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January 28, 2020 | The Clueless

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Remember all that political stuff we waded through last week as I announced my shocking withdrawal from the race to become the new Con leader? At least it cleared the way for Peter MacKay on the weekend. Now, barring the unexpected, he’ll be facing T2 in the next general election. It won’t be pretty.

But back to policy. What should leaders do?

High on my list was the need to teach citizens. We are so pooched, thanks not only to the lack of financial literacy, but the house lust and risk aversion that surrounds us. Most people you know don’t own ETFs, but flock to condos or seriously-leveraged houses. They save money instead of investing it. So every single poll and survey finds the same result: we’re getting less wealthy. Four in ten are a hundred or two a month from insolvency. Seven in ten have no assured pension. And yet people think investing in financial stuff is risky. Days like Monday don’t help. When stocks go down 1% after rising 30%, people freak. “See?’ they cry, “it’s a trap.”

Well, Mike knows better.

He passed this window poster of an expectant mom in Vancouver this week – in a HSBC branch…


…and had this to say:

Because when you have two kids and an extra $5000 kicking around, locking it in for 218-days at barely the rate of inflation after a required face-to-face (or over the phone) sales pitch with TNL@TB is the best way to take care of your future… Your blog should be required reading before breeding! (Maybe advertise on condom wrappers?)

That idea’s got legs. But what would we call them? (Please do not offer any suggestions. I can only imagine…)

Mike’s right. Great example. The bank is offering to pay 2.18% annually in return for locking up your money at a time when inflation’s 2.2%. But wait. That offered rate is ‘per annum’ and an annum ain’t 218 days, even in YVR. It’s actually 60% of a year, so the real return paid on the GIC’s maturity would be 1.3%. Oh yeah, and unless it’s inside a registered account (and what a waste that would be), the money earned is taxable.

The fact a major bank would post this in their window like it’s a… big thing… is an illustration of how much we need to educate the huddled masses. Why would anyone park their money for less than the inflation rate? Or choose to do it for 218 days? How is this possibly an example of ‘investing in your future’ when the customer will have less purchasing power when it’s over? Is it even ethical, let alone responsible, for a bank to be seducing customers into a losing deal? How did we get to this point?

Ah, but this is just the start.

This week another bank, the green one, reported that almost a third of us have no idea how a TFSA differs from an RRSP. Those confused little beavers said they‘d put money into a tax-free account in order to reduce their taxes. That confirmed exactly what another bank (the blue one) just found. People are clueless. Even a decade after TFSAs were created, and after millions of accounts have been opened. Almost half of us use TFSAs as savings accounts, for example. This is like marrying Jennifer Aniston and keeping her home making casseroles.

For the record, of course, TFSA contributions are made with after-tax money. RRSPs are filled with taxable cash. So tax-free account income in retirement is not counted by the CRA. Retirement savings income, however, is fully taxed at your marginal rate, and can gut government pogey payments.

By the way, bank surveys have found most people are using TFSAs for home renovations and saving for a down payment. In fact twice as many think a TFSA is best, despite the RRSP Home Buyers Plan which allows a couple to take out $70,000 and still collect the tax savings for making their contribution. Most of us don’t know we can put money into an RRSP and let it grow for years without tax, and not claim the deduction until later when our income – and the tax break – is higher. Or that a contribution in kind turns taxable assets into tax-free ones. Or how a spousal plan can seriously split income.

Meanwhile four in ten say they don’t actually understand how a TFSA works, tax-wise compared to the other. Maybe we should do a chart. Put that on the condom, too. Might be lengthy, though.

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January 28th, 2020

Posted In: The Greater Fool

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