Financial Literacy in Canada
Understanding Personal Finance is the need of the hour. Not only understanding, but thorough implementation and learning is required, to implement it effectively in real life. Most of the Canadian population lacks financial literacy. They need to be trained at the right time such that they are able to set out personal objectives and are able to take their decisions, based on the present circumstances. It will help them from not getting cheated and will keep their finances safe. For this a radical change is required throughout the country. It can be achieved with the Federal government and several NGO organizations joining hands together and working in this sector. They can start with educating the people the about the need of it and can teach them ways of handling the personal finance, its planning and execution. Voluntary self-education is difficult and hence the need arises to motivate them through some incentive, which can be rewards and awards in various forms. People need to be educated about the “budget” and how to use it in the personal life such that people use the limited resources available with them in an effective way. Moreover, they should be trained at young age only so that with passing age, they are able to plan better for their post retirement and hence are not dependent on others for finances. Also, most of the population is unaware of what exactly “insurance” is all about; they need to be made aware of the same. Moreover, it is the responsibility of the government to bring the information to the people from the trusted sources in order to improve the financial and economic status of the individuals. Besides this, every other situation or the transaction has a concept of trade off or opportunity cost involved. They need to well-trained about these terms so that they make the right choices. It is thus important that people apply efforts from their end to understand the situation and puts in their own efforts and the government needs to provide the necessary guidance as and when needed.
Debt and Taxes: Answer to Question 3
There have been a large number of people being subject to the tax scams these days in Canada via an email message or a fake phone call. The foremost reason for being cheated is the unawareness and lack of the subject knowledge on the taxation front. They are generally fraudsters impersonating themselves to be from Canada Revenue Agency and will either be using the link to be clicked by the user to pay the balance tax or there would be calls from unknown numbers to share the private banking or credit card information in order to complete the yearly tax filing procedure. Here is few ways to protect you:
- CRA never asks for the personal data via a phone call or an email link, there would be proper communication via the letter. So people should take note of the same and try not to fall prey to such calls.
- They would never demand the penalty or the left over tax in the form of gift cards, or goods or exactly credit card.
- They would never inquire the Social Insurance Number. It is a private number and is not needed by the CRA agents when it comes to tax filling.
- There would be a confirmation window for the present tax status before further tax payment is asked for. So the users must look for the validity of the same and then take important decision to pay.
- In case inadvertently the bank account information is shared over the mail to a suspicious recipient, the person should take help of the bank to block his/her account so that the access is restricted. This will help in keeping the account safe and also help the government in getting hold of these fake imperators.
Fiscal Goals: Answer to Question 4
Once a major investment or expenditure is to be incurred, planning is a pre requisite. It is important to properly plan all the things, beforehand so that the results are effective and as per the required standards. There can be multiple investments examples from real life, like investment for a course, buying a new house or a major capital expenditure for the business. A lot of money is needed for any of such activity. Thus it is important that before investing the same, proper planning must be done to avoid discrepancies. The aim should be to make the most profitable investment that will help in getting the best results. An illustrative example of such plan is earmarked below:
- A statement of goal: A machinery is to be purchased for use in business, the same is to be imported from outside Canada and a down payment of 50% of the total cost is required to be made upfront. The same can be paid through Letter of Credit or direct wire transfer. A cost benefit analysis needs to be done.
- Expected cost of purchase: The machinery will cost at around CAD 200,000 out of which a total of CAD 100,000 will needs to be paid as advance through the bank.
- Savings plan with the estimates and expected rate of return:The expected rate of return from the project investment is expected to be 20-22% over the period of 5 years from initial investment. The investment will break even in the 3rd year using the estimated discounted rate of 10%. Since this is an integral investment to the whole project, it will results in economies of scale and the productivity and the revenue will increase on account of it. The rest 50% of the amount is to be paid in the equal installment amount over the time horizon of next 3 years. In the calculation attached below, it has been assumed that the machinery will depreciate at the rate of 20% for 5 years on a straight line basis.
- Adaptation Strategies: There might be several challenges and changes in technological arena which might breakthrough in the coming 3-5 years but to negotiate with the same, it has been agreed by the vendor to add a specification to the machine to increase its efficiency at 50% discount over the coming period. Moreover, in case the machinery as a whole needs to be replaced, the company will be paying 60% of the book value at that time.
Answer to Question 5
Retirement is inevitable in a salaried person’s life and it has to be planned really well in advance in order to avoid future contingencies and risks. The retirement strategy needs to be planned ideally at the age of 25-30 years and a planned investment is needed to yield the best return. Considering the investment avenues & the best rates available in the Canadian market, following is the proposed proposition to save for retirement:
- I am planning to retire at around 55-58 years, this would be the ideal time because the family would be well established and the public policy on retirement would also be in effect at that time as per the law. In case I retire anytime before that, I would like to move towards social service and make a step ahead in the personal handicraft works, which needs minimal investment but would require skilled hands and marketing. In this way I will keep myself occupied and will also retain that sense of independence.
- Estimation of the financial needs and expenses post retirement: On the outset, the basic requirements can be fulfilled in approximately CAD 500, other social requirements may vary from CAD 200-300, besides all this, and there may be an ad requirement like medical expenses, one time expenditure which again may be tune of CAD 200-300. To plan other personal business, a short term investment of CAD 1000-2000 may be required to open the start up. Since, everything would be specifically machine made, investment in machinery would be required and there would be less of lab our costs.
- Savings plan with estimated rate of return: To yield a good return, a pre facto analysis was done and basis that I have invested in the social security scheme and also in pension funds which are expected to grow at 4-5% annually and will be sufficient to cater the needs of CAD 1200-1250 post retirement on a monthly basis. Besides this, in case, there is any casualty to me, the same will be assigned to my nominee for their future. To cover the additional fund requirements, investments halve also been made in fixed deposits which are expected to grow at the rate of 2% annually on the average basis.
A detailed calculation of the entire working is shown in the below table:
Class and Pedagogy: Answer to Question 7
The course and the sessions imparted on the personal financing front have been and will be ultra essential. The fact that the present has huge arena of investment avenues, in the professional world makes it much more essential. Major teachings and learning has been undertaken in the course, to make use of planning and forecasting strategies in order to reap the maximum returns with minimal risks. To plan well, the knowledge on the subject is necessary as well as a good research on the topic.
Also, it has helped to get some insights into the taxation front, in order to how adequate guard needs to be insured to avoid fraudsters and prevent oneself from being cheated. Not only personal knowledge is essential, but to create awareness in order to prevent others from being deceived or defrauded is essential. Besides all this, this course has given helped some investments strategies and how to do pre facto analysis that by what period the initial investment would be recovered, what would be the breakeven point, what would be ROI and the final profits. It has given lessons of planning the debts well in order to avoid crisis, this can be done by paying the installments bi-monthly rather than monthly, avoiding the purchases which are based on option of “buy today, pay later” and interest free loans as it always increases the liability. Also, negotiation skills play a great deal in major investments as it needs to be on par to get the maximum benefit out of the financial situation.
All in all, this course is explicitly aimed at achieving the maximum results out of the minimum available resources and the same can be achieved with aggressive planning and accurate execution.
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