We’ve had a lot of analysis being conducted for our clients on the question of whether they should pay down more debt, vs investing, downsizing home to have little or no mortgage, etc. Getting the answer to these questions right is a real challenge. Without a doubt, it’s the fairly rapid, albeit telegraphed, rise in interest rates in the last 12 months that has made this a significant consideration.
With this rapid increase in interest rates and high inflation, alongside the end of government support programs, the servicing of Canadian consumer debt has become tremendously more difficult than it was just one year ago.
Its not a competition but for what it’s worth, If there was a time for the Canadian consumer to face their day of reckoning for a decade-plus-long long debt-binge, the pandemic was that time. However, the opposite occurred. The financial health of Canadians improved during the crisis as net worth increased and various credit quality metrics improved. Highly accommodative monetary policy and significant government support programs (e.g. CERB) not only allowed Canadian consumers to manage their debt load but add to it. The debt-to-income ratio for Canadians is the highest amongst the G7 nations and has exceeded pre-pandemic levels.
So we’ve been conducting a lot of planning sessions, focused often on the relationship between debt service vs. investment, and will continue to do so.
Getting ready for my big runs. First, the RBC Kids Run is on Saturday, September 23rd. I’d be grateful for any contribution. The second one, is in November, as I work towards completing my first marathon in NY.
Have a great weekend!