This article perked my interest because I think fear, followed by unwillingness or confidence to get educated and take more ownership of one’s financial outcome is what is stopping many Canadians from accelerating their wealth. Here are some shocking numbers from this recent survey:
- 55% of Canadians do not believe personal debt can be used to build wealth. They said debt should not be used for investment purposes, even though the interest on such loans is tax-deductible and any capital gains achieved are taxed at a lower rate.
- 38% of Canadians have no debt at all and that includes not having a mortgage.
Wow….38% of Canadian are fortunate enough to have no debt (I am assuming many of those are people who are not financially free and simply just don’t know what they can do with their money). I am just amazed at all the wealth that is sitting here in this low interest environment doing nothing……with the right tools, such as a well structured Home Equity Line of Credit, these people can be funding an extra source of income via rental property ownership!
The article states many Canadians are discouraged from leveraged investing because they think returns must exceed the interest rate on investment. The tax advantages one gains from investing in equities means you need only returns of about two-thirds of your borrowing costs. “If the average cost of borrowing over 10 years is 6%, you would need only 4% before-tax equity returns (or higher) to benefit from leveraging.” This once again points to a lack of financial education within our population….Wealthy-minded people know this…that is why they are wealthy! They follow the same tax code as everyone else, they just decided to get smart about it!
Absolutely, using debt to build wealth will have some risks (like anything in life, really!), and needs to be done with caution and responsibility. You can’t usually take shortcuts…you have to get educated and take ownership of your decisions, however the outcome can reward you nicely, especially in the long term. Right now, in this low interest environment, it is favourable to borrow for investment.
With respect to capitalism, debt serves a great purpose in our society “it is the oil in the machine”. Without individuals willing to take risk and borrow to fund new ventures, our society would be stagnant and no progress would be made.
You can read the full article here….