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David Chilton (Andrew Tolson)
David Chilton (Andrew Tolson)

Portfolio Strategy

The Wealthy Barber takes a snip at debt Add to ...

Q: Once you’ve paid yourself first and covered your bills, can you blow the rest on fun stuff?

A: Absolutely.

Q: The latest stats show that while borrowing is still on the rise, the growth rate is at least tapering off. Is that good enough, or do we all have to cap our borrowing and pay down what we owe?

A: A dangerous number of Canadians have too much debt by any common measure. These people obviously have to start hammering away on debt.

Q: You mention in the book that you’re uncomfortable with credit cards, even in the case of people who pay in full each month. Can you explain why?

A: People think that when they pay their credit card off in full every month, they’re not affected by the 18-per-cent interest that is often talked about as being the downfall of credit cards. The problem is that because a credit card makes it so easy to spend, they go ahead and over-spend. That prevents them from saving enough.

Q: I’ve had some readers raise this question recently – how responsible are the banks for the country’s debt problems?

A: The lending institutions have become so aggressive in pushing credit. A lot of people don’t have the willpower to say no.

Q: What does the Wealthy Barber think of the idea of young people buying big, expensive homes with 5-per-cent down payments and 30-year amortizations?

A: I hate it. Outside of pay yourself first, the thing I’ve become most adamant about in the past 10 years is people living in homes they can truly afford. I understand the 5-per-cent down payment because in a lot of instances it’s hard to build up a down payment larger than that. And I understand the 30-year amortization – people are trying to spread the pain a little bit in what are some very expensive markets. But what I don’t get is why young people are insistent on buying the most expensive home their lenders will let them buy.

Q: Flash ahead five years – are we in stronger financial shape because we took the advice you and others provided about cutting debt and saving more, or are we in trouble because we didn’t listen?

A: I’d like to think it’s the former because otherwise I wouldn’t have written the book. But with or without my book and other books, I really believe people are going to start spending a little less and saving more. I think demographics are on side for that, I think the low-interest rate environment can’t last forever. But finally, and maybe most important, before The Wealthy Barber Returns hit the market there was a general feeling of uneasiness out there. People knew they were living beyond their means too much. They’re seeing what’s happening in other parts of the world with both governments and individuals, and they’re saying, ‘you know what, we have to do something.’

Follow me on Facebook. I’m at Rob Carrick – Personal Finance.

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