Credit, eh. Canada's Credit Card & Personal Finance Blog » Economy

Consumer Debt At All Time High

CCC Staff — Thu, 29 Nov 2012 21:21:44 +0000

With Christmas just around the corner it's hard to think about setting budgets and saving money, especially when we are bombarded during the holiday season with advertisements trying to get us to spend it all on the latest gadgets and super sales. But, we may need to seriously think about our financial future right now if we're going to change where, some say, we are headed as a nation.

BY GARY NG ON OCTOBER 13TH, 2011

Can't Keep Spending

Jacques Nantel, a professor at the Universite de Montreal's business school, warns in an article by the Montreal Gazette that Canadians can not afford to keep spending at their current rate. The article goes on to explain that the level of consumer debt is currently at a historic high, equaling 163 percent of the average income. That means for every dollar a Canadian family owes, they only have 63 cents to pay back that dollar.

Think that statistic doesn't apply to you? Think again. Nantel states that 40% of Canadian families are just two paycheques away from bankruptcy if they lose their main source of income.

So, what can you do now to save your financial future? According to Nantel, the best thing to do is to start budgeting your spending and begin saving at least seven percent of your income.

What's A Budget?

Setting a budget is the first step towards saving, but you can't set a budget until you know exactly where you spend money. Start by reviewing credit card & bank statements to track your expenses. Look over a few months of your spending habits to calculate how much you spend on food, entertainment, utilities, etc.

Then you must decide for each expense: Is it a WANT or a NEED? Figuring out the difference between your wants and needs will help you then set priorities for your spending.

Pay Yourself First

Saving is not only important to ensure you can pay your debts, but it will help you meet your financial goals and provide security against the unexpected.

The first step towards saving is setting a plan, which will be easy to do since you've already set your budget and know your priorities!

Next, you'll want to pay off debts with high interest rates or fees. You may even want to consider transferring outstanding balances on credit cards with high interest rates to a low rate credit card.

Then, set aside a portion of your income before you pay bills, go to the market or fill up the car with gas. It's imperative that you pay yourself first, before you spend money on anything! The Finance Consumer Agency of Canada suggests saving 15% of your income, if you can, while other experts say to save at least seven to ten percent.

(If you need more help budgeting your finances or saving for the future, check out Your Financial Toolkit from the Financial Consumer Agency of Canada. This important resource contains a number of learning modules that will walk you through the process step by step.)

Your Financial Toolkit - Financial Consumer Agency of Canada

When you're out shopping this holiday, remember how important, yet easy, it is to stick to a budget and pay yourself first. Stay away from impulse buys and "once in a lifetime" sales and ask yourself, "Is this really a want or a need?" Take a few moments to sit down and calculate your personal and/or family budget, along with a detailed savings plan. Setting aside a little now will have a massive effect on your financial future, as well as our nations'.

Christmas Becomes A High-Tech Holiday

CCC Staff — Tue, 20 Nov 2012 21:26:35 +0000

1918 Eatons Santa Claus Parade

Christmas is a time for food, family, traditions...oh, and don't forget, holiday shopping. Year after year, we carry on classic holiday traditions from the past. Keeping the memories alive with traditional family side dishes, neighborhood holiday parades and the spirit of gift giving. Remembering the past is an important part of culture, but at the same time, we feel the need to add in our own modern day touches to create a more up-to-date tradition that fits our present day lives.

Adding in those modern day touches to our classic Christmas traditions is creating a trend towards a more "High-tech Holiday" as holiday shoppers, Credit card companies and even good ol' St. Nicholas are turning to mobile technology and the power of the internet this holiday season.

High-Tech Parade

2012 Santa Claus Parade - Photo by Brian Morton

Hundreds of thousands gathered in the streets of Toronto over the weekend, waiting for a chance to see St. Nick officially kick off the holiday season in the annual Santa Claus Parade. This year celebrated the 108th time the holiday tradition took place down the streets of Toronto. It also marked a new era for the parade as Santa Claus went digital.

"We want people to connect with the 108-year-old tradition, but in a way that allows them to share their memories and photos in a more media-rich environment,” said Barry Miller, parade board member, in a recent article "Santa Claus joins the digital revolution" by The Star.

In an effort to bring the Santa Claus Parade more up-to-date, parade directors created a smart phone app to help patrons track Santa along this years' route, along with a Facebook page to share tips on how best to view the show. They also created a dedicated YouTube channel to show video highlights from this year's parade, as well as others throughout it's 108 year history.

Digital Wish-List

The Santa Claus Parade is not the only organization turning to social networks this holiday season. Credit card companies are also using apps and social networking this Christmas, in an effort to assist consumers with their holiday shopping.

American Express is taking the lead this season with it's version of a digital wish list with their new Facebook app, Holiday Hotlist.

The American Express Holiday Hotlist allows users to share desired online items from hundreds of American Express merchants with family and friends on the popular social network, Facebook. Users no longer have to drop subtle hints about what's on their Christmas Wish-List, as their Holiday Hotlist automatically provides that information directly to their loved ones on Facebook.

That means no more guessing what to buy Uncle Bob and forget receiving generic gifts like that red scarf or cozy socks! With this high-tech wish list, you'll know exactly what to get your family/friends and they'll know exactly what to get you.

Virtual Shopping Carts

Not only is the tradition of the Christmas Wish List going high-tech this year, holiday shopping is continuing to go digital, as more & more shoppers trade in plastic shopping carts for virtual ones this Christmas.

According to a recent survey by American Express Canada, almost a quarter of respondents mentioned they would rather stay home and clean their toilets than venture to the shopping mall during the peak of the holiday season! In the same survey, 56 per cent of Canadians are planning to shop online this season, up five per cent from 2011.

Looks like the days of navigating congested parking lots & waiting in massive lines may soon be a way of the past!

What will be in those Virtual Carts this holiday?

Entertainment (57%)

Electronics (39%)

Clothing and accessories (38%)

Toys (28%)

(source: American Express Survey)

Applying modern technology to the traditions of our past has the potential to change the way we celebrate the holidays. A more "High-Tech Holiday" may alter the way we express our desires and shop for those we love. It may also make the holidays more efficient and more convenient...but, unfortunately, it still won't guarantee you a spot on Santa's Nice List!

Sweden Leads the Charge Toward a Cashless Society

Janet Hutchins — Tue, 22 May 2012 16:38:01 +0000

Many people find cash unwieldy. It's bulky (especially coins), and it doesn't come with good security. If someone steals your wallet, you can cancel the credit cards, and you won't be liable for the fraudulent purchases, but the cash is gone -- untraceable and never to be seen again.

The charge toward a cashless society is underway. So far, Canadians have shown an interest in being at the front of technology, including the use of credit cards and electronic forms of payment. But when it comes to moving toward a truly cashless society, Sweden is leading the charge.

Sweden Works to Make Cash Transactions a Thing of the Past

Recently, in the The Atlantic, a story about Sweden's efforts to encourage cashless transactions was published. In Sweden, according to the article, most forms of public transportation won't accept cash. You can pre-pay for a ticket, or pay via cell phone text message. But you can't use coins. Just about everyone is getting in on the cashless act, according to The Atlantic:

Even houses of worship are becoming increasingly friendly to cash-free transactions: At the Carl Gustaf Church in Karlshamn, southern Sweden, Vicar Johan Tyrberg recently installed a card reader to allow worshipers to tithe in digital form.

When you no longer drop a couple bills into the collection plate, you know cash is on the way out. Digital wallets are being introduced by a number of companies, and PayPal is even introducing the ability to use an account at the registers of offline retailers. That's right: At some stores in the United States you can use a credit card terminal to pay via PayPal -- no card required.

Advantages of a Cashless Society

Some of the advantages associated with a cashless society include:

Convenience: It's much easier to pay with a cell phone. Even for those who are wary of using cell phones for payment, it's still more convenient to use your Canadian credit card to make purchases. Cash is bulky and takes up much more space.
Security: Once your cash is stolen, it's gone. However, you aren't held responsible for money spent on a stolen credit card. You can cancel credit cards, but the cash is gone.
Reduced crime rate: According to the article from The Atlantic, a cashless society might reduce crime. Fewer bank robberies have occurred, claims Swedish bankers. Additionally, there is speculation that muggings could decrease. When you don't have cash, and cards can just be canceled, there isn't much point.
Ease of transactions: As technology advances, it will be easier to send and receive money. There are already ways to divide restaurant bills among friends, and other financial apps that can increase the ease of transactions, whether you are settling a bet or paying a bill.

There are some downsides, though. One of those is privacy. Concerns about how easy it is to track purchases made in this way are rising. How could your purchases affect various aspects of your finances and credit? A cashless society must also be balanced with privacy protections, and the ability for consumers to donate to charity, make purchases, and perform other transactions without worrying about who's looking over their shoulders.

What do you think? Is a cashless society inevitable?

Are You Ready for an Interest Rate Hike?

Janet Hutchins — Tue, 17 Apr 2012 18:28:08 +0000

As expected, the Bank of Canada left its benchmark rate at 1% in its most recent announcement. However, following the decision, Mark Carney, the Governor of the BOC, made a rather upbeat statement about the Canadian economy -- and the possibility of an interest rate hike.

While Carney wouldn't commit to a precise timeline, the upbeat global economic forecast (the IMF just announced an improved forecast for the world economy for 2012), and the idea that the Canadian economy is looking stronger, are both combining to indicate that it might be time to tighten monetary policy by raising rates. Are you ready for an interest rate hike?

Higher Interest Rates Could be on the Way

If the Bank of Canada raises its benchmark rate, it is likely to affect you as a consumer. For borrowers, it means that loans will cost more. If you are in debt, now is a good time to pay down what debt you can. That way, more of your payment goes to principal, and actual debt reduction. If you wait, then you will automatically pay more in interest if rates rise.

Another way to save is to carefully plan your purchases right now. While you don't want to borrow money just for the sake of borrowing, now might be a time to make some of the larger planned purchases you have been considering. Now just might be the time to borrow smart. Lock in a lower rate now, rather than borrowing later when you will have to pay now.

Savers Could See Better Rates

For savers, a higher interest rate might not be such a bad thing. After all, it means that you will get more for your money. Higher rates generally benefit savers, who are looking for yield on their capital.

Even though it might be exciting to see higher yields on cash products, it's important to realise that any increases in the near future aren't likely to be very big. Even if the Bank of Canada raises rates by the end of the year, we'll still be a far cry away from the days before the financial crash of 2008 when some banks were paying 4% on deposits.

Watch Out for Inflation

An interest rate hike doesn't cause inflation; rather, the interest rate hike is often the result of inflation. When inflation is on the rise (usually caused by a growing economy), higher interest rates can slow things down. If Carney and the rest of the policymakers at the Bank of Canada believe that inflation is on the rise -- and that it will be spurred along by economic growth -- an interest rate hike could be coming.

The coming months should be interesting. Now is the time to consider your finances and figure out what could impact your money moving forward. If the IMF and Mark Carney are right, we could see better oil prices and higher stocks, as well as higher interest rates. Now is the time to re-position, whether you decide to pay down your Canadian credit card debt, or borrow smart, or prepare more capital to take advantage of more opportunities, and see what happens.

Canadian Economy Loses Jobs; Are You Ready for an Economic Slowdown?

Janet Hutchins — Fri, 09 Mar 2012 17:43:05 +0000

The Canadian economy, for the third time in the last five months, has shed jobs. While the US economy has been seeing an increase in jobs added to the economy, Canada has been struggling a bit. Indeed, the situation appears to have changed since Canada pulled its economy out of a recession with the help of hiring.

Now, there are concerns that the Canadian economy might slow down, and even worries that there is a housing bubble on the verge of bursting. As you consider the future, it's time to consider whether or not you would be ready for an economic slow down.

Preparing Your Finances for a Recession

While no one's saying that Canada is headed for a recession right now, there are nevertheless signs that an economic slowing may be coming. At the very least, the economic growth in Canada might be decreasing in speed. The Bank of Canada has kept its interest rate at 1%, and that means that inflation doesn't seem to be worrying anyone right now.

Even if Canada doesn't see another recession anytime soon, it's still a good idea to always have your finances ready for an economic setback. Canadians aren't financially stupid, but they have been making some decisions that reflect some of the mistakes we've already seen in the United States. One of these mistakes is an increase in household debt. If an economic slowdown is coming, Canadians need to be ready by having their finances in order.

As always, the basics of personal finance are vital in preparing yourself for what's next. You need to pay down debt, live within your means, build your emergency fund and save for retirement. It's always a good idea to shore up your finances when you can. When things are going well, it's essential that you practice good financial habits. When you prepare during the good times, the tough economic times won't have as big an impact on you, since you will have something to fall back on.

If you have extra money, including what you get from your tax refund this year, it's a good idea to use at least some of it to prepare your finances for the future. You never know when the next recession is going to hit. Signs indicate that an explosive economic recovery isn't likely to come, and things might be a little dicey for everyone for the next few years. As a result, it's a good idea to be prepared.

This post was included in Canadian Finance Carnival #79.

Could Canada Be Facing Its Own Housing Bubble?

Janet Hutchins — Fri, 03 Feb 2012 17:59:31 +0000

We've all seen the devastating effects of the housing market bubble on the US economy. And, for years, we in Canada have kind of looked down on the United States for the loose lending standards and high level of household debt.

However, Canadians may not have much to crow about soon. Canadians have surpassed Americans in household debt, and there might be a mortgage bubble growing as well.

Are Canadians Borrowing Too Much?

The current global climate has prompted a low-rate environment that encourages borrowing, and Canadians have been taking advantage. The Economist reports on the low rates and the increase in borrowing in Canada:

In response to America’s slow economic recovery and uncertainty in Europe, the Bank of Canada has kept interest rates at record lows. Five-year fixed-rate mortgages now charge interest of just 2.99%. In response, Canadians have sought ever-bigger loans for ever-costlier homes. The country’s house prices have doubled since 2002.

All of this home buying has prompted a rapid growth in home prices. And, as a result, speculators are becoming a regular part of the market. With home prices rising so rapidly, at some point there could be an end to the growth. Indeed, some worry that the real estate market is in a bubble, and that it could burst soon -- leaving Canadians overburdened with under water mortgages and high household debt.

The concern is that Canadians have been borrowing too much, and there could be a reckoning for all of that debt. The Canadian economy has increasingly become dependent on consumers for its growth. One of the real fears is that the global economy could slow down again, and that the burgeoning economic recovery in the U.S. could go off track. As long as Canada retains its strong exports, the economy should be able to offset some of the effects of a housing bubble. However, if a global economic slowdown occurs again, Canadians might find themselves in an even worse position as household debt climbs.

What Should You Do?

Instead of being a statistic related to climbing household debt, it's best to do what you can to shore up your finances. Prepare for the future by paying down debt, building your emergency fund, and even trying to increase your income if you can. Diversify your investments and get ready for what might be next for the economy -- and it's effect on your finances.

In the end, using the best Canadian credit cards isn't a bad thing. However, you do need to be careful. Live within your means and pay off your credit card balance each month. You will be able to take advantage of the convenience and perks, without paying the interest, and without becoming indebted.

Image source: Mila Zinkova

Planning for the Future: Are You Ready for What’s Next?

Janet Hutchins — Tue, 31 Jan 2012 16:12:29 +0000

Even though Canada's economy didn't suffer the same level of setback from the 2008 financial crisis as our neighbour to the south, there are still indications that things are far from perfect in Canada. The difficulties that might be coming to the economy in the future, as well as the prospect of not having enough of your own resources to weather a setback, should cause you to reflect, and consider planning for your future.

Economic Contraction and Old Age Security

We've been seeing some economic contraction in Canada recently. Unemployment has gone up recently, and the latest numbers show that the GDP dropped in the last quarter of 2011. These aren't huge changes; Canada isn't heading into a U.S.-style recession yet. However, these indicators do provide some food for thought. Maybe it's time for you to take a look at your finances and make some changes -- before you are forced to.

Not too long ago, Canadian household debt surpassed U.S. household debt. That's a very sobering statistic at a time when Canada's economy is flagging a bit. Instead of adding to your debt, it is important to carefully consider your spending and saving habits, and do what you can to pay down your debt. Additionally, it's a good time to be setting money aside, since you never know what the future holds.

In fact, the future may not be so rosy when you reach old age. There are some doubts about the Old Age Security program, and by the time you get to the point where you need this program, you could find yourself without the benefits you expected. Now is the time to build your resources so that you are relying less on external forces. Contribute to your RRSP, and take other steps to save for the future while living within your means right now. This is important because you do not know what will happen in the future.

Control Your Own Financial Destiny

There is too much that can go wrong when you rely on others for your financial well-being. Whether you are relying on someone else to keep you employed at a company, or whether you expect Old Age Security to prop you up in retirement, you are taking a big risk. You don't know when you will be fired, and it's impossible to tell what economic issues might affect Canada in the future.

You can control your own financial destiny by preparing for the future. Consider starting a side business so that your income isn't totally dependent on someone else. Also, live well within your means and set money aside for the future, and prepare for other possibilities. You need to seize control of your finances, and be ready for whatever happens next.

Image source: Stripey the crab via Wikimedia Commons

Canadians Ready to Give Up Cash in Favour of Convenience

Janet Hutchins — Tue, 15 Nov 2011 20:41:17 +0000

No matter what people continue to tell you, cash has lost its throne. At least in terms of the idea of carrying cash around with you in order to make purchases. These days, it's all about the plastic -- and even the digital money.

In fact, many Canadians would feel quite comfortable without ever handling cash at all, and many of them are in favour of a digital wallet.

Survey Shows Canadians Want Convenience in their Finances

Canadians really are ready to embrace other payment methods. Carrying cash around can be burdensome. And, some even chafe at the idea of carrying around a wallet stuffed with Canadian credit cards. Instead, some Canadians are warming to the idea of being able to use one device for all their needs -- including financial needs. Here is what the Winnipeg Free Press reports about a recent survey addressing Canadians' interest in digital wallets:

Some recent research conducted for PayPal by Leger Marketing showed that 56 per cent of Canadians are comfortable with never having to handle cash to make a purchase and would prefer to use a "digital wallet" to pay when shopping by using credit or debit cards, computers, smartphones or virtually any internet-connected device.

Given the choice, 34 per cent would rather carry a mobile phone to make a payment rather than change and 36 per cent would make mobile payments for a variety of purchases as small as a latte coffee to an iPod.

Even though 60 per cent of Canadians still use some cash for smaller, day-to-day purchases, more and more Canadians are opting to use debit cards for household expenses (like groceries), and many use credit cards for clothing. 75 per cent of Canadians prefer credit cards for large purchases. It's clear that a preference for cash is waning. Even though Canadians still use cash for some purchases, it is clear that they are becoming more comfortable with the idea of enjoying cashless transactions going forward.

Indeed, Canadians are at the forefront of financial technology. It's clear that technology, from online payments to digital wallets, can make life a little bit easier, and financial transactions more convenient.

What do you think? Do you think that digital money is the way to go?

Image source: Moneto.me via Flickr

Eurozone Woes Cross the Atlantic to Sink TSX

Janet Hutchins — Tue, 01 Nov 2011 15:58:22 +0000

Many people look at what's happening across the Atlantic and wonder why eurozone troubles would bother the rest of the world. While it seems as though Canada should be fine without worrying about the eurozone, though, the global markets don't work like that. This morning, as the eurozone bailout plan began to fall apart, the S&P/TSX opened down 338 points. That's pretty substantial. And it means that you should care about what's going on in other areas of the world.

Eurozone Troubles Could Upset Global Economy Further

Concerns that eurozone troubles could upset the global economy further are fairly well-founded. The currency region is an economic leader, and its difficulties tend to blow back on the rest of the world. Indeed, if the eurozone fails to contain the sovereign debt crisis, we could see another major financial crisis.

Already, those holding Greek debt expect to experience a haircut. However, the latest announcement that the bailout plan (and its austerity requirements) will go to the Greek people in a referendum, has many worried about a straight-up default. There are even concerns that Greece could be forced to leave the eurozone. And there is, of course, the worry that other eurozone countries contending with high levels of debt, including Italy and Portugal, could be next. With the eurozone in shambles, the world economy would suffer a severe shock.

What Should You Do?

Of course, such a drop in the TSX, as well as concerns about what could be next, could induce panic. After all, there is a lot to be worried about, and our interconnected global economy means that the troubles of one can become the troubles of all. However, that doesn't mean that you should panic. Instead, it's time to carefully consider your options, and evaluate your portfolio. Chances are that you have a good plan in place. And, while things are going to be bumpy for a while, there is a strong likelihood that, in the long term, things will smooth out.

While it might be time to tweak things a little bit, it is probably not the time to totally abandon your financial plan. It is a good time to prepare for the possibility of another global financial crisis and recession, though. Some of the things you can do include:

Paying down debt. (A low interest Canadian credit card can help.)
Building your emergency fund.
Looking for ways to cut expenses.
Prioritizing your spending.

When you are financially prepared, recessions don't hold as much fear. You can be ready for what's next. So, tweak (but don't abandon) your financial plan, and shore up your finances. Things could get a little crazy.

Canadian Business Owners Optimistic, But Wish the Government Would Do More to Help Them

Janet Hutchins — Tue, 27 Sep 2011 21:04:19 +0000

Canadian business owners are reasonably optimistic about what's next for their businesses -- as well as what's next for Canada's economy. Sure, there have been some hiccups about what's happening in housing and with Canadian employment, but business owners don't seem particularly fussed. At least according to a survey conducted on behalf of the business management software provider Sage. Here are the results as they relate to Canada, as reported in MarketWatch:

Survey findings revealed that Canadian small business owners showed optimism in the prospects for their businesses and the country's economy as a whole. On a scale of 0-100, where 50 is neutral and values above 50 reflect optimism and those below 50 denote pessimism, business owners rated their own prospects at 59.38 and for Canada's economy at 56.09.

However, even though Canadian small business owners are feeling fairly optimistic, they do see plenty of room for improvement. According to the business survey, 63% of small business owners feel that the Canadian government should be doing more to help them thrive. Some of the ways that some respondents thought that the government could help include:

Reduce the business bureaucracy and legislation that can provide hurdles to business (41% of respondents)
Reduce business taxes (40% of respondents)
Do more to control energy costs (32% of respondents)

Clearly, even though there is some optimism regarding what's next for the Canadian economy, and the small business climate, many owners are looking for some help. The recent global economic downturn hasn't been as difficult for Canada as for our neighbor to the South, but many business have felt the pinch nonetheless. If your business has been feeling some of the effects, it can help to make sure that you are prepared for the future. You can protect and ease your cash flow with the right Canadian business credit card, as well as look for ways to build up your loyal client base. Even though there is some general optimism, it's important to realize that some think that the global economy could slide back into recession, and that the U.S. economy could slide as well. Those events would affect Canadian businesses.

Getting small businesses back on their feet should be a priority for the government, and there are things that the government can do to encourage Canadian businesses to thrive. Business owners seem to think that less red tape -- and fewer taxes -- might help. And it might be worth trying.

Image source: Ryan Clare via Wikimedia Commons

This post was included in the Carnival of Financial Camaraderie at My University Money.