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EDITORIAL: Steady as she goes on debt and spending

Commentators worried that Canadians will go on a spending spree if interest rates stay steady or decline needn't worry.

Commentators worried that Canadians will go on a spending spree if interest rates stay steady or decline needn't worry.

Canucks are wily, not thick, and they aren't going to follow in the footsteps of their American counterparts who spent like crazy and then lost their homes and livelihoods when the debt crisis emerged. One would have to have been living in a cave not to have noticed the financial meltdown in the U.S. that forced many to abandon their homes and Canadians can and will learn from their mistakes.

Instead of buying larger homes or purchasing more consumables, Canadians are likely to take advantage of lower interest rates to pay down their mortgages. This is a wise move because savings for retirement are going to take a hit because of lower interest rates, so getting rid of debt before the age of 65 is a good idea.

There are already hints Canadians have reached their comfort zone when it comes to debt. The Certified General Accountants Association reports the pace of debt expansion declined in 2010 and the first quarter of 2011, although it's still alarmingly high, at $1.5 trillion. If that debt were spread equally across all Canadians, it would amount to $176,461 for a family of two children, according to the CGA.

British Columbians are in one of the worst positions compared to other provinces thanks to continued high house prices. There is a good side and a bad side to having an expensive house: You can borrow against it to finance other purchases, such as renovations, but you have to pay that debt back, and even getting into the real estate market means acquiring a huge debt.

British Columbia has the highest debt-service ratio and we pay 9.4% of our disposable income to service debt interest payments. Residents of New Brunswick enjoyed the lowest debt-service burden, which claimed only 5.6% of their disposable income.

While business and financial commentators worry the announcement by the U.S. Federal Reserve to sit tight on interest rates for two years will only encourage Americans to take on more debt, the best hope is that consumers will use the opportunity to climb out of the morass.

The same should go for Canadians if our central bank also keeps interest rates steady instead of hiking them as originally predicted.