Offering helpful financial and lifestyle advice for everyday Canadians

Archive for the ‘Financial Literacy’ Category

Top 10 Personal Finance Tips for Single Parents

57

 

Being a single parent isn’t easy, but it can be easier. Lifehack.org provides a great article with tips to improve your financial situation.

The economy always works in cycles, and with these cycles our perceptions about money, how we should deal with it, and what our responsibilities are towards accurately informing our children about it also change.

A March 2012 survey suggests that more parents are talking with their kids regarding money. Parents are discussing with children what they need to understand about it in order to make more informed choices on money matters as they grow older.

The current generation of students, or those who are in the initial years of their careers, are deep in student debt. I believe that one can avoid student debt if parents play their finances a bit more safely and carefully craft the financial future of their kids. Parents, though, can sometimes be poor role models when it comes to managing money and teaching the same to their kids. However, even if you are a single parent with limited means, it is still possible to take stock of things and enforce good financial discipline to achieve a secure financial future for your whole family.

(more…)

Improving Your Credit Score – Government Advice

The government is looking out for you. If you have a poor credit score then there is help but you have to be careful. This article from the Government of Canada has some very helpful advice.

If your credit score is not as high as you think it should be, make sure that the information in your credit report is correct. If it is correct, read your report carefully to find out which factors are most likely having a negative influence on your score, and then work to improve them.

Here are some tips, from the Financial Consumer Agency of Canada (FCAC), on how to improve your credit score:

  • Always pay your bills on time. Although the payment of your utility bills, such as phone, cable and electricity, is not recorded in your credit report, some cell phone companies may report late payments to the credit-reporting agencies, which could affect your score.
  • Try to pay your bills in full by the due date. If you aren’t able to do this, pay at least the required minimum amount shown on your monthly credit card statement.
  • Try to pay your debts as quickly as possible.
  • Don’t go over the credit limit on your credit card. Try to keep your balance well below the limit. The higher your balance, the more impact it has on your credit score.
  • Reduce the number of credit applications you make. If too many potential lenders ask about your credit in a short period of time, this may have a negative effect on your score. However, your score does not change when you ask for information about your own credit report.
  • Make sure you have a credit history. You may have a low score because you do not have a record of owing money and paying it back. You can build a credit history by using a credit card.

(more…)

Personal Loans – Examples and Advice

Here’s a very useful article from moneyproblems.ca that explains the basics of personal loans, and how to pick the right one for you.

What is a personal loan? That’s easy – its money that an individual borrows personally. What does it look like? That’s tough – personal loans come in all sorts of different shapes and sizes.

Some examples of personal loans might be:

  • Your parents loan you $1,000 so that you can pay first and last month’s rent
  • A bank loans you $15,000 to pay off your credit cards (this is also called a consolidation loan)
  • A finance company loans you $25,000 to buy a car (this is also called a car loan)

All personal loans have one thing in common: the loan is for a fixed amount. (In our first example, your parents loaned you $1,000). This is different from a line of credit where you have authorization to use a certain amount of credit or a credit card where you have a spending limit.

Other characteristics that are usually found in personal loans include:

1.Repayment terms: how much and how often will you make a payment towards this personal loan? In the first example, your parents might not set repayment terms – “just pay us back when you can”. In most cases, the lender(the person or business that is granting you the loan) will set specific repayment terms. The most common is a requirement to make payments once a month, on the same day every month.

2.Interest rate: interest is the term used to describe the amount that the lender is charging you to borrow the money. It is almost always set as a percentage of the amount borrowed on an annual (also called per annum) basis. Using our second example, the bank might loan you $5,000 at a rate of 10%. That means that the bank is charging you 10% of $5,000 adjusted for the amount of time the money is outstanding. Go to our page on interest for a more detailed explanation of interest rates.

3.Security: often, lenders require people borrowing money to pledge things that they own as collateral for a loan. In the event that you fail to make the required payments, the lender may have the right to seize and sell the item pledged to pay off the debt. Go to our page on security for more detailed information on security. Its important to note that not all personal loans are secured. Lenders only ask for security for large loans and in situations where they have concerns about a borrowers ability to repay the debt.

4.Guarantors/co-signers: a guarantor and/or co-signer is someone who pledges to repay your debt if you are unable. Not all personal loans have guarantors or co-signers. Like security, lenders usually request guarantors for large loans and in situations where they have concerns about a borrowers ability to repay a debt.

Lets go back to our original personal loan examples and add some details based on the characteristics set out above.

  • Your parents loan you $1,000 so that you can pay first and last month’s rent

The fixed amount of this loan is $1,000. If your parents said, “just pay us back when you can” then there would be no repayment terms. There probably wouldn’t be any interest or security or guarantors either.

  • A bank loans you $15,000 to pay off your credit cards. This is also called a consolidation loan.

The fixed amount of this loan is $15,000. Typical terms for this type of loan might be repayment on a monthly basis for the next 4 years (48 months) at 10 % interest. If the bank had concerns about your ability to repay the debt they might ask for security, although for this type of loan they usually prefer a co-signer (someone to pay if you cannot).

  • A finance company loans you $25,000 to buy a car. This is also called a car loan.

The fixed amount of this loan is $25,000. Typical terms for this type of loan might be repayment on a monthly basis for the next 5 years at 9 % interest and as security for the loan, the finance company would register a lien on the car. A lien is the legal term used to describe the finance company’s claim on your car if you don’t repay the debt. In some cases, if the lender is concerned about your ability to repay, they might ask for a co-signor, even though they have security.

Recall that we said that personal loans come in all sorts of different shapes and sizes. It would be impossible to cover all of the variations available in the market place today. Go to our links page for financial institutions and spend some time viewing the websites for the companies that are listed. This should give you an appreciation of just how many different types of loans are available today.

If you are thinking about applying for a personal loan, we’d like to offer some advice:

1.Think twice. Do you need something badly enough to justify borrowing for its purchase? Interest can be very expensive.

2.Self-assess. How much can you afford to pay every month? Have you prepared a monthly budget? How long are you willing to make payments? Your answers to these questions will determine how much you may comfortably borrow.

3.Credit Report. What’s your credit rating? Do you make all of your required payments on time? Have you bounced any cheques in the last year? Have you failed to repay an amount that you owed? A bad credit rating will seriously impair your ability to borrow without security and/or a co-signer.

4.Shop around. If you determine that borrowing is the thing to do, if you have the ability to repay and if your credit rating is good, shop around before you sign any contract to borrow money. A loan is no different from anything else that you might buy. If one financial institution will approve you for a loan, odds are, so will a second. Its okay to negotiate for lower interest, longer repayment periods, or any other aspect of the loan that you might like to change.

Remember: all loans must be paid back, so only use credit when it is absolutely necessary.

[end of article]

blog-ad-PP

Canadian Interest Rates Explained

This article from cba.ca explains the basics of Canadian Interest Rates. Last modified March 31, 2010.

What is interest? What is the rate of interest?

Quite simply, interest is the cost of money. The rate of interest is the cost of using someone else’s money. When it comes to interest rates, Canadians are pulled in two directions: people who save and invest money expect a good return on their investments, or people who borrow money to buy homes, cars, businesses etc, want the lowest possible interest rates.

Interest Rates and the Economy

What affects the interest rates?

There are many factors. They include the money supply, the rate of inflation, the length of time the funds are borrowed, and the Bank of Canada’s monetary policy.

What is the Bank of Canada?

The Bank of Canada’s main role is to set the bank rate, which is the rate of interest it charges major financial institutions when they borrow money. While the Bank of Canada rate does influence the pricing of very short-term commercial credit, it does not set the interest rates that consumers receive on their deposits, or pay on their loans.

What makes interest rates go up and down?

There are several factors, including rates of inflation, market forces, monetary policy and the demand and supply of money in the economy.

For example: when more people want to borrow money than invest money (which means less money to lend) the price of borrowing will go up. As a result, interest rates increase. This in turn prompts people to invest more, because they will accumulate greater interest. When more people want to invest than to borrow, interest rates go back down.

Many people think that the interest rate that banks charge for fixed-rate mortgages and loans is driven by the Bank of Canada’s overnight rate. In fact, this is not true. While the Bank of Canada rate does influence the pricing of very short-term commercial credit, longer-term fixed rates are more affected by factors other than the Bank of Canada Rate, such as prices in the bond market, the costs of longer-term deposits, and generally the competition for funds in the financial markets.

What Borrowers Want to Know

I’m shopping for a loan. What will affect the interest rate I pay?

Term of the loan: Is it short or long term? Short-term loans (overnight or up to a year) normally have lower interest rates because it’s easier for the lender to predict future market conditions like inflation and economic growth.

Lenders tend to charge higher interest rates on long-term loans because they are taking a risk on future economic conditions. If they don’t protect themselves against rising interest rates set by the Bank of Canada, they can lose money on the loan in the long term.

Risk: The more lenders feel there’s a risk – the likelihood that the loan will not be repaid – the more they’ll charge you for interest to compensate for that risk. They ask: What is your credit rating? What is your record of borrowing and repayment? Do you have a history of making your payments on time?

Inflation: Inflation refers to the general increase in prices. Inflated prices mean that money is not as valuable and lenders are concerned about prices increasing in the future.

For example: A bank loans you $2,000 today and over the next year prices increase by 5 per cent. When you repay the $2,000 a year from now, its purchasing power will be less. In essence, you’ll be repaying cheaper dollars than the ones you borrowed. So lenders add an assumed inflation rate into the interest rate you will pay.

You can’t influence some of these factors, but you can have an influence on factors such as risk by having a good credit rating.

How can I get the lowest rate of interest?

•Shop around. Find the best rate for your needs.

•Don’t be afraid to ask for a lower rate than is quoted. Remember that the posted loan rates are only guidelines.

•If you’re not happy with the rate your financial institution quoted, check around to see what other lenders are offering. Your choices include: banks, trust companies, credit unions, caisses populaires and government lending institutions.

•Maintain a good credit rating – pay back your debts and pay them on time. This could give you additional leverage when negotiating a loan.

What Savers Want to Know

What kind of investments or savings can I earn interest on?

You can invest your money in many different ways. Here are some examples:

•Guaranteed Investment Certificates (GICs) and term deposits

•Mutual Funds

•Stocks

•Canada Savings Bonds

•Bank accounts

What to consider when making effective savings/investment decisions

•Your goals, needs and expectations: Will you need your money sooner rather than later? Do you need your money to be accessible? Is it worth borrowing for investment purposes? Do you need a flow of income?

•What level of risk are you willing to take with your money? You can divide your money between higher risk investments and no risk investments.

•The length of time you want to save/invest: If you choose a long-term deposit that will remain untouched for a long period, you’ll usually get a higher interest rate than for short-term investments.

As a saver/investor, am I better off when interest rates are high?

Not necessarily. You have to figure out what you’re really earning after inflation (ongoing increase in the price of goods and services).

For example: if interest rates are 18% and inflation is 15%, you’re really only earning 3% (before taxes). But if interest rates are 6% and inflation is 1%, you are earning 5% (before taxes).

So you see, sometimes you’re better off to invest when interest rates and inflation are low. The key is to always keep an eye on the “Big Picture”.

[end of article]

Need help meeting your financial obligations? Learn about the pros and cons of Short-Term Loans.

RRSP Savings Calculator

Here’s a very useful online tool from GetSmarterAboutMoney.ca.

Estimate how much your RRSP (Registered Retirement Savings Plan) will be worth at retirement and how much income it will provide each year.

Just follow this link!

blog-ad-PP

ABC’s of RESPs

Originally posted on babycenter.ca

What is a RESP?

Hard to picture it now, but the baby in your arms might one day attend university or college. How on earth are you going to pay for childcare, let alone post-secondary school? One option is a program called the Registered Education Savings Plan (RESP) in Canada. It is similar to a savings account. You put money in over the years, hopefully it grows well, and when your baby enters a qualifying educational program, he can start withdrawing money from the account. You will not be taxed on the amount you contributed to his RESP, but you will have to pay taxes on the money that you earned in your plan as interest.

Why would you buy an RESP?

In order to encourage people to buy into an RESP, the Canadian government sweetens the deal. The federal government contributes to your plan through something called the Canada Education Savings Grant. You can actually receive up to $7200 from this program.

For lower income families there is an additional incentive called the Canada Learning Bond. This comes through the National Child Benefit Supplement which you may receive if your family qualifies for the family allowance. It could add up to $2,000. Residents of Alberta may qualify for an additional province-wide program called the Alberta Centennial Education Savings Plan.

How does it work?

You pay into the account (your extended family can contribute too). Your financial institution manages your money until the far off day when your baby is accepted into a qualifying university or college. At that point in time, your child will start receiving payments from the plan.

To get started, you need a SIN number and some decent research. You need to pick a bank or other financial institution that provides RESPs. Whoever you choose will manage your money for up to 36 years, so be careful. Watch for fees, limits on how much you can deposit and conditions for withdrawing your money in case your baby decides not to go to university or college. The Canadian government has a useful website with a list of questions you should ask before signing up with a particular RESP dealer.

Okay I understand what it is, but is this the best way to save for university?

So now you have some sense of what an RESP does. Should you really buy into the plan? It’s time to talk to other moms, parents with university-age kids, or your financial adviser for advice. You can start right away on our BabyCenter boards.

Where can I find more information?

Human Resources Development Canada has some more general information about RESPs here.

For excellent information related to all kinds of programs (including RESPs) for Canadians interested in post secondary education, check out this site.

The government of Canada also has an excellent advocacy site for Canadian consumers here.

[end of article]

Having a hard time making ends meet? Learn about the pros and cons of Short-Term Loans.

Image

Financial Education in the Workplace [infographic]

Financial Education in the Workplace [infographic]

Canadian workers and their views on financial education in the workplace

Tag Cloud