Money123: Interest rates steady, digital payments rise, and young Canadians eye retirement

Interest rates held — is the Bank of Canada done?

It was a busy week on the Bank of Canada front as the central bank opted to hold its benchmark interest rate steady for just the third time this year.

The return to a pause doesn’t necessarily mean policymakers feel they’re out of the woods when it comes to tackling inflation, as the Bank of Canada warned that rates might still need to rise higher amid persistent price pressures.

Governor Tiff Macklem spoke in Calgary a day after the decision and argued that while higher interest rates are “painful,” getting inflation all the way back down to the two per cent target is “worth it.”

And before the week ended, Statistics Canada delivered a new report on the country’s jobs market, showing employment rebounded in August enough to keep the jobless rate steady at 5.5 per cent.

What does all this mean for where the Bank of Canada might take interest rates next? Find out here.

Mobile payments on the rise. How to protect your money

More and more Canadians are paying for their morning coffee and bagel with their smartphones these days, according to recent data from Interac.

The Canadian interbank network reported last month that it processed more than a billion mobile transactions in the 12-month period between July 2022 and August 2023, a year-over-year increase of 53 per cent.

With more Canadians paying through their smartphones or wearables, retail expert Omar Fares says it’s clear the “future is mobile.”

But there are also a “wealth of security risks” that come with that mobile-first future, the lecturer with the Ted Rogers School of Retail Management at Toronto Metropolitan University warns.

“While the technology is accessible and convenient, there’s also that risk factor of, well, how is my data being used? How is it being secured, and is the technology on its own secure?” he told Global News this week.

Read more about what you need to know about securing your digital wallet.

Young Canadians planning for the future

Higher interest rates and the rising cost of living might make it more difficult for younger Canadians to save for the future, but a new survey shows many still want to plan for their retirements.

The Healthcare of Ontario Pension Plan survey, commissioned by Abacus Data, indicates Canadians under 35 recognize the value of a workplace pension plan to prepare for their golden years — with 51 per cent stating they’d forego a job with higher pay for a better pension.

While younger Canadians might want to prioritize retirement savings, the lack of money left over after covering their monthly expenses is leaving some to wonder if they’ll be able to call it a career at a reasonable age.

“No matter what job I have or description, I’m noticing that I still feel that barrier to retirement. And quite honestly, I’m unsure when that would be for me,” Ashley Rowe, a Gen Z business owner in London, Ont., told Global News.

Even as retirement savings feel daunting, Rowe says she’s taken some steps that help her feel “optimistic” about her golden years.

Read more about young Canadians and their plans for retirement.

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– THE QUESTION –

“I am a Canadian citizen but just about to move to the U.S. for work. We are expecting our first child in a few months and they will be born in the States. Can I still open an RESP for them? Does it have to hold Canadian dollars? My wife will be looking for work in the U.S. too.”

— A Money123 reader 

“Congratulations on the new addition to the family. A registered education savings plan (RESP) is a great way to save for a child’s education. Although contributions are not tax deductible, there are government grants when you make contributions, tax-deferred growth, and future withdrawals are only partially taxable. So, for a typical Canadian parent, an RESP is a good tool to save for education funding.

An RESP can be used to pay for post-secondary costs in another country but may not be ideal for someone about to move to another country. An RESP cannot be transferred to another country so it may not make sense to open one right before leaving. Specifically in this case, as a U.S. taxpayer, the account will be subject to income tax in the U.S. It is not recognized as being tax-deferred by the IRS. There are also no government grants for a non-resident on their contributions. Non-residents, especially those in the U.S., may have difficulty being able to buy or sell Canadian investments with their financial institution as well.

U.S. parents have a savings account that is similar to an RESP called a 529 Plan. A 529 may be more suitable for someone about to move to the U.S. Contributions are made with after-tax dollars like here in Canada, but some states allow tax deductions that reduce state income tax. The accounts are not subject to annual taxation and withdrawals may be completely tax-free in the U.S. as well.

So, not only is a 529 plan arguably a bit better than a Canadian RESP, it is more suitable for someone living and working in the U.S. for their future contributions.”

–  Jason Heath, managing director, Objective Financial Partners

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