Are low interest rates making you poorer?

low rates are bad for various reasons, inflation eroding your buying power is one, and it promotes irresponsible borrowing

I disagree binder. Inflation is typically a producct of wages increasing making goods more expensive. So if wages are increasing in the first place it really isn't eroding buying power for people. Also if you want to bring up seniors the last time I checked all pensions are locked to inflation so they don't lose buying power either. The only people inflation hurts are the individuals that are sitting on piles of cash. It forces these people to invest in the economy which promotes economic growth which is good all around. Also it rewards individuals that have taken a risk with debt. Note I'm not talking about hyperinflation just normal inflation rates (something about anything in moderation but nothing in excess).

Low interest allows for people just starting out with relatively small balance sheets to access debt easily to begin building their financial lives. While there is the significant risk fo abuse for those of us that don't abuse it can reap significant rewards.

Personally I am 29 and have over 1.4 million of personal debt. My average interest (locked in of course with an average of 5.2 years left) is about 3.5% meaning this investment only costs 49K a year in interest. Over the last 5 years this has given me about 400K in net worth through the recession. I expect over the next 5-6 years to break the million mark of net worth. All of this is only possible because of the available credit. Without it I would probably have a networth of less than 50K and would already be worrying about retirement. To any of you thinking that I am at the end of my rope my banker overed another 600K at 2.5% 2 weeks ago if I need it so I'm no where near tapped out yet either.

Personally I consider consumer debt to be terrible. I don't owe anything on any consumer item in my house and would strongly recommend never falling into that trap. Also I consider debt on vehicles to be less desirable as they depreciate but I understand that at the cost of them most people will need to finance them. Personally I say save all your debt power for good investments. If you do this at a young age you can be set before you are 40 with the rest just being gravy.

Machiavelli - What is it that you do for a living to be able to be approved to borrow that amount of debt? Do you have parents co-signing on this debt or do your parents have a high net worth? The average Canadian earning a reasonable salary would never be approved to borrow this amount of debt.

Would be really curious to know this? Also, on the chance that there is a rise in interest rates and property values decline, would this worry you at all?

Machiavelli, just a note that most pensions are not adjusted for inflation. Government pensions are about the only ones left that do adjust for inflation (CPP and Government employee pensions that is). Industry has largely walked away from that practice due to it's cost.
I agree with you on the judicious use of credit though.

No, I have never had a cosigner and I started it all with a 9K loan from my parents 6 years ago (which I paid back). I have purchased some real estate rentals etc but I have also used almost 1/2 to also invest in a small business that is fairly low management but is returning healthy returns. With the business I was able to get a govenrment sponsered loan at 2.5% locked for 7 years (its the one they will advance another 600K at my request on).

My parents are reasonably high net worth (not quite 8 figures) but they haven't assisted me beyond my education growing up watching them manage their own business quite successfully. My wife finds in humerous that I push as hard as I do as we will inherit a solid 7 figures but I want to have my own before that occurs (and you never know about these things). My wife and I are both well educated (my education is in the financial industry which gives me a leg up) with good paying jobs (with bonus I'll probably top 100K this year and my wife earns more than I did at her age). However most of this debt was approved when we were in the 60-70 range.

As for risk of the 1.4 million only 100K isn't currently locked down to a term of 5 years or greater. I personally see interest rates rising in the next 2-3 years more than most people think as inflation creeps into the system. My personal philosphy on fixed versus variable mortgages is that from the 1980s to 2010 the interest rate steadily dropped from 20% to 3%. That trend can not continue. So the theory that variable is always better may have to be re-examined. Another fault is many people don't look at the spot of the mortgage they are in before deciding on fixed versus variable. If you just signed a 25 year variable mortgage and after 2 years rates go from 3% to 6% your payments will almost double as you still have 97% of the loan left (pretty much a guaranteed loss on the property). If you sign a variable with only 5 years left and after 2 years interest spikes from 3% to 6% its not so bad because you only have 60% of the original balance left (your payments would only rise maybe 30%. Its a matter of timing and a good understanding of leveraged risk.

In my books debt is a tool of investing, not living. I try to only take out debt against items that will return more than the debt. Its simple but if I can make just 5% on my investment every year after debt than I am getting an extra 70K each year for the rest of my life. Most people worry about retirement, for me I know I will have lots. For me it is more ensuring that I have enough allocated to curernt spending so that my current lifestyle is balanced with my future lifestyle.

Machiavelli,

You are another shark, predator, good at stealing, manipulating and taking advantage, if all you say it is true, which is hard to believe.
Another skunk, just like the Wall Street crooks, that makes the world a worse place and a very good place for him.
You make us puke!

Do you consider the interest rate cost before buying on credit? Never bought anything on credit.

Have lower posted rates tempted you to buy something you might otherwise have skipped? Heck no!

Learning to do without is the best investment you can make in time you just might become your own banker.

Well tes thats pretty harsh.

How am I a shark? I have careful investments that are leveraged. As a young individual its my only realistic option to build my balance sheet. Yes I have been reasonably successful at it, is that my crime in your eyes?

Is it that I am a landlord and business owner? I have had nothing but good relations with my tenants (all 3 sets have now been staying with me for over 3 years so they must like it) and my business provides a required service at a reasonable price because there are lots of competitors in the market (I certainly don't get to gouge).

Is it that I am a financial professional? I have 9 years of post secondary and average well over 50 hour weeks so its not that I didn't earn my way to my position. My financial role is all about reporting but I am passionate about it (if my wife wants to sleep she asks me about my day).

So is it really me that is the issue here tess? Instead do you personally feel that my risk and subsequent current success somehow diminishes yourself and instead you simply call me a crook to feel better? Can't I be successful with my honest work without being a crook? How in any way have I hurt anybody?

All the best to you Machiavelli. Someone who knows about entrepreneurial hard work, financing, investments and intelligent money management. Too bad tes is a tad jealous.