As the recent federal budget noted, the consensus view of economists is that a shallow recession is coming.
Other personal finance negatives to dwell on include the heavy load of food prices consistently rising at rates of 10 per cent compared with a year ago and high interest rates on mortgages, lines of credit and more. It’s easy to get mired down in all of this bad news because it affects so many daily and monthly financial interactions.
But a few things are going right today in personal finance, and they benefit a wide swathe of the population. In the first of what will be a periodic series in this newsletter, I want to highlight some the positives happening right now:
Wages: The most recent data on wages shows a 5.4 per cent increase in February for average hourly wages compared with a year earlier. Since last November, wages have risen by between 4.5 and 5.8 per cent on a year-over-year basis. The inflation rate in February was 5.2 per cent, which means wages were rising a bit more than the cost of living.
The job market: The unemployment rate in February was 5 per cent, which is extremely low by the standard of the past 50 years. The tight job market helps put upward pressure on wages, and it makes employers more willing to negotiate both pay and benefits with valued employees.
Savings: Interest rates on savings accounts are holding up, even as guaranteed investment certificate rates edge lower. Returns of 3 per cent on savings are still attainable from alternative banks, and you get between 4 and 5 per cent from high interest savings account mutual funds and exchange-traded funds.
Mortgage rates: It’s early to say anything definitive, but we seem to have reached a peak for both variable-rate and fixed-rate mortgage rates. Lower rates aren’t expected until early next year, but at least we can say that things won’t likely get worse for homeowners.
Stocks and bonds: They’re both up after a hellacious 2022, when both were down. That’s not how it’s supposed to work – bonds should rise or hold their ground when stocks fall. Rising interest rates last year hurt bonds badly. Now, financial markets are betting that rate hikes are done.
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Rob’s personal finance reading list
The day of the variable rate mortgage is done
Just 16.7 per cent of mortgages in January had a variable rate, compared with almost 57 per cent a year earlier. No longer do variable-rate mortgages save you a bunch over a fixed rate.
A survival guide for new parents
There’s a money section in this guide from Today’s Parent, and much more on everything from meal planning to losing your temper. Been a few decades since I was in the new parent business, but a lot of this guide hits the mark.
The cheapest electric cars in Canada …
… are not actually that cheap. All vehicles on this list cost between $40,000 and $50,000.
‘Economically, I’m in my 20s’
The New York Times reports on how millennials feel about their finances and their lives as they approach middle age. There’s a lot of angst here, caused in large part by what the article refers to as ‘cascading crises’ – the popping of the dot-com bubble, the Great Recession and the pandemic.
Ask Rob
Q: Registered education savings plan versus nonregistered investment for a newborn grandchild? Contributions would come from grandparents initially and sporadically in future.
A: Some people go with the nonregistered option in case a child does not pursue a postsecondary education. But my take is that RESPs are too good to pass up. RESP contributions of up to $2,500 per year receive a 20-per-cent matching government grant. A guaranteed 20 per cent return, in other words. A broad selection of colleges, universities and professional schools are eligible for RESP use. Here’s a rundown on how money in an RESP is treated if the beneficiary does not attend a postsecondary institution.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Charts of Canadian home prices by city from 1999 to 2023.
The money-free zone
The singer Bria and her band have been working through a series of country rock covers, including a sad-song nugget from the 1970s called See You Later, I’m Gone. The song was originally performed by Robert Lester Folsom on an overlooked album called Ode to a Rainy Day.
Watch this
How does a credit score affect the rest of your finances?
ICYMI
What I’ve been writing about
- These dividend stocks beat inflation two ways
- A trust lesson on banking from a CIBC letter to clients about changes to their GICs
- Federal budget 2023: Grading how it will affect your personal finances
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Is the middle class dead for millennials and Gen Z? • Gas prices are soaring. Are electric vehicles an affordable solution? • Crypto is booming, but should you invest? • How are young Canadians dealing with soaring rents? • Inflation is squeezing our finances. What can we do about it? • Is a hot housing market squeezing Canadians out of their small towns?
- ✔️ The housing file: How bad is housing affordability? Even a crash won't help • Sell the family home to lock in profit and then rent? Better not • Why young adults can't afford houses: Hard work got you more in the past than it does now • Five reasons you should not buy a house till you're at least 30 • Now more than ever, owning a house is not a retirement plan
- 📈 Investing: The 2022 ETF buyer's guide: Best Canadian equity funds • The 2022 Globe and Mail digital broker ranking: Does the zero-commission revolution flip the script on who's best? • With bonds sinking, conservative investors are waking up to risks they never saw coming • A five-step plan for dealing with the sad fact that almost every investment is falling lately • The best financial advice in advance of retirement? Work on your marriage • One-year GICs are the best deal in town for safety seekers • What to do if the financial plan you paid thousands for disappoints
- 💰 Your money: Are you prepared for the pandemic wealth boom to blow up in our faces? • This hard-working 24-year-old is nailing it financially. But where’s the happiness? • Who should and shouldn’t worry about the wave of rate increases this year, and what every stressed-out borrower should do right now • Don’t make this potentially costly assumption about the CPP Survivor’s pension