Canadians 'drowning in debt': 47% will borrow to cover costs, survey says

[Rubicant]

Originally Posted by Wormius

^^^ Isn't that still free money to your kids if they decide to use it for education?

Well yes, but you only get grant money for up to 2500 or contributions per year per kid.

On top of that there isn’t as much of an advantage imo to contributing to an resp. Might as well just invest it some other way so it’s not locked into an resp, although I’m sure Slava or moneyguy will correct me if I’m wrong.

[Table 5]

Originally Posted by Sliver

The best thing about cars as a hobby is it costs barely anything if you time things right.

Funnily enough, when I look back at some of my smartest "investments", pretty much all of them involve things that I would classify as hobbies. A car that tripled in value, camera gear that quadrupled, furniture that I could sell for the exact price I bought in 10 years ago etc. The best part is that I get to enjoy all this stuff while it maintains or gains value.

On the other hand every time I try to be s-m-r-t with money, whether it's with genius stock picks or timing real estate, I get hosed.

[Calgary14]

Another myth is that housing only goes nowhere but up and real estate offers the highest rates of return. Reality is that some markets, especially Calgary, have suffered mediocre/terrible returns.

A single family home bought in 2009 for $400k that is now $475k – average annual rate of return ~2%.

A single family home bought in 2009 for $600k that is now $725K – average annual rate of return ~2%.

And that doesn’t even take into account property taxes, maintenance, repairs, upgrades, renovations, and everything else that goes along with a property.

[DoubleF]

Originally Posted by Fuzz

What, the Lexus with the alien mouth? Cute?

This was a decade or so ago? I still don't fully understand the concept of cute, but back then it surely looked better than the black widow beaks, no?

Originally Posted by you&me

You're conflating the general population, which is the topic of this thread and "rich" people doing rich people things, which was a recent tangent.

You're right - a lot of people (maybe, like, 47%) would take on payments only to spend the difference on stupid crap.

Rich people, as mentioned earlier, will have the wherewithal and responsibility to reinvest the capital saved through financing depreciating assets into higher performing investments. This is not something expected of the broader population, but does speak to the fact that "rich" people look at and treat their purchases differently, further contributing to their status as "rich".

Same idea applies to your second point about renting. "Rich" people that actively manage their finances would probably look at the recent performance and outlook of the Calgary housing market and easily conclude that renting makes more sense (I know several 7-figure income earners that are renters for this exact reason). You correctly pointed out that this is not something the average person has the ability to properly think about from an opportunity cost/ROI perspective, but again, this thread isn't about "rich" people's spending habits.

Actually, I was more trying to Juxtapose than conflate. You're correct though. The average person who has $50K lying around is not leaving $50K in a bank account and rushing out to buy a car with that cash (Although I literally know someone who recently won a small lottery winnings for approx $40K, then cash downed on a vehicle ). They invest and then liquidate the investment as little as possible. Liquidating a significant portion of investments to buy a $50K car is a dumb from a tax and working capital perspective.

I hate being a millennial re-definer, but rich is such a poor term nowadays with the way it's been misused. I think part of the confusion of my comment is the difference between a financially prudent individual and some idiot who somehow lands a large sum of money and doesn't know what to do with it. There are plenty of people who live and look rich on the outside (thus spending habits), but on the inside they're up to their eyeballs in debt. You're talking about rich in the manner about someone's net worth being a large sum, not an individual whose net assets are significant, right?

[Table 5]

Originally Posted by Calgary14

Another myth is that housing only goes nowhere but up and real estate offers the highest rates of return.

Even with a mediocre return, the one really good thing about buying your own home is that's it's a forced investment. Everybody always has genius investment theories or plans...and then promptly forgets to do them, or spends their money on dumb crap instead. A monthly mortgage forces you to at least put it towards an asset (and one you can use in the meantime). There's always a better way to make more money, but the reality is that most of us are too lazy or have too much going on to take action. 2% is better than 0% (or worse).

[bizaro86]

Originally Posted by Slava

It's probably the opposite though. People who don't save and have no plan for retirement probably don't think they need my services, so I see less of them than I do people who want to plan and have money saved. I get lots of people retired though, and they weren't in a good position for that before we put things together. But anyway, this isn't about a sales pitch for me and my services.

It's hard to come to a percentage on how many over-save though because I haven't done a good analysis of that. I think that there can be a question between how much someone has saved for retirement and how much of that can be safely used as income each year. But look at it from this angle. If you are retiring today, say at 65, we have to plan for you to live until 95. So you need 30 years of income. To keep it simple, let's say you have no company pension and some CPP/OAS (I used $18k/yr which puts you at the higher end of CPP) and you want $50k/year in after-tax dollars. I won't make allotments for reduction in spending as you age, and we won't get into what kind of return you can get or things like that. You need just under $1.5m to make that a reality.

To be entirely clear, no one should rely on that back of the envelope calculation and try to retire with it, as clearly YMMV. But that's a raw, no inflation, taxes totally estimated figure. So sure, you could withdraw money from a house, or have the cash in the bank or wherever, but over that 30 years you need that kind of cash coming in to sustain your lifestyle.

Ok, I know you said not to talk about tax rates or returns, but the person in your example needs $32k after tax per year for 30 years, or a total lifetime spend of $960k. I really don't think that person needs $1.5 MM, unless one of the unstated goals is to leave an estate of over $1MM.

For them to be out of money at age 95, you need to assume 33% taxes (which is greater than the marginal rate for that income level) and zero percent returns. I agree with those assumptions nobody is over saving.


A real return of 3% is reasonable. If the same retiree took 3% of their 1.5MM, that would be $45k pretax, or right around 32k aftertax. Leaving a $1.5MM estate. Imo being able to leave a 7 figure estate isn't a requirement to retire.

[Sliver]

Originally Posted by you&me

You're conflating the general population, which is the topic of this thread and "rich" people doing rich people things, which was a recent tangent.

You're right - a lot of people (maybe, like, 47%) would take on payments only to spend the difference on stupid crap.

Rich people, as mentioned earlier, will have the wherewithal and responsibility to reinvest the capital saved through financing depreciating assets into higher performing investments. This is not something expected of the broader population, but does speak to the fact that "rich" people look at and treat their purchases differently, further contributing to their status as "rich".

Same idea applies to your second point about renting. "Rich" people that actively manage their finances would probably look at the recent performance and outlook of the Calgary housing market and easily conclude that renting makes more sense (I know several 7-figure income earners that are renters for this exact reason). You correctly pointed out that this is not something the average person has the ability to properly think about from an opportunity cost/ROI perspective, but again, this thread isn't about "rich" people's spending habits.

Do you have any evidence to back this up? I don't think rich people finance cars. They just pay cash.

Here is some information on the motor vehicle acquisition orientations of millionaires from The Millionaire Next Door.

36.6% of millionaires (defined as annual incomes in excess of $300k and a net worth of ~$4 million) buy their vehicle used.

On average, they spent only 7.6 percent of their income on their most recent acquisition, and only 9.9 percent for their most expensive purchase. As a percentage of their net worth, these purchases represent only 0.68 and 0.89 percent of their net worth respectively.

Have you guessed that it is the used vehicle-prone shoppers? Used vehicle-prone shoppers are the most aggressive and most price-sensitive when it comes to acquiring motor vehicles. They shop using a wide variety of sources. And, on average, they pay significantly less for their vehicles than do members of the other groups.

Of all the types studied, used vehicle-prone shoppers are the most illuminating for those interested in studying the path to affluence. Why? Because of all the groups studied, its members have the highest ratio of net worth dollars for each dollar of income: For every one dollar used vehicle-prone shoppers realize in income, they have $17.2 of net worth. They have the lowest average income of all the groups, yet, on average, they have been able to accumulate more than $3 million. How did they do it? Their wealth development strategy is worth detailing.

As for leasing:

Those millionaires who lease vehicles are a minority—fewer than 20 percent. What was the “price” of their most recent acquisition/lease? We estimate that 50 percent leased vehicles that were priced at $31,680 or less. About 80 percent leased vehicles valued at or under $44,500. People often ask us,“Should I lease?” Our answer is always the same:
More than 80 percent of millionaires purchase their vehicles. If and when more than 50 percent begin leasing, we will change our recommendation.

How do millionaires go about acquiring motor vehicles?* About 81 percent purchase their vehicles. The balance lease. Only 23.5 percent of millionaires own new cars (see Table 4-1). Most have not purchased a car in the last two years. In fact, 25.2 percent have not purchased a motor vehicle in four or more years.

[bizaro86]

Originally Posted by Table 5

Funnily enough, when I look back at some of my smartest "investments", pretty much all of them involve things that I would classify as hobbies. A car that tripled in value, camera gear that quadrupled, furniture that I could sell for the exact price I bought in 10 years ago etc. The best part is that I get to enjoy all this stuff while it maintains or gains value.

On the other hand every time I try to be s-m-r-t with money, whether it's with genius stock picks or timing real estate, I get hosed.

I'm really interested in which furniture you bought that has held its value. I probably paid around 10k for my furniture, and I'd estimate its current value at right around $0. Most of it I could probably get someone to pick up if I listed it for free on kijiji

[Sliver]

Originally Posted by bizaro86

I'm really interested in which furniture you bought that has held its value. I probably paid around 10k for my furniture, and I'd estimate its current value at right around $0. Most of it I could probably get someone to pick up if I listed it for free on kijiji

Yeah, I suck super bad at selling furniture or something. I've had some nice stuff over the years and it's worth absolutely nothing every time I go to sell. Even in new condition.

[GoinAllTheWay]

Hmm, that's the other side I should mention. I typically hold on to vehicles long term. I've had my current car for almost 13 yrs. I like it when car payments end.

[Derek Sutton]

Originally Posted by Weitz

Is it? If you find the vehicle that fits what you want take a look at the 2 year old models (likely a rental or lease return) and compare to the brand new. Your interest rate is going to be much higher on that 2 year old car, the savings you get are not going to be as much if you factor in the additional costs to borrow, and then the potential of an abused vehicle also needs to be factored it.

Now every situation is different but you have to look at everything.

I go through this daily, a used truck for $35,000 at 6.49%= $50,000 new truck at 0% when it comes to monthly payments.

Originally Posted by CliffFletcher

More than half of new car loans in Canada today are financed for seven years or longer. Less than 10 per cent of American car purchases are financed with long-term loans.

And a third of Canadians are still paying off the loan on the car they trade in when they finance their next car.

https://www.cbc.ca/news/business/deb...term-1.4863737

This really is a cultural sea change.

The last line does not go far enough, many Canadians are have not paid a single dime towards the principle on their current vehicle and are in fact still paying off their PREVIOUS vehilce, as well as the interest, their extended warranty, and GST on their current vehicle while shopping and looking to trade in for their next vehicle. I sell cars for a living and it is constantly a head scratcher.

[Flamenspiel]

Nm

[DuffMan]

What's weird is I see a Capital Direct loans consolidation banner ad up top now.

[V]

I bought a couch and love seat for 200 bucks second hand and I’ve had them for 15 years and they’re still going strong. I bet I could get 200 bucks for them if I sold them today.

[Geraldsh]

“The rich stay rich by living like they’re poor,
The poor stay poor by living like they’re rich”

I don’t know who said it but it’s sure true.

[blankall]

Originally Posted by Calgary14

Another myth is that housing only goes nowhere but up and real estate offers the highest rates of return. Reality is that some markets, especially Calgary, have suffered mediocre/terrible returns.

A single family home bought in 2009 for $400k that is now $475k – average annual rate of return ~2%.

A single family home bought in 2009 for $600k that is now $725K – average annual rate of return ~2%.

And that doesn’t even take into account property taxes, maintenance, repairs, upgrades, renovations, and everything else that goes along with a property.

You do have to pay to live somewhere though. It's not always a guarantee that you property will rise dramatically over time, but your rent definitely will. If you've borrowed properly, then you should be paying more for a mortgage than you would for rent for the first 5 years or so...and then dramatically less afterwards, plus you have the capital gains, which is tax free. Eventually you'll be living mortgage free. The landlord will always want their rent.

Renting has its own costs too. Frequent moves can be both economically and psychologically tolling.

[Jacks]

Originally Posted by blankall

You do have to pay to live somewhere though. It's not always a guarantee that you property will rise dramatically over time, but your rent definitely will. If you've borrowed properly, then you should be paying more for a mortgage than you would for rent for the first 5 years or so...and then dramatically less afterwards, plus you have the capital gains, which is tax free. Eventually you'll be living mortgage free. The landlord will always want their rent.

Renting has its own costs too. Frequent moves can be both economically and psychologically tolling.

Exactly, you have to live somewhere and that costs money. Unless property prices are dropping you are better off owning in my opinion. I'd never want to deal with a landlord again.

[Johnny199r]

I live a new apartment building. It's great for me. I can't imagine paying taxes or replacing appliances. I even have a 2 story gym. I sock half my salary away to invest. Everyone has different preferences.

[curves2000]

I've always found the way people look at their home, their primary residence as some sort of magical "investment" interesting. It's interesting in the sense that a lot of people look at it like they do their stock portfolio, a self employed business person would or how someone in the real estate business does. Rarely do people treat it like they would the above.

I won't get into the own vs rent debate very much but there are a lot of basic differences that others have highlighted here.

You do need to live somewhere and being your own landlord, having your own property and looking after it does have a lot of benefits. Don't get too caught up on the value of the home, that's literally only important if you are needing to sell or you need to borrow against the value of the home. Market changes from year to year for someone who isn't selling or borrowing in some ways can be irrelevant. Very few people who have the ability to afford their current home, have had very little change in their financial picture make the "change" in their primary residence.

If you think about a stock portfolio or a business, your going to make the adjustments and the needed moves in order to continue to achieve your returns. People don't make drastic changes to their primary residence for value purposes based on a sale down the street but they do when they are in the real estate business.

At the end of the day, for people who only have 1 property and view it as some magical investment, it's not the best use of capital to continue to fund changes that doesn't serve a real purpose. It's shelter, a roof over your head. Far too often people are spending a massive amount of money for the appearance of the home in the hope new kitchen cabinets or a renovated bathroom will bring them some new found wealth. That capital could be very well better suited to reduce the mortgage which will free up cash flow to invest in another property or to make other investments to generate other revenue.

Heck, how many people will spend thousands to make changes to their kitchen but won't spend thousands to get additional training, schooling, certifications or business credentials for their primary income? I actually have friends of mine who spend more money on their home's kitchens than their kitchen in their restaurant. They will frown upon spending money in their business for growth but won't bat an eye if the wife gives them the gears to upgrade the houses's kitchen with all new "chef inspired" toys.

It's interesting when you look at it like that.

[Table 5]

Originally Posted by bizaro86

I'm really interested in which furniture you bought that has held its value. I probably paid around 10k for my furniture, and I'd estimate its current value at right around $0. Most of it I could probably get someone to pick up if I listed it for free on kijiji

We tend to buy used design-classics by quality manufacturers...ie Knoll, Haller, Vitra, Cassina, Herman Miller etc. It's often really well-built furniture that was designed in the first half of the 20th century...stuff that is considered timeless, so you never have to worry about it being some fad. It's not cheap, but often times it's a better value long term.

The key though is to buy quality (ie. stuff made by countries like Germany, USA, Italy, Switzerland, Denmark, Japan, etc) not fakes or repros or stuff from the Brick (ie. stuff made in China). The good stuff is really well built, so it will last generations...which also means you can buy it used without worrying if it will hold up. All furniture will lose value from new, but a well-maintained design classic will not lose its value beyond a certain point. I like to buy it at that point!

We also buy for the long-term. If I'm buying a dining table, I want it to last for 20-30 years so I don't have to buy another. Which is why I'll buy the quality item...which again, will not lose any value after a certain point because it's a desirable item.

There is plenty of it out there. Kijiji, estate sales, online, etc. For example I see tons of great mid-century furniture on Kijiji that has 10x the build quality of anything new today.

Apart from the value aspect, I think buying quality items is better for the environment, and it feels good to support craftsmen who still give a crap.