Monday, September 30, 2013

Banks are changing with the times to compete for new clients, keep old ones

Linda Nguyen, The Canadian Press | Customers at North Shore Credit Union branches in British Columbia are greeted by a concierge, presented with a hot towel and invited to sit and sip a latte while doing their banking.
This type of environment — complete with spa music and paintings of the West Coast mountains adorning the walls — is the future of banking, according to North Shore chief executive Chris Cartliff.
"Our research was showing that clients perceive the process at financial institutions, of going through a financial plan and an annual checkup, much like they did going to a dentist," he said from Vancouver.
So the credit union took it upon itself to transform nearly all of its 12 branches scattered across the province into "financial spas."
It's an unconventional approach but, in an industry where many of the services on offer are similar, financial institutions are under pressure to find ways to attract new customers or entice them away from the competition.
The banking industry has always been big business in Canada. Last month, the country's largest banks — Royal Bank, TD Bank, Scotiabank, CIBC and Bank of Montreal — reported combined profits of $7.63 billion in their third-quarter, a small slip from $7.8 billion in the same period a year earlier.
Their effort to gain the attention, and the accounts, of Canadians, range from improving mobile services to dropping banking fees.
Scotiabank (TSX:BNS.TO - News) recently renovated its branch at Yorkdale Mall in Toronto by equipping it with state of the art ABMs, issuing digital brochures and creating a more open concept environment for advisers to work with customers.
"It's increasingly more competitive and customers are looking for a value exchange. They know their business is valuable so banks and financial services providers need to compete hard for it," said John Doig, Scotia's senior vice-president and chief marketing officer.
Bank of Montreal (TSX:BMO.TO - News) is experimenting with "micro" branches in neighbourhoods that can't accommodate a full-sized branch. Many of the locations are in high-density areas, such as the lower level of condominium buildings.
Royal Bank (TSX:RY.TO - News), which takes a different approach than North Shore, says its investment advisers are often on the road.
"Customers want to be financially savvy, not sit down to spa music," said David McKay, group head of personal and commercial banking at RBC.
"Our belief is that you shouldn't make customers come to you, we go to them," he said. "(Advisers will) meet you in your office, they'll meet you at home, they'll meet you at Starbucks, or they'll meet you in one of our branches if that's most comfortable and convenient for you."
The head of President's Choice Financial, owned by Loblaw Companies Ltd. (TSX:L), says its customers sign up for the no-fee banking.
"It's not a question about why would you go the competition? It's a question of, why would the competition's customers not come to us," said Barry Columb, president of PC Financial. "There is a choice. There is an alternative to bank fees."
Tom Dyck, executive vice-president of branch banking at TD Canada Trust (TSX:TD.TO - News), says it's the customers who determine what services the banks provide.
"Banking has always been competitive as an industry. But, as you look through the economic changes that happened in 2008, it really confirmed to banks, not just in Canada, but globally, that retail banking is the bread and butter of their franchises," said Dyck.
And the core needs of customers will largely remain the same, said Larry Tomei, a senior vice-president of retail banking at CIBC (TSX:CM.TO - News).
"People still want and are looking for two things: access and advice," he said.
Meanwhile, at North Shore Credit Union, Cartliff said he would consider adding massages to his list of offerings.
He believes the financial spa concept is catching on. This week, the institution that began as a co-operative in 1941 by a group of blue-collar workers in Vancouver, will officially rebrand itself as BlueShore Financial, to reflect its current clientele of mostly affluent, white-collar workers.
"When people walk into our spas, they don't believe it's a branch bank and they often open their mouths and go 'Wow,'" he said.
"Is there really anything more differentiating than that?"

Thursday, September 26, 2013

How analyzing economic trends will help save you money

Lewis Humphries | Investopedia – Thu, 19 Sep, 2013
In the diverse and challenging world of the foreign exchange, there is an investment method commonly referred to as "forex news trading." Encouraging traders to rely on news releases and economic data trends, it is an exceptionally popular method, as global events are often a catalyst for short-term movements in the financial market
Ordinary investors may well want to employ the same methods used by forex traders glued to their trading screens. If individuals in the U.S. want to take strict control of their finances and avoid the issues posed by long-term cyclical debt, for example, they may need to follow economic news trends and learn how to use them in the quest to both save and make money. With nearly real-time news now available over the internet, it's simple to follow fluctuations in regularly released data.
Inflation and Unemployment: The Key Consumer Economic Date Trends
In terms of understanding economic data trends and using them to your advantage, inflation and unemployment represent two of the most important economic factors, as they highlight the general cost of living and the status of the constantly evolving labor market. While inflation is defined as a general increase in prices and a fall in the purchasing value of money, for example, labor market statistics can reveal the national rate of employment and the financial prospects for job seekers throughout the country.
When it comes to managing your finances, it is important to be proactive and understand how these factors work in tandem with one another. If you take the current economic situation in the U.S., for example, you will see that the cost of living climbed steadily for three months between May and July. While the unemployment rate has also fallen to just 7.4% during this time, economists have suggested that this rate of job growth has been distorted by the creation of part-time work in low-wage industries. This has forced White House policymakers to monitor the sustained rise in inflation carefully, as a situation where the cost of living continues to rise disproportionately to the national wage could cause a significant downturn in the economic fortunes of U.S. residents.
As a homeowner or consumer you may need to monitor these trends. Regardless of whether or not you have a job, it is crucial to budget your income and determine how much disposable cash you have available each month. Use resources such as the U.S. Inflation Calculator to view monthly rates and identify any prominent trends. In instances where inflation is rising out of proportion to your level of disposable income, you could choose to adopt a more conservative approach to spending and borrowing.
Interest Rates: Diminishing Debt and Irresponsible Borrowing
On a similar note, consumers who are looking to manage their finances must understand the nature and importance of interest rates. As consumer confidence soared between March and June, borrowing also increased heavily in the real estate and automotive markets. Auto lending in particular increased by $20 billion during the second financial quarter and this represented the single biggest gain in more than seven years. While government-backed low interest rates have been at the heart of this increased rate of borrowing, economists have already warned that the current scenario may create instability and trigger long-term inflation.
As a consumer, you must remember that low interest rates are often contrived by governments that wish to reduce the cost of secured lending and encourage a greater level of reinvestment into the economy. While this is a standard economic practice, the prime interest rate at which you borrow is subject to change and subsequently have an impact on the long-term value of your investments. It is therefore your responsibility to invest and spend cautiously, as a failure to appreciate the fluctuating nature of interest rates and their vulnerability to government manipulation could ultimately lead you to spend outside of your means.
As the recent economic decline has shown, governments tend to adopt extreme fiscal measures during periods of recovery. While the Fed has reduced interest rates in a bid to encourage consumer spending, this doesn't mean you should splurge on a new car or justify some other extravagant debt. It is crucial that you resist the urge to overspend when interest rates fall, and instead make purchasing decisions based solely on your disposable income levels, existing debt liability and the long-term value of any potential investment. In short, low interest rates need to be seen as an opportunity to get ahead on your bills, not to take on more payments.
The Bottom Line
While there is a world of difference between investing in the forex market and buying monthly groceries, the fundamental goals of achieving value for your money and establishing a healthy return remain unchanged. Just as a trader can use economic data trends to evaluate his or her investment options and make a responsible decision, consumers can also apply their understanding of inflation, interest rates and the labor market to determine their spending outlook and successfully manage their personal finances.

Wednesday, September 18, 2013

National Household Survey: Canada’s median income reaches $47,868

Matthew Coutts | Daily Brew –
The average Canadian pulled in a salary just shy of $48,000, according to newly-released survey results from Statistics Canada.
If those numbers can be compared to the country's most-recent census data, which they almost certainly cannot, it suggests the median income for Canadians with full-time jobs has increased by nearly $7,000 a year since 2005.
The latest batch of results from Canada’s questionable National Household Survey was released on Wednesday, painting a generally rosy picture of Canada's personal income situation.
According to the latest survey results, the country's median total income for those who work full-time jobs is $47,868. That number is up from $41,401 identified in the 2006 nation census.
And while that apparent increase could be seen as cause for celebration, it also underlines the problems with the newly-released statistics.
The 2006 numbers were compiled through a mandatory census, which was considered much more reliable than the voluntary survey now used by Statistics Canada.
The release of the National Household Survey results has come amid questions and controversy, as agencies that relied on census results and the public alike cast doubt on the data gathered through a voluntary poll.
Details released on Canada's aboriginal population were all but dismissed after it was revealed that the survey was not completed, or interrupted, in entire regions of the country.
This most recent release, on income breakdown and home ownership, was delayed by a month after an "issue with data processing" was discovered days before its scheduled release in August.
A note attached to the NHS data states that comparisons between the former census and current survey are troublesome. " Moreover, the NHS estimates are derived from a voluntary survey and are therefore subject to potentially higher non-response error than those derived from the 2006 Census long form," the note reads.
If we can set those concerns aside, and dispatch the idea of using these survey results in any official capacity, the NHS paints an as-accurate-as-available picture of Canada's current income breakdown.
It found that over 95 per cent of Canadians above the age of 15 receive some sort of income. The median income for everyone, from full-time adult workers to teens with part-time jobs, was $29,900 in 2010.
And while 13 per cent of Canadians relied entirely on non-employment income, such as government transfers and investment income, 87.6 per cent of the country's total income came from employment sources, be they private wages or earning from self-employment.
That was the key focus of the NHS income composition numbers, which highlighted the areas of Canada where employment income was the highest.
The areas that were found to have the highest level of employment income were Alberta and the territories. In Alberta, employment income accounted for 81.3 per cent of total income, while the number was higher in Yukon (81.8 per cent), Nunavut (84.3) and the Northwest Territories (87.8).
The provinces with the lowest employment income were British Columbia and Prince Edward Island, where respectively 73.7 per cent and 68.6 per cent of income came from employment earnings.
Not surprisingly, a family's reliance on employment income came down to its composition.
Two-parent families with children under six years of age tended to have the highest level of employment income, at 95.4 per cent, while lone-parent families relied more heavily on other income sources.
For a male lone-parent family with children under 6, 85.8 per cent of their total income came from employment, while the number dipped to 65.2 per cent for female lone-parent families.
Here were the median employment incomes for those family types:
  • Two-parent families: $75,600
  • Male lone-parent: $43,300
  • Female lone-parent: $21,200
Interestingly, the 2006 census results suggested the median employment income of two-parent families was $ 75,997, while male lone-parents earned $47,943 and female lone-parents earned $30,958.
What that means in relation to the trend of single-parent family incomes, however, is suspect. The results of the National Household Survey should be taken with a grain of salt, especially when compared to the previous census.

Monday, September 16, 2013

Why Canada’s banks are wrong about emergency savings

By Dale Jackson | Pay Day – Thu, 12 Sep, 2013
September is survey season in the financial services industry. It gives the big banks an opportunity to shame and encourage us to get our financial houses in order.
Some surveys can really leave you scratching your head, though. Take the latest intelligence from Bank of Montreal that says just over half of Canadians have less than $10,000 socked away for emergencies.
It goes on to recommend we set aside three to six months income for emergencies like major car or home repairs, or job loss.
Three to six months income? Really?
Here’s an emergency: we’re drowning in debt.
According to Statistics Canada the average household owes more than $1.60 for every dollar it takes in each year.
Credit scorekeeper Trans Union reports the average Canadian has over $27,000 in consumer debt, which excludes mortgages.
The latest survey from the Canadian Payroll Association says 42 per cent of us live paycheque to paycheque, and 40 per cent spend all or more of our net pay.
With so many people struggling with debt it’s hard to believe BMO’s claim that nearly half of Canadians actually have $10,000 socked away for an emergency.
BMO’s advice is to keep that emergency money in its “Smart Saver” account, which currently pays out 1.1 per cent annually.
Time to crunch the numbers
What BMO is really offering after one year on that $10,000 at 1.1 per cent, compounded monthly, is $111.
During the same year, the bank can take that $10,000 and make $1,047 on a typical consumer loan at 10 per cent.
The point is; if you are that guy with the consumer loan you’re much better off using that $10,000 to pay down debt and saving $1,047 a year in interest payments.
Taking it a step further, a good chunk of consumer debt is balances owing on credit cards. Major credit cards like Visa and MasterCard impose interest rates in the high teens. $10,000 at 20 per cent generates interest of $2,194 after one year.
And then there are major credit cards sponsored by the big retail chains like The Bay that charge nearly 30 per cent on balances owing. At that rate applying $10,000 against the balance would save the card holder $3,450 after one year.
What about emergencies?
There are no emergencies if you are prepared.
According to the same BMO study 27 per cent of respondents have access to a line of credit. The interest rate on a line of credit can vary depending on the customer but it is possible to establish one at about 10 per cent.
Establishing a line of credit requires advance planning and a good credit rating with the bank.
In the event of an emergency coming up with the cash is as easy as an online transfer to a savings or chequing account.
Keep in mind you only take what you need for the emergency and pay interest on that amount – not the whole $10,000. With some discipline you can chip away at the amount owing and lower the total interest cost over time.
Customers with equity in their homes to back the loan get the best deal. A home equity line of credit can provide instant cash for as little as 3.5 per cent. Even if you needed the entire $10,000 for a full year the interest would only come to $356.
BMO isn’t the only bank to tout the need for an emergency fund. It is in the best interest of banks to get their customers to give them cheap money while charging the same customers more to borrow – and with interest rates on the rise, business is booming.