Canadians naive about how long they’ll be in debt

[Cowperson]

Your home is an asset and, current market kerfuffle aside, likely a tax-free appreciating asset through time, making it also an investment.

My own Rancho southwest of the city has at least doubled and more likely tripled from its original purchase price. Tax-free.

It's not uncommon in planning to see people thinking of their home as something of a tax free retirement bonus where they'll downsize in their older age and skim the profits off for use as income when their more liquid assets run out.

Debt, attached to a depreciating or appreciating asset, is really about having the cash flow to service it through a certain period of time.

Young folks tend to forget or lack the experience of knowing that income can be cyclical in relation to economies and they get cocky before they get laid off and have their pants around their ankles . . . . . . while older folks didn't pay enough attention to getting rid of debt while they were working and then found their reduced retirement income can't support it.

Concentrate on the cash flow. Can it support the debt and is that cash flow sustainable through the likely duration of the debt?

I encourage people to spend money on frivoulous experiences versus luxury cars and gigantic houses and, I think, older folks tend to understand that more. I like writing those cheques for them and usually have a smile on my face when I do so . . . . then demand to hear their stories.

I hope to die at 94 years of age outside a diner, stiffing VISA with a maxxed out credit card while giving the beautiful waitress my last $100 bill as a tip, shot dead on the sidewalk by a jealous teenage husband and the county having to pay the bill to cremate me.

Cowperson

[HPLovecraft]

And people said I was crazy for ruining my credit just so I could never be in debt! Now who's laughing?!

[Danijam]

Originally Posted by corporatejay

Being "in debt" is such a general and misleading term that it's ridiculous to get worked up about it, you need to dig much deeper to find out what someone's NAV is.

Nobody's worked up about indebtedness, but the simple fact is that whatever anyone's NAV is, if that person has debt they are not debt-free. Even if your debt to equity ratio is very good, say 1:4 (like your example), you still have something on the debt side of the ratio. You are not debt free.

[freedogger]

Mortgages will feel like debts if interest rates spike, you get layed off and everyone is trying to sell their houses.

[Cowperson]

Originally Posted by freedogger

Mortgages will feel like debts if interest rates spike, you get layed off and everyone is trying to sell their houses.

And they'll feel the opposite if rates stay flat, hiring fires up and the housing inventory overhang in the USA starts to disappear.

Just like all the other times.

That's life.

Cowperson

[squiggs96]

Originally Posted by blankall

Disagree.

I rent my place out. It's a business. A business where the assets exceed the debts and I build equity through it.

You even admitted you have debt. Yes, your assets exceed your debts, but you still have some debts. How do you disagree when you state you have debt?

[burn_this_city]

Originally Posted by Cowperson

I hope to die at 94 years of age outside a diner, stiffing VISA with a maxxed out credit card while giving the beautiful waitress my last $100 bill as a tip, shot dead on the sidewalk by a jealous teenage husband and the county having to pay the bill to cremate me.

Cowperson

Now thats an exit.

[Bring_Back_Shantz]

Originally Posted by Kerplunk

I have read in a few places that houses are best seen not as assets, but as liabilities. The reason being that, until you actually sell it (or rent it), it doesn't really make you money. If you think of it as an asset, you could see yourself as having a positive net worth, but still have an overall negative cash flow, which is what will really affect your day-to-day life, and how you can save for the future.

That exact same argument could be made for stocks & bonds, or really anything other than cold hard cash.

[Bring_Back_Shantz]

Originally Posted by Cowperson

Your home is an asset and, current market kerfuffle aside, likely a tax-free appreciating asset through time, making it also an investment.

My own Rancho southwest of the city has at least doubled and more likely tripled from its original purchase price. Tax-free.

It's not uncommon in planning to see people thinking of their home as something of a tax free retirement bonus where they'll downsize in their older age and skim the profits off for use as income when their more liquid assets run out.

Debt, attached to a depreciating or appreciating asset, is really about having the cash flow to service it through a certain period of time.

Young folks tend to forget or lack the experience of knowing that income can be cyclical in relation to economies and they get cocky before they get laid off and have their pants around their ankles . . . . . . while older folks didn't pay enough attention to getting rid of debt while they were working and then found their reduced retirement income can't support it.

Concentrate on the cash flow. Can it support the debt and is that cash flow sustainable through the likely duration of the debt?

I encourage people to spend money on frivoulous experiences versus luxury cars and gigantic houses and, I think, older folks tend to understand that more. I like writing those cheques for them and usually have a smile on my face when I do so . . . . then demand to hear their stories.

I hope to die at 94 years of age outside a diner, stiffing VISA with a maxxed out credit card while giving the beautiful waitress my last $100 bill as a tip, shot dead on the sidewalk by a jealous teenage husband and the county having to pay the bill to cremate me.

Cowperson

You better get spending then.
2014 is coming pretty quickly.

[yads]

Originally Posted by blankall

valuations of cash assets change day to day too...what's your point.

I have a mortgage where the value of the house exceeds the amount I owe to the bank. I don't consider that a debt. In fact, if I wanted, I could further leverage the equity I own in the house. It's more like I own part of the house than I am in debt. Without the mortgage, I would own none of the house.

Wtf? If I have $25K in cash in my savings account I don't have to check each day to make sure it didn't go down in value.

Answer this question please. In your mortgage contract, what happens when you miss a payment? If the answer is, you would default on the loan, you have debt.

[corporatejay]

Originally Posted by yads

Wtf? If I have $25K in cash in my savings account I don't have to check each day to make sure it didn't go down in value.

Answer this question please. In your mortgage contract, what happens when you miss a payment? If the answer is, you would default on the loan, you have debt.

If you have $25,000 in a savings account I can tell you right now that each day it is going down in value.

[Travis Munroe]

Those jumping on my back need to look at my side of this from the studys stand point.
Are Canadians that stupid? Those 18-24 picked 32 to be debt free? Who in their right mind is going to have their mortgage paid off in 10 years? Obviously there are going to be some but based on the study I find it tough to believe that they are considering a mortgage as debt.

[Kerplunk]

Originally Posted by Phanuthier

Its a fixed asset. I think you maybe mean a investment? The idea you're probably thinking about is, you are always living in a house, so if your house is an investment and you liquidate it, then you don't have a place to life.

No, I don't mean an investment. In the text "Personal finance" (Kapoor/Dlabay/Hughes), it had a section on the idea of looking at your house as a liability when creating your financial plans. The central thought was that, because until the time you sell it, it will most likely be requiring money for upkeep, and should be regarded as a liability in your plans (which would revolve mostly around cash flow). However, it is still a fixed asset when you are looking at your overall net worth (i.e. something worth something, but not immediately convertable to cash). I tried to separate out the ideas of an asset in net worth vs cash flow when I made the comment...I obviously missed.

[squiggs96]

If each month when you get your pay cheque(s) and you are allowed to keep it all or spend it how you wish, than you likely have debt. I have to use a portion of mine to pay down my mortgage (LOC in my case), as I didn't have enough cash on hand when I bought my house. I have to pay the bank some money each month, since I have debt.

You can call it good debt, bad debt, net equity, etc. but I still have a debt at this time.

[yads]

Originally Posted by corporatejay

If you have $25,000 in a savings account I can tell you right now that each day it is going down in value.

Let's not get pedantic. The original quote was implying cash needs to be marked to market on a constant basis and that's obviously not the case.

[bizaro86]

Originally Posted by Realtor 1

Those jumping on my back need to look at my side of this from the studys stand point.
Are Canadians that stupid? Those 18-24 picked 32 to be debt free? Who in their right mind is going to have their mortgage paid off in 10 years? Obviously there are going to be some but based on the study I find it tough to believe that they are considering a mortgage as debt.

I bet most of the 18-24 year old's in the study don't have a mortgage, and figure they'll have their student/car loans paid off by then. People don't think long term, and probably don't realize they'll end up buying into the middle class lifestyle just like thier parents.

[Slava]

Originally Posted by yads

Wtf? If I have $25K in cash in my savings account I don't have to check each day to make sure it didn't go down in value.

Answer this question please. In your mortgage contract, what happens when you miss a payment? If the answer is, you would default on the loan, you have debt.

Originally Posted by corporatejay

If you have $25,000 in a savings account I can tell you right now that each day it is going down in value.

Well the other good news is that you don't need to check whether it went up either!

[afc wimbledon]

The trouble with houses as an asset is that while it is rare, there are times when you just can't sell the #######, no matter how cheap you list it. These periods don't last long, 6 months or so as the market implodes and 40 or 50 percent gets knocked off the value, but it happens every now and then, usually when the interest rates top over 10%. If you have to remortgage at this point it doesn't matter what principle you have in the house or how small the mortgage is, if you can't make the payments and you cant sell the house you are hooped. We have had a generally rising market for so long people forget that we can and have had decade long dead markets.

The idea that a house is an asset is predilated on the idea that the real estate market will only ever 'correct' for short periods of time, that as long as you can hold on for a year or two things will return to 'normal', at some point we will go into a decade long 'correction' and a bit of reality will be injected back into the market.

[chemgear]

Originally Posted by Realtor 1

Are Canadians that stupid? Those 18-24 picked 32 to be debt free?

Yes.

[chemgear]

Another quarter update - nothing really new or surprising. Carney did point out that the debt loads are higher than in the US/UK already earlier this week.


http://business.financialpost.com/20...highs-statcan/


Canadian households are still borrowing more than they can afford, despite continued warnings from the Bank of Canada, the latest data from Statistics Canada showed Tuesday.

The ratio of credit market debt to personal disposable income rose to a new record high of 150.8% in the third quarter of 2011, the third straight quarter the figure has gone up.

“The greatest risk to the domestic economy is household debt,” Bank of Canada Governor Mark Carney said in an interview with the CBC on Tuesday morning, again sounding the alarm bell on excess borrowing.