Concerned with mortgage debt?

That ultra low interest rates have encouraged a number of households to take on excessive debt is well documented. What receives less attention is the negative impact low interest rates have had on individuals living off of interest income or trying to save for retirement. In Alberta, the number one financial concern isn’t mortgage debt—it’s investment returns on RRSPs.

Economists’ view of household borrowing and lending decisions is usually concerned with how best to allocate consumption over a lifetime. That decision is usually assumed to be a function of the interest rate, which is effectively a reward for being patient and taking on risk, and allows for higher consumption later in life. A low rate reduces the incentive to postpone gratification which is why the run-up in household debt was predictable.

The Bank of Canada has long highlighted the risk of household debt. The more households borrow against a future income stream, the bigger the risk to the financial system if there’s any disruption in the income (or value of assets). Like other Canadians, Albertans have been taking advantage of lower rates. However, a strong labour market—along with increasing wages—has made servicing those debts more manageable for Albertans.

With more manageable debt levels, many Albertans are worrying more about their nest eggs. In a survey conducted by ATB Financial, respondents were clearly more concerned with the return on their registered savings vehicles than on consumer debts. The return on RRSPs and TFSAs were a major concern of 26 and 19 per cent of respondents, respectively. Mortgage and credit card debt, on the other hand, were a major concern of fewer respondents, at 15 and 17 per cent respectively.

Will van’t Veld, Economist, ATB Financial

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