Canadians’ Debt Levels Still a Concern

Debt levels in Canada have been of great concern to officials for some time now. The general perception is that people in financial trouble are wildly irresponsible with their money, deadbeats, or both. While there are certainly people like that out there, the truth of the matter is that a large percentage of honest, hardworking folks are carrying around debt levels that far exceed comfortable levels. Increasingly, people are relying on such sources of easy cash as payday loans, credit cards, and lines of credits just to get by from month-to-month, with no tangible source of financial relief on the horizon to wipe away those debts.

According to Statistics Canada, for every dollar of disposable income they have, Canadians owe about $1.67. That is a substantial amount and leaves many living their lives with very little margin for error. Unfortunately, life constantly throws unexpected things our ways, like repairs, replacements, even lawsuits. Not having money on-hand to deal with such issues can lead to even bigger problems. Those may not only result in financial ruin, but declines in both a person’s health and mental health.

The main takeaway is that we need to return to the days when people’s lives were funded only by their cash flow and credit was something you used solely in times of emergency. Of course, in our consumer culture, we are constantly bombarded with advertising stating how much we need certain things, almost none of which are absolutely necessary for leading a comfortable and successful existence.

One thing that has saved some consumers is the increasing willingness of companies to negotiate proposals where the debtor would only have to pay back a portion of what they owe. This has helped reduce the number of personal bankruptcies from what they might be, though these also remain distressingly high.

What the Interest Rate Hike Means for Mortgage-Holders

On July 12, 2017, the Bank of Canada raised its key interest rate from 0.50% to 0.75%. Canada’s five biggest banks immediately followed suite, matching the 0.25% increase in their prime interest rates.

The move came as no surprise to economists, who have been predicting a rate increase for some time now in response to record-high levels of consumer spending, housing prices, and household debt in Canada. But for many ordinary Canadians, who haven’t seen rates go up since 2010, the hike is alarming.

Some of you will have already felt the effects of the change. Others are still wondering if (and how) it will impact their day-to-day lives. We’ve examined how the new interest rate will impact two key areas: mortgages and the value of the Canadian dollar, and individuals like you.

What Does the Interest Rate Do?

As Canada’s central bank, the Bank of Canada sets the overnight interest rate. This is the rate banks pay to make one-day loans to each other. When the overnight interest rate goes up, banks usually increase their prime interest rate as well – which is what happened this week.

A bank’s prime interest rate is the rate banks use to calculate a variety of loans, including variable-rate mortgages and lines of credit. The five biggest Canadian banks (TD Canada Trust, Bank of Montreal, Scotiabank, and CIBC) all had a rate of 2.70% before the change. In response to the Bank of Canada’s change, they bumped the rate up to 2.95%.

That means bank customers with loans based on the prime rate will see their interest payments go up immediately.

Value of the Canadian Dollar

After the announcement went public, the value of the loonie shot up from 77.40 to 78.70 cents on the American dollar. That’s the highest the dollar has been since August of 2016. Some economists, including Adam Button of and Scotiabank strategist Eric Theoret, predict it could hit 80 cents this year.

The cause? Confidence, according to Theoret. Though markets saw the rate increase coming, people were surprised by the Bank of Canada governor’s confidence in the move. This, along with positive economic data, shows the Canadian economy doing well and recovering from the recent oil-slump.

Mortgages and Housing Market

As mentioned, people with variable-rate mortgages will see an immediate uptick in the amount of interest they pay to lenders. The change could impact those with fixed-rate mortgages as well, as they could see higher rates when it comes time to renew.

For some, the change will be difficult to cope with. 0.25% is no small increase for those who are already struggling to pay their mortgages. It will be especially difficult for would-be house flippers who purchased a second or third home at the height of the housing boom in hope of a quick turn-around, seeing as the housing market has cooled since the spring.

But that’s not the only way the interest rate hike could impact housing. The other effect is harder to predict, but sure to be felt: a shift in consumer sentiment.

Preet Banerjee, the author of Stop Over-Thinking Your Money!, predicts the rate hike will change how Canadian consumers think about spending and borrowing.

“Because interest rates have fallen, and because borrowing money has become normalized, this could represent a real problem for them because they’ve gotten used to living month-to-month, paycheque-to-paycheque as a lot of people do, with very low costs of interest,” says Banerjee.

Right now, an alarming number of Canadians are comfortable carrying high debt loads and saving little to no money each month. Banerjee argues the interest rate hike could serve as a wake-up call.

This could only accelerate the recent dip in house prices, as consumers take a step back and wait for the right time to jump into the market. With real estate and financial services making up 20% of the Canadian economy, even small shifts in the market could have drastic effects on our economy overall.

Are Drive-Ins a Wise Investment?

Drive-ins were incredibly prolific in the 1950s. The combination of readily available and affordable cars, and teenagers looking to get away from their parents led to these outdoor cinemas enjoying considerable popularity.

However, the drive-in’s heyday started to decline in the ’70s and by the mid-80s, they were closing in droves. Home video caused many people to stay home, but one of the major considerations was the value of the land. As many towns expanded outwards, the drive-ins were no longer located far away. That increased the value of those particular plots, which were soon worth far when converted into shopping centers.

Drive-ins will never experience that kind of popularity again, but they have been getting more press lately, thanks to nostalgia and the fact that it is easier and cheaper to take a family to a drive-in than a multiplex.

As of this year, there are only 338 drive-ins left in the United States. A few decades back, it was not so unusual to have more than one in a single town; now you can drive through large sections of the country and not find a single one. In addition to fighting against the many forms of entertainment readily available, a good number could not afford the recent switch to digital projection and closed.

So, is a drive-in a good business investment? There are a few left that enjoy steady, large crowds, but generally, there are a lot safer ways for you to invest your money. If you do decide to open one, choose an area that is well away from expanding populations centers, but not so far away that people do not want to make the drive. Families tend to make up the lion’s share of patrons these days, so exhibitors tend to focus on booking movies that attract this demographic.

More Developments for Sears Canada

In the week since my previous post on Sears Canada, more news has come to light. While the majority shareholders in the company mull over their options, word has surfaced that the company’s pension fund may become a victim of the court-ordered restructuring.

The company announced that retirement benefits have been suspended for their employees. In addition to the loss of finances, the discontinuation of regular pension fund payout levels would likely also mean the termination of retiree health and life insurance benefits. With the pension plan currently underfunded, there is a very real chance this could occur. And you thought the loss of 59 locations, many jobs, and no termination packages was as bad as this could get?

There is something particularly despicable about robbing people of their pension benefits. The lure of a pension and financial freedom in your golden years causes many people to stay with a firm longer (sometimes much longer) than they would otherwise. That sort of employee loyalty is gained under false pretenses when you fail to protect their pensions in times of company financial strife. Sears’ problems are not the fault of their employees, but of systematic mismanagement in the C-suite. Will those men and women suffer in the same way? Probably not.

The law does not help the retirees’ case. They are considered to be the equivalent of unsecured creditors and that means their claims rank after those of banks and other secured creditors. Likely that means while they will get something, it will fall far short of the benefits they expected to receive until the end of their lives.

Such news is especially unfortunate for people this age because many are no longer in sufficient health to get a new job. This can lead to depression and anxiety woes, on top of the money concerns involved.


Sears: The End of an Era for Big Department Stores?

You will no doubt have heard by now that Sears is struggling. The retail behemoth has regularly posted losses over the past few years and things are no better for its Canadian cousin. That became all too clear last month when Sears Canada announced that it would be closing 59 locations in this country and laying off 2900 employees.

This seems inconceivable to people of a certain age. Long before the days of Walmart and Costco dominance, Eaton’s and Sears were the places for your clothing and electronics needs. These stores were such mainstays in Canadian retail, it was not uncommon for someone to start their careers at one and stay there for many years.

However, the internet has changed many things in our lives and the world of retail certainly falls into that category. Sites like Amazon not only offer lower prices, due to their lack of physical locations, but they also deliver the convenience of never having to leave your home. About the only downside is having to wait longer to get your things, versus picking them up at a store, but Amazon’s forthcoming drone fleet may well reduce that to mere minutes.

Of course, stores still have some advantages. For those of us who like to browse, they offer much to hold our attention. I don’t always know what I want to buy people as gifts; surfing around on the net always takes me longer than simply walking around a mall. Also, when it comes to clothes, I like to try them on and immediately know how they look and whether they fit properly.

However, it would seem that convenience is the primary goal for people in this busy day and age. Sears is not officially dead yet, but it has reached the life support stage. I will be sorry to see it go.

Stu pendousmat at English Wikipedia [CC BY-SA 3.0 ( or GFDL (], via Wikimedia Commons

Whatever Happened to the Friendly Neighborhood Pharmacy?

We used to have one in my hometown. There was a time, when I young, that we went there often. It can’t be that long ago — I’m not that old.

It was on the eastern corner of a tiny, 60’s-style mall, next to a variety store and two stores down from a Chinese restaurant. The shelves were stacked floor-to-ceiling with remedies, bandages, and other ordinary medical supplies. The pharmacist’s counter sat parallel to the entrance on the other side of the cramped but cozy store.

Despite the clutter, no one ever had trouble finding what they needed. The pharmacist and her assistants were always there to guide you to the right aisle, and happy to answer whatever questions you had about your prescription.

I never felt anything but welcome there, even as a shy little kid. When my mother said I was scared about taking an antibiotic, the pharmacist offered us a cute, green medicine cup in the shape of an alligator. When our family doctor passed away, she referred us to a new doctor who had just opened a practice in the area.

Of course, the place is long gone. It was replaced years ago by a PharmaPlus, soon joined by a Rexall just down the street. The local grocery store vanished around the same time, and in its place is a sprawling Sobeys with its own pharmacy counters.

The aisles in these stores are wider. The selection of items is broader. But I’ve never had the pharmacist there offer to help me find what I’m looking for. I’ve never thought to ask them for advice — they’re too busy.

Unfortunately, when it comes time for independent pharmacy owners to sell, it’s not always easy to find a buyer who wants to keep things the way they were. Many enlist the help of a pharmacy broker, who help people buy and sell a pharmacy. This often results in the business changing so much that it hardly resembles the friendly business that built years of good will in the community.

There’s value in a neighborhood pharmacy. Fortunately, I’m not the only person who thinks that way. That’s why independent pharmacies can still survive by taking the traditional approach. They can still offer the kind of one-to-one, pharmacist-to-patient relationships I remember. Customer service and counselling is what sets independent pharmacies apart from their towering competitors.

Companies like Colony Drug are helping to keep independent pharmacies alive. Unlike a pharmacy broker, Colony commits to keeping the same staff, branding, and policies when it buys an independent pharmacy.