Managing Personal Finances�in Canada

Kenny Chiu

Statistics Graduate Student Association (SGSA)

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Last updated: Mar 2024

Disclaimer

• I am not a financial advisor
• Any institutions or products shown in these slides are examples and not endorsements�
• I am not liable for any financial decisions you make�
• Information here is based on my own understanding/may be incorrect/may be outdated�
• The intention of these slides is not to provide you with a comprehensive understanding but for you to use as a starting point for your own research

Covered topics

1. Accounts
1. Chequings
2. (High-interest) savings (HISA)
3. Tax-free savings (TFSA)
4. Registered retirement savings plan (RRSP)
5. First home savings account (FHSA)
2. Banks and other financial institutions
3. Investments
• Low risk (e.g., GICs, bonds)
• Stocks & funds
4. Credit
• Credit score
• Credit cards
• Other credit facilities

Topics that are not covered

1. Budgeting
2. Filing taxes
3. Insurance
4. Debt management
5. Crypto
6. Non-personal finances (e.g., economy)

Accounts

High-interest savings account (HISA)

• Collect (taxable) monthly interest on money in account�
• Current bank interest rates: 1.3%-1.9% annual�
• Sometimes have new customer promos for opening a HISA (e.g., bonus interest rate for first X months)

Example:

Chequing account

• Transaction account�(debit, deposit, pay bill, transfer)�
• Comes with a debit card (little to no rewards)�
• Little to no interest rate on money in account�
• Different tiers of accounts with varying fees
• May have conditions to waive fees�
• Students can waive (partial) fees�up to some time after graduating�
• Perks depend on account tier (e.g., unlimited transactions, credit card fee rebate)

Tax-free savings account (TFSA)

• Investment account (e.g., collect interest, buy GICs, buy stocks)�
• Purpose: no tax on investment earnings�
• Total amount of money you can put in (contribution room) depends on:
• year you turned 18 years old
• year you became a Canadian resident (w/ SIN)�
• You get more contribution room each year (varies year to year)�
• If you withdraw money, you can re-contribute that amount�next year (i.e., after Dec. 31 of current year)�
• If lose money from investments in account, that contribution room is lost
• If grow money in account and withdraw, then “gained” contribution room

Eligibility:

• Canadian resident w/ valid SIN
• 18 years or older

Registered retirement savings plan (RRSP)

• Investment account (e.g., collect interest, buy GICs, buy stocks)�
• Purpose: tax deferral + retirement savings
• Rather than tax income now, can put amount into RRSP and claim income tax deductions now (or later year) on that amount (idea: contribute when in a higher tax bracket now vs post-retirement)
• Withdrawals before 71 are subject to heavy tax penalties
• After turning 71, withdrawals are taxed as regular income�
• Amount you can put in each year (deduction limit) is�min{18% of income, annual limit} and is cumulative�
• Home Buyers’ Plan (HBP): “borrow” up to $35k�from RRSP to use towards a first home

Eligibility:

• Canadian resident w/ valid SIN
• 18 years or older

First-home savings account (FHSA)

• Investment account (e.g., collect interest, buy GICs, buy stocks)�
• Purpose: savings towards first home
• Withdraw without tax penalty if used towards first home purchase�(i.e., tax-free investment earnings)
• Tax deferral�
• Can contribute up to $40k before 71 within 15 years
• Gain $8k contribution room per year (starts accumulating after opening FHSA)
• Can accumulate only $16k contribution room at any given time
• Contribution room cannot be replaced
• Non-qualifying withdrawals are taxed as income
• FHSA must be closed or rolled into RRSP 15 years after opening

Eligibility:

• Canadian resident w/ valid SIN
• 18 years or older
• First-time home buyer
• Did not live in home owned by you or spouse/common-law recently

Other rules for registered accounts (TFSA, RRSP, FHSA)

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• If you lose residency status after having opened a registered account,�you can keep the account without penalty�
• (TFSA) If you make contributions as a non-resident,�those contributions will be taxed at 1% per month�
• (RRSP, FHSA) You can contribute as a non-resident, but all withdrawals will be taxed in accordance to laws pertaining to wherever you are currently residing

Financial institutions

Popular financial institutions

* all institutions listed here are CDIC/CIPF-insured

Investments

Guaranteed investment certificates (GIC)

• Purchase at $X for term T and % interest rate R
• After time T (maturity), get back X*(1+R)�
• Can be purchased through bank/some fintech
• Non-redeemable:�cannot withdraw before maturity but higher rate
• Redeemable/cashable:�can withdraw before maturity but lower rate
• Non-registered: purchased in a taxable account
• Registered: purchased in a non-taxable account (e.g., TFSA)�
• Earned interest taxed as income in non-registered�
• Bonds function similarly to GICs

Trading/stocks/equity

• Purchase n shares for $X/share at time T,�Sell m ≤ n shares for $X’/share at time T’
• Capital: money put in (i.e., n*X)
• Capital gain/loss: money gained/lost from selling (i.e., m*(X’-X))
• Trade/transaction: act of buying or selling shares
• Dividend/distribution: money paid to shareholder
• Ex-dividend date: if shareholder at start of day, will receive dividend/distribution
• Payout date: day dividend/distribution is paid out�
• Purchased from a stock exchange through a trading platform (with bank or a dedicated platform)
• Bank trading platforms tend to have trading fees (e.g., $10/trade)
• Purchase within a non-registered/registered account on platform�
• 50% of capital gains taxed as income; capital loss can be claimed to reduce tax on capital gains
• Dividends can be taxed more favourably than capital gains (complicated; see page)
• Distributions taxed as income

Source: ca.investing.com

Source: ca.investing.com

Lowest selling price

Highest bidding price

Annual payout in % of current price (yield)

Annual payout in $

Common measures of company valuation�(P/E Ratio = price/earnings ratio, � EPS = earnings per share)

Measure of volatility and correlation with market

• beta ≈ 0 : not volatile
• |beta| ≫ 0 : volatile

Funds

• Can be in the form of an account or a stock (exchange-traded fund, ETF)
• Put money in; someone/something invests that money for you
• Earn (lose) money through paid distributions or by selling stock
• Annual fee (management expense ratio, MER) is some % of money put in�
• Mutual fund: investors pool money that is managed by some fund manager�
• Actively managed fund:�aims to beat passively managed fund�
• Passively managed fund: tracks some index
• index: a collection of stocks or other assets�(e.g., S&P500, Nasdaq)
• Most commonly ETFs on stock exchange�(e.g., XEQT.TO / VEQT.TO track Canadian�market)

Source: longtermtrends.net

Credit

Credit

Credit is the trust which allows one party to provide money… to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), but promises either to repay… at a later date. - Wikipedia

• It is common in Canada to use credit cards or other forms of credit for expenses
1. Credit cards generally provide rewards when used unlike when paying with cash or debit
2. Paying off your credit card balance builds your credit score, which is used for, e.g.,
• determining your credit interests and limits
• when you are applying for more credit (cards, mortgage, auto loans, line of credit, etc.)�
• You can build your credit score through other ways, like by paying your bills on time�
• As long as you use a credit card responsibly (i.e., treat it as a debit card) and pay it off on time, paying for things with a credit card will generally have more benefits!

Common things to consider when choosing a credit card

1. Credit card network
1. Mastercard (e.g., Costco only takes MC)
2. Visa
3. American Express (less widely accepted)�
2. Rewards type
• Cashback
• Points (mostly for travel-related rewards)�
3. Spending bonuses
• High bonuses on categories you spend most (e.g., groceries, dining)
• New card promos�(e.g., bonus points during first X months)

• Eligibility
• No income requirements
• Minimum annual personal income $X or household income $Y
• Minimum credit score�
• Annual fees
• No annual fee
• $30-$150/yr (core) or $500+/yr (premium)�
• Insurance coverage
• Free cards generally no/minimal coverage
• Higher fee, more coverage on average�
• Other, e.g., foreign transaction (FX) fees

Shop around when looking for a credit card!�

Following examples show things to look for and compare when considering a new card

Credit card example 1: BMO Student Cashback Mastercard

Credit card example 2: Tangerine Money-Back

Credit card example 3: TD Aeroplan Visa Infinite

Credit card example 4: Amex Cobalt

Resources

Resources

General

• Government of Canada
• Bank of Canada�
• Reddit
• r/PersonalFinanceCanada
• r/CanadianInvestor
• r/ChurningCanada

Investing and related tools

• This list on r/PersonalFinanceCanada
• yahoo! finance
• ca.investing�

Credit cards

• creditcardGenius card comparison tool�

Tuition tax credits info

Think twice about everything you read online!

Glossary

1. Amex: american express
2. CDIC: canada deposit insurance corp.
3. CIPF: canadian investor protection fund
4. EPS: earnings per share
5. ETF: exchange-traded fund
6. FHSA: first home savings account
7. FX: foreign transaction
8. GIC: guaranteed investment certificate
9. HBP: home buyers’ plan
10. HISA: high-interest savings account
11. MER: management expense ratio
12. RRSP: registered retirement savings plan
13. S&P 500: US index
14. SIN: social insurance number
15. TFSA: tax-free savings account

Other common terms not in these slides:

15. CASH.TO: a HISA ETF
16. CC: credit card
17. CPP: canada pension plan
18. CRA: canada revenue agency
19. DCA: dollar-cost averaging
20. EQ: eq bank
21. MC: mastercard
22. OAS: old age security
23. QT: questrade
24. TSX: toronto stock exchange
25. VEQT.TO / VGRO.TO / VFV.TO: ETFs
26. WE: world elite (mastercard)
27. WS: wealthsimple