Let's Talk About Debt

• Author: Anita Indira Anand
• Pages: 88-101

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 10

Let’s Talk About Debt

One of the greatest challenges facing Canadian retail investors is

their personal debt. While there are any number of reasons for

people to take on debt, it is (or can be) a kind of investment: you

borrow money from someone and pay it back over time with interest,

hoping that you will gain more than you lose from the transaction.

For instance, when you buy a home, you probably hope to get one

that will increase in value at a higher rate than the interest you pay

on your mortgage. Student debt is another good example of this: you

borrow a certain amount of money from a bank or the government,

typically believing that the money you can make with your university

degree will be greater than the amount of the debt plus interest.

Like any investment, debt comes with risks. The investment that

leads you to take on debt can be good or bad. When someone takes

on a debt load that is heavy relative to their income or future income,

and uses the borrowed money to purchase things with little or no

chance of gaining value, they may nd themselves in nancial trouble.

Widespread debt can also give rise to systemic risk, the potential con-

sequences of which we examined in the last two chapters. Excessive

indebtedness has been a root cause of many nancial crises and deep

recessions. Right now, debt levels in Canada are high, threatening our

economy on a systemic level.

1 See for example, discussion in Bank of International Settlements, “87th Annual

Report” (25 June 2017) at 48, online: Bank of International Settlements www.bis.org/

publ/arpdf/ar2017e_ec.pdf.