August 30th, 2012
Canada current account deficit jumps more than expected
OTTAWA
(Reuters) - Canada's current account deficit jumped by a
bigger-than-expected 57.8 percent in the second quarter, hurt by the
country's deteriorating trade performance, a trend analysts said could
undermine the Canadian dollar.
Statistics Canada, citing lower exports of energy and a higher level of imports, said on
Thursday that the deficit grew to C$16.02 billion ($16.18 billion) from a revised C$10.15 billion in this year's first quarter. It was the largest quarterly deficit in nearly two years.
Analysts had been expecting a deficit of C$15.30 billion in the current account, which measures the flow of goods, services and investments in and out of the country.
The deficit on trade in goods in the second quarter was C$3.60 billion, following three quarters of surpluses, as crude petroleum exports to the United States fell and imports rose.
The overall services deficit edged down to C$6.22 billion from C$6.44 billion, while the deficit on investment income grew to C$5.53 billion from C$5.38 billion as profits earned by Canadians on their direct investment abroad declined.
LONG-TERM CONCERN FOR C$
The data had little immediate impact on the Canadian dollar, which had weakened against the U.S. dollar early on Thursday due to uncertainty over central bank action to stimulate the global economy.
But analysts said the prospect of more current account deficits to come was a potential long-term negative for the currency.
"The acute worsening in the current account deficit ... to roughly 3.6 percent of GDP in the second quarter serves as a reminder that the currency's strength is mainly due to capital (rather than trade-related) flows -- leaving the currency vulnerable to capital flight if renewed global fears emerge," said Emanuella Enenajor of CIBC World Markets.
Canada recovered better from the global financial crisis than other major Western economies and has maintained its top-notch credit rating. This has triggered capital inflows, which have helped boost the value of the Canadian dollar to a recent 3-1/2 month high.
Foreign investors acquired C$28.38 billion in Canadian securities in the second quarter, up from just C$6.05 billion in the first quarter. Canadian investment in foreign securities dropped to C$2.63 billion from C$6.45 billion.
Douglas Porter, deputy chief economist at BMO Capital markets, said the current account deficit looked set to persist for some time, given weak U.S. growth, an uncertain world economy and flat commodity prices.
"The growing gap simply adds further evidence that the Canadian dollar is becoming too strong for comfort ... point the finger squarely at the Canadian dollar above parity," he said in a note to clients.
RELIANT ON EXPORTS
Canada is heavily reliant on exports, which in 2011 accounted for around 31 percent of GDP, and the current account figures reflect tough international markets for Canadian firms.
Canadian manufacturers complain the strong dollar, increased foreign competition and the weak state of the world economy makes it harder for them to compete.
The goods surplus with the United States slumped to C$9.89 billion from C$15.43 billion, the lowest since the fourth quarter of 2010. The United States takes around 73 percent of all Canadian exports every month.
"The widening in the current account deficit, particularly in the goods account, underscores our expectation that net exports will exert a drag on second quarter GDP," said TD Securities strategist Mazen Issa in a note to clients.
Canada releases its data for second quarter GDP on Friday and markets are expecting unimpressive growth of 1.6 percent at an annualized rate. The Bank of Canada last month predicted 1.8 percent growth for the second quarter.
($1=$0.99 Canadian)
(Editing by Jeffrey Hodgson and Peter Galloway)
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July 14th, 2012
The Rich, Very Rich, and, Now, the 'Volatile' Rich
The rich tend to be lumped together as one economic group, as if people earning $250,000 a year (or even $1 million a year) are pretty much the same as those making $50 million.But a new analysis of top incomes tells us that there is a big difference between the super-rich and the merely rich in how they earn money.
The paper, from Roberton Williams of the Tax Policy Center, compares two sets of 2009 IRS data. One group is American tax filers reporting income of $1 million or more. The other is for the 400 top earners in America, who made an average of $271 million each.
Americans with an adjusted gross income of $1 million or more make about a third of that from salaries and wages. Capital gains used to account for more than a third of their income, but since 2000 that share has fallen to 17 percent. Today, the largest share of their take comes from "other income" - mainly earnings from partnerships or S-corps, as well as other capital gains.
The "fortunate 400" - or top 400 earners - make much more of their income from capital gains and other income than from salaries and wages, which account for only 9 percent of their income. Capital gains as a share of their income has also fallen, from 72 percent in 2000 to 46 percent in 2009.
What does this tell us? That those making $1 million or more are the "salaried rich," since they make more of their money from ordinary income. The super-rich make more of their money from one-time capital gains from the sale of stock or a business.
[More From CNBC: The Billionaire Who Stopped Giving]
Since the super-rich are so dependent on capital gains, their incomes have become much more volatile, falling 40 percent between 2007 and 2009. As a group, they also change members rapidly, with 73 percent of them showing up on the list only once between 1992 and 2009.
Income for this super-rich group "has become much more volatile during the Great Recession, "Williams writes. In contrast, income for the merely rich dropped 18 percent.
The higher they fly, the harder they fall.
-By CNBC's Robert Frank
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July 13th, 2012
Bankruptcy among Canadian seniors rising at alarming rate
Arguably,
few things could be as nerve-wracking as being retired or inching
towards it and finding yourself in dire financial straits. But that's
what's increasingly happening in Canada and younger generations would do
well to take note so as to avoid finding themselves in the same
position over time.
Canadians over the age of 65 now have the highest insolvency and bankruptcy rates for their age group and seniors are 17 times more likely to become insolvent in 2010 than they were 20 years ago, according to the Vanier Institute's 13th annual "Current State of Canadian Family Finances: 2011—2012 Report."
"(The senior insolvency rate) has never been higher, remarks Roger Sauvé, author of the report and president of People Patterns Consulting near Cornwall, Ont. "(seniors' debt) is at a record level … what it's the highest for is the rate of growth."
Credit card debt leading to insolvent seniors
Often times, insolvency is due to an unexpected job loss and/or a divorce, but some of it is likely self-inflicted, Sauvé says.
"There was a survey done in mid-2006 and it looked at the rising insolvency rate among seniors and the No. 1 reason was the availability of credit," he continues. "Seniors, like everyone else in the population, took advantage of lines of credit and then they couldn't pay it (back). So they'd go bankrupt to get rid of their debt."
The decline in interest rates has also heavily impacted the older age groups' retirement investments. Traditionally, investors approaching retirement age will move their investments from riskier assets -- like stocks -- into interest-bearing investments -- like bonds or bond funds -- in an effort to reduce risk and lock in principle capital.
"It's recommended that you have less risky investments but those that are less risky pay very little, like GICs," Sauvé adds. "Generally, and depending on economic conditions, this situation will trend upwards … this tells us of what might be coming from the younger age groups when they get to be that age. The younger age groups are likely to have heavier debt than this senior group."
It's enough to make one long for the so-called decade of greed.
"It was a lot easier for people to make money when interest rates were higher. Look back to the 1980s when interest rates were double-digit; they were 18 per cent at one time," she recalls. "People were doubling their money in treasury bills every four years,"says Bev Moir, a Toronto-based senior wealth advisor for ScotiaMcLeod
Longevity risk
Experts say Canadians are also underestimating long-term care costs, which have far-reaching implications yet to be fully realized both for retirement planning and for federally funded social programs.
"This is a huge worry that I have, because of longevity and the cost of healthcare as one ages," says Moir. "I spent a number of years in the healthcare field before moving into financial services close to 20 years ago. Even back then, it was obvious to us the healthcare system doesn't cover all of the costs (associated with senior care).
"If someone has a disease, there are costs they're going to have to pick up. The healthcare system couldn't afford it 20 years ago and they certainly can't afford it now. It's going to get worse with the Boomers going into retirement."
Moir says previous generations didn't have to plan for retirement to the degree we do today because decades ago they could fall back on the patriarchal pension that once provided for cost of living increases. Fast forward to 2012 and less than 40 per cent of the population has a pension plan.
"We're in an environment now where employers might offer a less attractive pension or a group benefit like a group RSP so people have to self-manage their retirement savings and that requires a lot of knowledge," she says. "I don't think people fully appreciate how much money is sitting behind a pension benefit … it's a lack of knowledge and a failure to plan."
Credit counsellors see increase in senior clients
Patricia White, executive director of Credit Counselling Canada in Toronto, says she wasn't surprised by the findings in the Vanier report since her not-for-profit agency is seeing similar trends.
"One of the statistics we keep is the average age of the clients that we see and in 2011-2012 that figure was 44 as an average age. But 10 years ago, it was 36," she says. "Anecdotally, we're seeing older people with debt at a time when if they're not debt-free they should be close to it."
White attributes the escalating problem to a combination of factors. Certainly the state of the economy is one, employment instability in the middle age group is another, and in many cases, the family homestead was considered to be the retirement plan.
"If that home has decreased in value or if there's debt secured with that home, than that changes things," she notes. "There's also the return of adult children to their parents, many are carrying debt, and they look to their parents for assistance. The parents borrow to help their adult children and put themselves at risk doing so sometimes."
Experts recommend senors avoid for-profit credit counselling agencies that charge significant fees for services that reportedly do nil for the indebted individual.
"In terms of seeking professional help, you have to ask questions about the services you want and how much it'll cost you. I find people are reluctant to talk about their money," White says. "Because of that, they don't ask the questions that they need to ask."
For individuals seeking professional assistance, White recommends starting by inquiring at your financial institution if there's help available. Thereafter, consider non-profit credit counselling and perhaps talking to a bankruptcy trustee.
"If you need professional help, don't shy away from it," she says.
Read More
July 13th, 2012
The dangers of using your home as your retirement nest egg
Somewhere out there, maybe on a block near you, is a couple nearing retirement who sees dollar signs when they think of selling their home.
For them, that for-sale sign on the front lawn doesn't just represent a
business transaction but rather the dream of living out their golden
years in style by living off the proceeds.
Using your home as your sole retirement nest egg might be common a financial strategy these days, but it's also a risky one, say two Canadian financial experts.
"In the last five, 10 years we've seen real-estate prices go up dramatically, but they don't always go up," says financial advisor and portfolio manager Clay Gillespie, managing director at Rogers Group Financial. "Real estate is like any equity market; it will have its peaks and troughs.
"In the last five years housing prices have done better than most other assets; it seems like the only way you can make money. But that isn't always the case. It's a risky strategy because doesn't allow you to retire and generate income when you want to do it; you have to time it with the market."
Demographics will make home sales harder
Although many Canadians have done well in the recent past selling real estate, the strategy is only going to get dicier in the coming years because of shifting demographics.
When Baby Boomers are ready to sell, there may not be enough qualified buyers to purchase their homes, explains Assante Capital Management Ltd. senior financial planner Adrian Spitters.
The biggest group of potential buyers will be the Boomers' own kids, a group known as the Echo Boomers or the Millennial Generation. They're smaller in number than the boomers themselves, and many have stretched their resources to qualify for their first home using minimum down payments at historically low interest rates.
"They are now tapped out," Spitters says. "They will simply not have built up enough equity to even consider moving up when the Boomers are ready to downsize.
"When you have a potential mass wave of sellers trying to downsize their homes to shore up their retirement portfolio at a time when house sales are slowing and there are not enough buyers willing to or able to absorb the inventory of homes for sale, house sales will stagnate and prices will suffer."
Mortgages matter
Making matters worse is the fact that a lot of boomers will still be carrying a mortgage as they head into retirement. According to TD Canada Trust's "Boomer Buyers Report", only half of those surveyed have paid off their entire mortgage. Of those with a mortgage, three-quarters still owe 40 per cent, and one quarter still have a long way to go, having paid off less than 25 per cent.
"If they don't have much saved up for retirement and are still carrying a mortgage when they retire, how are they going to fund their retirement from their home? It only takes one marginal home owner who's desperate to push the prices down," he says.
"These retiring Boomers will have few options to fund their retirement. They will have limited ability to tap into their home equity to supplement their retirement income. This may leave them with few options, forcing them to sell their home, downsize, and pay off their mortgage. In some cases they may need to rent, since they may not have enough equity in their home to fund a retirement portfolio after downsizing."
Twenty per cent of Canadians are going into retirement with debt higher than $100,000, a Rogers Financial Group survey found.
"It's unwise to just use housing as your only means for saving for retirement," Gillespie says. "You have to do other asset classes. You have to have some government pensions, RRSP savings, and your own savings. There's no silver bullet.
"The problem with real-estate investment is you can't sell 1/20th of your home," he adds. "It's not the panacea people make it out to be."
Advice for first-time home buyers
For younger people looking to get into the market, Spitters suggests being patient and building up as much of a down payment as possible by maxing out tax-free savings accounts.
"There's a false belief that the government is going to keep interest rates low and that housing prices aren't going to fall," he says. "There's a mentality now that you better buy before you get priced out of market, but don't rush into it. That could be a financial trap for people with interest rates going up.
"Real estate is cyclical, just like the stock market."
June 27th, 2012
Inflation Makes Big Incomes Smaller
$100,000 income: No big deal anymore
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But times have changed. Not only has standard inflation steadily eroded the real value of a $100,000 income, but the cost, of housing, health insurance and college tuition have risen dramatically in recent years. Consider the rising costs of food, energy and the necessities of a middle class life, and that six-figure luxury quickly turns to six-figure mediocrity.
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Less than 20 percent of American households even break the six figures. But many who earn incomes near the mark find that their prized incomes don't take them as far as the hype. Many say that while breaking the $100,000 annual income mark may still be an impressive milestone, it doesn't exactly roll out the red carpet.
Costs eat away at benchmark
According to the U.S. Census Bureau, only 6.03 percent of individual over 18 and only 19.9 percent of households had incomes of $100,000 or more in 2010. In fact, the median annual household income for 2010 was $50,046, just more than half of the six-figure benchmark. The overwhelming majority of Americans still look up to a $100,000 income, but the expectations of what comes with that income are rapidly slumping.
“Without a doubt, the housing situation is the biggest thing that eats into our income.” -- Brian Neale, investment manager
"What would have cost you $100,000 in 1976 would cost you $381,000 today. That's just the inflation, and there are so many other things that have grown very expensive," says Mari Adam, Certified Financial Planner and president of Adam Financial Associates in Boca Raton, Fla.
Adam points to health care as a major expense that has grown almost twice the rate of inflation. The Kaiser Family Foundation, which tracks the costs of health insurance, found in 2011 that insurance costs had increased by a whopping 134 percent since 2000. The total cost of health insurance now averages $5,429 per year for individuals and $15,079 for families.
Adam says college costs have also grown tremendously in recent years. According to the College Board's annual "Trends in College Pricing" report from last year, published tuitions at four-year public universities are up 42 percent in five years, the largest increase of any five-year period since the 2007-09 school year.
"These are things that everyone spent money on 30 years ago, but the percentage of what was going out of their paycheck is a lot higher now. More of the income is being taken away to pay for a lot of these things," says Adam.
The cost of housing has also played a major role in diminishing the power of a six-figure income. In many parts of the country housing prices have outpaced wage growth for almost a decade. The Housing Affordability Index, which compares the cost of housing against median family income, dropped considerably between 2000 and 2007. In 2000, the median family income was $50,732, and the median home price was $139,000. While median income grew to $60,831 in 2011, median home prices skyrocketed to $229,299 in 2007 before leveling off at $166,200 in 2011. In those 11 years, median home prices had risen 19.6 percent while median incomes had risen 16.6 percent.
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"Without a doubt, the housing situation is the biggest thing that eats into our income," says Brian Neale, an investment manager from Westminster, Md.
Money doesn't go far
Neale, 33, says he surpassed the $100,000 mark last year but says that between mortgage payments, the high price of heating fuel, gas, food and everyday items in life, his salary doesn't go as far as he thought it would. Neale is married with three children and says that his extracurricular real estate and investment activities help them buy the extras in life."Now that I've made (a $100,000 salary), it's not all it's cracked up to be. We make sacrifices. It's not like I tell my kids we're going to have to eat peanut butter and jelly every night. We live well, but I wouldn't consider it anything extravagant," says Neale.
Many now consider $250,000 the new $100,000 income. Adam says that level of income is typically required to provide what many have before expected of a six-figure salary. Adam also points to other expenses that are not necessities but are considered part of a middle class lifestyle -- things like cellphones, high-speed internet access, vacations, karate lessons, iPods, laptops and digital cameras.
"What you might think people deserve for a person that has a reasonable income is excessively high. Add in all the other expenses, and there just isn't anything left and that's part of the reason why a $100,000 income isn't going that far," says Adam.
Geography and lifestyle factors
With the cost of housing typically the largest expense for a family, location is one of the most important factors in dictating the power of a $100,000 income. While that level may not go far on the coasts, it may still provide a fairly comfortable lifestyle in much of Middle America. Jeff Eschman of Brazos Financial Advisors in Houston, says that in much of that state $100,000 income earners can enjoy very comfortable lifestyles."I don't see many families who are at the $100,000 income level currently making a lot of sacrifices. Families at that income level should be able to afford a very nice lifestyle in this area," says Eschman.
“There is still
only a small percentage of people making this income. It points out
that for your average person in your average job, this is becoming an
increasingly hard country to live in.” -- Mari Adam, certified financial
planner
[Related: How Couples Sabotage Their Finances]
The Council for Community and Economic Research's Cost of Living Index, which compares typical family and individual expenses across hundreds of cities shows that. According to the Index, for 2012 Q1, a typical family earning $100,000 per year would need to earn around $228,300 in New York City and $166,500 in San Francisco to maintain that same lifestyle
In low-cost areas, Eschman says that people at that income level tend to run into financial problems when their lifestyle outpaces their income. While this is a problem for many Americans in all income levels, top figure earners are not immune from it. Adam says she has even seen people with incomes of up to $300,000 having trouble covering their expenses.
Choice is yours
Bryce Danley, a Certified Financial Planner and advanced financial adviser with Ameriprise Financial, says the real power of any income is all about perspective and choices. He says buying too much house, spending too much on automobiles and having too much debt is commonplace with families in the $100,000 income level and largely responsible for the six-figure pinch. In one example Danley uses a household that earns $100,000 a year, owns a $375,000 home, leases 2 vehicles for $450 each per month and pays $250 per month on credit cards. After that household pays the mortgage, car notes, debt and takes out social security and federal income taxes, it has spent 75 percent of its income."This is a very typical situation for someone in that income range. And we wonder why average Americans don't save any money -- it's because of the decisions they made in housing, cars and debt," says Danley.
While the real power of a $100,000 income has been drastically diminished, it highlights that the burden of increasing costs on those making less is even more profound. Danley says that regardless of income level, Americans' penchant for debt, consumerism and outspending themselves is what ultimately causes financial disappointment or stress.
"There is still only a small percentage of people making this income. It points out that for your average person in your average job, this is becoming an increasingly hard country to live in," says Adam.
June 11th, 2012
Why You're Earning Less Than You Think
Do
you know how much money you’re earning for the amount of time you work?
There’s a real trade-off in time, energy and money that’s directly associated with your job.
There’s a real trade-off in time, energy and money that’s directly associated with your job.
Do you know how much money you’re earning for the
amount of time you work?
Of course you know that your salary is “x” amount of dollars and your typical work week might be 35 to 40 hours. However, there’s a real trade-off in time, energy and money that’s directly associated with your job.
Here are six reasons why you’re earning less than you think:Of course you know that your salary is “x” amount of dollars and your typical work week might be 35 to 40 hours. However, there’s a real trade-off in time, energy and money that’s directly associated with your job.
1. Transportation
Getting to and from work, whether you drive, walk or take public transportation, costs you time and money. How long is your commute? Calculate how much money you spend on a bus pass, walking shoes, gas, parking, tolls, traffic tickets, and car (and bike) maintenance.
Related: Relocating for work: Pros and cons
2. Clothing
Do you need a special wardrobe for work? This not only includes the obvious outfits like nurses’ uniforms, construction workers’ steel-toed boots and chefs’ aprons, but also the tailored suits, ties, shoes and accessories that are the norm in offices.
Consider the time and money spent on shopping and personal grooming. Don’t forget dry cleaning, tailoring and other clothing maintenance expenses.
3. Meals
Extra costs for meals can take many forms – money for morning coffee and doughnuts, daily lunches, drinks after work with your co-workers, and expensive fast foods that you buy when you’re too tired to cook dinner after work.
4. Decompressing
When you come home from work are you ready to jump into your personal projects and share family time? Sometimes you’re tired and drained from a long day at work and need to relax in front of the TV for a few hours with a drink in hand.
Related: Out of work? You can get up to $28,000 to re-train
5. Job-Related Illness
How is your job affecting your health? Many job-related illnesses are brought on by stress, physical working conditions or conflict with employers or fellow employees. There is a lot less illness-caused absenteeism in volunteers than in paid employees. Think of the time spent waiting in the doctor’s office and the money spent on drugs and remedies not covered by insurance.
6. Other Expenses
Childcare expenses like day-care, a babysitter or nanny can take a big chunk out of your salary. So can hiring a housekeeper or cleaning service. Then there’s the hours spent reading work related material, upgrading your skills, attending seminars and conferences, and evenings spent at networking events.
Related: We cut household expenses by $1,250 a month
The Bottom Line
Calculate the hours you spend on work related activities – what you wouldn’t do if you weren’t working – and add them to your normal work week. Then subtract all your job related expenses from your salary to come up with your real hourly wage.
Decide whether it’s worthwhile for one parent to stay home with the kids, or use the results as criteria for accepting or rejecting a job offer when you can see clearly what it’s worth.
A special thanks to:
Robb Engen
Robb Engen blogs at Boomer & Echo.
Reach him at robbengen@gmail.com.
Image: Stuart Nimmo/Toronto Star.
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