The Canadian Money Roadmap

New and Noteworthy: Wildfire Impact, Interest Rates, Building Wealth In Canada and VC's Abandoning Crypto

June 14, 2023 Evan Neufeld, CFP® Episode 85
The Canadian Money Roadmap
New and Noteworthy: Wildfire Impact, Interest Rates, Building Wealth In Canada and VC's Abandoning Crypto
Show Notes Transcript Chapter Markers

Join me in an episode that dives into the impact of wildfires on oil production and donation tax credits while shedding light on the recent increase in interest rates and the potential for millennials to build wealth in Canada. 

Discover how the silver lining of rising interest rates can benefit savers through high interest savings accounts, GICs, and money market funds. Unearth the differences in housing costs, average incomes, and other financial factors when deciding to move from major Canadian cities like Toronto and Vancouver to other parts of the country. We'll also touch on venture capital funding for crypto-related companies and how they've moved on to other ideas.

Finally, don't miss our introduction to the Find Your Focus Scorecard – a tool designed to help you pinpoint areas of focus for your financial life and provide personalized tips to improve your financial situation. 


Just starting your financial journey? Learn all the critical things you need to make better money decisions as a Canadian with the Financial Foundations Course. Get Instant Access Here

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Speaker 1:

Hello and welcome back to the Canadian Money Roadmap podcast. I'm your host, evan Newphillip. Today is our first episode of June and I'm going to be talking about a few things that are new and noteworthy. Topics ranging all over the place, from wildfires and some impacts there, some issues along with the wildfires that relate to donation, tax, credits, interest rates they just went up last week and I'm going to be talking about the silver lining around that. Can millennials still build wealth in Canada? That's a really great question I saw on Reddit and it's something that I saw in regards to crypto related companies getting funded by venture capital. Thank you so much for being here today. I appreciate you coming back after a week off there. I'm glad that I'm finally settled into our new house. We literally moved three blocks away, so it wasn't that big of an ordeal Lots of moves back and forth with the truck before the movers showed up last week and anyways, it's nice to move into a slightly larger home where we've got two kids that can run around, a little bit more yard and some green space for us all to enjoy. In that regard, i'm going to be talking a little bit today about some homeownership things, but I was thinking that if anybody would find it interesting, i could talk about my first home that my wife and I owned and really break down the numbers, and so you can kind of see firsthand exactly what it costs to buy and sell a house. So many people look at just the purchase price, sale price and whatever equity you had in it, when in reality there's so many more costs at play Realtor costs not being the largest one, even with the interest, insurance, taxes, so many other factors in there. I thought it would kind of be interesting if anybody was interested in seeing a breakdown of what that would be like. Maybe I could do an episode on that. Send me an email if you want to do it. If I don't get any emails probably won't do it. But yeah, anyways, that's an option for an episode coming up in the future, today going to be talking about a few things that are relatively new in the news and how it affects you and your money. And so the first thing if you've spent any time outside in the last month or so, you'd know that a good part of the country has issues with wildfires. This is a relatively common summer thing, but this year it seems to have come quite a bit earlier than normal. Pretty dry spring, pretty well across the country, i think. But right now, as far as how this impacts you, anyone that's listening here in Canada is unfortunately probably due to the impact that this is going to have on oil production in Alberta. I've seen a few headlines about certain producers shutting down parts of the production process due to wildfires being dangerously close to their operations, and so if oil production is impacted by these wildfires, that means that oil prices are going to go up. And what we've seen over the last couple of years is that when oil prices go up, the price of almost everything else goes up too, because transportation, getting things across the country gets much more expensive You getting to and from work and to kids, soccer games and everything else that gets more expensive, and oil based products are in so many of the things that we use and consumed day to day. So when oil prices go up, the cost of living in general goes up. So you can probably take a reasonable bet that if these wildfires end up do impacting oil production for any meaningful amount of time, we can see a pretty meaningful increase in oil and gas prices across the country. That's a little bit of speculation is not really that much news, but sometimes these news things don't really take our brains into thinking that it's relevant to us because it's not where we live. But something like oil production actually does affect us here in Canada pretty significantly. So, along with that, if you're going to watch in this news and you're seeing how many people have been affected by these and you'd like to donate to those, i'm not going to advocate for any specific program or anything like that. However, if you did want to look into that, as I'm speaking today, monday June 12, the federal government and many provincial governments have matching programs made available for relief efforts. So, depending on the province that you want to donate to, there could be a matching program where you donate a dollar, the feds kick in a dollar and the province kicks in a dollar, so your one dollar donation turns into three, which is pretty cool If that's something that is important to you and something that you wanted to support. I won't have links in the show notes because these programs do end and I don't want somebody to find this after the fact and get turned astray. So if that's something you want to do, you can just do a quick search and see if those matching programs are still available. The way that a donation impacts you is by you getting a tax credit for your donation. So if you haven't ever made a donation before, or even if you have, here's just a quick refresher. But you get a tax credit for an eligible donation, so that has to be to an eligible charity, not just your buddy who needs some help by and lunch. You actually have to donate to a registered charity And in that case, if it's an eligible donation, you will get a tax credit, and a credit is an amount that you can use to eliminate taxes owing when you file your tax return next year. The amount that you would get as a tax credit is dependent on your province, but I'll give you a few examples here. So in BC an eligible $500 donation will generate a credit of $177. However, in Ontario that same $500 donation gets a credit of $160. And then here in Saskatchewan it's a credit of $181. So I don't want to give just general rules of thumb here, because every province is different. But all I wanted to say here is that, if you've listened to me before and I've talked about charitable giving before I do advocate for giving back to people in communities in need. But the nice thing is that when you do so you're able to get some of it back as a tax credit. So I see that as a really significant win-win for those of us that have the means to be able to give back to others. The next topic here that I want to talk about is interest rates. I know it's like every single month it seems like we didn't talk about interest rates. It is kind of the topic to jure here, but it was a bit of a surprise last week when the Bank of Canada raised interest rates again. So they kind of paused for a good chunk of this year so far And then they raised them again by 0.25%. So I think the current overnight rate is 4.75% And in their case I believe it was largely due to their assessment of inflation still being higher than anticipated. Inflation being higher than anticipated is usually surrounded by a variety of metrics that are good news stories for the economy. So it's kind of a blessing and a curse here a little bit. But it was kind of a surprise to so many people because the idea with raising interest rates is that it takes a long time for that to actually trickle through to the economy And a lot of the statistics we look at are actually backward looking. So it seemed perhaps a little bit impatient to take the stance that you're going to raise interest rates again, but anyways, they've got way more data than I do And I don't want to be here critiquing the Bank of Canada. But all that to say, myself and most economists were surprised by this, so I don't want to spend too much time talking about this, but I just want to remind you that if you are someone that has any debt with a variable rate so some people have variable rate mortgages, home equity, the lines of credit, any debt that's tied to prime. So sometimes if you have a loan from your bank or a student loan or something like that, it'll be like prime plus one. The prime rate is directly tied to the interest rates that you're seeing in these headlines, so your cost of borrowing in this case just went up. So a little bit of jargon in there, but just know that when interest rates go up and you have debt that's tied to interest rates, your life is getting more expensive. Now let's talk about the silver lining for a second. We haven't talked about this side of the interest rate increases here too much, but now it's almost getting to the point where you can't really ignore it too much anymore. The silver lining here is that savers so those that are saving in cash for, say, short term things or even emergencies you're no longer being penalized for having cash just not invested, which is exactly what I recommend for people that have an emergency fund, or if you're saving for anything within one, two, sometimes even three years away from now. The prevailing thought over the last few years was that cash is trash. You can make any money there, and so so many people wanted to throw their emergency fund into the stock market because that was the thing that was doing really well. Unfortunately, that's a rough way to learn that. Adding risk to your emergency fund can create problems at exactly the wrong times. So now that interest rates are a little bit higher, that means many high interest savings accounts will actually pay something. I'm not going to say which banks are great and which ones aren't, but depending on where you bank, take a look at the high interest savings account again. So if you've got cash sitting around in your checking account, it could probably be making you a few extra bucks in a high interest savings account Many people are looking at GICs. I've talked about GICs a little bit here. I personally don't really like GICs, because you lock yourself into the product for the duration of time And if you are saving money for an emergency fund and your money is tied up in a GIC, well that's too bad because you won't be able to access it. Some institutions have cashable GICs but, as you can imagine, with the benefit of you being able to get out of the contract, they will pay you a lower interest rate as a result. So what's kind of a happy medium here between something that pays a decent rate But also you have access to it whenever you want. Well, the thing that's been popping up a lot more in popularity is something called a money market fund, and these are mutual funds Or there are ETFs for them as well, but they're kind of like a high interest savings account on steroids a little bit. I want to get into the complexities of how they work, necessarily, but most of them are invested in very short-term Bonds, like 30 day or 90 day bonds, so the risk on these things is extremely low. The entire point of a money market fund is safety, but also liquidity. Liquidity is just the idea that you can have your money to be able to spend it very, very quickly. Okay, so where rates are right now, you can actually make some decent money on these things. I'm not going to put in specific numbers here, but I would say the numbers that I see today are very similar to the rates that you can see in GICs, depending on where you look. So if that's something that you have access to wherever you invest, that might be a consideration for your cash holdings as well. Keep in mind that the payments that you receive from this so it's not capital gains growth, it'll be interest income. So if you are holding this in a non-registered account, there will be a little bit of tax to pay at the end of the year. File that under good problems, because you only pay tax if you make money. Finally here many non-traditional banks, perhaps like Tangerine, eq Bank, simply Financial. There's many others, of course, but those that are mostly online and not brick-and-mortar banks. They offer a pretty decent rate on their savings account too, typically a little bit better than many credit unions or any of the big banks. This generally makes sense because they have fewer costs because they're an online bank. Most of them are affiliated with larger banks, so I wouldn't necessarily worry about them going under or anything like that. But I have used one of these banks myself personally, because I like the idea of doing my day-to-day banking Where it's most convenient and then putting my cash savings in a place that pays me the most, and so in that way, too, my cash savings are out of sight and out of mind in the best way, so that I'm not as tempted to use it for other purposes, like going on a vacation or Buying a new pellet grill or something like that. So, to summarize here if you have a short-term goal or you have cash saved up for your emergency fund And it's just sitting in a boring old savings account at your bank right now, you probably could be doing a little bit better. So either look at a high interest savings account, look for a non-traditional bank online, or look for a money market or High interest savings mutual fund or ETF tons of things that you can compare there, but very simple Google searches will point you in their right direction. Next topic here was from a post that I saw on reddit, and I saved the link to the post instead of copying the the whole thing, and so now that I went back to Prepare for this podcast, i noticed that the moderators of the personal finance subreddit removed the post. I don't know why, but they they removed it, so I can't really reference the specifics anymore. I do have the title, though, and we can talk about some of that. So the title was can millennials still build wealth in Canada? Okay, well, you get the gist of the question here. When I was going through what is left of the post, you can still see all the comments, and one of the top comments To me is a little bit of a sour grapes type comment. But they're they're saying like yeah, yeah, it helps to have a good income and all that. But what I've observed is that luck and generational wealth is the key to building. Well, okay, like, yeah, i sure, if the luck for sure, because that kind of trickles into almost everything We do without realizing it until after the fact and it's a bigger part of it, then then we care to admit. But the generational wealth thing is, i think that's far more limited than most of us would like to believe. You know, of course, if you have everything handed to you, that's yeah, sure, that's a no-brainer, but that actually doesn't really align with reality of how most people have built wealth in Canada, in the US, i won't get into that, that's probably a whole nother episode, probably. But yeah, the things that build wealth in Canada like the things that help the most. You know, there's no mystery here. If you have higher than average income, if you have lower than average spending, if you have higher than average discipline and, in my personal opinion, lower than average comparison to others, they're all factors That'll help. You know, if you see somebody that you know that buys a house, it's like, well, their parents probably just bought it for them. Like, well, okay, maybe not, maybe that they had higher than average discipline and they didn't spend as much and they had higher than average income. That might have been part of it too. Comparison to others is that's just the thing that that'll kill everything. Stay in your lane, focus on what you can control. You'll be in good shape. But from the original post here, my suspicion is that this person is trying to grapple with the idea of buying a home in the GTA. So that's a greater Toronto area for those of us that don't live in Ontario. But you know that that idea of buying a house in Toronto, let alone start a family, pay off student loans, etc. Forget, quote, unquote wealth building or saving for retirement. Totally get it, i totally get it. But the challenge here is you know, maybe I'll let some some people off the hook here Maybe the challenge isn't discipline, maybe the challenge is an income. It's the spending, and it's not spending on avocado, toast and whatever certain generations would like you to believe. It's just a high cost of living area. It's probably the most high cost of living area almost in the entire world, especially for buying a house. So no like if you, if buying a house in Toronto or Vancouver is a priority for you and you don't have a significantly higher than average income, no like you can't building wealth with what is no extra money there. Right. Like if you look at a lot of high cost of living areas around the world, think places like Paris and London and I'm sure Tokyo is probably about the same Renting in these places is the norm and not some sort of like disgusting alternative. Oh, got it, i want a house. You got it on a house. This is a line from the Simpsons. It was referencing beer in the case of the Simpsons episode here, but in Canada, real estate has been pitched as the cause of and solution to all of life's problems, right? So for those of us millennials that are moaning about the inability to build wealth, it's like, oh well, because I can't do anything besides save for a house. And then once you have the house, then you have a variable mortgage that keeps going up and whatever. And it's like but all these people that bought houses before they've got this lottery ticket, because those parts of the country, vancouver and Toronto in particular real estate just keeps going up And that'll be true until it doesn't, right? So yeah, is real estate the cause of and solution to all of life's, life's problems? Like, yeah, if you live in those areas, that might actually be true, but a little bit of opinion here. But staying in a high cost of living areas probably the greatest determining factor in having less money for anything other than money, more than shelter a little bit tongue in cheek there, because of course, if you have to spend more money on shelter, of course you have less money for anything else. So let's take a look at a few stats here that might highlight how big of a problem it is for a very small part of the country. A lot of people there, of course, but there are other fish in the sea. So let's talk about a few other things. I've got some data from CMHC, that's the Canadian Housing and Wage Corporation, and they released data every quarter about the average value of new mortgage loans. This is not the average new home price, this is just what they see for the average value of new mortgages. So at the end of March of this year, number one most expensive place in Canada or highest mortgage value, i guess Vancouver $487,000, followed very closely by Toronto at 482. Many other smaller communities or smaller cities in similar areas, like Abbotsford, hamilton, whatever, berry they're right around there too A little bit lower. But then you get into a place like Calgary. Calgary is at $331,000. So, all right, let's compare that Vancouver to Calgary A difference there in average value of new mortgage of $150,000 less. Okay, if your housing costs can be considerably lower, what could you do with that extra money? I will let you think about that a little bit. Even in a place like Ottawa, considerably cheaper $292,000. Here's my city, saskatoon. $251,000 is the average value of a new mortgage here in Saskatoon. We're not even the cheapest. You can keep going. Quebec City, beautiful city. If you've never been there, go check it out. They've got cheap houses. Apparently, average new mortgage in Quebec $202,000. Okay, so let's just compare these again. Maybe back to Saskatoon, where I live. So if the average value of a new mortgage loan in Toronto is $482,000, and it's $251,000 in Saskatoon, that's a difference of $230,000. And, truth be told, in Saskatoon you can actually have a standalone house. That's not a condo downtown In Toronto. I guarantee you that's a condo. That's not a standalone house. You can actually have a yard too. I know it's. I love Toronto. I'm not here to bash Toronto by any means. Saskatoon is not like living in Toronto, but I like it here. There's lots of things to like about Saskatoon And every other city that's on here, right? So if you open up your horizons a little bit, there's plenty of opportunity. Now let's flip the other side. You say, okay, well, costs are higher there. You must be making so much more money living in Ontario. Guess what? Nope, not true. So if we're looking at median annual total income, this is in 2020, so I don't have super current debt on this, but it's as good as we're gonna get. So median is the one that's right in the middle. So this is an average. I like median for this type of thing. It's probably a little bit more accurate. But I was talking about Calgary, i was talking about Saskatoon, alberta. Just shy of 44,000 is the median income in Alberta. Saskatchewan is right behind it at 41,850, then BC and Ontario afterwards. So hold on a second. Houses cost twice as much and the median income is actually lower. It's no wonder that certain parts of the country feel very differently than others. I don't have a lot of these conversations with people locally, where people in my age demographic are feeling like they're drowning because of housing costs. Housing prices have gone up here, for sure, but average incomes have been pretty good and average house prices are considerably lower than the rest of the country. So if you're the person, that's right and can millennials still build wealth in Canada, to me that says you have probably not explored your options in the vast majority of Canada and you've stayed probably pretty central to two major centers of Toronto and Vancouver, which is totally fine. They're probably two of my favorite cities anywhere, let alone in Canada. I really like Toronto and Vancouver, but they're so expensive. Okay. So if you have a priority of building wealth or getting out of debt or owning a home, you can look elsewhere. There's lots of jobs, there's lots of good income and there's cheap houses, on a relative basis, of course. I saw a post I think it came from Yahoo Finance, looking at the Canadian cities with the largest share of homes listed for less than $200,000. Truth be told, here in Saskatoon would I want to own one of these houses? That's worth less than 200,000? probably not my big condos here, but we have bad neighborhoods here too. But anyways, the the data is still out there. These cities include st John, new Brunswick, regina, winnipeg, edmonton, saskatoon, lethbridge, red Deer, st John's, quebec City. These are all over the country, like it's not Just middle of nowhere type places. There are places you can buy homes here that are reasonable. So if real estate is going to be a priority for you along with the priority of wealth building, unless you have an Extraordinarily high income, i would say Toronto and Vancouver are not going to be able to be places for you to consider. Can you do it in other parts of Canada? Absolutely. Here's a little bit more anecdotal evidence. In my industry So I manage investments as well, and many of the financial planners that Have the largest businesses, meaning they manage the most amount of money. There's a number of lists that come out every year, and it's kind of a corny thing to do, but you can kind of see What parts of the country have a lot of money. Many of the advisors that manage the largest accounts are actually here in Saskatoon, because Most people do not have the same Crippling problems and the average person actually has a little bit more capacity to do that, because the cost of living here is considerably lower. Good income, less spending on basic needs, means you can either build wealth, you can travel more, you can drive a nicer vehicle, you can give more away. There's tons of things that you can do, right, but your cost of living is The greatest determining factor in having less money for anything other than shelter. So, anyways, all this should maybe partner with Tourism, saskatoon or whatever. But come check us out, check out another city, travel across the country, see a few places. You might be surprised. Okay, final thing was just kind of interesting here. I haven't done any specific episodes on crypto. I don't think I really want to, but to me crypto always seemed like this bubble, or the concept seemed vaguely interesting. The technology seemed kind of interesting. However, there didn't seem to be a lot of practical applications. There seemed to be a lot of scams. There seemed to be a lot of people getting arrested That are involved in crypto, some of which I've talked talked about before on the podcast. But there was this hope that Crypto was gonna solve every financial problem and and whatever, and the blockchain is gonna do this and that and the other thing. And NFTs were the thing for a minute, and anyone that's invested in NFTs and actually made money Please send me an email. I'd love to know that you exists. I don't think you do, but when interest rates were abundantly low, money starts chasing fun ideas and, like money, will start throwing spaghetti at the wall to see what will actually work, and The place where this happens the most is in the venture capital world. So these are Organizations and people that have a lot of cash and they say, okay, i'm gonna fund ten crazy ideas and maybe one of them is the next Facebook, maybe one of them is the next Amazon, maybe one of them is next Uber or whatever, and they know that a ton of stuff is gonna fail, but the ones that work are gonna blow it out of the water and they're gonna make a ton of money. This is high risk investing for sure, but there's a lot of firms that do this and, especially when interest rates are really low, this type of investing really stimulated a lot of new companies and new ideas in that crypto and web 3 space. So this data is coming from pitch book and Fortune. There's a chart that I'm looking at here that shows how much money was raised by venture capital firms for crypto related companies in $18 3.3 billion dollars. 2019 $3.3 billion. Then in 2020 $5.5 billion. 2021 $14.4 billion. 2022 $21.6 billion is less exponential curve going up In 2023, this is, as of middle of May 0.5, so $500 million. Versus last year, 21.6 billion venture capital has abandoned the idea of crypto and this to me feels like a little bit of vindication because I thought it was silly and a waste of money and great place for money to go to die. So this space there's many reasons that this could be that's a lot less grave dancing related here, but my guess is that a lot of the money that venture capitalists are investing is going to companies that are working on AI, because I think that AI and things like chat, gpt and all the technologies that you've probably used to generate text and images and even audio this is the cool technology that crypto wanted to be, but there was no practical use case Again, i will argue with people on that whereas AI immediately had a very interesting and valuable use case that anybody could use instantly. It's like, okay, there is something here, and so that's going to be the thing that'll be making all the headlines from now until it's the next thing. Right? Does this mean that you can't ever make money on crypto, or you should never be investing in crypto or anything like that? No, but do it at your own risk. If you're investing in things because it seems to be popular and other people are talking about it, maybe do another layer of research to see if that's actually worth doing. Same thing with AI. There is going to be a ton of companies that will exist and disappear related to AI, so not everything here is going to be a good idea either. So all this to say. If you're doing any sort of moonshot investments yourself or trying to guess what the next thing is going to be, just go into that, assuming you're probably going to be wrong, and just be okay with losing it. You can be hopeful, you can have fun. For sure, do it with a small portion of your money, though, because even these venture capitalists these are smart people. They do their research too. They're not just hoping and praying. Sometimes they get it wrong. So, whether it's marijuana stocks or crypto or AI, use caution when investing in something that sounds too good to be true, or something that is very recently in the new cycle, or something that sounds like it's going to change the world. It very well might, but please exercise caution when investing this way. If you made it this far. Thank you so much for listening. I really do appreciate it. If you are someone that is relatively new to the podcast, or if you are listening to a podcast like mine, hoping to come up with some ideas for where to start for yourself or improving your financial life, please head to the link in the show notes of this episode and you'll be able to find my find your focus scorecard and you'll answer a bunch of questions And at the end, you'll find a few areas of where you could focus your time and energy and learning as it relates to your money. You'll get a customized PDF at the end that will highlight the one category that you scored the lowest on and provide three practical tips for things that you can do to improve that area of your finances. Again, head to the link in the show notes to do the find your focus scorecard. Thanks so much for listening and we'll catch you on the next episode. Thanks for listening to this episode of the Canadian Money Roadmap Podcast. Any rates of return or investments discussed are historical or hypothetical and are intended to be used for educational purposes only. You should always consult with your financial, legal and tax advisors before making changes to your financial plan. Evan Neufeld is a certified financial planner and registered investment fund advisor. Mutual funds and ETFs are provided by Sterling Mutuals Inc.

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