Debt is the great killer of your future


Personal due diligence goes far beyond simply keeping a weather eye on the market for your skills and the health of your current employer.

It turns, in fact, on seeing the world as it is.

So let’s make it clear: being in debt (for the wrong reasons, or for too much) is going to choke off your future.

Debt attracts interest. Interest requires growth to pay for it (while still paying off the principal, and while paying for everything else).

If the economy isn’t growing (this includes “growing anemically”) then paying back debts becomes more difficult.

Even if you’re making your payments just fine, others aren’t. Or they’re not buying your company’s products or services as a way to make ends meet.

Meanwhile, since there isn’t enough growth, pension plans aren’t growing, either. (Most are planned to grow at at least eight per cent per year.) Gaps between assets available to honour commitments and the earnings of the assets under administration are made up by supplemental contributions. That’s another point of contraction.

Ultra low interest rates — the same ones that encourage people to take on debt — turn into a growth trap.

Now most of us these days start our careers off with a whole pile of debt facing us from having gone to school. Few attend on a cash basis any longer.

That implies that, right from the get-go, we ought to be evaluating the utility of our education with a beady eye on how much involuntary servitude it’s creating: how many years of risk you’re taking on for the repayments (remember, in the United States, your student loan debt isn’t even able to be cleared in bankruptcy).

At the same time as there are too many graduates (other than in science, technology, engineering and medicine, where there are gaps still, and in the skilled trades) chasing too few opportunities, the cost structure of the normal university is way out of line with what it could be in today’s day and age. Charles Hugh Smith, the author of Of Two Minds, explored how an innovative approach to higher education would undercut today’s costs by an order of magnitude or more.

It will happen, and as it does the value of a piece of paper saying “Harvard”, “Stanford” or “University of Toronto” goes way down.

If you paid cash for your degree, no worries. It’s the same as saying “the neighbourhood I used to live in is now a slum”. An interesting data point, but that’s all it means in terms of affecting your future.

If you racked up the debt, however, you’ll be competing for positions with people coming behind you who didn’t. They’ll have flexibility you won’t have.

A quick trip to beautiful British Columbia can tell you how this plays out. People have been retiring and moving to BC’s South Coast and Okanagan for years. (It’s the rumour of a far less severe winter that attracts them.) Arriving there, they hang up their shingle and become consultants “to keep their hand in”. As their pension is adequate, they don’t need top dollar for their work.

The net effect is that rates fall for everyone. Work that goes for $600.00/hour in New York, $400.00/hour in Toronto or Ottawa, goes for $125.00/hour in Vancouver. Same work. Same quality. Fine for the retiree “keeping their hand in”. An endless grind for the local person in mid-career trying to build their business up and not be away from home and family constantly.

After all, why pay Vancouver’s prices to live in Vancouver if you’re never home?

That’s the benign side of the risk of dying by debt. The malign form is not being able to find the work, period. Or have a relatively risk-free job.

After all, the student starting out with no debt may not have lived the high life while in education, but they can afford to bid for that job at $15.00/hour and feel wealthy. The one with $25,000 — $50,000 — $100,000 or more in outstanding loans needs to find something at $25.00-30.00/hour just to start.

Want to bet the former entry level post at $25.00 will end up going at $15.00 if it’s not there already? It’s precisely the same phenomenon as the retirees “keeping their hand in” and driving local prices down doing so, after all.

These days, a paid-off small residence with fewer things, and a transit pass rather than a car loan, might well make more sense than a far suburban McMansion on acres of lawn and three vehicles in the driveway, all requiring monthly commitments. But even more so, paying off an obsoleted set of degrees years later (few ever end up working in the field their degree ostensibly is in after a few years, except tangentially, and in the meantime the entry requirements have changed, in effect “expiring” your educational credentials as they stand) is the same as paying off the whopping pile of credit cards for weeks in the sun. Debt servitude, for no current benefit.

What worked for the previous generation (whichever one you’re in) isn’t the right answer now. Helping you identify your risks and navigate to a better future for yourself is what the advisors at Personal Due Diligence do.

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