Over the past three years, the savings rate of Quebecers has increased dramatically, and is now at 8%. It took the opposite path in the rest of Canada, going from 5.1% to 1.8% in the span of five years, according to a recent study by Desjardins Economic Studies.

MARC TISON
LA PRESSE

At the same time, the indebtedness rate of Quebecers stopped its rise, stabilizing for three years at around 155%. Ontario’s continued to climb, reaching 188%. “It is still major, because a savings rate of around 8% in Quebec, we would not have expected it a few years ago,” comments senior economist Hélène Bégin. “I remember a time when the savings rate was less than 1%.” The explanation lies mainly in the tightening of the job market in Quebec, according to the economist. Explanations:

Decrease in the unemployment rate

The strong expansion of the Quebec economy over the past three years has resulted in a drop in the unemployment rate, which even remained below 5% for much of 2019.

An older population

Accelerated aging in Quebec compared to Canada has also increased the number of available positions.

Increased remuneration

In response, the remuneration of Quebec workers has grown for three years by about 3% per year. The increase had been between 1% and 2% in previous years.

Increase in disposable income

With the added effect of federal and provincial tax breaks, after-tax disposable income has increased by almost 5% per year over the past three years

More money in pockets

As a result, Quebec households, without reducing their consumer spending, were able to save more. In 2019, they devoted about 8% of their after-tax income to saving. In 2018, the savings rate was negative in 7 out of 10 provinces. Only Alberta was just ahead of Quebec, after also experiencing a dramatic drop in its savings rate.

Two curves of the same slope

For the past three years, Quebecers’ after-tax income has maintained a growth similar to that of property prices, which has allowed them to stabilize or even slightly reduce their indebtedness rate. In 2019, their debts were around 155% of their after-tax income, compared to about 175% in the rest of Canada.

The weight of the mortgage

Since mortgages account for 75% of all household debt, property prices largely explain the difference between the indebtedness rate of Quebecers and other Canadians. In November 2019, the average price was $331,525 in Quebec, $628,234 in Ontario, and $526,303 in Canada. Quebec households reserve 28% of their disposable income for mortgages, compared to 35% in Canada and 40% in Ontario, which leaves less room for savings than in Quebec, noted Hélène Bégin.

L’article Savings and Debt: Quebecers Are Doing Better Than Other Canadians est apparu en premier sur Simple Credit - simple-credit.ca - Solutions de prêts personnels.

While some people are having hard times, others have never had so much money in their bank account.

When the pandemic struck in March 2020, pianist Jérôme Beaulieu was finishing a five-concert tour in France with his group Misc. “We had to return to Canada right away,” says this star of the Montreal jazz scene, who was the Radio-Canada Revelation in 2014.

I met Jérôme Beaulieu seven months later, when he arrived at my place not to play jazz, but to repair our garden gate!

“I made a good living as a musician,” says this father of a four-year-old boy. But with the pandemic, Jérôme Beaulieu has seen 75% of his income evaporate, one gig after another. Almost everything has been cancelled. And who knows when the cultural scene will resume its activities? The pianist, whose wife is a singer, has therefore decided to add a new piece to his repertoire: home improvement odd jobs. “It was while doing work at home in the garden that I got a taste for it,” he says. He had some experience, having already helped his handyman dad. “I’m pursuing a few musical projects, but I’ll have to do some renovations to have a side income for a while,” he says thoughtfully.

Jérôme Beaulieu, who took advantage of the Canada Emergency Response Benefit (CERB), is one of two million Quebecers who have turned to this government assistance, including almost all artists and employees of hotels, bars, and restaurants. By the end of April, in Quebec, one in five men and one in four women had been laid off, according to a joint study by the Centre Universitaire de Recherche en Analyze des Organisations (CIRANO), the Research Chair in Intergenerational Economics (CREEI), and the Retirement and Savings Institute (RSI) at HEC Montreal. Almost a third (29.5%) of households had experienced a change in employment status since 2019 because of COVID-19.

Almost a year after the start of the pandemic, it is still difficult to establish an exact portrait of its overall effect on the finances of Quebecers. Are we richer? Who are the winners and losers? Have public health measures worsened inequalities?

“We are all united in the face of the same storm, but some are in a rowboat and others in a five-star liner,” says François Décary, director of the Association Coopérative d’Économie Familiale (ACEF) Appalaches-Beauce-Etchemins.

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It must be said that not all is bad for everyone. Despite job losses and closures, during the first five months of 2020, average weekly earnings were up 7.1% from the first five months of 2019, according to the Institut de la Statistique du Québec. Considering that at the end of April, according to the study conducted by CIRANO, CREEI, and RSI, just over half (55.5%) of all households had seen a drop in income – by 8.4% on average – we can conclude that some have seen their financial situation improve.

Félix Cadotte, 27, who works as a project manager at the Centre for Technology Transfer in Industrial Ecology in Sorel, was very worried at the start of the pandemic, but in June, he went from a part-time position to a full-time job. “Business is going stronger than ever. Organizations and ministries realize that sustainable development goes hand in hand with profitability. The growing interest in buying locally is one of the canons of sustainable development, which means that there is a huge demand for what we do.”

In addition, since he is now teleworking five days a week, Félix Cadotte eliminated a number of expenses for clothes and restaurants, and above all, he got rid of his car. “I won on two counts. I have a full-time job and have lower costs. My girlfriend and I don’t need two cars anymore, only one,” says the young man, who is saving for a house while awaiting the birth of his first child. Read also

When the great lockdown arrived and it was necessary to give up romantic outings to restaurants, happy hours with colleagues, and family getaways, many Quebecers somehow placed themselves in “involuntary simplicity,” rediscovering the virtues of “homemade” and saving. The same thing happened after the summer break, when almost all of Quebec found itself in the red zone. “The pandemic makes us realize how much money we spend on non-essentials, such as outings, trips, and restaurants,” explains Nathalie Bachand, president of ÉducÉpargne (formerly Question Retraite), a non-profit organization whose mandate is to raise awareness of the importance of cultivating good savings habits. “When all that disappears, we see our real needs more clearly,” she says.

In June, according to a SOM poll commissioned by the organization, 50% of Quebecers had revised their budget and financial priorities, two thirds “out of prudence” rather than “out of obligation.” And half of the respondents wanted to be better financially prepared for the next crisis.

In addition, 85% of Quebecers had reduced their consumption and 59% had cancelled or postponed a major expenditure, according to the same survey.

For the majority, it was only a postponement: according to the Institut de la Statistique du Québec, spending by Quebecers increased by 15.9% in the third quarter compared to the previous one. Nationwide, spending on durable goods rose by 38% over the same period – the largest increase on record, according to Statistics Canada – an increase of 7.7% from the fourth quarter of 2019!

For others, a certain awareness has taken hold. “Many people have managed to reduce their spending in a sustainable way during the pandemic, and they find that by eliminating restaurants and outings, they debit their account from $400 to $800 less each month,” notes Pierre Leblanc, founder and president of Groupe Leblanc Bankruptcy Trustees.

Across the country, the savings rate for Canadians climbed to 27.5% in the second quarter, helped by rising wages, government assistance, and lower spending. It suddenly fell to 14.6% in the third, but that is still significantly more than the savings rate of 2% recorded in the fourth quarter of 2019, observes Statistics Canada.

According to a survey conducted in July 2020 by Angus Reid, 8 in 10 Canadians rated their financial situation “good” or “excellent”!

Financial institutions have noted this savings trend. For the first nine months of 2020, Desjardins Group measured an increase in deposits of 17% compared to the same period in 2019.

And those who had placed their money in financial markets lost nothing. “At the beginning of the pandemic, there was a stock market panic that lasted from February 23 to March 20. It was a descent into the abyss that erased three years of gains. Many clients could not resist the emotion and asked us to sell everything,” says Louis-Bernard Dubé, financial planner at iA Financial Group in Terrebonne. “In six months, all the stock markets had returned to the same point. Those who kept a cool head and sold nothing remained in the same situation. Those who sold fell back for the most part.”

David Paré, financial planner at Desjardins Securities, also tells his clients that it is never good to react under the influence of emotion. “A person who exits the market has only a one in four chance of doing well, because it is almost certain that they will have sold and repurchased their shares at the wrong time.” Read also

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People already in financial difficulties before the pandemic had six months’ access to a range of deferred payments and reduced rates for their mortgages, credit card debt, student loans, and Hydro-Quebec bills. “This concerted effort is unheard of!” says Pierre Fortin (no relation to the L’actualité business columnist), president of Jean Fortin & Associates, a licenced insolvency trustee group in Laval. As of October 31, no less than 13 Canadian financial institutions had granted mortgage repayments to more than 796,300 people across the country – or one in six mortgages. In Quebec, 650,000 people would have taken advantage of deferrals of various payments on their loans, according to the financial recovery consulting firm Raymond Chabot.

For people with high debt, this six-month respite provided unexpected liquidity, or thousands of dollars in the bank. As a result, the Office of the Superintendent of Bankruptcy recorded half as many bankruptcies in September (977) as in the same month the previous year (1,848). “But be aware, this sudden liquidity was an illusion. Interest continued to accumulate on their debts,” said Éric Lebel, partner, financial recovery advisor and licensed insolvency trustee at Raymond Chabot. Moreover, the effect has already started to be felt and the number of insolvency and bankruptcy cases started to rise again in Quebec in September: 30% more insolvency cases than in August and 20% more bankruptcies were recorded, again according to the Office of the Superintendent of Bankruptcy.

Trustee Pierre Fortin expects those in debt, after the 2020 respite, will find it difficult to keep their heads above water for the next several years. “People who have not been able to keep their jobs do not come out enriched. Those who were in debt are now more in debt. “

Social assistance recipients are among the other losers from the pandemic. “These people were not able to benefit from ECPs. Some have lost jobs that allowed them to survive, ”explains François Décary, from ACEF Appalaches-Beauce-Etchemins, mentioning a client who was on social assistance and who supplemented his income by doing small households in the villages. NPOs.

“Special allowances like the PCU are not a freebie,” says Francine Hamel, budget consultant at ACEF in Quebec. These taxable benefits, by increasing income, will disqualify many people from support programs, such as legal aid or housing allowance. “These people will have a clear idea in July 2021: that is when governments will have finished calculating the allowances and programs to which citizens are entitled.

The various effects of the pandemic crisis on the personal finances of Canadians will be felt in 2021, or even in 2022. At least, if we trust the conclusions of a study on the aftermath of disasters published in 2019 by Urban Institute, an American non-profit organization specializing in social and economic policy research. The study concludes that residents affected by a disaster, even when they have received financial assistance from the state, experience negative consequences on their personal finances in the medium term: declining credit rating, difficulty in repaying debts , foreclosure, bankruptcy.

Right now, it is the question of taxes (due April 30) that preoccupies almost all of the financial experts interviewed. According to a survey by Raymond Chabot, a third of respondents who received PKU did not set aside the amount needed to pay the associated tax. Among 18-34 year olds, the proportion climbs to 50%. Like what even after the vaccine, COVID will continue to make waves in the personal finances of Quebecers.

Actress Sophie Bourgeois (L’Échappée, at TVA), for her part, assures us that she will not be repeated there. She, too, had recourse to government aid, her theatrical and filming plans and even a teaching contract were canceled in March. “A nasty slap,” said the 48-year-old actress. Pride took a hit, but we get up. “

The mother of two children aged 12 and 8, who continues to rely on the Canadian Economic Recovery Benefit (PCRE), is currently stepping up television scriptwriting initiatives with producers and broadcasters. She vowed to herself that she would maintain her writing business no matter what, even when business picked up. “I don’t want to go through this anymore. We have to diversify. I will never be just an actress again. “

Julie Barlow

L’article Surprising Pandemic Developments for Quebecers’ Wallets est apparu en premier sur Simple Credit - simple-credit.ca - Solutions de prêts personnels.

GUEST EXPERT. Labour-sponsored investment funds (LSIFs) have been a part of Quebec’s retirement savings world for a long time. The two funds offered to Quebecers are the FTQ Solidarity Fund, created in 1983, and the CSN Fondaction, created in 1996. Is it profitable to invest in one of these funds?

Returns and tax credits

To analyze the potential profitability of an investment in one of these labour-sponsored investment funds, one will obviously have to consider the tax credits they will give entitlement to. Assumptions will also need to be made about future returns. Finally, we can also consider the effect of using an RRSP for this investment. Of course, one can also invest in these funds outside of an RRSP, but for the purposes of this analysis, we will focus on contributions to the RRSP.

Except for an additional 5% credit granted by Quebec to contributions made to Fondaction (CSN) until the end of May 2021, the tax treatment of the two funds is similar: both allow you to claim a 15% credit, both federal and provincial, up to a maximum of $5,000 in annual contributions. These credits are in addition to the tax deduction from the RRSP.

The average annual returns for the past ten years of these funds (without considering tax credits) are as follows (as of November 30, 2020):

• Fondaction: 4.1%

• Solidarity Fund: 7.0%

Over a longer period, the past 25 years (as of May 31, 2020), the returns of the funds are estimated as follows:

• Fondaction: slightly less than 1.5%

• Solidarity Fund: slightly less than 4.0%

• Balanced investments (funds made up of 50% Canadian equities, 40% Canadian bonds, 5% American equities, 5% international equities, before fees as of December 31, 2020): slightly above 7.0%

Although the dates do not match perfectly due to the publication dates for the results of these funds, for future comparison purposes, it can be assumed that labour-sponsored funds will generate a lower return than a comparable investment in terms of volatility. We will therefore use an assumption of an annual return spread of 2.0%. Moreover, the Solidarity Fund itself presents, on its website for projection purposes, a modest estimate of a future return of 3.0% to 3.5%.

Analyse

There is no better way to understand than an example. Imagine someone who makes a single RRSP contribution, either to a labour-sponsored investment fund or to a traditional investment. Let’s go with an equivalent savings effort, that is to say the total amount paid after taking into account all tax credits. The following assumptions will be used:

• Savings effort (net cost of the contribution): $600.00

• Marginal tax rate during working years: 40%

• Marginal tax rate at retirement: 30%

• Traditional investment return: 5.00%

• Labour-sponsored investment fund return: 3.00%

• Duration of investment: 5 years

• We assume that all necessary RRSP contribution room is available.

• We did not consider the temporary additional credit from Fondaction.

The first line of the table shows the standard metric, which is a traditional investment. With a marginal tax rate of 40% at the time of the contribution, an RRSP contribution of $1,000 requires a savings effort of $600 (taking into account the tax refund). This contribution, invested at an annual return of 5.00%, will translate to an RRSP balance of $1,276.28 after 5 years. If at that point the person is retired, with a marginal tax rate of 30%, and withdraws the entire amount, after taxes they will end up with $893.40. Note that we have arbitrarily set the rates at 40% and 30% to illustrate a gap because in general, we have less income (and therefore we pay less taxes) after retirement. This net withdrawal works out to a compound return of 8.29% on the savings effort of $600. This return is composed of a return on investment of 5.00%, to which is added a return of 3.13% resulting from the difference in marginal tax rate between the time of the contribution and the time of withdrawal. In other words, this 3.13% represents a gain coming strictly from the difference in marginal tax rates spread over 5 years. These two compound returns produce the total annual return of 8.29% ((1 + 5.00%) * (1 + 3.13%) = 1.0829%).

The second line of this table shows the investment in a labour-sponsored investment fund (LSIF). With a marginal tax rate of 40% at the time of contribution, an RRSP contribution of $2,000 in an LSIF requires the same savings effort as in a traditional investment, $600 (contribution of $2,000 – deduction of $800 – credits of $600 = $600). This contribution, invested at an annual return of 3.00%, will translate into an RRSP balance of $2,318.55 after 5 years. If at that point the person is retired, with a marginal tax rate of 30%, and withdraws the full amount, after tax they will end up with $1,622.98. This net withdrawal works out to an annual compound return of 22.02% on the savings effort of $600. This return is composed of an annual return on investment of 3.00%, to which is added an annual return of 14.87% from the credit, and an annual return of 3.13% from the difference in marginal tax rates between the time of the contribution and the time of withdrawal. These compound returns produce the total annual return of 22.02% ((1 + 3.00%) * (1 + 14.87%) * (1 + 3.13%) = 1.2202%).

In Conclusion

In light of these numbers, labour-sponsored investment funds are certainly a relevant option, at least over a relatively short investment horizon. Over longer horizons, it might be pertinent to use these funds, but the difference will be less spectacular! This is because their lower return means that, over time, the benefit of tax credits will diminish. Finally, it should be noted that these funds no longer allow contributions by lump sum until May 31, 2021. A financial planner can help you establish an investment policy corresponding to your investor profile.

Martin Dupras, A.S.A., Pl. Fin., M. Fisc., ASC

Fellow of IQPF

L’article Are Labour-Sponsored Investment Funds Profitable? est apparu en premier sur Simple Credit - simple-credit.ca - Solutions de prêts personnels.