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Canadians’ Debt grew to all-time high in second quarter: TransUnion

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Source: TransUnion Canada consumer credit database.

The double whammy of Inflation and rising interest rates are starting to be reflected in higher debt levels for Canadians, according to data released by TransUnion on Tuesday.

The  Q2 2022 Credit Industry Insights Report reveals that Canadians are vulnerable to payment shock as a result of high interest rates and inflation challenges: “While there have still been gains in GDP growth and low unemployment, they are being offset by higher interest rates and cost of living. This lead to higher credit balances and increased costs of mortgages and loans.”

The report shows total debt grew to an all-time high at $2.24 trillion, up 9.2% year-over-year (YoY) and up 16.4% from pre-pandemic levels observed at the end of 2019. The number of consumers with a credit balance has increased by 2.1% YoY to 27.6 million and is up 2.5% from pre-pandemic levels (Q4 2019).

You can find the full press release here.

Among the highlights:

  • Household finances were worse than planned for 41% of consumers, with 48% reporting they had cut back on discretionary spending. A startling 26% of consumers expect to be unable to repay their bills and loans.
  • Total debt grew to an all-time high at $2.24 trillion, up 9.2% from the same time in 2021 and up 16.4% from pre-pandemic levels at the end of 2019.
  • Consumer delinquency on personal loans has returned to pre-pandemic levels, up 19 base points (bps) YoY to 0.93%. Credit card delinquency is also up six bps from the prior year same quarter.
  • Increased balance growth was observed across all risk tiers, with super prime consumers continuing to build overall outstanding balances (+5.1% YoY).

In the release, TransUnion director of financial services research and consulting Matt Fabian says: “With the combination of higher cost of living and higher spend driving up credit balances, along with the recent surge in mortgages and auto loans, many Canadian consumers are under pressure from higher debt service obligations … We’ve seen an increase in miminum payment amounts of up to 10% in the first half of 2022, depending on the combination of products consumers hold, along with a slight deterioration in payment behaviours.”

As shown in the chart below, all major credit products saw an increase in average balance per borrower, which TransUnion says indicates the consumer need to leverage credit.

Fabian added that “During the pandemic we saw a decline in credit participation among below prime consumers, so this marks a re-engagement of this segment as potentially the effects of inflation and interest rates have driven demand, while lenders have increased their risk appetite in this space.”

The report shows that overall, consumer-level delinquencies (borrowers more than 90 days past due on any account) increased by four basis points (bps) over the prior year same quarter, but still remain below pre-pandemic levels. “Consumer delinquency on personal loans has returned to pre-pandemic levels, up 19 bps YoY, to 0.93%.” Credit card delinquency (90 days or more past due) is higher by six bps from the prior year same quarter.

TransUnion says the increase in consumer delinquencies is partially explained by accelerated lender origination activity, especially in the below-prime space: “The YoY rises in delinquencies are generally small and not a major concern, given the increased credit activity observed post pandemic. As credit activity recovers and grows further, consumer credit performance is expected to return to near pre-pandemic levels.”

Your home and your retirement plan

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By Anita Bruinsma, CFA, Clarity Personal Finance

Special to the Financial Independence Hub

“Your home should not be your retirement.”

This is a common headline in personal finance and although the details are nuanced, the headline can give the wrong impression: that you shouldn’t rely on the equity in your home to fund your retirement.

Certainly, it shouldn’t be the only source of retirement income: homeowners also have to save using RRSPs and TFSAs. However, homeowners in high-priced housing markets will likely have excess equity in their homes that should be considered when building a retirement plan and determining how much they need to save.

The rationale for the “don’t rely on your home for retirement” advice is twofold: first, that you will always need a place to live and the value of your home will be needed to buy or rent another residence; and second, that you need money to buy food and other things, which you can’t do if all your wealth is tied up in your home.

Both these points are valid, but they don’t apply to everyone. Like all aspects of financial planning, each individual’s personal circumstances need to be considered and in fact, many people should count on their home to help fund their retirement.

You’ll always need a place to live

To address the first point — that your current home will fund your next home — consider doing an analysis that looks at the cost of renting for the years after you sell your home. For those in high-priced housing markets like Toronto, the proceeds from selling a mortgage-free home will likely more than offset the cost of renting for 30 years in retirement, including paying for long-term care. The same analysis applies to downsizing by buying a smaller place in a less-expensive market. This means there could very well be excess funds that can be used later in life and this should be accounted for when determining how much retirement savings you need. Continue Reading…

6 unique ways to Increase your Net Worth and Build Generational Wealth

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By Emily Roberts

For Financial Independence Hub

Whether or not you consider building wealth a complicated process, the fact is that there are time-tested paths to make it happen. Increasing your net worth and building generational wealth is never unintentional; this article described six unique ways to help you do it.

Build Solutions for Unique Problems

All of the world’s wealthiest people, self-made millionaires, created solutions for global problems, and that’s why they became rich. You may argue that most industries already have wealthy giants, but you can find a niche with a growing problem and design a solution. Scale the solution for the global market, and you would have made a step in building generational wealth.

Invest in Profitable Startups

Investment has always been key to building wealth. If you invest early in a business, you position yourself for massive profits when the business grows. Carefully profile startups and invest in them. You should hire a financial advisor or learn more about investment before doing this.

Hire a Debt Management service

You may get into debt as you invest and build a business. Debt is not necessarily wrong when taking loans to build a business, but it could easily cripple your finances. Debt management helps you overcome depth without declaring bankruptcy, improves your cash flow and gives you the more significant financial freedom to invest in building wealth. You can contact Harris and Partners to learn about consumer proposals and how they could help you. A consumer proposal is an alternative to declaring personal bankruptcy and helps create an agreement with creditors.

Hire brilliant Employees

All rich people who built their wealth from scratch have one thing in common: despite their brilliance, they hire the best minds and hands to handle their business and investments. Whether or not you are brilliant, you need employees with specific traits. As Warren Buffett puts it, you need employees with integrity, intelligence, and energy to get the best results. Of course, you need to show strength and foresight, but ensure you have a solid team working for you. Continue Reading…

An update on Findependence Day

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Regular readers of this site [FindependenceHub.com] probably know that it sprang from another site that was created in 2008 to help sell copies of the original Canadian edition of my financial novel, Findependence Day. I am writing this blog somewhat sheepishly as it turns out that that site is no longer available under the original URL. That URL was the title of the book followed by .com but this post is to warn anyone that the new site currently residing on that domain has nothing to do with me or the Hub. Sadly, we no longer own that URL.

I won’t even provide a link here because I can’t vouch for what may occur there: earlier this week we took down the link to it from the Hub, as it took casual browsers to a different site that appears to originate from India. I realize some readers may out of curiosity be tempted to click on the link but if they do would urge them to heed any warnings that may generate; it may or may not be a legitimate site, and therefore could compromise the computer or device of anyone who visits the site and clicks on any portion of it.

Second US edition via Best Buy Books (updated in 2021)

How to buy the original book and subsequent US edition

That said, there are still ways to purchase the original book and subsequent revised U.S. editions. You can find used copies of the original Canadian edition as well as the latest US edition at Abe Books. They also sell copies of some of my other books, including The Wealthy Boomer and the co-authored Victory Lap Retirement.

We do not sell the two US editions directly but they are available directly from either Trafford.com [published in 2013] or Best Books Media [updated and published in 2021.] Hard-cover, paperbacks and e-book versions of the U.S. Trafford version are available at Trafford or via Amazon Canada.  In addition, Chapters Indigo offers hardcover or paperback versions as well as a Kobo ebook version. 

I introduced the newest US edition on July 1st, 2021 here on the Hub. See why by clicking on An interview with myself. The Best Books Media edition is also available in hardcover, paperback and ebook formats at Barnes & Noble.

The hardcover version is also available at The Book Depositary. Here is the publisher blurb from that site:

Findependence Day presents personal finance in a “can’t put down” story format easily digested by young adults entering the workforce and the world of money. Because money problems often cause marital breakups, it focuses on the financial journey of a young couple who experience the usual ups and downs of job loss, buying homes, raising children, investing and pensions, starting businesses, coping with stock market volatility, and more.

The secrets of financial independence are critical wherever you are in the financial life cycle:

– Newlyweds embarking on family formation will discover the importance of financial planning.

– Debt-plagued graduates will be motivated to embrace “guerrilla frugality.”

First U.S. edition from Trafford, 2013

How to get the original Canadian edition directly from me

While used copies of the 2008 edition can be had for as little as $4 or $5 on some of the sites flagged above, shipping charges will put the final tab well above $10.  But you can still buy brand new copies of the original edition directly from me for $16, postage included, and I’d be glad to sign them and write a short message.

We hope to build a landing page from the Hub in due course that will let interested readers buy the original book through PayPal or credit cards, as was the case on the now-disappeared site.

In the meantime, copies of the 2008 Canadian edition can be purchased directly from me by emailing me at jonchevreau8@gmail.com or mailing a cheque for $16 payable to J. Chevreau Enterprises Inc., 22 Thirty Sixth St., Etobicoke, Ont., M8W 3K9. The $16 price includes GST.

Make sure you include your own mailing address so we can send it via Canada Post. That email can also be used for e-transfers. We absorb the GST. Cartons of 36 copies are also still available for $105 plus postage (roughly $30): some financial advisors find this to be a cost-effective giveaway for clients and prospects.

 

Here’s how Dividend Capture Strategy Returns work—and whether you can realistically profit from them

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Aiming For Dividend Capture Strategy Returns May Look Like A Sure Way To Make Money. But There Are Risks You Need To Watch Out For

“Dividend capture strategy returns are the trading technique of buying a stock just before the dividend is paid, holding it just long enough to collect the dividend, then selling it. If you can sell it for as much as you paid, you have “captured” the dividend at no cost, other than the transaction costs.

This strategy is executed by buying a stock just before the ex-dividend date, so that you will be a shareholder of record on the record date, and will receive the dividend. Because the stock falls by the amount of the dividend on the ex-dividend date, the strategy then calls for you to wait for the stock to move back to the price where you bought it before the ex-dividend date. At this point, in order to benefit from the dividend capture strategy returns, you sell the stock for a break-even trade.

Here are key dividend payment dates you’ll need to know to aim for dividend capture strategy returns

The declaration date is the date on which a company’s board of directors actually sets the amount of the next dividend. Typically it is a number of weeks in advance of the actual payout date.

The record date is the date on which a person has to actually own shares in the company in order to receive the declared dividend.

The ex-dividend date is typically the last business day before the record date. The ex-dividend date is in place to allow pending stock trades to settle. In short, the security trades without its dividend any day after the ex-dividend date. If you buy a dividend-paying stock one day before the ex-dividend you will still get the dividend; if you buy on the ex-dividend date or after, you won’t get the dividend. The reverse is true if you want to sell a stock and still receive a dividend that has been declared: you will need to sell on the ex-dividend day or after.

The payable date is the date on which the dividend is actually paid out to the shareholders of record.

Profits may prove very elusive for small investors looking to profit from dividend capture strategy returns

A dividend capture strategy can pay off when stock markets are rising. Of course, any strategy that leads you to buy can pay off when stock markets are rising. However, you have to pay a brokerage commission to buy the shares and a commission to sell. The commissions can eat up much of the dividend income. They may exceed the dividend income. Continue Reading…