In October 2006 I temporarily left my job at a financial institution in order to go on parental leave.   This was an exciting time in my life as I welcomed my youngest daughter into our family.  One of the projects I was working on right up to my last day at work was to prepare for the 40 year mortgage amortization change.  I vividly recall getting my portion of the work completed before I began my several months of leave.  I also vividly recall thinking that this amortization change was insane.  I suppose my gerontology education got the better of me and my first thought was about the risk of people entering retirement with mortgages. Naively I also thought that few Canadians would consider this option.

In 2012 I had published in a book titled ‘Progress in Economics Research’ a chapter on personal debt in retirement.  My chapter focused on the United States.  In this chapter I discussed how the dream of enjoying a leisurely retirement has been crushed for many due to their high personal debt levels at older ages.  I considered many of the objective measurements of debt and the ability to service debt such as income levels, home equity, consumer credit and so-forth.  However, I also considered the subjective side of debt, how it makes us feel and how we respond.  There is no doubt that financial worries, whether real or not, are hazardous to our health.

Economists in several countries have analyzed and reported their views of the Canadian housing market.  I do not have their analytical skill.  Instead, I consider personal finances from the perspective of how people respond to their own financial situation.  This approach is definitely not a science.  I believe the flaw in much of the published analysis is the continual comparison of the U.S. versus Canada.  I believe that the psychological differences between the two countries mean that we will react differently to various financial signals and thresholds.  Some of the published analysts demonstrate numerically that Canadians are not on the financial precipice that Americans faced in 2008.  According to them this means that Canada will not experience a catastrophic outcome.  However, I believe that Canadians have a lower threshold before they react to financial stressors mainly because the psychology of Canadians is to pay off debt.  Whereas the psychology of Americans is to accept debt, specifically mortgage debt, as a tax deduction.

Many Canadians are close to retirement age.  There is no guarantee that they will be able to retain a job for as long as they wish due to corporate downsizing, personal health issues or personal priorities.  Increasingly Canadians will say to themselves – “I need to be able to go the distance with my money”.  They will visualize what a worry-free retirement looks like and it is unlikely to include debt.  This is the point when people will recognize that their net worth may not continue to increase due to increasing real estate values.  Even more startling is that real estate holdings may possibly result in decreases to their net worth.  The rational response to this will be to modify their real estate holdings and other financial areas.  Based on the current high levels of household debt, rationalization of financial holdings may be the only possible response because credit may no longer be available to them.  Deleveraging is the big risk.  It will be a race to the door in order to protect one’s wealth and ensure that they can go the distance in retirement.