Canadians naive about how long they’ll be in debt

[Flamenspiel]

Originally Posted by Traditional_Ale

As someone who doesn't use a credit card I find this disturbing. It's like the working class exist only to subsidize the entitlement of the middle class, while for all intents and purposes being owned by the 1%. It's amazing I still care enough to even post about it.

Well thats a very high level view, the question really is: How are you doing? The more you move towards high level opinion, the less meaningfull it is. You may be right, do i really care, probably not, i can only control my own finances.

If you use a credit card and pay it at the end of the month, its only debt until you pay it at the end of the month. Then you get a pile of points that can be used to save money. Am I comfortable with that? Yes.

[Fire]

Originally Posted by Flamenspiel

Well thats a very high level view, the question really is: How are you doing? The more you move towards high level opinion, the less meaningfull it is. You may be right, do i really care, probably not, i can only control my own finances.

If you use a credit card and pay it at the end of the month, its only debt until you pay it at the end of the month. Then you get a pile of points that can be used to save money. Am I comfortable with that? Yes.

My credit card pays me $50 every 2 or 3 months just for using it and I don't pay any fees. The poster sounds like my mom who refuses to use a credit card even though she can pay it off at the end of the month. You are losing out on free stuff!

[DownhillGoat]

Nm. Quoted the wrong post.

[Erick Estrada]

Originally Posted by chemgear

http://www.cbc.ca/news/canada/calgar...is-decima.html


The poll by Harris/Decima asked respondents how confident they were about being able to raise $2,000 within a month if an unexpected need arose.
While 55 per cent said they were extremely or very confident they could raise the cash, 92 per cent said they'd consider borrowing to come up with some of the cash.

One-in-five Canadians surveyed said they believe it would take them two months or longer to come up with $2,000, even if they could borrow. Among those who said they couldn't raise the money within a month, 26 per cent said they couldn't raise the money no matter how much time they were given.

"That's a lot of people who are already at their maximum borrowing capacity," Hoyes said.

Holy smokes that's terrible. I don't consider my wife and I great examples of managing money nor are we elite earners but we always ensure we have >$8k in an emergency savings account at all times.

[albertGQ]

Originally Posted by Erick Estrada

Holy smokes that's terrible. I don't consider my wife and I great examples of managing money nor are we elite earners but we always ensure we have >$8k in an emergency savings account at all times.

$8k? That seems like a lot. Is that just in a HISA?

[albertGQ]

Originally Posted by Fire

My credit card pays me $50 every 2 or 3 months just for using it and I don't pay any fees. The poster sounds like my mom who refuses to use a credit card even though she can pay it off at the end of the month. You are losing out on free stuff!

Same here. I just don't get people hunting down chequing accounts to try and get the most transactions they can at the lowest monthly fee. I know plenty of cards that offer you unlimited transactions with no fees. They're called credit cards. In fact, most give you rewards.

[polak]

And they build your credit.

I know people in their mid twenties with no credit score.

[Erick Estrada]

Originally Posted by albertGQ

$8k? That seems like a lot. Is that just in a HISA?

Yep. I still contribute monthly in a work pension fund as well as personal investments but I like to have some cash at all times. Even though I have never been fired or layed off in my career I've always been paranoid of not having a paycheque coming in so I always ensure that I have a few months of pay in reserve.

[Sliver]

Originally Posted by Traditional_Ale

As someone who doesn't use a credit card I find this disturbing. It's like the working class exist only to subsidize the entitlement of the middle class, while for all intents and purposes being owned by the 1%. It's amazing I still care enough to even post about it.

Why wouldn't you have a credit card? This makes no sense...

I've had a credit card for years and have never paid a fee, a penny in interest and have never taken a cash advance. Last month I cashed mine in for $600*. Free money for just paying for everything with my CC. I pay it off every few days.

[cDnStealth]

I don't understand people who don't have a credit card. I got one the day I turned 18 and I use it exclusively to build my credit rating. I try and follow a very simple principle. If I don't have the cash to be able to buy something then I simply don't buy it. I would never put something on my credit card that I couldn't pay off immediately. Obviously that changes when you're talking about a car or a house.

As for that survey, I have more than enough saved to be able to cover any sort of emergency that could crop up. If need be, with some extreme budgeting, I could raise $2000 in a month. I don't own a house though.

[V]

I have virtually no savings. Just enough that I can pay the bills every month. The rest of my cash has been converted to an investment account with varying levels liquidity. If I had to come up with $2k I would definitely use one of my 4 LOCs or any one of my CCs.

Savings are for suckers. What do you get these days, 1%?

[albertGQ]

Originally Posted by V

I have virtually no savings. Just enough that I can pay the bills every month. The rest of my cash has been converted to an investment account with varying levels liquidity. If I had to come up with $2k I would definitely use one of my 4 LOCs or any one of my CCs.

Savings are for suckers. What do you get these days, 1%?

I don't like to keep money in a low HISA account either. You're losing purchasing power that way. I like to put money on my mortgage or in my RRSPs. My wife and I each have a $10k (so $20k total) LOC with a $0 balance that we would use for an emergency. I keep my CIBC account balance at $1k minimum just so the monthly fee is waived.

[Sliver]

Yeah we have a HISA as well and consider it to be a joke. We have a LOC on standby for emergencies, too. Inflation is probably devaluing anything in a HISA faster than interest is accumulating.

[Cecil Terwilliger]

Originally Posted by Sliver

Yeah we have a HISA as well and consider it to be a joke. We have a LOC on standby for emergencies, too. Inflation is probably devaluing anything in a HISA faster than interest is accumulating.

Depends. Inflation in AB is only at about 1.1-1.3% right now. Pretty much every FI has some sort of HISA (or comparable product) paying about that much.

[Cowboy89]

Originally Posted by Cecil Terwilliger

Depends. Inflation in AB is only at about 1.1-1.3% right now. Pretty much every FI has some sort of HISA (or comparable product) paying about that much.

Unless your HISA is in a TFSA, then you're paying income tax on the interest income and thus losing to inflation. That's also inflation the way Stats Can / BOC calculates it, which includes a multitude of BS adjustments such as hedonic adjustments and substitute products. Inflation is more of a 'cost of survival' index than a true measure of what it really costs to maintain your standard of living. Ask the Financial advisors on CP here, one of the most common mistakes in managing money is people thinking they're being prudent by maxing their TFSA room using a HISA.

[llama64]

Overall my net worth is negative - I have debt. Considering this, there is almost zero reason to have "savings" while I have debt.

The way I understand personal finances - paying debt down is effectively a 100% return on investment. There is zero risk of losing money by paying down debt - aside from theoretical opportunity cost.

So aside from a small pool of emergency money, why would the average Canadian ever have savings while they have debt? I have yet to find any sort of investment strategy that increases my networth faster then debt repayment - especially if a good chunk of that debt isn't asset-backed.

(edit: things get a bit confusing when I start considering TFSA/RRSP to gain tax benefits - not quite sure how to model this)

Maybe I'm being stupid?

[llama64]

Originally Posted by bizaro86

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.

Yes and no.

My goal is to be debt free by 35. It means specifically credit card, credit line and student load debt gone. By my account, I'm a couple years ahead of that goal (woot!).

I also have a mortgage. But I don't consider it "debt" - it's a cost of living and certainly not an investment.

I don't quite understand the mentality of the people who use their credit card for purchases that they don't have the money for. I did that in my early twenties and am still paying for it. Never again.

[bizaro86]

Originally Posted by llama64

Yes and no.

My goal is to be debt free by 35. It means specifically credit card, credit line and student load debt gone. By my account, I'm a couple years ahead of that goal (woot!).

I also have a mortgage. But I don't consider it "debt" - it's a cost of living and certainly not an investment.

I don't quite understand the mentality of the people who use their credit card for purchases that they don't have the money for. I did that in my early twenties and am still paying for it. Never again.

Yeah, that's pretty much what I meant. I suspect most of the people in the study will get a mortgage, and won't have it paid off by 35. So either they're not looking that far into the future, or don't consider it debt.

I'm on track to have my mortgage paid off in my late 30s, so 35 is certainly possible, but it wouldn't be easy. Probably the easiest way would be buying a home dramatically less expensive than your income would allow for, and paying much higher payments.

[Bring_Back_Shantz]

Originally Posted by bizaro86

Yeah, that's pretty much what I meant. I suspect most of the people in the study will get a mortgage, and won't have it paid off by 35. So either they're not looking that far into the future, or don't consider it debt.

I'm on track to have my mortgage paid off in my late 30s, so 35 is certainly possible, but it wouldn't be easy. Probably the easiest way would be buying a home dramatically less expensive than your income would allow for, and paying much higher payments.

I think that right there is one of the biggest problems right now.
Everyone wants the nicest house they can "afford".
Just because you qualify for a $xxx mortgage, doesn't mean you can necessarily afford it.

Too many people are living it up, then get qualfied for a huge mortgage, buy the most expensive house they can "afford" basedon on what they qualified for, and then wonder why they can't afford it while they try to make their BMW payments and eat out 7 nights a week. God forbid you have to give up all the fancy dinners, so on to the credit card it goes, and the debt starts racking up.

[polak]

Originally Posted by llama64

Yes and no.
I don't quite understand the mentality of the people who use their credit card for purchases that they don't have the money for. I did that in my early twenties and am still paying for it. Never again.

I did that when I was a little younger too. Nothing crazy but I definitely went on a few trips that I probably couldn't afford at the time. I don't regret it for a second though. I was still a student and there was no way I would be able to do anything "fun" if I didn't rack up a little debt. Now I have a job, Its paid off and I have the additional memories to go with it. In the long run I paid a few hundered in interest to have some of the best times I'll probably ever have.

I would hate to graduate post-secondary, get a job and just THEN start to live a little during your meager two weeks of vacation.