Finances

Money can be simple, but it can also be confusing; there’s so much to know! As students, we discovered we didn’t have enough answers to our questions, so we got to work. We've worked hard to compile some information that should provide a brief understanding of our three topics (Taxes, Credit, and Choosing a Banking Institution), and gathered some resources for you to gain a deeper understanding of how to manage money effectively.

Taxes

“In Canada, the federal, provincial and municipal governments collect money from individuals and companies to help pay for government programs and services, such as roads, public utilities, schools, health care, economic development and cultural activities.” settlement.org

Income Taxes

  • Income taxes are a portion of your paycheque that are given to the government to pay for public services. The amount that you pay is based off of how much you make per year, and the amount you make that can be put towards taxes is called taxable income.

  • Each person in Canada pays a consistent federal income tax, on top of a provincial income tax, which varies from province to province. The Government of Canada offers calculators to determine how much tax you pay based off of your income.

  • Taxes are paid automatically by your employer on your behalf. Every year in the spring, you can access forms to ensure your employer paid the correct amount, consistent to the rates of the government. You can also apply any credits or deductions.

  • You can pay any additional owing taxes through an online program (some may be free, some may require payment), which requires you to have an account with the CRA (Canadian Revenue Agency). You can also visit a local post office for paper forms and tax instructions, which you can then mail in.

Sales Tax

  • There are also sales tax (GST, PST and/or HST) that applies to products or services purchased in a retail setting.

  • Sales tax rates are different across the provinces; however, all provinces have a base federal tax rate (GST) of 5%. Some products and services may be exempt from some or all sales tax (such as groceries), but it varies from province to province).

    • Some provinces, like Saskatchewan, have a 6% PST (provincial sales tax) on top of the 5% GST (general sales tax), bringing their total sales tax rate to 11%.

    • The province of Manitoba chose to rename their PST to RST (retail sales tax).

    • The province of Quebec chose to rename their PST to QST (Quebec sales tax).

    • Some provinces, like Ontario, choose to charge HST (harmonized sales tax) instead of both GST and PST together. HST is just another way of saying the 5% GST plus whatever the PST is. It is called something different because the process for redistributing that money is different.

    • Alberta does not have an HST nor PST, so we only pay the standard GST amount (5%) on our purchases. Alberta is the only province in Canada without additional sales tax.

  • Sales tax is independent from Income Tax, as it is only paid at the time of purchasing a good or service. However, the government has programs which offers refunds on sales tax to certain groups of people for certain purchases, which would be classified as a tax deduction under your Income Tax.

Property Taxes

  • Property Taxes are taxes instituted by municipalities. They vary from place to place, and help pay for city services such as trash collection, recreation centres and transit systems. Property taxes are paid as a certain percentage of the worth of your property every year (as determined by your municipality). For more information on property taxes, visit your city, town or county's website.

Choosing a Banking Institution 101

Choosing a banking institution can be scary and exciting. Whether you already have a bank account or planning on opening one, here are some tips you should know as a student before opening an account.

  • Know what you want your bank to do for you.

    • For example, do you need something convenient like an account that comes with a banking app? It's important to know your banking needs and what your goals are in the future when it comes to money.

  • Overdraft: Depending on your bank, some will offer overdrafts which are loans with no interest for students. It is smart to plan ahead on overdrafts even if you are not planning to use them right away. It is also smart to see what is "guaranteed." Although overdrafts are interest-free loans, it’s important to know that it’s money you don’t have at the moment and needs to be paid back eventually.

  • A common mistake made is opening a bank account if they offer free items for signing up. For example, some banks offer free tablets. Be smart for the future, not just for the moment.

  • Another common mistake made is that most people only have one banking account. There is no limit to the bank accounts you can have. It's important to "be smart, not loyal". That means you can have different accounts for different means like savings, overdrafts, etc.

  • While online banking can be convenient and efficient, it is also important to choose a bank that has a branch near you. This will make meeting up with banking advisors easier and you can also have access to ATMs that will not charge you for taking out cash when needed.

Table: Transaction during last visit

Source: J.D. Power 2017 Retail Banking Satisfaction Study

  • Also, it is a good idea to see all the terms and conditions when it comes to opening a bank account. The fine print is important to focus on, as it provides details like fees that need to be paid, or whether you can access other banking institutions' ATMs without charge. They may seem small at first, but little fees can add up quickly so it is important to be smart and not lazy.

  • Another feature to look out for is whether your bank is covered by CDIC (Canada Deposit Insurance Corporation) which is an insurance corporation that covers up to $100,000 per category if your bank ever shuts down. There are many members included in the CDIC like TD Bank.

  • It's also smart to be with a bank that lets you have unlimited methods and transactions. The last thing you need to stress out about is how many transactions you are able to make on top of your spending/savings as well.

  • Some banks also have a minimum balance required in your account. This is something you will want to avoid because this means this money will be locked up and earn no interest. Ensure you are aware of all the features of your bank account, including minimum balances.

Credit Card Information

Credit is something that everyone has, but not everyone understands. It impacts you at all stages of your life, as you will need it for getting an apartment/house, a phone contract, and student loans. Having low credit can take away opportunities because it reflects on your dependability.

To put it in simple terms, credit is borrowed money that you can use to pay for things, with an agreement to pay back the company you borrowed it from. A credit card allows one to borrow money from the bank in the short-term to make purchases. Like all borrowed money, it must be paid back. Debt from credit cards is intended to be paid back quickly, or you risk gaining interest (more money on top of the money you already owe to the bank).

Credit Card Tips

  • Don’t treat it as money you don’t have, or money you don’t think you’ll have. You need to be sure that you’ll be able to pay it off, or you will be charged with interest.

  • Be aware of what you can handle; if you don’t think you can stay safe and stable, be cautious and know your limits. Remember, credit is not cash or a cash substitute.

  • When payment time comes around (once a month), it will be up to you to pay back the money you spent on the credit card. If you don’t pay it back in full, the money you owe is charged with interest that adds up the longer you don’t pay for it. The interest rate you’re charged depends on the banking institution you bank with and the credit card you choose. By missing a payment, you mess with your credit score, which means higher interest rates, which means more money being paid. By paying on time, you’re saving money in the long run by avoiding high-interest rates.

  • You can also build credit with someone to start you up. For example, you can choose to co-sign with a parent on an apartment lease, which allows you to build your credit score, and gives the renter some assurance (as it shows your parent as dependable). If you don’t have credit, you can also apply to get a credit card aimed at new users, such as a secured or student credit card

Credit Score

  • A credit score is basically a number between 300 and 850 that represents your dependability and shows potential lenders your level of risk. 670-739 is a good score, and anything above 740 will get you the best interest rates. A good score encourages lenders to loan you money and shows that you’re a safe person to lend money to. You’ll need a good credit score to make larger purchases (house, apartment, etc.).

  • Don’t use all of your available credit. Most resources recommend using 30% or less of your available credit as a good way to build your credit score. For example, say you have a card with $1000 in available credit.; you should be spending no more than $300 on that card. If you need to spend more money, it’s better to have two credit cards, each of $1000, and only spend $300 on each than to spend $600 on the one.

  • A credit report is a history of your financial life and includes missed payments. Make sure to check your credit reports, as mistakes are possible. This ensures your score is accurate and that you get the financial benefits you deserve.

  • You are allowed two free credit reports annually, from the big credit bureaus Equifax Canada, and TransUnion Canada. There are many applications and websites that allow you to check your credit score, such as Credit Karma. Be sure to read the terms and conditions of the application you use to check your credit score, as some have been known to dock points off your score the more you check it.