Personal Financial Planning – Managing your finances to achieve ‘p.docx

Personal Financial Planning – Managing your finances to
achieve ‘personal economic satisfaction’
– Successful planning allows for:
• Better access to financial resources
• Better control of your financial affairs
• Improved personal relationships / less personal stress
Six Step Process
· Step 1: Determine Current Financial Situation
– Consider income, expenses, debt, etc.
· Step 2: Develop Financial Goals
– What do you want to achieve with your money •
Individualspecific
– Values and attitudes impact your financial goals
· Step 3: Identify Alternative Actions
– Alternatives are important to the decision making process
· Stay the course
· Expand the current situation
· Change the current situation
· Start a new course
· Step 4: Evaluate Alternatives
· – Can be many ways to achieve the same goal
· – However, alternatives have consequences
· • Need to consider opportunity costs of each alternative – Both
personal and financial
· » Measure financial opportunity costs using time value of
money
• Step 4: Evaluate Alternatives (cont.)
· – Alternatives have risks which need to be identified and
evaluated
• Step 5: Create and Implement a Financial Plan
· – Objective is to choose alternatives that allow you to achieve
your financial goals
· • Step 6: Re-Evaluate and Revise the Plan

· – Evolving plan that changes as conditions change
· – Would re-evaluate based on a specific event (e.g., loss of
job) or at regular intervals (e.g., every year)
· Financial Goals • Influencers of Financial Goals:
· – Timing of goals
• Short, intermediate, and long-term
· – Differing financial needs
• Consumable, durable, intangible products
· Financial Goals
· • Influencers of Financial Goals: – Life situation
· Financial Goals • Goal Setting Guidelines
· – Goals should: • be realistic
· • be specific and measureable • have a time horizon
• guide your financial actions
· – SMART
· Economic Factors & Financial Planning • Market Forces
· – Supply and demand determine prices • Financial Institutions
· – Facilitate the actions of your financial plan • Global
Influences
· – Can influence exchange rates, interest rates, prices, etc.
· Economic Factors & Financial Planning • Economic
Conditions
· Economic Factors & Financial Planning
· • Economic Conditions – Consumer prices
– Consumer spending – Interest rates
· Achieving Financial Goals
Part1: planning your personal finances
Part2: manageing your credit
Part 3: insuring your resources
Part 4: investing your financial resources
Part 5: controlling your financial future
Time Value of Money Review
Present Value (PV)
• Concept – a dollar today is worth more than a dollar in the
future
– Why?

• Can add and subtract cash flows so long as
they are valued in the same time period
• * Assume for all questions on these slides that the applicable
interest rate is 6%, unless otherwise stated
Present Value (PV) • Single Cash Flow
– Determine the PV of a single future cash flow
– Example: You are scheduled to receive a $50,000 bonus from
your employer in one year. What is the bonus worth in today’s
term?
Present Value (PV) • Multiple Cash Flows
· – You can add or subtract the PV of multi1
· – Example: You are scheduled to receive a $35,000 bonus
next year followed by a $90,000 bonus three years from today.
What is the PV of your future bonus?
Present Value (PV) • Multiple Cash Flows
– If we have cash flows that are of equal value and equally
spaced apart, we can simplify the PV
– Example: As part of your inheritance, you are scheduled to
receive $25,000 per year, starting one year from today. In total
you will receive 15 payments. What is the PV of your
inheritance?
Future Value (FV)
• Concept – Rather than looking for a value in today’s terms,
with future value we are looking for the value of a cash flow at
some point in the future
• As with PV, we can add and subtract the FV of cash flows so
long as they are valued in the same future time period
• Simple versus compound interest
Future Value (FV) • Single Cash Flow
· – Can determine the value at a future date of a current cash
flow
· – Example: You have $5,000 in your bank account. If you
make no further deposits nor withdrawals, how much will you

have in your account in 12 years?
Future Value (FV) • Multiple Cash Flows
· – Can add or subtract multiple cash flows so long as we first
determine the value of each at a common future date
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· – Example: You have $7,500 in your bank account today. You
will deposit $10,000 in one year and $15,000 in two year’s
time. How much will you have in your account 10 years from
today?
• How much would be in your account in 15 years?
Future Value (FV) • Multiple Cash Flows
– If we have cash flows that are of equal value and equally
spaced apart, we can simplify the FV
– Example: To save for retirement, you will deposit $5,000 a
year into your bank account for the next 15 years, starting one
year from today. How much will you have in your account when
you retire in 15 years?
Examples
You will receive payments of $15,000 in years 2, 5 and 8.
1. What is this cash flow stream worth today?
2. What would the cash flow stream be worth in year 10?
You have the option to receive one of the following:
2.
i. ii. iii. •
$1,500 a year for ten years $17,500 in ten years $13,500 today
Which should you pick?
Money Management Strategy
• Money Management: “Day-to-day financial activities
necessary to manage current personal economic resources while
working toward long-term financial security”
– That is, how you manage your daily spending while still
meeting your long-term goals
– Need to consider opportunity costs when managing money
•
Personal Financial Records
Want to maintain accurate records for: – Handling daily affairs

– Financial planning
– Taxes
– Etc.
Usually kept in one of three places:
1. Home files (taxes, employment records, insurance docs, etc.)
2. Safety Deposit Box (mortgage papers, will, etc.)
3. Personal computer (budgets, Excel sheet of transactions, etc.)
Maintain sufficient history
•
•
Personal Financial Statements
• Help with the first step in the financial planning process:
Determining current financial situation
• Personal financial statements comprise a personal balance
sheet and a cash flow statement
Personal Financial Statements • Personal Balance Sheet
– Aka net worth statement:
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– Net worth is a measure of your current financial position
• It is not necessarily an indicator of financial success/failure
• Why?
Personal Financial Statements • Personal Balance Sheet
– Allows you to:
• Measure your progress toward financial goals
• Determine how your assets are distributed
• Calculate your current asset allocation
• Identify tax efficiencies
• Identify assets that may be damaged or stolen • List your
indebtedness
Personal Financial Statement • Personal Cash Flow Statement
– While the personal balance sheet is a snapshot in time, the
cash flow statement measures the inflow and outflow of cash
over a given period
• Would you want to measure personal cash flow over a year?
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Personal Financial Statement • Personal Cash Flow Statement
– Allows you to:
• Highlight your sources of income
• Reveal sources of cash outflow/spending • Identify spending
and saving patterns
Budgeting – A specific plan for spending
– Can help:
• Live within your income
• Spend wisely
• Prioritize and plan for emergencies
• Budget
Budgeting
• A Seven Step Process:
1. Setting financial goals
2. Estimating income
3. Budgeting for emergencies
4. Budgeting fixed expenses
5. Budgeting variable expenses
6. Recording spending amounts
7. Review and revise
Saving
• Common Reasons:
– Vacation/larger purchase – Long-term planning
– Emergency planning
• Techniques:
– Automatic debit – Payroll deduction
Taxes and Financial Planning
• Taxes impact your financial plan/personal financial statements
– How?
• Tax Planning:
· – Know tax law/regulations
· – Keep records
· – Maximizing tax benefits
· – In context of financial objectives, minimize taxes payable
Taxes and Financial Planning • Category of Taxes
1.

• •
2.
• • • •
Taxes on purchases
Think GST/HST
Excise tax (e.g., alcohol or gasoline tax)
Taxes on property
Property tax to municipal government
Based on assessed value of property
Kentville: Residential ~ 1.49% / Commercial ~3.54%
Example: If your house in Kentville is assessed at $450,000
how much would you pay in tax each year?
Taxes and Financial Planning • Category of Taxes
3.
• • •
4.
• •
Taxes on wealth
Realized capital gains tax
Taxed at 50% of the normal tax rate
Example: If your marginal tax rate is 35% and you have a
capital gain in the year of $5,000, how much would you be
taxed on this?
Taxes on earnings
Income taxes – used by federal and provincial governments for
social benefit
Two biggest expenses for governments?
Filing Taxes
• You need to only file one tax return, which covers both
federal and provincial requirements (except PQ)
• Who files:
– Anyone who lives in Canada for 183 days or more
in a year
• Taxed on worldwide income
• Where you live at year end decides your province of residency
– Need to file for any year you owe money

Income Tax Fundamentals
Income Tax Fundamentals • Calculating your income tax due:
1.
Determine Total Income
1. Employment income
2. Net business income (e.g., income after expenses from
partnership)
3. Investment income (e.g., interest, dividends, rental income)
4. Taxable capital gains
– Is net capital gains in the year (i.e., can offset with capital
losses in the same year)
e. Other income (e.g., retirement income, CPP/EI payments)
• Some income is not taxable (e.g., lottery winnings, GST/HST
rebate, scholarships & bursaries, etc.)
• Calculating your income tax due:
2. Calculating net income
• Total income less applicable deductions
• Deductions:
1. Contributions to RPP and RRSPs
2. Unions and professional dues
3. Child care expenses
4. Disability supports
5. Moving expenses
6. Other (e.g., interest paid on loans which are used to generate
taxable investment income, employment expenses, etc.)
3.
•
Calculating taxable income
After net income we need to factor in any additional
deductions or losses carried forward from prior years:
· – Stock option deductions – taxed at half the benefit
· – Capital gains deductions – limit of $750,000 in capital
gains exemption in small business; equal to one-half of the
eligible capital gains exemption

· – Net capital losses from prior years – can be used to offset
capital gains in current year
· – Other deductions – Northern resident or Canadian Forces
deductions, etc.
• Calculating your income tax due: 4. Calculating federal tax
owing
• Your taxable income from step 3 is that amount to which our
tax tables are applied
– Can calculate your federal and provincial tax due at the same
time once you know your taxable
– Aside: Marginal versus average tax rate
• What is your marginal and average tax rate from the
5.
•
prior example?
Calculating net federal tax Two types of tax credits:
· – Non-refundable: Most common / is subtracted from tax
owing but can not result in a negative tax owing
· – Refundable: Tax credits that are refunded to individuals
even if they result in a negative tax owing
• Calculating your income tax due: 5. Calculating net federal
tax
Income Tax Fundamentals • Making Tax Payments
– Source withholding – employers are required to hold back and
remit to the government tax, EI premiums and CPP
contributions (where applicable)
• Can lead to a tax refund if your employer withholds too much
– is this good or bad?
• Reductions in source withholdings – can reduce these
withholdings if you can prove that too much is being remitted
on your behalf
• Instalment payments – Need to pay taxes in advance of the

deadline
Income Tax Fundamentals • Aside: Additional Source
Withholdings
– Employment Insurance
• 1.88% of gross earnings
• Maximum insurable earnings ($49,500) / maximum premium
for 2015 $930.60
• Can lead to a tax refund if your employer withholds too much
– is this good or bad?
– Canada Pension Plan
– Minimum ($3,500) and maximum ($53,600) annual earnings –
4.95% of pensionable earnings
– Maximum annual contribution in 2015 $2,479.95
Income Tax Fundamentals • Deadlines and penalties
– Taxes are due for most people on April 30th of each year
· Or the next business day if the 30th is on a weekend
· Considered filed by postmark date or electronic submission
date
– However, if you have no balance due in a year, you don’t need
to file your taxes
• Still recommended you file
– Late filing penalties are severe
· 5% of the balance owing immediately (can be avoided simply
by filing)
· 1% of the amount owing per month thereafter up to 12% in
total
Tax Planning Strategies
• Tax planning strategies
– Tax planning versus tax evasion
– Tax planning:
• Choosing payments that are most tax efficient
• Claiming all available deductions and credits • Defer tax
payments to a later date
• Income splitting
• Investment planning
Tax Planning Strategies • Tax planning strategies

– How to receive income:
• Salary versus dividends
– Salary leads to RRSP contribution limit
– Salary also counts as CPP contributable income
– Tax Free Savings Account (TFSA)
· Can contribute $10,000 annually to a TSFA with unused
contributions carrying forward indefinitely
· Withdrawals create room in future years
· Withdrawals are tax-free and do not impact OAS, GIS and
other federal credits
– Maximize deductions and credits:
• Interest charges on funds invested to earn taxable
income is tax deductible
• Stock options are typically only taxed when exercised
• Capital losses can be used to offset capital gains in a given
year
· – If the net capital gain in a year is negative this net capital
loss can be carried back three years to restate capital gains or
carried forward indefinitely
· – Lifetime capital gains exemption on shares of qualifying
small businesses and eligible farm property
– Maximize deductions and credits:
· Student loan payments made under the Canada
Student Loans Act can be claimed
· Tuition fees – can carry forward a maximum of $5,000 less
what you’ve transferred
– Can claim textbook amounts ($20/month and $65/month)
· Medical expenses
· Expenses related to severe and prolonger physical and mental
impairment
· Charitable donations – 15%/$200 + 29%/$200+ up to 75% of
net income
– Tax deferral techniques

• Registered Retirement Savings Plan (RRSP) – invest tax free
earnings today but pay taxes when you withdraw
– Why would you do this?
– Contribution in a year plus 60 days into the following year
– Current contribution limit is $24,930 plus any unused
contributions from prior years
» Is reduced by pension contributions by you or your employer
– Withdrawal for reasons other than retirement is difficult –
LLP or HBP
» Both limited to $20,000
– Tax deferral techniques
• Registered Pension Plan (RPP) – Set up by employers for
employees
– DCPP versus DBPP
– Have a vesting period
• Individual Pension Plan (IPP) – DBPP designed for one
individual
• Deferred Profit Sharing Plan (DPSP) – Similar to RPP,
employer makes contributions and employees are taxed only
when they receive the funds
– Rather than set benefits or contributions, employer
contributions are based on company profits
– Income splitting techniques
· Marginal tax brackets make it advantageous to spread
income over both spouses in some situations
· Making contributions to spousal RRSP
· Split CPP payments with spouse
· Split pension income with spouse
· High income spouse pays expenses while low income spouse
invests
· RESP for children
– Income splitting techniques
• New in 2015 – ‘Family Tax Credit’:

– Applied to only two-parents families with at least one child
under 18
– Allows the higher income spouse to transfer up to $50,000 of
taxable income to the lower income spouse
– The amount of tax saved is a non-refundable tax credit that
can be claimed by either spouse
– This credit is capped at $2,000
– Income splitting techniques • Example:
– The MacNeils are a married couple with two young children.
Jim makes $30,000 a year and Vickey make $80,000 a year. If
they live in NS how much can they save in taxes under 2015
income splitting legislature?
– Ensure your investment portfolio is tax-efficient
• Will not impact which assets you hold but rather in which type
of account you hold them
– Example:
» Interest paying assets held in RRSP
» Dividend held in non-registered accounts » Capital gains held
in TFSA
Tax Assistance and Audits
• Tax information sources
– Tax guides – KPMG, E&Y, etc.
– Internet – cantax.com, taxpayer.com, etc.
• Tax preparation software
– e.g., TurboTax (NETFILE)
– Allow for electronic filing (75% of returns)
• Environmentally friendly, faster refund, much easier than
paper forms, not required to send records, etc.
Tax Assistance and Audits • Tax preparation services
– e.g., H&R block, accountants, lawyers • Fees versus ease
• Immediate refunds
• Audited returns
– Tax audit – Detailed examination of your return
• Desk audit - Request additional information / proof of expense

• Field audit – Visit from an auditing agent
Strategy for Managing Cash • Meeting daily money needs
–
•
–
•
Managing cash
Ease of payment (cash, credit card, ATM) must be balanced
with costs (direct and indirect)
Sources of quick cash
Can liquidate savings (money market account, GIC, TFSA) or
borrow (line of credit, overdraft, credit card)
• Types of financial services
i. Savings / time deposits
ii. Payment services (demand deposits)
iii. Borrowing
iv. Other financial services (insurance, real estate purchases,
financial planning)
Strategy for Managing Cash • Electronic banking services
–
•
•
–
•
• •
Direct deposit
Automatic deposits into one’s bank account (e.g., weekly pay,
government payments)
Benefits are time, effort and cost
Automatic payments
Bills paid through direct withdrawal (e.g., car loan payments)
Can result in errors but are very uncommon Benefits are the
same as with direct deposits
Strategy for Managing Cash • Electronic banking services
–
•

•
Automated Teller Machine (ATM)
Very convenient but can be expensive
To reduce fees:
· – Shop around and find the bank or bank package that best
matches your lifestyle
· – Use your own ATM and avoid third-party ones
· – Withdraw larger amounts if required
· – Get cash back when using debit card
· – Foreign ATMs can be very expensive
Strategy for Managing Cash • Method of payment
1.
• •
2.
•
3.
•
4.
• •
Point-of-Sale (POS) Transactions
Using your debit card at a retail store or restaurant Is also
applicable to credit cards
Stored value cards
Prepaid cards for specific outlets (e.g., prepaid phone card)
Smart Cards
ATM cards with microchip which stores pre-paid amounts, data
on account balances, insurance information, medical history,
etc.
Software based payment systems e.g., Bitcoin
Can be used to buy physical good and services
Strategy for Managing Cash
•
Types of Financial Institutions: Deposit Taking
Deposit-type institutions
–
–

•
•
Take deposits from individuals and corporations and use these
deposits to generate loans
Chartered banks
Primary function is to take deposits and make loans
– How do they profit from this?
Typically own a full range of financial services including
brokerage firm, investment bank, etc.
• •
Types of Financial Institutions:
Deposit Taking Schedule I Banks
– Full-service domestic banks (including the big six)
Schedule II Banks
· – Subsidiaries of foreign banks
· – Limits on asset growth and lending activities
· – Limited presence in retail market
· – e.g., HSBC Bank Canada
Schedule III Banks
· – Branches of foreign banks which typical specialize in
financing
· – e.g., Citibank, N.A.
•
•
Types of Financial Institutions: Deposit Taking
Trust companies
· – Offer services similar to banks in addition to acting as a
personal or corporate trustee
· – Typical owned by banks but also include, for example,
Manulife Financial
Credit unions
· – User-owned, not-for-profit co-operative
· – Most offer services similar to those provided by banks but
at lower fees
•
• •

• •
Types of Financial Institutions:
Non-Deposit Taking Life insurance companies
Investment Companies
· – AKA mutual funds
· – e.g., money market fund
Mortgage and loan companies
– Provide real estate mortgages and loans to individuals and
small businesses
Finance and leasing companies
– Categorized by the type of loan or sector they operate in
Types of Financial Institutions: Non-Deposit Taking
• Pawnshops
– Make loans backed by physical collateral
• Cheque-cashing outlets
· – e.g., Money Mart
· – Fees can be as high as 20% of cheque cashed
Online Banking
• Some banks (e.g., Tangerine) operate exclusively online
• Features:
· – Electronic bill payment
· – Pre-authorized debits / recurring transfers
· – Stop-payments
· – Cheque services
· – Email Money Transfer (EMT)
· – Download statements
Online Banking
Types of Savings Plans
•
Types of Savings Plans Categories of savings plans:
–
•
–
•
•
Regular savings accounts

Generally allows for withdrawals as needed but fees my apply
Term deposits / GICs
Term deposits:
· – Have a guaranteed interest rate for a specific period of time
· – Cannot access money / require minimum balance
GIC – Guaranteed Investment Certificate
· – A term deposit of longer term (up to five years)
· – Minimum balance likely / rate of return can be fixed,
floating or index-linked
•
Types of Savings Plans Categories of savings plans:
–
•
–
•
•
• •
•
Interest-earning chequing account
Usually pay a very low rate of interest but can be used for
saving
Canada Savings Bonds
Sold once a year from Oct to April
Have a fixed rate of interest in the first year and rates can be
adjusted according to market conditions in subsequent years
Are cashable at face value plus accrued interest Are available as
a regular interest bond or a
compound interest bond
A variant is the Canada Premium Bond
Evaluating Savings Plans
• Rate of return
· – Compounding frequency and EAR
· – Example: Compare a 6% APR with quarterly versus daily
compounding
• Inflation
– As inflation increases, interest rates must

increase to compensate investors • Tax considerations
– Need to consider tax status in relation to saving decisions
(e.g., TFSA versus RRSP)
Evaluating Savings Plans • Liquidity
· – How likely are you to need to access your savings quickly
(e.g., in an emergency)
· – Will your savings vehicle allow for this (e.g., chequing
account versus term deposit)
• Safety
· – Of limited concern in Canada
· – CDIC insures up to a maximum of $100,000 of eligible
deposits per person
• Restrictions and fees
– Transaction fees
•
Selecting Payment Methods Types of chequing accounts
–
•
–
•
•
Regular chequing accounts
Have monthly fees that can or cannot be waived if you
maintain a minimum balance – This has a cost
Activity accounts
No ‘package’ – charge a fee for each transaction plus a
monthly fee
– However, they don’t require a minimum balance
Interest-earning chequing accounts
– Earn interest so long as you maintain a minimum balance /
Accrue fees if you don’t
Selecting Payment Methods • Restrictions
• Fees and charges
– Nearly all require minimum balance or have a fee
• Interest
– Both rate and compounding frequency

•
Special services
– –
•
Online banking, ATM fees, etc.
Overdraft protection – Covers any cheques or withdrawals that
exceed the account’s balance
Cost is high fees
•
Selecting Payment Methods
Other payment methods
· – Personal cheques
· – Certified cheques – guaranteed payment
· – Money order
· – Traveller’s cheques
What is Consumer Credit • First, what is credit?
• Consumer credit
· – Credit used by individuals and families for
personal needs
· – Is one of three ways in which consumers can finance
purchases
· – Is largely based on trust
· – Baby boomers are largest users of credit
· – Can be valid and invalid reasons to use consumer credit
What is Consumer Credit
• Advantages
· – Can buy now even if you don’t have the funds
· – May provide added benefits (e.g., credit cards points,
insurance, etc.)
· – One easy payment for multiple purchases
· – Security
· – Requirement for some purchases (e.g., flight reservation)
· – Grace period (i.e., free loan)
· – Credit rating history
What is Consumer Credit
• Disadvantages

– OVERSPENDING!!!
– Consequences for failure to pay
– Can result in long-term financial consequences
– Costs
• Both direct and indirect
Types of Credit
• Consumer loans
– Installment loans - One-time loan which is repaid
according to a pre-specified schedule
– Demand loans – lender can demand full repayment at their
discretion
• May be interest only for a specific period of time – Are for a
specific purpose and amount
Types of Credit • Revolving credit
– Continuous loan for which you’re billed periodically
– Have a credit limit and interest rate – Credit cards
• Convenience users – use card for convenience but don’t pay
interest each month
• Can be co-branded (e.g., WestJet RBC MasterCard) – Offer
points, rebates, etc.
– Help build loyalty
Types of Credit – Credit cards
• Costs
– Late payments / interest
– Exceeding credit limit
– Cash advances
– Foreign currency transactions – Membership fees
• Benefits
– Interest free loan
– Rewards
– Insurance
– Fraud protection / limited liability – Emergencies
Types of Credit
– Personal line of credit
· Is a revolving line of credit
· Payments may or may not be interest only

· Can be secured by an asset / results in lower interest
charges
· Has a credit limit but funds can be withdrawn at any time so
long you remain under your limit
· Home equity line of credit – Can borrow up to 80% of the
appraised value of your home less your mortgage balance
– Are pledging the equity in your home as collateral
Types of Credit
• Consumer loans
– Mortgage loans
– Car loans
• Can finance at a bank or dealership
• Can also lease
· – Closed-end lease – leasing company is responsible for the
residual value of the car at the end of the lease / you can
purchase and pay all applicable fees or return car to leasing
company
· – Open-end lease – you are responsible for the residual value
of the car and any other charges at the end of the lease
• Can pay cash
– Least expensive and there are often significant cash incentives
Credit Capacity • Rules of credit capacity
– Debt payments to income ratio
• What does the ratio try to measure?
• Excludes mortgage/rent payment
• Should be no more than 20% (max) of after-tax income
• Can sometimes factor in credit card or LoC debt even if not
used
Credit Capacity
• Gross debt service and net debt service
· Is related to mortgage financing
· GDS - considers your total living expenses including
mortgage payment, heating and taxes
· TDS – mortgage and debt payments
· GDS should be below 32% ; TDS below 40%
• Co-signing

– If you co-sign you guarantee the debt, including
fees and penalties
• Can go to collection, be sued, etc.
– Often end up paying
Credit Capacity • Building your credit rating
– Credit bureaus
• Third-parties that collect financial and other information on
consumers and provide to lenders for a fee
– e.g., Equifax and TransUnion Credit
• Get consumer information from banks, court records, credit
card companies, retail stores, etc.
Credit Capacity
• Building your credit rating – Credit bureaus
Credit Capacity • Building your credit rating
– Credit bureaus • Regulations
– Provincial regulations focused on protection of consumer
privacy
– Credit reporting legislature – sets out the type of information
that can be included in a credit report – consumer information
versus personal data
• Access
– You have legal right to your credit report ; should review
annually for mistakes and fraudulent accounts – can get it free
of charge
• Limits on adverse data
Applying for Credit
• Five Cs
•
1. Character 2. Capacity 3. Capital
4. Collateral 5. Conditions
FICO Score
· – Fair Isaac Corporation
· – Rating based on payment history, amounts owing, time with
credit, types of credit used, number of recent applications
· – Ranges from 300 (poor) to 900 (perfect)
Applying for Credit • VantageScore

Avoiding Credit Mistakes
• Billing errors
· – Your responsibility to determine if there is an error
· – Start with the creditor but the lending institution will also
help
• Identity theft
· – Contact both credit bureaus immediately and
report the fraud
· – Contact all creditors that are associated with a fraudulent
charge
· – File a police report
· – To prevent – be careful with documents!
Sources of Consumer Credit
• Cost should be a factor in your decision
a. Inexpensive loans (family)
b. Medium-priced loans (financial institutions) c. Expensive
loans (retailers, credit cards)
d. Government Student loans
· – Inexpensive loans offered by GoC or provinces
· – Deferred interest
· – Administered by Canada Student Loan Program (Federal)
and provinces (NSSL)
· – Don’t forget about grants (CSGP) as well as bursaries
Cost of Credit
• Annual percentage rate (APR) versus effective annual rate
(EAR)
– Example: Your credit card has an APR interest rate of 21%.
Interest is compounded monthly. What is your effective annual
interest rate?
• What would be the EAR if the compounding period was daily?
Cost of Credit • Term versus interest rate
– Which is best?
Cost of Credit
• Other considerations:
– Regular versus final payments – Variable interest rates
– Secured loans

– Upfront cash
– Shorter term loans
– Expected inflation
– Minimum monthly payments
– Credit insurance
• Credit life / credit accident and health / credit property
Calculating Loan Payments
• Fixed rate loans:
– Calculated simply as the PV of an annuity
– Example: You wish to borrow $50,000 from your bank for a
trip to Vegas. The bank quotes you an APR of 6%, compounded
monthly. If you make monthly payments for 6 years, what is the
value of your payments?
• Draw an amortization table for the first three months of this
loan.
Calculating Loan Payments • Floating rate loans:
– Example: You wish to borrow $50,000 from your bank for a
trip to Vegas. The bank quotes you an interest rate of Prime
plus 250 basis points and you will make monthly payments of
$500.
· If prime is currently 4%, draw the amortization table for the
first two months.
· Assume that on the first day of the third month Prime drops by
100 bps. Draw the amortization table for months three and four.
Managing Your Debts
• Most people can manage their debts without issue ‘under
normal circumstances’
– Most likely cause of trouble is an emergency
• Frequent non-emergency ‘traps’ :
i. Emotional problems
ii. Use of money to punish
iii. Expectation of instant comfort
iv. Keeping up with the Joneses
v. Overindulgence
vi. Lack of communication
vii. Finance charges

Managing Your Debts • Consequences of debt
– Vary from relationship issues to bankruptcy • Consumer credit
counselling
– Non-profit financial counselling program
• e.g., Credit Counselling Services of Atlantic Canada
– Can also be provided by provincial authorities, some
employers, etc.
– Focus on 1. preventing or 2. dealing with serious credit
problems
Personal Bankruptcy • Prevention
– Consolidation loans: trade-off single interest rate and
extended term versus higher interest rate and extended term
• Bankruptcy and insolvency act – OSFI
– Consumer proposal versus assignment
– Protected assets – those required to live and earn
• Effects of bankruptcy
– Future credit and direct costs
Housing Alternatives • Costs of housing choices:
– Guideline – should spend no more than 25%-30% of take-
home pay on housing
• Significant opportunity costs:
– Lost investment income on down payment – Commute versus
housing costs
– Repair versus purchase cost
– Time during build / renovations
Renting • Selection:
Renting
– Fewer responsibilities – Lower initial costs
• Disadvantages
– Few financial benefits – Restricted lifestyle
• Lease
· – Each province has a Residential Tenancies Act
· – Sets out rights and obligations of tenants and landlords
• Advantages: – Mobility
Home-Buying Process • Step 1: Determine Needs
– Benefits:

i. Pride of ownership
ii. Financial benefits (not always a benefit)
iii. Lifestyle flexibility
– Drawbacks
i. Financial uncertainty
ii. Limited mobility
iii. Higher cost of living
iv. Property taxes
– Types of houses:
i. Single-family (detached)
ii. Multi-family (duplex)
iii. Mobile homes
iv. New build
–
Formers of ownership
i. Sole ownership
ii. Condominiums
iii. Co-operative (non-profit and for-profit)
– Down-payment
i. 20% minimum to qualify for a ‘conventional’
mortgage
ii. Can use funds from RRSP
– What can you afford
• GDS Ratio and TDS Ratio
Home-Buying Process
• Step 2: Find and Evaluate Property
– Selecting a location
– Real estate agents and home inspections
• Step 3: Price the Property – Determine fair value price –
Negotiate purchase price
Home-Buying Process • Step 4: Obtain Financing
•
– Evaluate different interest and payment options
i. Fixed versus variable rate mortgage

ii. Payment frequency
Step 5: Complete Purchase
– Will come with closing costs • Transfer deed, legal, etc.
Selling Your Home
• Prepare house for showing
• Determine selling price / appraisal
• Sale by owner versus real estate agent
Calculating Your Mortgage Payment
· Is simply the PV of an annuity
· Example: You wish to buy a house that costs $550,000. You
will put a 10% down payment on the house and will make bi-
weekly payments. If the bank quotes you an APR rate of 4% and
you wish to amortize the mortgage over 25 years, what is the
value of your bi- weekly payments?
Calculating Your Mortgage Payment
• Example: You recently saw your dream home for sale at a
price of $850,000. You will put a 25% down payment on the
house and will amortize the mortgage over 30 years, making
monthly payments. If the applicable APR on the mortgage is
6%, what is the value of your monthly payments?
Intro to Insurance and Risk
Management – Protection against financial loss
– Terms:
• Insurance company
• Policy
• Premium
• Risk
– What is a risk?
– Peril – cause of loss
– Hazard – increases the likelihood of loss
• Insurance
Management • Types of Risk
– Pure risk – personal, property or liability risks • Insurable
• Accidents or unintentional risks
– Speculative risk – comes with a chance of loss or

gain
• e.g., starting a business • Legally uninsurable
Intro to Insurance and Risk Management
• Risk Management
– What is risk management?
– Risk avoidance
• May not be practice
– Risk reduction
– Risk assumption
• Personally assume the loss
• e.g., collusion insurance on an old car
– Risk shift
• This is what insurance does
Management • Risk Management
Intro to Insurance and Risk Management
• Personal Insurance Program – Step 1: Set insurance goals
– Step 2: Develop a plan
– Step 3: Put plan into action
– Step 4: Review
Property and Liability Insurance • Examples: home, automobile,
valuables, etc.
– Two types of losses
i. Physical damage
ii. Loss of use (e.g., theft)
– Liability protection
• Liability – legal responsibility for someone else’s loss or
injury
• Negligence – failure to undertake reasonable care • Strict vs.
vicarious liability
Home and Property Insurance
• Homeowner’s insurance – protection of residence and its
associated risks (e.g., liability)
– Coverages:
• Building and structures
• Additional living expenses • Personal property

• Structure replacement
• Personal liability
• Specialized coverage (e.g., flooding)
Home and Property Insurance
• Tenants insurance – Essentially homeowner’s insurance for
renters
– Coverages:
· Tenant’s personal property is not covered by building
owner’s coverage
· Does not cover replacement of structure
· Includes liability
· Can also provide Tenant’s Legal Liability coverage – e.g., if
you cause damage to your apartment
Home and Property Insurance • Home insurance types
– Two types of policies
i. Named perils – perils specifically listed in the policy
– e.g., fire, flood, etc.
ii. All perils – all events causing loss are covered unless
explicitly excluded
• e.g., force majeure, terrorism related loss
Home and Property Insurance Costs • Deductible
– A higher deductible results in a lower premium • Share larger
portion of the loss
• Less risky behaviour is insured is paying a larger share •
Fewer claims
• 3% rule
• Coverage
– Full coverage suggested
– Belongs based on percentage (55% to 75%) of dwelling
insurance
– Settlement: Either 1. actual cash value (replacement price
adjusted for time of use) or 2. replacement value
Home and Property Insurance Costs
• Factors that affect cost: – Location
– Replacement cost
– Electrical configuration

– Heating
– Pipes
– Age of roof
– Coverage amount and policy type
Automobile Insurance Coverage
Automobile Insurance Coverage
• Types of Coverages – Bodily injury
– Accident benefits
– Uninsured motorists – Property damage
– Collision
– Comprehensive
Automobile Insurance Costs • Home Much Coverage
· – Legal concerns (e.g., minimum third-party liability
requirements)
· – Typically in the $1M - $2M range
• Cost factors
– Where you live (e.g., urban/rural, province) – Type of car
– Use
– Rating territory
– Driver classification
Life Insurance • Life Insurance
– Makes a lump sum payment to beneficiaries upon the death of
the insured
– Endowment policy – pays a lump sum to the insured at the
maturity of the plan
– Is applicable to nearly all individuals
Life Insurance
• Purpose of Life Insurance
– Provide financial support to loved ones
– Pay off mortgage, retirement savings for surviving spouse,
provide education for children, etc.
Life Insurance
• Principles of Life Insurance
– Is a function of probability of death
– Depends on age, occupation, gender, etc.
Life Insurance Needs

• If others are financially dependent on you, life insurance may
be a good idea
– Single people have less need, but not necessarily no need
– Parents with small children usually have greatest need
• Need to consider what is needed and what is desired from your
policy
– Of course you need to balance this against cost
Life Insurance Needs • Life Insurance Requirements
– Income Replacement Method
• Guideline – need 70% of annual income for 7 years
• Example: If your annual income is $80,000 then insurance
needs would be $392,000.
Life Insurance Needs – Family Needs Method
• Income replacement method ignores insured’s assets and over
sources of income
Types of Life Insurance • Types of Life Insurance
1.
•
• • •
•
Term Life Insurance
Life insurance for a pre-specified period of time (e.g., 20 years)
When policy expires you get no financial benefits AKA
temporary life insurance
Premiums rise as you get older but can reduce coverage
Options include: renewal options, conversion option, term-to-
100, decreasing term insurance
2.
• • •
Permanent Life Insurance Purchased to cover lifetime needs
Most policies have level or constant premiums
Has a cash surrender value (or policy reserve) due to the fact
that you pay higher premiums in early years than justified by
your risk of death

– Can take full or partial withdrawals of cash value
When you die the cash value is paid to beneficiaries
Tend to be relatively expensive and have a higher fee than a
simple savings account
• •
2.
Permanent Life Insurance
1. Whole Life Insurance
· – Pay a specified premium so long as you are alive
· – Insurance companies pays a pre-specified amount when you
die
· – Has a cash surrender value – so provide a death and savings
benefit
2. Universal Life Insurance
· – Uses current interest rates as assumptions, so when rates
rise the policy is more valuable
· – Have a life insurance component and an investment
component
· – Flexible premiums
2.
Permanent Life Insurance c. Variable Insurance
– Premiums are guaranteed but cash value is dependent on the
performance of an investment fund
» Insured assumes investment risk – Minimum death benefit
guaranteed
Types of Life Insurance • Other Types of Life Insurance
– Group Life Insurance
• Insurance a group of people under a single policy
• Is a term life insurance policy
• Premium is split between employer and employee
– Credit List Insurance
· Similar to group life but is purchased by creditors to
insurance borrowers
· e.g., mortgage insurance

Types of Life Insurance
• Life Insurance Provisions – Beneficiary
– Grace Period
– Reinstatement
– Incontestability Clause
– Suicide Clause
– Riders to policies
• Accidental death benefit
• Critical illness
• Joint, last to die
Buying Life Insurance • Where to buy
– Direct/agent/broker/group plan
• Choosing settlement options – Lump-sum payment
– Limited instalment payment
– Life income option
– Proceeds left with life insurance company
Health Insurance • Health Insurance
– Why do we need health insurance given single payer system in
Canada?
– Typically group insurance plan
– Coverage varies from plan to plan
• Typical coverage includes private room, nursing care,
cosmetic surgery
Disability Insurance
• Disability Insurance
– Provides cash earnings lost by accident or illness
– Disability:
• Own occupation
• Regular occupation
• Any occupation
• Total disability / Partial disability
– Provided by employer/private (insurance companies) or public
sources
• Public: EI, CPP, WCB, Welfare – Critical illness insurance
Supplemental Health Insurance
• Supplemental Health Insurance

– Dental and vision
– Health services
• Includes prescription drugs, home care, paramedic
services, etc.
• Travel insurance
– Long-term case
• Day to day assistance if you have an illness of disability
• Provisions in Health Insurance Policy – Eligibility
– Assigned benefits – Internal limits
– Co-payment
– Benefit limits
– Exclusions
– Coordination of benefits – Guaranteed renewable
• Health Insurance Trade-Offs
– Reimbursement versus indemnity
– Internal limits versus aggregate limits – Deductibles and co-
pay
– Out-of-pocket limit
Preparing to Invest • Establishing Goals
– Should be specific – something you can measure and strive
towards
– Ask yourself:
• What will the money be used for?
• How much do I need?
• How will I obtain this?
• How much risk am I willing to take? • What are potential
issues
• Etc.
Preparing to Invest
• Evaluate Financial Position
– Create and balance your budget – Review and obtain
insurance
– Start an emergency fund
• Including external sources for emergencies if required

Preparing to Invest
• Getting the funds to invest
– Prioritize your goals
i. Pay yourself
ii. Participate in a savings program
iii. Once or twice a year making saving your top priority
iv. Use employer sponsored retirement programs
v. Use gifts/inheritance to invest rather than spend
Preparing to Invest • Long-Term Investment Horizon
– Example: You will retire in 40 years and will make monthly
deposits of $250 into a savings account. Your bank quotes you a
deposit rate of 4% with quarterly compounding.
1. How much will you have in your account if you start
depositing today?
2. How much will you have if you start saving in 20 years?
1.
Safety and Risk
Factors Impacting Investment Choice
– –
•
• •
The expected return should be directly related to the risk of the
investment
If you have a high risk aversion, you may prefer more secure
investments like Government bonds, GICs, or fixed income
securities
Alternatively you may choose more speculative investments like
stocks, derivatives, etc.
Is individual specific
Your risk aversion will change throughout your life, in
particular as you age
1. 2.
Safety and Risk
– Risk tolerance – is a function of the individual and their
investment goals
Components of Risk

i. ii.
•
Business risk – risks associated with the underlying firm (e.g.,
management, products, competition, etc.)
Inflation risk – investment returns should at least keep pace
with inflation
What are the consequences if they don’t?
2.
Components of Risk
iii. Interest rate risk – value of all investments, in particular
fixed income investments, will decline in value as interest rates
rise
iv. Market risk – Systematic risk (e.g., recession)
v. Global investment risk – have the additional risk of currency
fluctuations
– Example: You buy stock in a US company worth US$1,000
today and sell it in one year for the same price. Today’s
exchange rate is 0.75 CAD/USD and in one year it is 0.90
CAD/USD. What is your return?
Factors Impacting Investment Choice • Other Considerations
i.
Investment income – some investments have relatively secure
investment income (e.g., fixed income investments) while others
do not (e.g., stocks)
Investment growth – capital gains
Greatest growth potential typically provided by common stock
ii.
•
– But not all are the same iii. Liquidity
Investment Alternatives
1. Stocks
2.
· – Represents ownership in a business
· – Dividends are source of income but is not guaranteed

· – Can be common or preferred
Bonds (fixed income)
· – Gov’t or corporate
· – Receive (typically) interest plus principle repayment
Investment Alternatives 3. Mutual Funds
· – Professional managed pool of money that buys stocks ,
bonds, etc. on investor’s behalf
· – Can be tailored to different investor needs 4.
SegregatedFunds
· – Combines the components of mutual funds with insurance
· – Sold by life insurance companies and have a maturity date
· – Protect investment when markets decline
· – Get 100% of your contributions back at maturity
Investment Alternatives
5. Real Estate
– Can be direct or through a REIT
Reducing Investment Risk • Financial Planner
•
· – Help you with your planning and implementation of plan
· – Assess your risk tolerance
· – Should verify how they are paid
Investor Role
· – Evaluate and monitor potential investments
· – Keep records
Reducing Investment Risk • Taxes
· – Want the most tax efficient portfolio that is legally possible
· – Interest and rental income is fully taxed
· – Dividends and capital gains are taxed more
favorably
· – Use RRSPs and TSFAs
Investment Information
• Internet
• •
· – Large source of good and bad information
· – Moneysense.ca is a good general source
· – Bank sites can give you information on specific products

(e.g., GICs)
· – Company information from google, SEDAR, etc. News
media
Corporate reports
Common Stocks • Market index
– A portfolio of stocks that represents changes in the ‘overall
market’
– S&P/TSX Composite Index
• Covers 95% of the Cdn equities market
Common Stocks • Market indices
– Dow Jones Industrial Average (DJIA) • Most widely reported
indicator
• Tracks 30 industrial stocks
– NYSE Composite Index • All stocks on NYSE
– NASDAQ Composite Index
• All stocks on NASDAQ
• Heavily technology / internet weighted
– S&P 500 Index
• Large-cap index
Common Stocks
• Why issue common stock
– Public (IPO) versus private (SEO)
i.
• •
ii.
•
iii.
•
• •
Form of equity
Exchange ownership for capital
Don’t have to repay shareholders for buying stock
Dividends are not mandatory Whereas interest payments are
Voting rights and control
Is mainly a concession given up in exchange for capital
Proxy voting Pre-emptive rights

Common Stocks • Why buy common stock
i.
• • •
ii.
•
Income from dividends Record date
Cum-dividend and ex-dividend date
Example: The record date for XOM stock is Wednesday,
January 14th.
Change in stock value
Hope to realize a capital gain
Common Stocks • Why buy common stock
iii.
• • •
Increased value from stock splits Weak argument for increased
value
Split and reverse split
Example: You own 1,500 shares of XOM, and each is currently
trading at $40. The shares go through a 3- for-1 stock split.
How many shares do you own after the split and what is their
price?
– What would these values be if the stock went through a 1- for-
4 split?
Preferred Stocks
• Preferred stocks
– Receive dividends before common stock holders – Dividends
are known in advance
– Are typically callable
– Issued far less often than common stock
Preferred Stocks
• Features
i. Cumulative dividends
• Skipped dividends must be made up before common dividends
can be paid
ii. Participation
· Excess after preferred and common dividends is paid is split

between each
· Is rare
iii. Conversion
• Option held by shareholder to exchange the preferred shares
for a pre-specified number of common shares
Evaluating Stock Issues • Stock valuation
i.
•
ii.
•
–
•
• •
Fundamental analysis
Micro (e.g., management, financials) and macro (e.g., economic
conditions) that impact share price
Technical analysis
Looking for trends in historical prices
What does the EMH say about each
Stocks move randomly (don’t follow a pattern) Current price
reflects true value
Relationship between risk and return is positive
Evaluating Stock Issues • Classification of stock investments
i.
•
ii.
•
iii.
• •
Blue-chip stock
Relatively safe investment in the strongest companies (e.g.,
RBC)
Income stock
Stocks paying high, consistent dividends (e.g., utilities)
Growth stock
Potential for high earnings growth

Usually have a smaller dividend payout ratio in early years
(e.g., Apple)
Evaluating Stock Issues • Classification of stock investments
•
iv. v.
vi.
Bull market versus bear market
• •
Cyclical stocks
Follow the overall economic cycle (e.g., Caterpillar)
Defensive stocks
Are not significantly impacted by overall economic cycle (e.g.,
Kellogg, P&G)
Large-cap vs small-cap
Evaluating Stock Issues • Calculations
– Annual shareholder return
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– Can be broken into dividend yield and capital gains yield
– Example: You buy HP stock for $35 and hold it for a year.
Over that year the firm pays a $4 dividend and the stock price
falls to $32. What is your annual return?
Evaluating Stock Issues • Calculations
– Earnings per share (EPS)
• Is simply the net income per share
• An increase in EPS is a healthy sign for the firm
– Price-Earnings ratio (P/E)
· Divide the stock price by the company’s earnings
· Measures how much investor’s are willing to pay for $1 in
earnings
· Can be an indicator of buying or selling opportunities – Beta
• Is a measure of the stock’s risk relative to that of the overall
market
Buying and Selling Stocks
• Transactions

– Primary versus secondary market – IPO versus SEO
– Full-service versus discount brokerages • Differ in:
i. Cost
ii. Research provided
iii. Assistance with investment decisions
iv. Easy of buying or selling
Buying and Selling Stocks • Types of orders
– Market order
• Transact at current market price
– Limit order
• Transact at a specified price
• e.g., Buy at a price below $20 • e.g., Sell at a price above $30
• Fulfilled behind market orders
Buying and Selling Stocks • Types of orders
– Stop order
• Sell a stock once its market price reaches a certain
point
• Does not guarantee that it sells at that price • Protect against
price declines
– Discretionary order
• Lets the account executive decide when to transact
Buying and Selling Stocks • Commission charges
– Fee to make a transaction
• Round lot – 100 shares (or multiples of 100) • Odd lot – fewer
that 100 shares
Long-Term and Short-Term Strategies
• Long-Term – Investors
– Diversification
– Buy-and-hold
– Dollar cost averaging
• Purchase a set dollar amount of the stock each
year
• Don’t try to time the market
• Average price is considered in selling stock
Long-Term and Short-Term Strategies • Long-Term
– Direct investment

• Purchase directly from the firm rather than through a
broker
– Dividend reinvestment plan
• Reinvest dividends to purchase stock • No transaction costs
Long-Term and Short-Term Strategies • Short-Term
– Buying on margin
· Essentially borrowing money needed to buy stock
· Financial leverage allows you to magnify gains but also
magnifies losses
· Subject to margin calls and interest
– Short-selling
· Borrow a stock, sell it to someone else
· Eventually need to repurchase the stock and return it to its
owner
· Why would you short-sell?
Long-Term and Short-Term Strategies • Short-Term
– Trading in options
• Right to buy or sell at a predetermined price • Call versus put
Why Mutual Funds • Defined
– An investment in which a number of people contribute (pool)
money to buy stocks or other financial assets
• Reasons
1. Professional management 2. Diversification
Why Mutual Funds
Why Mutual Funds • Reasons:
Why Mutual Funds
• Characteristics
– Are run by investment companies
– Closed-end funds
· Is finite in size and shares are issued by the investment
company only when the fund is set up
· Fund neither issues nor redeems shares
– Doesn’t have to maintain cash holdings
· Shares are traded on an exchange, with price determined by
supply and demand
– Price may not reflect value of underlying portfolio

Why Mutual Funds • Characteristics
– Open-end funds
• Shares are issued and redeemed by the investment
company at the request of the investor
• Shares trade at net asset value (the market value of the
underlying investments less liabilities)
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Why Mutual Funds • Characteristics
– Index funds and exchange-traded funds
· Passively tracks an index (e.g., S&P/TSX Composite
Index)
· Main advantage is lower costs
· Also, performance
· ETF have added liquidity (and flexibility) versus index funds
– Also tend to have lower management fees but you need to pay
commissions to trade them
Why Mutual Funds • Fees
– Load versus no-load funds
· Load fund – pay commission every time you buy (front)
or sell (back)
· Average is between 3 and 5 percent
– Management fees
• Are a fixed percentage of assets • Very very high (avg. 2-3%)
– Management expense ratio
· Total of management fees and direct costs charged to
fund
· Canada has some of the highest MERs in the world
Why Mutual Funds • Fees
– Special fees
• e.g., account set-up, transfer fee, etc.
• Service fees - ongoing commissions paid by mutual fund
company
Classification of Mutual Funds • Categories
i.
•

ii.
•
iii.
•
iv.
•
v.
•
Money market funds Short-term
Bond funds Invest in bonds
Dividend funds
Invest in preferred shares and high-quality common share
Ethical funds
Invest for moral/ethical reasons
Balanced funds
Balance income and growth
Classification of Mutual Funds • Categories
– Family of funds
• One investment company manages multiple funds
• Usually more cost effective to switch within the same family
of funds
– Managed asset programs
• Designed for those who want to invest in more than
one fund
• Is a pool of mutual funds
Investing in Mutual Funds • Prospectus
– Outlines the risk factors, performance, investments,
objectives, etc.
• Annual report
• Financial publications • The Internet
Trading in Mutual Funds • Return on investment
– Looking for dividends (income) and/or appreciation in value
(capital gains)
• Fund will make capital gains distributions
• Can also make capital gains from selling your units in
the mutual fund

• Tax issues
i. Distributions that are reinvested are still taxable
ii. Realized capital gains are at the fund’s discretion
iii. Distributions are fully taxed no matter when you buy into
the fund
Trading in Mutual Funds
• Purchasingmutualfunds
– Closed-end via stock exchange or OTC
– Open-end, no-load via investment company – Open-end, load
through salesperson
– Can also purchase via brokers
• Purchasingopen-endedthroughinvestment company
– Regular account transaction – Voluntary savings plan
– Contractual savings plan
– Reinvestment plan
Trading in Mutual Funds • Withdrawing from a mutual fund
– Closed-end funds
• Can sell on the exchange or OTD market
– Open-end fund
• Can be sold back to the investment company on any
day
• Redeemed at their NAV (value of portfolio less debt) • Also
have options if you have significant holding
i. Fixed dollar amount each period
ii. Fixed number of units each period
iii. Fixed percentage each period
iv. All growth distributed each period
Why Retirement Planning
• Misconceptions
– Expenses will drop in retirement
– Retirement will only last 15 years
– Government will fund my retirement
• Importance of saving early
Conducting Financial Analysis
• Analyze and evaluate your current assets and liabilities
• Review assets

– Housing
• Why is this important enough to single out?
• Canada Home Income Plan (CHIP)
· – Reserve mortgage – provides tax-free income to the
homeowner which they repay (with interest) when they sell their
house
· – Must be 55 and older and does not impact OAS or GIS
payments
Conducting Financial Analysis • Review assets
– Housing
• Reverse annuity mortgage (RAM)
– Used to buy life annuity from insurance company
– Provides regular income to homeowner until death
– Upon death or sale of the house, the loan must be repaid
– Life insurance
• Cash surrender value
– Other assets
• Cottage, savings accounts, etc.
Retirement Living Expenses
• Expenses that may decrease when you retire
– Work expenses
• Transportation costs, lunches, etc.
– Clothing expenses
• Reduced need for dress clothes, etc.
– Housing expenses
• If mortgage is paid off when you retire, if you downsize,
etc.
– Federal income taxes
• No tax paid on some retirement income (GIS) and you’re
typically in a lower marginal tax bracket
Retirement Living Expenses
• Expenses that may increase when you retire
– Insurance
• Loss of employer’s contribution, higher life insurance
premiums, etc.
– Medical expenses

• May not have access to group health insurance, premiums tend
to generally increase with age, etc.
– Leisure expenses
• Can be significant as you may want to travel more, visit
family more often, etc. – Gifts or donations
• Want to make same gift but now have a lower income
Retirement Living Expenses • Change in expenses
– Need to consider inflation!
Retirement Housing • Types of housing
– e.g., apartment, own home, downsize, etc. • Discussed in
chapter 7
– Are resources available if someone wants to remain in their
own home
i. Home Adoptions for Senior’s Independence Program
ii. Emergency Repair Program
iii. Residential Rehabilitation Assistance Program
Retirement Income
Retirement Income • Public Pensions
• Three kinds of benefits: disability benefits, retirement
pension and survivor benefits • Contributions
– Based on salary alone (not investment income)
– Maximum pensionable earnings for 2015 is $53,600 and
employer and employee contribution rates are 4.95%
» Maximum contributions in 2015 for each is $2,479.95
– Canada Pension Plan • Benefits
· – Is payable at age 65 regardless of whether you continue to
work or not
· – Amount depends on how long you’ve contributed and the
age when you start receiving your retirement benefit
· – Full benefit is based on 25% of average pensionable
earnings
– Benefits are taxable
Retirement Income
• Public Pensions

– Old Age Security (OAS)
· To qualify, you need to be a resident for at least 40
years and over the age of 65 (67 starting in 2023)
· Is taxed and clawed back (at 15%) when your income reaches
$64,718
· 2015 maximum monthly amount is $569.95 – Guaranteed
Income Supplement (GIS)
· Designed for low-income individuals who are 65 and older.
· Amount received depends on marital status – e.g., $772.83 if
single and $512.44 if married
Retirement Income
• Employer Pension Plans – Defined benefit plan
– Defined contribution plan
Retirement Income • Personal Retirement Plans
– RRSP
• Contribute pre-tax earnings and are taxed on
withdrawals
• Contribution limit for 2015 is 18% of earned income up to a
maximum of $24,930
– Also unused prior contribution limits accrue each year
• Are not for everyone
Retirement Income • Personal Retirement Plans
– Deregistering an RRSP
• Plan must be deregistered by the end of the year in
which you turn 71.
• Payment options:
i. Full withdrawal – least favourable option
ii. Annuities – pay fixed periodic amount for a specified period
of time (fixed-term) or until death (life)
iii. Registered Retirement Income Funds (RRIFs) – you make
your own investment choices; need to withdraw a minimum
amount each year
Living on Retirement Income • Workingduringretirement
– May result in benefit claw backs •

Dippingintoretirementsavings
M5HAhist.docx
Directions: Your task is to search the internet for two political
cartoons that represent the years of the Great Depression and
the New Deal. Once you have selected your two cartoons, copy
and paste them into your Word document for this assignment.
Please remember that you must cite your source for where you
found each cartoon.
Guidelines:
1. Cartoon 1: This political cartoon must be from the 1930s. It
should address one or more of the following topics: Difficulty
of farmers, Stock market crash, Bank failures, Consumer over-
borrowing, Businesses closing.
2. Cartoon 2: This political cartoon must be from the 1940s. It
should address one or more of the following topics: Franklin
Roosevelt, the New Deal, “Relief, Recovery, Reform,” any of
the New Deal programs such as the CCC, TVA, PWA, etc.,
Court-packing scheme.
Questions to answer:
For each cartoon, you will construct a 300-400 word essay in
which you analyze the meaning of the political cartoon. You
should address these questions within the context of your essay:
1. Who are the objects and people in the cartoon?
2. Which of the objects are symbols and what do these symbols
mean?
3. What is the meaning behind the words and phrases used in
the cartoon?
4. What action is taking place in the cartoon?
5. How would you explain the message in the cartoon in your
own words?

M5L2ARadio.docx
1920’s Radio
Radio was a major source of news and entertainment during the
1920’s. By 1925, over 2.5 million Americans owned and listed
to radios. Your task for this assignment is to construct a radio
news program that details some of the important events of the
1920’s. Your show will be called “Lifestyle of the Roaring
‘20’s.” You will serve as the host and you will interview a
guest of your choice (someone from the time period) and they
will answer a series of questions on the following topics (a
minimum of 4): · The impact of the Automobile ·
Prohibition · Organized crime ·
Fundamentalism and the Scopes “Monkey” trial ·
Flappers · Education · Sports ·
Entertainment · And the Harlem Renaissance This
assignment can be submitted in transcript form or can actually
be performed and recorded.
If you would like to record this as an “actual” radio show,
please follow the directions below
1. Go to http://vocaroo.com/
2. Make your recording
3. Save the link
4. Submit into the text box
M5L4MAHist.docx
Lesson 4 Mastery Assignment
Throughout this lesson you learned about the way FDR and the
New Deal tried to help the nation through the Great Depression.
In this assignment you are going to use the notes and
information you learned to help you complete this assignment.
There are two parts to this assignment. Make sure you do both.
Part I: Complete the chart below using your knowledge and the
notes provided for you.
Program

Identify what type of program: (relief, recovery, or reform)
What was the purpose and details of this program?
How effective was this program? Does it still exist today?
Put an X if this program was declared unconstitutional
The Emergency Banking Act
Federal Emergency Relief Act (FERA)
Public Works Administration (PWA)
Civilian Conservation Corps (CCC)
Works Progress Administration (WPA)
Tennessee Valley Authority (TVA)
National Industrial Recovery Act (NRA)

Federal Housing Administration (FHA)
Agricultural Adjustment Act (AAA)
Glass-Steagall Act
Securities Exchange Act
Social Security Act
National Labor Relation Act (Wagner Act)
Fair Labor Standards Act

Part II:
In one or two paragraphs, compare and contrast the Presidential
Reaction to the Great Depression between Herbert Hoover and
Franklin D. Roosevelt.
M5L1A-1920s.docx
Political Events During the 1920’s
In post-WW I America there was a real backlash to U.S.
involvement abroad. The American people were largely tired of
foreign involvement and re-embraced the idea of isolationism.
Coupled with this came resurgence in nativism (prejudice
against foreigners or those perceived as foreigners.)
In the chart below please analyze and explain (in no less than
40 words each) the results of the events listed.
Event
Analysis and Explanation
1. The Red Scare
2. The Sacco and Vanzetti incident
3. The reemergence of the KKK
Warren G. Harding became President of the United States
in 1921. He advocated what he termed a “return to normalcy.”
Let’s look at some of the important occurrences during his
administration. In the chart below please analyze and explain
(in no less than 40 words each) the results of the events listed.
Event
5. The Fordney-McCumber Tariff

6. The Teapot Dome Scandal
Calvin Coolidge was thrust into the presidency after the
unexpected death of Warren G. Harding in 1923. But he was
elected in his own right in 1924. Coolidge was focused on
business. He advocated keeping taxes down and keeping
governmental interference to a minimum. Let’s look at some of
the important occurrences during his administration. In the
chart below please analyze and explain (in no less than 40
words each) the results of the events listed.
Event
7. New Industries Emerge (Automobiles, Airplanes, electrical
conveniences)
8. Modern Advertising
9. Easy Credit
10. Which of aforementioned events do you feel most impacts
your daily life and why?
M5L3A2-1920s-30s.docx
Module 5 Lesson 3 Assignment 2
The 1920s and the looming Great Depression created a roller
coaster of emotions for Americans. Using the information you
learned in your lesson notes, you are going to write 3 journal
entries. For each entry you must:
· Follow the instructions for the specific entry
· Add at least 3 historical facts from that time period
· Each entry needs to be at least 300 words.
Entry #1
The year is 1925. You are a farmer who took out loans during
World War I to meet the increasing demand of the war.

Describe your life in terms of economic, political and social
welfare.
Entry #2
The year is 1928. You are a middle class man/woman living in
New York City. Describe your life in terms of economic,
political and social welfare.
Entry #3
The year is 1930. You are a middle class man/woman living in
New York City. Your savings bank has closed and your money
is gone. You have lost your job. Describe your life in terms of
economic, political and social welfare.
M3PaHist.docx
Question 1
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Source:https:/thebrightestman.wikispaces.com/file/view/Roosev
elt's_Imperialism.jpg/56619806/620x394/Roosevelt's_Imperialis
m.jpg
What would be the appropriate brand of diplomacy depicted in
this political cartoon?
Select one:
a. dollar diplomacy
b. big stick diplomacy
c. moral diplomacy
d. missionary diplomacy
Question 2
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What was the immediate cause of the Spanish American War?

Select one:
a. the attack on Havana, Cuba
b. American animosity toward the Spanish
c. explosion of the USS Maine
d. the assassination of the President
Question 3
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Question text
"CUBANS SHOT BY HEARTLESS SPANISH TROOPS"
This newspaper headline would be most likely called
Select one:
a. jingoism
b. diplomacy
c. internationalism
d. yellow journalism
Question 4
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Which was a United States gain by the end of the Spanish
American War?
Select one:
a. Puerto Rico
b. Cuba
c. Spain
d. Virgin Islands
Question 5
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Question text
What was the most important advantage in building the Panama
Canal?

Select one:
a. It provided a physical barrier between North and South
America.
b. It cut travel time by half between the Atlantic and Pacific
Oceans.
c. It created jobs for those living in South America.
d. It allowed for greater cooperation between Columbia and the
U.S.
Question 6
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Which President was known for "substituting dollars for
bullets" in his dollar diplomacy efforts of encouraging
American investment in Central America?
Select one:
a. Woodrow Wilson
b. Thoedore Roosevelt
c. William Howard Taft
d. William McKinley
Question 7
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Question text
What organization was created here in the United States in
order to stop American imperialism?
Select one:
a. League of Nations
b. Overseas Imperialists League
c. Isolationists League
d. Anti Imperialist League
Question 8
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Question text
Why did Pancho Villa become a Mexican folk hero?
Select one:
a. He was one of the most effective Presidents that Mexico ever
had.
b. He was able to alude capture by the American forces led by
General John Pershing.
c. He helped the United States gain the Panama Canal from
Columbia.
d. He was successful at ending the long-standing hostilities
between the U.S. and Mexico.
Question 9
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Question text
The Roosevelt Corollar was an addition to what earlier foreign
policy statement of the United States government?
Select one:
a. Open Door policy
b. Monroe Doctrine
c. Proclamation of Neutrality
d. Emancipation Proclamation
Question 10
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What did Alfred T. Mahan advocate that was necessary for a
nation to maintain it's power and wealth?
Select one:
a. naval power
b. war
c. strong presidency
d. lawmaking ability

Question 11
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What area of land was annexed to the United States after our
government encouraged a rebellion there?
Select one:
a. Alaska
b. Hawaii
c. Cuba
d. the Philippines
Question 12
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Question text
What was the general attitude of many Americans toward the
U.S. purchase of Alaska from Russia?
Select one:
a. Many were happy because of all the oil reserves there.
b. Many thought it would be the perfect vacation spot for
Americans.
c. Many were happy for us to spend our extra money for land
with fertile soil.
d. Many thought it a waste of money and called it "Seward's
Folly."
Question 13
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The Open Door policy was aimed at maintaining trade with what
nation?
Select one:
a. Spain

b. England
c. China
d. Russia
Question 14
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What event was aimed at driving western influence out of
China?
Select one:
a. the Boxer Rebellion
b. the Open Door policy
c. the Teller Amendment
d. the Spanish American War
Question 15
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Question text
The Roosevelt Corollary stated that
Select one:
a. the United States would stay out of the affairs of Central
America at all times.
b. the United States had the right to intervene in conflicts
between European nations and Latin America when necessary.
c. Europe could not longer establish colonies in North or South
America.
d. Central American nations must adhere to laws passed by the
U.S. Congress.

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