The above article points to Canadian citizens in a difficult situation as pressures on their finances build more, which may worsen following the Canadian Bank’s increased rates. This article enlightens on the criticality of this situation as many Canadians are likely to declare bankruptcy and abandon plans for saving due to the Bank of Canada’s hiked rates. The article piques my interest because it aligns with the business principle of a personal financial plan.
Personal financial plan
For a person to run away and prevent pressures on their financial state, it is a requirement that they have an elaborate plan based on the significant four stones relating to personal finance. No matter how wealthy, what a big business, or more incredible net worth individuals possess, failure to plan finances is attracting financial shortcomings. Understanding one’s liabilities, income, assets, and expenses is essential.
Assets
What a person owns and does not own are vital determinants of one’s financial standing (Lusardi, 2015). A person’s net worth is the difference between an asset and a liability. Equilibrium achieved between these two leads to a healthy financial state and eases the pressures. A Canadian citizen’s worth is arrived after excluding their mortgages, debts from credit cards, vehicle loans, and credit Home equity lines of credit debts(HELOCs) (Lusardi, 2015).
Liabilities
Being indebted is not bad sometimes, but many must learn how to manage financial borrowings. Liabilities are financial obligations to others, including mortgages, HELOCs, student loans, vehicle loans, and loans on credit cards (Lusardi, 2015). Financial struggles become our nightmares if we fail to work on reducing our debts, exhausting the little savings we have. This article says that Canadians are struggling on different financial fronts as they have lived out of their savings, meaning more liabilities increase after the Canadian Bank interest goes up by 5 % (Lusardi, 2015). Economic recession leads to heightened levels of Canada’s liabilities.
Incomes
Money earned daily in one’s wallet augments a long-term financial state of health. Increased income means continued liability reduction and increased assets. According to Lusardi (2015), about 30.5% of Canadians have mortgages, which means they have to work on daily income to reduce their debt and increase their assets.
Expenses
Daily expenditure can not be averted; thus, the poorest have to use a dollar or a few dollars to keep them going. Balancing between daily expenditure and income calls for reduced expenditure to save a portion of daily earnings for the future (Killins, 2023). The economic recession has forced the Canadians to push savings as the last priority, having exhausted it. The polls found that only a small portion of younger Canadians indicated an improved financial condition, while the rest termed it worse than before (Killins, 2023).
Other factors act as players, so Canadians find themselves in financial constraints without an effective personal financial plan. These factors include Canadian Bank interest hikes, inflation rates, and taxes on financial decisions.
Canadian Bank interest hikes
Many of Canada’s citizens have different types of debts, and a rise in the interest rates by Canada’s banks has culminated in more financial pressures. For citizens holding variable mortgage rates, their monthly payments will shoot up (Andrews, 2023). Consequently, it also increases when renewed by those who have fixed rates. Citizens with owned businesses can not access loans and credits at affordable prices; thus, their businesses will corrupt, exacerbating financial pressures. A study by Andrews (2023) indicated that 11% thought about their potential for bankruptcy, rising by 2% of those surveyed that previous year.
Inflation rates
Increased prices of goods and services significantly affect the Canadian economy. Despite its rise in 2021, the citizens tried to tolerate it until it lowered from 8 to 3.1% in 2023 (Andrews, 2023). Inflation reduces the ability of customers to purchase goods, which, as a result, leads to little income for businesses and service providers. Fewer Canadian citizens indicated that their financial situation stagnated at 60% below 65% experienced the year before, as reported by (Financial Post, 2023). The poll also showed that 33% of the dependent Canadian workforce pointed to a financial decrease in June compared to May. About 29% of those above 55 years said their financial health had deteriorated (Financial Post, 2023).
Canadians personal taxes
In 2023, Surtax was increased from 13% to 20 % above taxable goods and services. Goods and services tax increased from 7% to 8% (Financial Post, 2023). 2023 Canadians will pay $15,000, up from $14,000 in 2022 (Statistics Canada, 2023). With the rise in taxes, Canadians must formulate new financial plans to cater for the deficits incurred.
Implications for business and course concept
Consumers
When Canadian citizens are caught between complex financial states, they cannot respond to their financial needs. Raised personal taxes by the government leave no funds available for saving; thus, citizens under a mortgage can not pay off their debts, resulting in insolvency (Statistics Canada, 2023).
Business
They hiked interest rates by the Canadian Bank to limit access to loans and credit facilities. Those who owe debts pay high interest for mortgages and other loans, increasing their liabilities. Businesses are affected due to a need for more investment (Statistics Canada, 2023).
Investors
It is an advantage for the bank, mortgage managers, and depositors because hiked rates on interest lead to higher profits. Consequently, new investors cannot start ventures because of inaccessible credits and empty accounts (Lusardi, 2015).
Critical analysis and course concept
A punchline
It is always thought that being in debt was a bad idea. Surprisingly, I have learned that taking a lone to provide a roof over one’s family is okay. Approximately a third of Canadian citizens` houses, vehicles, and businesses are under mortgage anyway.
Comparison of personal and business decisions
A business, venture, or any type of investment is majorly determined by a personal decision over one’s finances (Lusardi, 2015). Those who plan well on their assets and daily income develop a potential for creating new business ventures, a pathway to attaining financial health. If not monitored well, liabilities and expenses entrap a person envisaged for future investment due to failure to plan. Despite the banks’ interest hikes, personal taxes, and inflation rates, an envisioned young person can still record positive financial improvement, as a few younger Canadians indicated they improved their finances (Financial Post, 2023).
Conclusion
“Failure to plan is planning to fail.” A discriminated financial plan exposes one to their current financial situation and can provide a picture of future net worth. Monitoring liabilities and expenses is critical to achieving financial stability. The analysis has sliced on personal financial plans, inflation rates, and personal taxes being possible cause of the current financial pressure on Canada citizens. It has also discussed the implication and critical analysis of personal decisions parallel business success.
References
Andrews, J. (2023). Escaping to Canada: Gambling on northern salvation in Stewart O’Nan’s the odds. Canada Through American Eyes, 141-172. https://doi.org/10.1007/978-3-031-22120-0_6
FINANCIAL POST. (2023, July 11). Financial pressure building on several fronts for Canadians, poll finds, as Bank of Canada hikes rates. financialpost. https://financialpost.com/news/economy/canadians-financial-pressures-bank-of-canada-decision
Killins, R. (2023). Financial literacy of Generation Y and the influence that personality traits have on financial knowledge. Financial Services Review, 26(2), 143-165. https://doi.org/10.61190/fsr.v26i2.3305
Lusardi, A. (2015). Financial literacy skills for the 21st century: Evidence from <scp>PISA</scp>. Journal of Consumer Affairs, 49(3), 639-659. https://doi.org/10.1111/joca.12099
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