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Dale Jackson

Personal Finance Columnist, Payback Time


Pockets of protests across the country last month over high mortgage rates are like a joke that seems funny at first, but sad when you think about it.

It’s sad because so many over leveraged Canadian households are feeling the pinch of having to deal with monthly mortgage payments that have - in many cases - more than doubled in less than a year.

It’s also sad because it reveals a basic misunderstanding of how the economy, monetary policy, and compound interest work.

It’s sad and funny that protesters believe the government has the ability or inclination to lower mortgage rates with the turn of a dial.

Debt is the focus of this November’s Financial Literacy Month; Ottawa’s attempt to raise the level of financial knowledge among Canadians by cobbling together the many organizations and resources that work to strengthen our understanding of finances.

It’s a mammoth task considering the Bank of Canada – in concert with other major global central banks – has hiked its trend setting interest rate to 3.75 per cent from nearly zero so far this year in an effort to reign in inflation. 

That has lead to a spike in borrowing rates on mortgages, home equity lines of credit (HELOCs), student debt and consumer loans. A greater portion of regular payments now goes toward paying interest costs and less goes toward paying down the principal. That means more interest accumulates on the amount owing, and interest accumulates on the interest, which continues to accumulate interest (compounding).

Every extra dollar that goes toward servicing debt is one less dollar that can generate returns invested for retirement in registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs). Higher interest rates are a bonanza for savers as yields on bonds and other fixed income reach five per cent.

The need for investor education has never been higher as more Canadian workplace pension plans shift from the safety of guaranteed payouts in defined benefit (DB) pensions to defined contribution (DC) pensions, which expose retirement savings to the whims of broader equity markets.

According to Statistics Canada, 48.4 per cent of employed men and 34.5 per cent of employed women were covered under a DB pension plan in 1977. At the time, DC pensions were virtually non-existent.

Today the proportion of DB pensions has plunged to 21.4 per cent for men and 28.7 per cent for women. DC pensions and DB/DC hybrid pensions now apply to nearly 14 per cent of employed men and just over 10 per cent of working women.         

Overall, workplace pension coverage has also declined over the years, leaving more Canadians having to supplement their retirement savings by further investing in often volatile equity markets through their RRSPs and TFSAs.

As this generation struggles with the challenges of getting out of debt and saving for retirement, provincial governments have only recently become serious about financial literacy in schools.

A TD Bank survey last year found 33 per cent of Canadian parents were not confident they were setting a good financial example for their children, while only 29 per cent considered their household finances to be healthy.

In 2020, Ontario students began learning how to code, add fractions, and plan their finances starting in the first grade. By the sixth grade, they will have been taught various payment methods, electronic money transfers, financial planning, and basic accounting.  

While it might seem a bit early to bring money into the life of a six year old, it might come too late to act as a counterbalance to the influence of a consumer society. "Buy now, pay later" has been the main lesson up to now as bank-sponsored credit card companies ensnare young adults who don’t have the basic tools to know it doesn’t add up over time.

There are many online educational resources available for all Canadians who want to learn more about their finances.

Most banks and trading platforms offer tutorials on just about every aspect of trading. There are also plenty of objective websites that can explain finance and investing, including one sponsored by the Ontario Securities Commission called