Experts Matter. Find Yours.
Connect for media, speaking, professional opportunities & more.
Drops in the Bank of Canada rate will not solve housing affordability.
Summary: The Bank of Canada’s interest rate cuts won’t resolve Canada’s housing affordability crisis. Factors such as skyrocketing home prices, unaffordable down payments, and stagnant wage growth are other primary challenges to address. A personal example offered by the author shows how the price of her Toronto home surged over 1,000% from 1983 and 2024 while her wages during the same period rose only 142%. While some see this issue as a consequence of Baby Boomers remaining in their homes, it's more nuanced than that. We have systemic barriers in Canada that necessitate targeted policy changes. It’s time to tackle affordability and implement effective solutions. The Bank of Canada met today, to determine interest rates for the last time this year. They announced a drop of .50 basis points. This is part of a broader effort to stimulate economic growth in Canada, which faces challenges, especially a softening labor market and persistent inflation. Why Should You Care? Interest rates determine how affordable our debt will be and what return we can expect on our savings. Since mortgages represent most consumer debt, interest rates directly impact affordable housing costs, making them very newsworthy. However, interest rates only tell part of the story. When the Bank of Canada lowers its rate, it primarily impacts variable-rate mortgages. These are tied directly to the BoC's overnight rate, so a rate cut can reduce the interest costs on these loans. Homeowners with variable rates would likely see a reduction in their payments, with more of their payments going toward principal rather than interest. People without debt and savings (primarily seniors) will see a drop in their investment returns. In contrast, fixed-rate mortgages, which are not directly tied to the BoC's rate, are influenced more by the bond market, particularly the 5-year government bond yield. The current trend in bond yields suggests that fixed mortgage rates could also decrease over time. Let’s pause here and talk about the affordability of houses and how interest rates are not the reason housing is out of reach for most first-time buyers. A walk down memory lane might offer some perspective. I purchased my first home in the fall of 1983 for $63,500 (insert head shake). I was 27 years old, and before you do the math, yes, I am a Baby Boomer. My first serious (so I thought) live-together relationship had just ended, and I was looking for a place to live. I had finished school and had a good full-time job with Bell Canada. A rental would have been preferred, except I had a dog. Someone suggested that I buy a home. I did not know very much about purchasing real estate or homeownership, for that matter. But I was young and willing to learn. I had been working full-time for two and a half years. During my orientation at Bell Canada, my supervisor told me to sign up for their stock option program. She said I would never miss the money or regret signing up for the plan. She was right. When I purchased my home, there was enough money in my stock account for a down payment and closing costs. My interest rate was a terrifying 12.75%, yielding a mortgage payment of just under $670 monthly. The lender deemed this affordable based on my $18,000 annual wage. Life was good. This was in 1983, when the minimum down payment for a home purchase in Canada was typically 10% for most buyers. However, a lower down payment could be possible with mortgage insurance (provided by organizations like Canada Mortgage Housing Corporation (CMHC), which allowed buyers to put down as little as 5%, provided they qualified for insurance. This was commonly available for homes under $150,000, with stricter terms for higher-priced homes. If you had a higher down payment of 25% or more, mortgage insurance wasn't required, and you could avoid extra costs associated with insured mortgages. This was part of broader efforts by the government to make homeownership more accessible, especially amid the high interest rates of the time. So let's do the math. Circa 1983 I first needed to prove that I had saved $3,175 in down payments and $953 in closing costs for $4128. In the 2.5 years I worked at Bell Canada, I saved $4,050 (including Bell Canada’s contribution) in stocks. I also had another $5,000 in my savings account. $9,000 was enough to complete the transaction and leave me with a healthy safety net. Fast forward to 2024 Let’s compare what the same transaction would look like today. Using the annual housing increase cited on the CREA website, the same house would be valued at approximately $700,000 today. Interest rates are much lower today, at 4.24%, yielding a mortgage payment of $3,545. 1. The down payment rules have changed. For the first $500,000, The minimum down payment is 5%. 5% X 500,000=25,0005\% \times 500,000 = 25,0005% X 500,000 = $25,000 2. The minimum down payment for the portion above $500,000 is 10%. 10% X (700,000−500,000) = 20,00010\% \times (700,000 - 500,000) = 20,00010% X (700,000−500,000) = $20,000 3. Total minimum down payment: 25,000+20,000 =4 5,00025,000 + 20,000 = 45,00025,000+20,000 = $45,000 Thus, the minimum down payment for a $700,000 home is $45,000. Here is the comparison: 1983 Scenario 2024 Scenario Variance Purchase Price: $63,500 $700,000 up 1002% Down Payment: $3,175 $45,000 up 1317% Loan Amount: $60,325 $655,000 up 986% Interest Rate: 12.75% 4.24% down 200% Monthly Mortgage Payment: $670 $3,545 up 429% Wage: $18,000 $43,500 up 142% Gross Debt Service Ratio: 44.6% 97.8% up 119% Time to Save for Down payment: 2 years 12.4 years up 520% *Please note that this example does not include mortgage insurance The real problem As you can see, housing was much more affordable for me in 1983 and far from cheap in 2024. During the past 41 years, wages have increased by 142%, yet interest rates have dropped by 200%. But the most significant impact on affordability has been the over 1,000% increase in housing prices. So why is all the focus on interest rates? At the risk of oversimplifying a complicated issue, I believe the media often uses interest rates as a "shiny penny" to capture attention, diverting focus from deeper housing affordability issues. This keeps the spotlight on inflation and monetary policy, aligning with economic agendas while ignoring systemic problems like down payment barriers and the shortage of affordable homes. Indeed, a movement in interest rates often has an immediate and noticeable impact on borrowers' affordability, making it a hot topic for news and policymakers. However, the frequency and consistency of the Bank of Canada meetings on interest rates give the impression that rates are the primary issue, even though they are just one part of a complex system. For example, even if the Bank of Canada dropped interest rates below zero, it would do little to solve today’s homeownership affordability issue. The real problems: 1. Down Payment Challenges: With housing prices skyrocketing, the 5%- 20% down payment required has become insurmountable for many, particularly younger buyers. High rents, stagnant wage growth relative to home prices, and rising living costs make saving nearly impossible. 2. Lack of Affordable Starter Homes: Due to profitability and zoning restrictions, housing developments often prioritize larger, higher-margin homes or luxury condos over affordable single-family starter homes. 3. Misplaced Generational Blame: Blaming Baby Boomers for "holding onto homes" oversimplifies the issue. They are staying put due to limited downsizing options, emotional attachments, or the need for housing stability in retirement, not a desire to thwart younger generations. 4. Political Challenges: Addressing structural issues like zoning reform or incentivizing affordable housing construction requires political will and collaboration, which can be slow and contentious. A broader lens is needed to understand and address the actual barriers to home ownership. Interest drops are merely a band-aid solution that misses the central issue of saving a down payment. The suggestion that we have an intergenerational issue needs to be revised. The fact that Baby Boomers are holding on to their homes should not surprise anyone. However, Real Estate models that predicted copious numbers of Baby Boomers selling their homes to downsize got it wrong. Downsizing was a concept conceived in the 1980s. Unfortunately, it did not account for record-setting home price increases or inflation, leaving it undesirable for today’s seniors. Although this is a complex issue, a few suggested solutions are worth exploring. What can be done? Focus on Policy Innovations: To create housing, increase supply, curb speculative investments, and provide targeted assistance for builders to build modest starter homes. To create rentals, homeowners should also receive income tax incentives to build Accessory Dwelling Units (ADUs). These could be used as affordable rentals or to house caregivers for senior homeowners. Today, The federal government announced a doubling of its Secondary Suite Loan Program, initially unveiled in the April 2024 budget. This is a massive step in the right direction. To create down payments, adopt a policy allowing first-time home buyers to avoid paying tax on their first $250,000 of income. Then, they could use the tax savings as a down payment. Focus on Education and Advocacy: Include a warning that helps consumers understand that withdrawing from RSPs results in a significant loss of compound interest related to withdrawals and how this can harm income during retirement. Encourage early inheritance to create gifted down payments. Normalize the concept by emphasizing the benefits to the giver and the receiver. Educate the public on using financial equity safely and create down payments as an early inheritance for their heirs. This will shift the conversation and initiate an intergenerational transfer of wealth that empowers the next generation to own a home. The Bottom Line While the Bank of Canada interest rate cut may ease some financial strain for homeowners with variable-rate mortgages, it will do little to address the core issue of housing affordability. The media's fixation on interest rates as a "shiny penny" distracts from more profound systemic barriers, such as the inability to save for a down payment and the lack of affordable housing stock. These challenges require targeted policies, structural reforms, and intergenerational collaboration to be tackled effectively. The focus must shift from short-term rate adjustments to long-term solutions that prioritize accessibility and affordability in housing. Without meaningful action, homeownership will remain out of reach for many, perpetuating the cycle of financial inequity across generations. Dont't Retire... Re-Wire! Sue
Ask the expert: 2024 economic outlook
Although the economy has improved since the COVID-19 pandemic, inflation has been a challenge for many Americans throughout 2023 and the economy remains a top issue ahead of the 2024 election. Experts are already making predictions about interest rates, inflation and the market for next year. Antonio Doblas Madrid is an associate professor in the Department of Economics in Michigan State University’s College of Social Science. He reflects on the economy this past year and answers questions about what you can anticipate about the economy in 2024. What are a few of the most memorable economic events of 2023? The economy in 2023 reminds me of Rocky Balboa, the boxer with a strong chin from the Rocky films who, despite getting hit over and over, keeps moving forward. A year ago, the consensus prediction among investors and professional forecasters was slower growth and higher unemployment. Inflation was still above 6%, the Federal Reserve increased interest rates to one of the highest rates in 40 years, and the stock market ended 2022 in the red. Many observers said a ‘soft landing’ was a pipe dream and a recession inevitable. The year 2023 brought its own set of challenges. To name a few, a debt ceiling standoff started in January and continued until May, bringing the government dizzyingly close to default and causing a ratings downgrade. In March, the failure of Silicon Valley Bank started a crisis that, had it not been contained by a historic expansion of deposit guarantees, would have spread through the system and taken down the economy. A war broke out in Gaza. A large-scale auto workers strike temporarily shut down large parts of the sector. And the economy of China, a major trading partner, decelerated. Given all this, it is remarkable how good the numbers look right now. Inflation has steadily fallen to around 3% and is now within striking distance of the 2% target. The most recent gross domestic product, or GDP, report shows a robust 3% year-on-year growth rate, the unemployment rate remains at 3.7%, and the stock market has made a roaring comeback. The numbers look stronger than those of other major advanced economies, such as the eurozone, the United Kingdom, Japan or Canada. However, it is too early for a victory parade. The fight against inflation is not over, monetary policy has long and variable lags and, even in a strong economy, many people are struggling. But, thus far, it is hard to imagine a softer landing than 2023. What’s expected to happen with the economy in 2024? With the usual caveat that even the best predictions have a margin of error, professional forecasters see the economy still growing in 2024, albeit more slowly. The numbers hover around 1.5% for real GDP growth and 4% for the rate of unemployment. This paints a picture of moderate growth, and a labor market that, while no longer crushing records, is still within the range of what can be called full employment. What’s predicted to happen with inflation? Forecasters and market-based measures of expectations both predict that inflation is likely to continue falling gradually in 2024, to about 2.5%. Thus, the inflation shock that hit the economy is expected to continue fading, although it may take some time to go that last mile from 3% to 2%. The Fed also appears to be quite optimistic on inflation, given its latest forward guidance. What will happen with interest rates in the new year? The Fed expects inflation to fall quickly, so quickly, in fact, that it has started to reverse the hawkish policy of the last two years in its forward guidance. This means that, although the Fed has not lowered interest rates yet, it has started talking about the possibility of rate cuts — three of them — in 2024. With the economy still at full employment, this clearly means that the Fed is expecting inflation to continue to fall. How could the presidential election affect the economy? There is a popular belief that election uncertainty is detrimental to the economy, but we do not really see that in the GDP data. Growth rates in presidential election years are not lower than average. On average over the last few decades, there is a small negative effect on the stock market in election years, but it disappears in the 12 months following the election, regardless of which party is elected. What economic words of wisdom can you share for 2024? It seems to me that the perception of the economy is worse than the reality. So, I would recommend stepping away from the noise and looking at the data for some objective measures. As far as saving for retirement goes, I think mainstream financial advice is solid. So, listen to your financial advisor if you have one. If you don’t, that’s okay, it is not that hard. There are many free tools, like retirement calculators, to help you figure out how much to set aside monthly. Take advantage of employer-provided and tax incentives. Invest mostly in stocks when young, gradually switching to fixed income as you age. For equities, follow a passive strategy. Buy and hold index funds. Do not try to pick stocks or time the market. If you are at the fixed-income stage, you may want to open a high-interest CD to lock in a high rate before the Fed starts cutting rates again. Finally, set up your contributions automatically draw, stop thinking about money for a few months and invest instead in nonfinancial assets, like relationships and health. Looking to know more about the economic outlook for 2024 or do you want to connect with Antonio Doblas Madrid? To schedule an interview - simply contact Jack Harrison, Public Relations Coordinator today.
Inflation: Simple Causes But a Complicated Cure JULY 2022 We face a wave of strikes, intended to restore the purchasing power of wages in face of inflation. But strikes cannot succeed in restoring everyone’s purchasing power. In the near term, inflation’s impact on living standards can be significantly mitigated only by importing more and so increasing our trade deficit, financed by foreign borrowing. Unwillingness to do that means we are likely to prolong the wave of strikes and so suffer a bruising recession created by restrictive monetary policy. This will cause yet more damage to living standards. However, debt-funded importing of consumption items in order to maintain living standards is poor policy longer-term. It can’t stop the harmful redistribution effects of inflation that are already emerging. Most important, it doesn’t address the longstanding source of our lagging living standards – too little economic growth and economic resilience due to our failure to grow productivity. Without increased productivity, debt-funded consumption repair will cumulate to tomorrow’s fiscal crisis. Therefore, we face a very difficult policy challenge. We must act to support living standards over the next year or two, mitigate the social problems that inflation is already causing and, simultaneously, divert our priorities (and our continuing borrowing) to foster much improved productivity growth. Causes This is a simple story. Today’s inflation demonstrates that we are poorer than we were three years ago. The value of what we, collectively, produce and earn, has shrunk, relative to the cost of the things that we seek to consume. Inflation constricts our consumption options to what we can now afford. We are poorer for two reasons. First, because we produce and earn less domestically, and second, because the things that we don’t produce but import have become scarcer, forcing us to pay more to get them. • Brexit caused an immediate and seemingly permanent devaluation of Sterling, raising the costs of everything that we import. It also seemingly permanently reduced our exports to the EU, our largest trading partner. No new trade possibilities are similar in scale, so there is a long-term loss of income. Moreover, increased non-tariff barriers have raised the cost of imports from the EU beyond the exchange rate effect. • The pandemic has reduced the worldwide supply of all sorts of goods, therefore raising their prices. This is due to supply chain problems, the zero-Covid China lockdown, the reduction in UK output because a significant portion of the population is out with Covid at any time. Crops are left rotting in the fields because there aren’t enough domestic agricultural workers and, of course, no more EU farm workers. • The war in Ukraine has escalated the costs of energy and food grains. In the future it will propel redirection of domestic resources to the production of war material, which is not edible. Consequences Inflation not only makes us, collectively, poorer, it differentially distributes the pain. • Everyone in the UK could go on strike to try to raise their wages enough to maintain their real consumption. But as the pie has shrunk, that is impossible. The extra money people get will simply chase the same, smaller amount available and the prices of goods and services will rise further. If the ensuing price rises provoke further wage increases, we chase our tails. This is the wage/price spiral that the Bank of England fears. • Some groups have more wage bargaining power than others. Perhaps the railway unions can indeed hold the country to ransom and regain their purchasing power. But then others, less empowered than railway workers, will become greater losers. • Inflation causes a flight to real assets – houses, commodities – whose values float up with the price level. Because ownership of real assets is very unequally distributed, the asset-rich minority is likely to come out better than before while the asset-poor majority lose even more. The purchasing power of people living on fixed-return assets such as retirement annuities would be devastated by a wage/price spiral. Similarly, as interest rates rise with the price level (or even faster if the Bank of England has its way), debtors on floating rate loans will be hit hard. • Different geographic areas have different mixes of people who would be gainers and losers from a wage/price spiral, exacerbating our substantial regional inequalities. Cure Part 1: Near-Term Mitigation How is it possible to offset the fall in current consumption which is provoking the wage/price spiral? People can consume more than they earn only by borrowing. The key is how that borrowing is undertaken. Households could borrow from private UK lenders, or the state could sell bonds to UK citizens and give the proceeds to other UK citizens to spend. But if all they can spend it on is the total value of UK output, that pie is shrinking. More money from borrowing would only raise prices, that is, add to inflation. Total UK consumption can exceed the value of UK output only if the extra is imported. Because the imports are paid for in another currency, borrowing to pay for those imports must be borrowing from foreign sources. The debt (public and private) that the UK owes others must rise by the value of the excess consumption. However, consuming more today by adding to our overseas debt isn’t a miracle cure. • Not everything can be imported. Domestic services of all types are provided, well, domestically. GP visits and houses and hotel rooms and haircuts will cost more as a result of wage inflation, no matter the amount of net foreign borrowing. These price increases will continue to provide some impetus to a wage/price spiral and make it more likely that the Bank of England will end up pushing the economy into recession to stop it. • The problem with debt is that you have to pay it back, and in the meantime, you pay interest on it. More consumption today means surrendering a greater amount of potential consumption in the future. Only if there is strong UK productivity growth will this foreign debt repayment not cause significant future trouble. Sadly, the UK has lagged in productivity growth among advanced economies for many years. Cure Part 2: A More Productive Economy The policy most likely to maintain social cohesion in the near term, and greater prosperity in the longer term, is a tricky two-step. We need to borrow to defend most people’s consumption in the next year or two, but then switch the budget to support growth and productivity-enhancing investment. Unless we do this, our debt repayment obligations will grow to unmanageable levels and meanwhile our level of consumption will continue to shrink relative to that of our peers. Our political system has not been good at tricky two-steps. It can manage short-term stimulus, funded by debt. But for decades the UK has failed to invest sufficiently in physical, technological and human capital to create productivity comparable to our peers. The inflation crisis is a call to action. Not only to mitigate current deterioration in living standards but to build a modern economy that sustains rising living standards into the future.
Expert Sources for Federal Reserve interest rate increase: UCI faculty members available to comment
On June 15, the Federal Reserve announced its largest interest rate hike in 28 years to try to regain control over elevated consumer prices. The Fed raised its benchmark interest rate by three-quarters of a percentage point – the biggest increase since 1994 – following a quarter-point jump in March and a half-point increase in May. “We’re strongly committed to bringing inflation back down and we’re moving expeditiously to do so,” said Federal Reserve Chairman Jerome Powell. Eric Swanson – professor of economics. Swanson’s research focuses on monetary policy, interest rates and the effects on economy, including output, unemployment and inflation. Swanson previously worked at the Federal Reserve Board and Federal Reserve Bank of San Francisco from 1998-2014 as an economist and research advisor. Email: eric.swanson@uci.edu Aaron James – professor of philosophy. James co-authored the book Money from Nothing: Or, Why We Should Stop Worrying About Debt and Learn to Love the Federal Reserve, which explains the nature of money and a number of alternatives the Federal Reserve can legally employ to curb inflation other than increasing interest rates. Email: aaron.james@uci.edu Jack Liebersohn – assistant professor of economics. Liebersohn’s research focuses on banking, banking risk taking, mortgages and the housing market and he can speak to how increasing the Federal Reserve interest rate affects any of those elements of the economy. Email: cjlieber@uci.edu Christopher Schwarz – associate professor of finance and faculty director of the Center for Investment and Wealth Management. Schwarz can discuss how far the Federal Reserve will have to go and its impact on the economy and financial markets moving forward. Email: cschwarz@uci.edu Media Contact: Cara Capuano, Communications Officer, UCI | 949-501-9192 | ccapuano@uci.edu
Canadian finances 101: What you should know as a newcomer
Canada’s financial ecosystem is made up of banks, credit unions, trusts, and other financial and insurance companies and it is considered to be one of the most sound and safest in the world. According to the Global Competitiveness Report 2019, published by the World Economic Forum, Canada ranked 9th globally for its financial system, showcasing stability and reliability. As you plan your move, familiarizing yourself with the Canadian banking and financial landscape can help provide context to key tasks like opening bank accounts, building credit history, borrowing money, and filing taxes. In this article: Types of financial institutions in Canada Getting started with taxes: The Canada Revenue Agency (CRA) Canada: A credit-based economy Banking, investments, and money transfers What are the types of financial institutions in Canada? Financial institutions in Canada can be classified into three main categories: 1. Banking institutions These are places where you can deposit, withdraw and borrow money. Examples of such institutions include banks, online-only banks, credit unions, trust companies, mortgage companies, etc. Banks A bank is licensed to receive deposits and make loans. Most banks are managed by the national government. The five largest banks in Canada are often referred to as the “big five” in banking. They are: Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CIBC). Sometimes, you may hear the term “big six,” including the National Bank of Canada – although, note that its operations are primarily focused in the provinces of Quebec and New Brunswick. Digital-only banks In addition to these banks, there are a few digital-only banks, such as Tangerine (a subsidiary of Scotiabank), Simplii Financial (a subsidiary of CIBC), and EQ Bank. They provide all services online only and do not have any physical branches. Credit unions A credit union is a smaller financial institution that is owned by its members, who are also typically account holders. They operate under provincial legislation and regulations and provide similar services as banks. The main difference between a credit union and a bank is their structure; credit unions are owned by anyone with money in the credit union. The operations are supervised by a democratically elected board of directors made up of local community members. Due to their scale of operations, note that credit unions may have fewer branches and ATMs than a big bank would. Tip: As a newcomer to Canada, you can choose any financial institution of your choice. However, it is helpful to know that the big five banks (like RBC) have newcomer banking packages that specifically cater to permanent residents and international students and are thus better positioned to assist you in your unique situation. Trust companies Trust companies are legal entities similar to banks that act as an agent (on behalf of a person or business) for the purpose of administration, management and the eventual transfer of assets to a party. Mortgage companies Money lending entities such as mortgage finance companies (MFCs) and mortgage investment corporations (MICs) provide real estate financing. MFCs are non-depository financial institutions that underwrite and administer mortgages sourced through brokers. Their lending is funded mainly through securitization or direct sales to third parties, primarily the big six banks. MICs and other private investors typically deal in uninsured, customized mortgage products that are not available through traditional channels. These products include non-prime loans, second mortgages and very short-term mortgages. Key financial authority: The Bank of Canada The Bank of Canada is the nation’s central bank. Its principal role is to promote the economic and financial welfare of Canada. The Bank influences the supply of money circulating in the economy, using its monetary policy framework to keep inflation low and stable. It promotes safe, sound and efficient financial systems, within Canada and internationally, and conducts transactions in financial markets in support of these objectives. Additionally, the Bank of Canada also designs, issues and distributes Canada’s bank notes and acts as the “fiscal agent” for the government of Canada, managing its public debt programs and foreign exchange reserves. It also sets the interest rates in Canada. 2. Insurance companies These are entities that sell insurance to cover the risk of loss in various situations, caused due to a variety of factors. They include homeowner or renter’s insurance, health insurance, car insurance, life insurance, and more. They compensate you for any loss that’s covered by your insurance policy. Once you purchase a specific type of insurance, you are required to make periodic payments, called premiums, to the insurance company to avail of the agreed-upon coverage. 3. Investment companies These are organizations that focus on investing, administering or managing funds or money on behalf of other persons. Examples of such companies are investment banks, hedge funds, underwriters, and brokerage firms. Note: There might be an overlap in the services provided by financial institutions. For instance, a leading bank like RBC offers banking services, mortgages, a wide variety of insurance options, investment solutions, and more. Tip: Beware of predatory lenders offering payday, instalment, and other types of loans with very high interest rates. These lenders often prey upon people who need cash quickly and who have run out of all other options. They usually have exorbitant interest rates, confusing and misleading representations, and a lack of transparency and documentation. Therefore, always double-check money lending claims that seem too good to be true. Note that payday loans are provincially regulated while instalment loans are unregulated. What this means is – while interest rates cannot exceed 60 per cent, lenders are effectively free to change terms and add fees and other charges almost at will. Getting started with taxes: The Canada Revenue Agency (CRA) The CRA administers tax laws for the Government of Canada and for most provinces and territories. It administers various social and economic benefit and incentive programs delivered through the tax system. The CRA website is the go-to place for everything related to your taxes: filing annual tax returns, checking receipt of Government benefits and subsidies, viewing tax documents, etc. Important: To register for CRA’s “My Account,” you must have filed a tax return for the current or a previous year. Download Arrive’s free tax guide for newcomers for insights on how to file your taxes and to make sure you’re prepared to manage the expectations that come with paying taxes in Canada. Note: Beware of a long-running CRA scam with callers posing as representatives of the CRA. The CRA will never use threatening language nor ask for information about your passport, health card, driver’s license, or demand immediate payment by Interac e-transfer, bitcoin, prepaid credit cards or gift cards from retailers such as iTunes, Amazon. Canada: A credit-based economy North American countries such as the U.S. and Canada are known to be credit-based economies. This essentially means that most people use their credit cards (instead of debit cards or using cash) to make purchases and then repay the entire amount owed either at the end of their credit card billing cycle or in installments. You will need to build your own credit history, since this is essential to many aspects of life in Canada. Once you receive your first credit card, start by making payments for small expenses such as phone bills or groceries, and be sure you pay the balance in full by the end of the billing cycle. Tip: Keep in mind that credit cards have limits and do not offer free money. They can carry very high-interest rates, so your balance should be managed and paid down promptly – this will help you maintain a good credit rating. A credit score is a way for financial institutions to measure your ability to repay loans. Some scenarios where you may be asked for a credit report are while renting accommodation, applying to certain jobs, and obtaining mortgages or other loans from the bank. Additional resources Download Arrive’s free Credit guide to learn more about credit cards, credit scores, and credit ratings in Canada. For tips on staying debt-free and building your credit history in Canada, read How to build a good credit score from scratch as a newcomer. Banking, investments, and money transfers in Canada Banking Like many other countries, in Canada, you can conduct all your banking and money transfer transactions by walking into a branch or online, through internet banking. See How to open a bank account in Canada as a newcomer to know the process of opening a newcomer account. The article will also provide tips and resources to help you learn more about credit and direct deposits. Investments There are many financial products available to save and invest your money in Canada. They can be broadly classified into savings accounts, registered savings plans and investment products. Depending on your goals and your appetite for risk, you can choose one or a combination of several of these. Read Savings and investments for newcomers in Canada for deeper insights into all available investment products. Money transfers For domestic peer-to-peer payments (think: sending money to a friend, relative, co-worker, or acquaintance in Canada), there are a couple of ways to send and receive money online: Interac and Paypal. Interac is a bank-based tool, while Paypal is a non-bank, third party service. Among these, Interac e-transfers are the most popular and widely used form of peer-to-peer payments in Canada. You can send money overseas through online or mobile banking, by telephone, by email, or in-person. Banks like RBC have a simplified, affordable, and convenient process for international money transfer through online banking. If you have the recipient’s banking information handy, all it takes is a few clicks! Some popular options for international remittances are: Banks Credit unions Money transfer operators like Western Union, MoneyGram, WorldRemit, etc. Peer-to-peer transfer providers such as Transferwise (now, Wise), CurrencyFair, Paypal, etc. Currency exchange businesses When sending money overseas, the Canadian federal government tracks large sums (over $10,000 CAD) through Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) to prevent money-laundering, terrorism funding, and related crimes. Understanding financial products and regulatory agencies in Canada can make you feel overwhelmed. Start with the basics so you can build awareness and a strong foundation to manage your finances in Canada. Original article located here, published by Arrive.
It was a train running full speed and showed no signs of stopping – but America’s economy hit a bump last week and it sent a lot of people from Wall Street and beyond into a panic. The 800-point drop in the Dow Jones seemed to be the first sign of another severe recession. But before everyone cashes out, experts from Western Governors University are hoping we take a look back through the ages before rushing to worry. “What does history teach us? Even before the Great Depression of the 1930s, Nicolai Kondratieff discovered that the capitalist economy, going back to the 18th century was characterized by waves, or business cycles,” says Dr. Rashmi Prasad, Dean and Academic Vice President of Western Governors University's College of Business. “The Federal Reserve, under leadership of Ben Bernanke, claimed that while the business cycle had not been repealed, a ‘Great Moderation’ had emerged in the world post-1982. Independent central banking and the rise of the service economy were among the reasons cited. In a great irony of history, Bernanke was front and center as Chairman of the Federal Reserve during the ‘Great Recession’ of 2008-2009. Business cycles seem to be inevitable for capitalist economies. Will we return to the Great Moderation of 1982-2007, or are we in a new period of regular Great Recessions? Central Banks stabilize and soften the down-cycles of recessions, but the price of managing the Great Recession of 2008-09 has been the dramatic expansion of central bank balance sheets–no new investment cycles–property or finance often leads to recession.” So, where do we stand and what can we expect in the short-term? Prasad adds this perspective: “Conventional economic thinking indicated inflation by now, which may have added to interest rates and constrained the amount of debt that was sustainable. Rapidly rising interest rates posed the risk of a deep and extended downturn. If interest rates can be managed and kept low, then the next down-cycle could be shallowed and prolonged as monetary policy has little scope and fiscal deficits are already very high. Risks for a major downturn exist in extremely high debt levels and central bank balance sheets, but still may be a decade or two away, awaiting triggers that we cannot yet predict.” Are you a journalist covering the economy and do you need expert perspective and opinion for your stories? That’s where Western Governor’s University can help. Dr. Rashmi Prasad is Dean and Academic Vice President of Western Governors University's College of Business. He is an expert in the fields of economic and financial data and business analytics. Dr. Prasad is available to speak with media regarding the state of America’s economy – simply click on his icon to arrange an interview.
Not this time, but expect interest rates to get cut soon – our expert can explain why
It was all eyes on the Fed this week, but when it came to decide, Federal Reserve Chairman Jerome Powell held U.S. Interest rates steady and unchanged. The pressure was on to lower the rates amid serious concerns that the current trade wars and tariff action could start impacting America’s economy and slow it down. Narayana Kocherlakota, the Lionel W. McKenzie Professor of Economics at the University of Rochester wasn’t surprised by the June decision to remain steady. And with serving six years as president of the Federal Reserve Bank of Minneapolis, his expertise and perspective indicates lower rates will come at the next meeting. “I am not expecting a change in policy, which means the interest rates should remain the same. What I am expecting is a lot of discussion, which takes place in secret, about cutting interest rates by a quarter percentage point at their next meeting in July. Why would they do that? The Federal Reserve is tasked with trying to keep inflation at 2 percent and keep unemployment low. Right now unemployment is about as low as it’s been in the past half-century, which is very good. Inflation remains lower than the Federal Reserve would like—it’s been below 2 percent for most of the last seven years. I think they’re mainly worried about risks. There are signs of risk around the world partly due to big variations in trade policy emerging from the White House. So, the Fed is thinking about cutting rates now in order to keep the economy as healthy as possible, if there’s any danger of a recession.” University of Rochester Newscenter. Will lower rates really keep America’s economy humming? Won’t lower rates impact the strong US dollar? And if we are headed toward recession, what else can de done to turn the economy around? There are a lot of questions – and that’s where our experts can help. Dr. Narayana Kocherlakota was the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015. As part of his responsibilities in that position, he served on the Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve System. He is currently a Lionel W. McKenzie Professor of Economics and is an expert in financial economics, interest rates and monetary policy. Narayana is available to speak with media regarding the economic effects of the shutdown – simply click on his icon to arrange an interview.
The Fed Should Consider Lowering Rates say the Experts from University of Rochester
On Wednesday, the Chairman of the Federal Reserve will be delivering another interest rate decision that could direct or at least prompt a punch to the arm the country’s economy. In fact, according to Narayana Kocherlakota who is currently a Professor of Economics at the University of Rochester, and who also served as the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015 – the Fed should be dropping rates to increase stimulus t an economy in very much in need of help. In a column (see attached) published this week in Bloomberg Opinion, Kocherlakota offered this perspective, So, the Fed has been falling short — arguably well short — of both its inflation and employment mandates for a long time. How can it do better? It should take two steps. First, as I’ve argued before, the Fed shouldn’t be reducing the vast holdings of bonds that it amassed in its efforts to stimulate the economy after the last recession. Instead, it should commit to increasing its asset holdings by about 4 percent per year. That way, as the economy grows over time, its balance sheet will remain sufficiently large to help combat any recessionary risks. Second, the Fed often says that it sets monetary policy based on the incoming economic data. Such claims ring hollow when we look at the record. Recently released transcripts from its June 2013 policy-making meeting show that more than half the participants thought inflation would be below 2 percent for the next 30 months. All thought unemployment would stay above 5.5 percent. Yet it was precisely at that meeting that they agreed to begin tightening by announcing their intention to ease off on bond purchases in the near future.” So, what can we expect from Wednesday’s decision by the Fed? Will we see a drop in rates? What will a higher interest rate look like and what would that mean for America’s economy? Or … if nothing changes and the Fed holds steady, what will that mean for the economy in the short term? There are a lot of questions and that’s where the experts from the University of Rochester are available. Dr. Narayana Kocherlakota was the President and CEO of the Federal Reserve Bank of Minneapolis from 2009-2015. As part of his responsibilities in that position, he served on the Federal Open Market Committee (FOMC), the monetary policymaking arm of the Federal Reserve System. He is currently a Lionel W. McKenzie Professor of Economics and is an expert in financial economics, interest rates and monetary policy. Narayana is available to speak with media regarding the economic effects of the shutdown – simply click on his icon to arrange an interview.
Brexit, political rancor may cause long-term damage to British economy
Sandeep Mazumder, associate professor of economics and UK native, is available to comment by phone or email on the ongoing power struggle over control of Britain’s planned exit from the European Union. “Uncertainty abounds in the United Kingdom – both in Parliament, and with regards to Brexit. At this point, there are several outcomes that could result from Theresa May's proposed deal being voted down by the UK’s Members of Parliament," Mazumder says. "As it stands, the UK could be on course for a hard Brexit in March with no deals in place with the European Union. A lack of trade deals, in particular, will likely be very damaging to the British economy." "But, a hard Brexit is not a given either. Changes in the political set-up could open doors for other outcomes as the world waits to see what will happen,” says Mazumder. For now, the uncertainty surrounding Brexit is most likely to harm markets involving British firms, he adds. Mazumder is an expert in macroeconomics, monetary policy and international finance.
