets of the lenders?

      NMG, it would be a depreciating asset and only deductible if it were generating rent or otherwise used as charter eg. example a boat . And if sold the money would be an asset that one could put to work generating cap gain and or income .

      HG , that’s what robert kyosaki also deals with , good debt if the spread is wide enough to call it an asset . And bad debt . There’s also a hold your own mortgage similar to “the smith maneuver ” thing . But let’s not get into that .

      NMG, it would be a depreciating asset and only deductible if it were generating rent or otherwise used as charter eg. example a boat . And if sold the money would be an asset that one could put to work generating cap gain and or income .


      Why not take it to the extreme? Sell everything you own and invest it. Don’t have a house, live in a tent. Don’t have a car, walk everywhere. Don’t buy new clothes, just keep patching the ones you have now. Etc.

      I see what you are saying, but I think you’re mixing a bunch of different subjects together. You’re talking about strategies to eliminate debt and accumulate wealth. Other people are talking about tax strategies. Other people are simply talking about being financially responsible in how they go about their day to day lives.

      So long as it is managed responsibly, I don’t think debt is inherently bad. Being house poor, racking up credit cards on purchases that you can’t even remember or having to consolidate loans every two years because you’ve gone beyond your capacity to manage your monthly obligations is clearly another situation altogether.

To many young people with huge houses and all the toys.. living payday to payday..

But the banks keep lending them money……

    Went in looking for a 220k mortgage..The bank said I was good for 550k and was pretty much begging me to look for a bigger house..

      I think allot of people have a budget in mind, go into the bank and see the “approved for” amount and increase their budget based on what the bank is willing to lend them, to heck with what they decided was affordable for them before going in.

      I find the psychological aspect of it very interesting and I can’t help but assume that the bank fully understands what they’re doing here, with respect to the study of behavioural economics, nudge theory, etc.

    “To many young people with huge houses and all the toys.. living payday to payday..

    But the banks keep lending them money……”
    Because if they didn’t the whole system would collapse into a depression. As it is, it’s like an unstable spinning plate balanced on the end of a pencil. It lurches towards massive unemployment one way, and when the holder moves the pencil to correct that, it lurches towards hyper-inflation the other way.

    And so we see that reflected in our politics. One group pushing ‘borrow, tax and spend’; its opponents subsequently calling for ‘austerity’ ~ and no group, no matter what moniker it operates under, consistent if it wants to survive.

    The simple fact is, those who control the issuance and withdrawal of financial credit are NOT, and never have been, elected politicians. Maybe that’s a good thing, in a certain way, but it means that the tail is wagging the dog, and that money is not as it should be ~ an accounting system that is able to reflect what actually can be physically done by individuals as individuals, and also collectively via their governments, but something that DETERMINES what will be done to serve the best perceived interests of the clique that controls it.

To bad most people won’t take the time to do a little research. Most people just aren’t interested though!

We needed $70,000.00 to buy our town home. The bank gave us a $200,000.00 line of credit. When I said why that amount the reply was, well maybe you had other needs. The balance remains in our checking account to this day just waiting to be spent and pay interest on.

    $130,000 in a chequing account is not very wise.

      But isn’t a ‘line of credit’ not subject to interest until it’s actually drawn upon? So it’s really not in his chequing account right now, as a deposit, but would be covered by the bank up to the balance still available if Retired02 wanted to write a cheque, or cheques, to that amount? Of course, he’d likely be subject to some fee for having this privilege, but not interest as we’d generally view it.

      The way it’s worded led me to believe it’s in his chequing account? I dunno, he did say the balance is in his chequing account. My line of credit account is seperate from my chequing account but I can transfer money between the two.

Your right socrediable, as I pointed out the bank wants me to use it so they can start collecting interest fees. And you should of herd the song and dance we got later when we told the bank we were going to pay out the loan that we did had with them.

As another note we dealt with Scoctia bank for many years but when I learned that the CEO was getting $10,000,000.00 per year it was hello credit union.

    Vancity CEO made $990,022 in compensation for 2016. That’s not too bad either. You can try to look up your Credit Union’s CEO salary, they don’t make it easy though!

    The salaries some CEO’s get seem quite obscene, as do the corporate profit levels that would have to be engendered to pay such stipends.

    So it might come as some surprise that if we looked at those profits closely, not just the huge dollar amounts they’re expressed in, but rather as a percentage of the amount of business needed to be done to earn them, we’d likely find that even for banks (and credit unions, too), like most other businesses, that over time they’re actually FALLING relative to ‘sales’ made, (‘loans’, in the case of the banks). This is one of the reasons for the plethora of service fees we’re now hit with at all financial institutions.

    Many credit unions have attempted to correct this by merging with one another. The big banks would do the same thing if they’d been allowed to, and in all likelihood next time they make that proposal they will be. They’re only following what other large entities did in other industries. The emergence of a very few huge players in the forest industry is but one example.

    If anyone ever studies the corporate histories of some of the companies involved there, it becomes quickly apparent that the ‘economies of scale’ hoped for largely failed to materialise. Profits, taken as a percentage of sales, continued to decline. And eventually the merged entities, on the Coast at least, literally dis-integrated. There are reasons why this happened. But we haven’t yet got to the point where there’s any political will to look for them.

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