• TSX -84.39
• DOW -17.24
• Dollar -.19c to 94.52cUS
• Oil -$1.54 to $76.02US per barrel.
• Gold +$1.20 to $1,165.50USD per ounce Gold prices extended their record run hitting another new all time high
How many credit cards should you have?
by Michelle Warren, Bankrate.com
When banks introduced Canada's first credit card, Chargex, in 1968, it was designed as a convenient tool for their most valued customers. Today's creditors have a more egalitarian approach — it seems that if you have a pulse, you can have a credit card.
But why stop at one? According to Statistics Canada, there are 3.1 credit cards in circulation for every Canadian over the age of 18 — that's 74 million cards.
According to Laurie Campbell, program manager for the Credit Counselling Service of Toronto, it's not uncommon for people to carry eight or 10 cards and a debt load of $30,000 or more. "The biggest problem we see is overspending with credit cards," she says. "There is a direct correlation between debt and the amount of credit cards you have."
Canadians charged more than $170 billion to Visa and MasterCard in 2004, compared to $39 billion in 1990, according to Statistics Canada.
"People don't see it as real money and that leads to impulse spending," says Campbell. Indeed, studies show the average person spends 112 percent more on a credit card than he would if using cash.
As a result, people are living beyond their means. As many as 50 percent of credit card users don't pay their balance each month, opting instead to carry debt and pay interest ranging from a 1.9 percent introductory rate to almost 30 percent on some retail cards.
Credit flux
"We don't recommend consumers carry a balance," says Scott Hannah, executive director of the Credit Counselling Society in Vancouver, B.C. Sometimes, however, it's unavoidable when essential expenses arise, such as auto repairs. The key is recognizing the difference between a want and a need. "Easy and quick access to credit really obscures thinking," he says.
Credit has never been more accessible. With more than 600 institutions issuing Visa and MasterCard cards, add to that the retail card market (24 million in circulation), and it's easy to see why wallets are bulging with plastic. In 2003, Canadians received 191.7 million credit-card offers — about six for each person — according to market research firm Mail Monitor.
It's a competitive market and credit card companies profit from interest and user fees. These days, juggling more than one card or carrying a balance is made easier because a standard minimum monthly payment is as low as two percent, whereas it used to be 5 percent. But remember, if you owe $5,000 at 18 percent interest and pay only the minimum each month, it will take about 30 years to pay off the card (that's if you never use it again).
"People can carry a lot more debt," Hannah says. "It's easier to spend, but harder to pay back."
The perks of credit
On the flip side, credit cards are hugely convenient and by today's standards, a necessity — you can't even rent a movie without one. With more transactions taking place on the Internet, a credit card is handy for finding deals on books or flights. Some cards also have benefits, such as travel insurance, member discounts or points programs.
Retail cards, while charging interest in the 24 to 28 percent range, offer lucrative reward programs and discounts. It's OK to take advantage of such perks, but Campbell cautions there's no real benefit if you carry a balance.
"It may make sense to have a credit card for a favourite retailer," says Hannah, but not one for every store you shop at.
The magic number
Experts agree that in most cases one card is enough.
It used to be that some outlets only accepted one type of card, so it made sense to have a Visa, MasterCard and maybe an American Express, but those days are over. "If you have an all-purpose card, 99 percent of the time you're going to be able to use that card," says Campbell.
Hannah seconds the one-card rule, but he recommends keeping business expenditures separate with two cards.
Christine McDonald, a spokeswoman for the Financial Consumer Agency of Canada, says the key is "making sure you use the credit you have wisely." She warns juggling too many cards makes it harder to keep track of spending and payments and hurts your credit score.
One's credit rating is based largely on credit outstanding, but how much credit you have at your disposal is also considered. Even if there's nothing owing, just having cards can influence lenders when it comes to granting a mortgage. Several credit cards indicate the potential to get in over your head fast.
Credit cards do help establish a credit history, but Campbell says "people don't need more than one to build up their credit rating."
Choosing a card
It's important to choose the right card. As a general rule, those who carry a balance are better off paying a small annual fee for a low-interest-rate card, while those who pay in full each month may opt for a standard higher-rate card.
Cutting credit
When credit card spending is out of control, the best thing to do is cut up the cards and pay down debt. For some people it makes sense to consolidate debt with a lower-interest line of credit. Otherwise, Campbell recommends paying off the card with the highest rate of interest first. A credit counsellor can help explore the options. Once the debt is paid, contact the issuer and close the account.
Credit cards are two-faced — they're convenient and come with plenty of perks, but can lead to trouble if you overspend or juggle multiple cards. One, perhaps, two, is all most people need — anything more is playing with fire.
Wednesday, November 25, 2009
Financial Update For Nov. 24, 2009
TSX +44.69 to 11,624.02 touching its highest level in nearly 14 months as an early rally in oil prices powered energy stocks, while financials gained ground ahead of a flood of bank earnings reports.
• DOW +132.79
• Dollar +1.24c to 94.71US
• Oil +$0.09 to $77.56US per barrel.
• Gold +$5 to $1,164.70USD per ounce Gold prices extended their record run hitting a new all time high
BMO Financial Group, the first of Canada's banks to report its fourth quarter results, posted a 16% increase in profit Tuesday led by its personal and commercial banking segment.
Canadians can't shop their way to recovery, say economists
Paul Vieira, Financial Post
OTTAWA -- The robust retail data for September suggest domestic consumption was strong enough to help Canada post positive growth for the third quarter and, technically, pull the country out of a recession.
But a strong broad-based recovery - the type warranted following the depth of this recession - is not in the cards, at least for now, analysts warn, as the surging loonie and tepid U.S. household demand hold the Canadian economy back.
Consumer spending, in fact, may be the only thing going for the Canadian economy at this point - and even then it shouldn't come as much of a surprise given record-low interest rates, and the relative health of the Canadian housing and banking sectors vis-à-vis the United States.
There is certainly no denying the strength of the retail data, released Monday. Sales grew 1% month over month in September, Statistics Canada reported, following a similar, and upwardly revised, finding for August. Overall, it was the seventh monthly gain in the past nine months, and results in an annualized increase of 5.2% for the quarter. Consumer spending makes up roughly 60% of the Canadian economy.
"Right now, that's all there is" in the Canadian economy, said Carlos Leitao, chief economist at Montreal's Laurentian Bank Securities. "What is keeping the economy afloat is domestic demand. It can go for a while, but not forever. It's not sustainable."
Mr. Leitao added some of the retail surge in Canada may be due to households opting to open their wallets after fearing they were headed for a worst-case depression scenario.
However, in a note to clients, Laurentian Bank warned Canadian households continue to accumulate debt amid meagre income growth, and remain vulnerable to future economic shocks, such as sudden rate hikes or tax increases. Further concern emerged in insolvency data from last week, which suggested personal bankruptcies ramped up considerably in the third quarter - a sign that domestic consumption has its limits.
Douglas Porter, deputy chief economist at BMO Capital Markets, said some contribution from the trade-oriented sector is required to secure growth.
"We need some kind of recovery in exports and manufacturing, even if it is feeble, for a broad-based recovery. Domestic spending has been enough to end the recession. But it will not be enough to start a recovery."
For now, the September retail data, combined with gains in the month for manufacturing and wholesale sales, likely point to economic expansion for the final month of the third quarter, after July and August posted flat to negative growth. Economists, such as those at Royal Bank of Canada, now project GDP to expand anywhere from 0.5% to 1% for the three-month period ended Sept. 30 - well below most expectations for the period, including the 2% growth envisaged by the Bank of Canada.
Any hope for stronger growth won't materialize, Mr. Porter said, until there is evidence that the U.S. economy has "broken free from the shackles of its recession." The U.S. economy grew by an estimated 3.5% in the third quarter, but analysts argue the growth was "artificial" because it was spurred by government stimulus schemes, such as the cash-for-clunkers.
Meanwhile, the strong dollar, which gained more than US1¢ Monday, means manufactured goods are more expensive for U.S. consumers. But it also means lower prices for imports and that might be skewing the retail data, said Peter Hall, chief economist at Crown financier Export Development Canada. "That might be benefiting [domestic] consumption right now."
Should the Canadian dollar remain at current levels a year from now, Mr. Hall warned that could shave up to 3% from the country's bottom-line GDP. "That's pretty staggering."
• DOW +132.79
• Dollar +1.24c to 94.71US
• Oil +$0.09 to $77.56US per barrel.
• Gold +$5 to $1,164.70USD per ounce Gold prices extended their record run hitting a new all time high
BMO Financial Group, the first of Canada's banks to report its fourth quarter results, posted a 16% increase in profit Tuesday led by its personal and commercial banking segment.
Canadians can't shop their way to recovery, say economists
Paul Vieira, Financial Post
OTTAWA -- The robust retail data for September suggest domestic consumption was strong enough to help Canada post positive growth for the third quarter and, technically, pull the country out of a recession.
But a strong broad-based recovery - the type warranted following the depth of this recession - is not in the cards, at least for now, analysts warn, as the surging loonie and tepid U.S. household demand hold the Canadian economy back.
Consumer spending, in fact, may be the only thing going for the Canadian economy at this point - and even then it shouldn't come as much of a surprise given record-low interest rates, and the relative health of the Canadian housing and banking sectors vis-à-vis the United States.
There is certainly no denying the strength of the retail data, released Monday. Sales grew 1% month over month in September, Statistics Canada reported, following a similar, and upwardly revised, finding for August. Overall, it was the seventh monthly gain in the past nine months, and results in an annualized increase of 5.2% for the quarter. Consumer spending makes up roughly 60% of the Canadian economy.
"Right now, that's all there is" in the Canadian economy, said Carlos Leitao, chief economist at Montreal's Laurentian Bank Securities. "What is keeping the economy afloat is domestic demand. It can go for a while, but not forever. It's not sustainable."
Mr. Leitao added some of the retail surge in Canada may be due to households opting to open their wallets after fearing they were headed for a worst-case depression scenario.
However, in a note to clients, Laurentian Bank warned Canadian households continue to accumulate debt amid meagre income growth, and remain vulnerable to future economic shocks, such as sudden rate hikes or tax increases. Further concern emerged in insolvency data from last week, which suggested personal bankruptcies ramped up considerably in the third quarter - a sign that domestic consumption has its limits.
Douglas Porter, deputy chief economist at BMO Capital Markets, said some contribution from the trade-oriented sector is required to secure growth.
"We need some kind of recovery in exports and manufacturing, even if it is feeble, for a broad-based recovery. Domestic spending has been enough to end the recession. But it will not be enough to start a recovery."
For now, the September retail data, combined with gains in the month for manufacturing and wholesale sales, likely point to economic expansion for the final month of the third quarter, after July and August posted flat to negative growth. Economists, such as those at Royal Bank of Canada, now project GDP to expand anywhere from 0.5% to 1% for the three-month period ended Sept. 30 - well below most expectations for the period, including the 2% growth envisaged by the Bank of Canada.
Any hope for stronger growth won't materialize, Mr. Porter said, until there is evidence that the U.S. economy has "broken free from the shackles of its recession." The U.S. economy grew by an estimated 3.5% in the third quarter, but analysts argue the growth was "artificial" because it was spurred by government stimulus schemes, such as the cash-for-clunkers.
Meanwhile, the strong dollar, which gained more than US1¢ Monday, means manufactured goods are more expensive for U.S. consumers. But it also means lower prices for imports and that might be skewing the retail data, said Peter Hall, chief economist at Crown financier Export Development Canada. "That might be benefiting [domestic] consumption right now."
Should the Canadian dollar remain at current levels a year from now, Mr. Hall warned that could shave up to 3% from the country's bottom-line GDP. "That's pretty staggering."
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