Money123: Lottery winnings fallout, food bank uptake, should Canada sue Amazon?

Millions struggle with food insecurity

For more than seven million Canadians, the cost of living crisis means getting food on the table is more challenging than ever.

Food Banks Canada released its inaugural poverty report on Tuesday that painted a bleak national picture, with most provinces receiving a grade in the D range when it comes to tackling poverty.

The report found that more than 42 per cent of the population feels financially worse off compared with last year, 18 per cent is coping with food insecurity and almost one-third also said they have an inadequate standard of living.

Even as overall inflation has eased from the highs seen in June 2022, price pressures have begun climbing again as of late thanks to rising gas prices and the pain of higher interest rates on renters and homeowners alike.

That’s led to demand rising sharply at food banks in Canada.

Read more about how each province scored when it comes to tackling poverty — only one province made it into the B range.

Recently come into a $68M windfall?

Even if you’re not the lucky winner of this past week’s $68-million Lotto 64/9 Gold Ball lottery, you might be wondering what happens if you ever do pick those fated numbers.

First thing to do, according to experts who spoke to Global News this week, is to take a deep breath and think about the long-term uses for that money — not just where to blow the first grand this weekend.

“What you might find is that after when you’ll find yourself with a lot of new friends and maybe some new family members that come out of the woodwork,” said Frank Hounjet with Virtus Group.

“So it’s very important to have that plan in place and basically execute on those lines and really supporting afterward.”

But who can you trust to help shape that financial plan?

Read more about what happens post-life-changing lottery win.

Should Canada sue Amazon?

This week saw the United States take unprecedented legal action against Amazon, with the FTC and 17 states filing an anti-trust lawsuit that alleges the e-commerce behemoth is illegally maintaining a monopoly over the U.S. retail landscape.

Now some lawmakers and small businesses north of the border want Canada to follow suit.

Dan Kelly, CEO of the Canadian Federation of Independent Business (CFIB), told Global News the advocacy organization is due to release a report in the coming weeks collecting data and stories from small businesses on the harms Amazon has inflicted on the Canadian retail marketplace.

“There are some pretty horrible examples of Amazon’s behaviour” in the report, Kelly said, many of which he said align with the FTC’s allegations.

The Competition Bureau said it would look into Amazon’s business practices in 2020, but has since been silent on any updates into that probe.

One NDP lawmaker, meanwhile, told Global News that in order to address the Amazon problem, Canada’s Competition Act would need an overhaul.

Read more on the push for Canada to take legal action against Amazon.

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– THE QUESTION –

“I’ve heard that trying to pay down your mortgage is a financial myth. You need only pay your interest and when you sell your house, the increased equity will put you further ahead than trying to pay as much of the principal as you can during the course of your amortization. It leaves you with more cash for other expenses. Is there any logic to this approach?”

— A Money123 reader 

“Way back when I started my mortgage career, a financial advisor said something that’s stuck with me ever since. He said, ‘Rob, the worst blanket financial advice you can give a borrower is to pay off their mortgage quicker.’

The reason is simple: if all you do is pay off principal, you’re left with dead equity. The inherent value of that accumulated equity rots as inflation eats away at it. That’s an opportunity cost that people don’t think about.

Many folks can get a higher return on their discretionary cash elsewhere. That’s especially true if they locked into an ultra-low interest rate. I have some clients who got a mortgage in December 2020 and are currently sitting on 1.39 per cent five-year fixed rates. Why would anyone in their right mind prepay that loan quicker when they can get a five per cent short-term GIC?

Instead of paying off more principal sooner, it’s often better to pay down higher-interest debt, top up one’s RRSP for the tax deduction and tax-deferred growth, invest in an income property or capitalize a new business. So long as you’re earning a decent enough risk-adjusted return after tax—compared to the risk-free return of mortgage payment—then diverting principal payments to other uses can make sense.

Investing mortgage payments in higher-yielding investments can also make you more liquid and diversified. Liquid assets are easier to deploy in an emergency or if you encounter an investment opportunity. Although, a borrower who prepays principal and has more than 20 per cent equity can replicate this benefit with a readvanceable mortgage. (Readvanceable mortgages allow you to re-borrow principal payments from a line of credit, albeit typically at a higher interest rate.)

And lastly, it’s important to remember that inflation reduces the relative value of your mortgage debt over time. That’s because your income generally keeps growing while you pay back your mortgage with cheaper future dollars.

These are all reasons why long-term amortizations make sense for risk-tolerant borrowers. And if the homeowner later decides that a paid-off mortgage is their #1 priority, most mortgages allow easy prepayments. By paying extra principal when you want to (or are able to), you can reduce your amortization at will.

Like all mortgage decisions, accelerating principal repayment is a borrower-specific decision. For some, the psychological comfort of being mortgage-free has great value. They say you can’t put a price on that. But for most, there’s a very real price with respect to lost opportunity.”

–  Rob McLister, mortgage strategist, FixedOrVariable.ca

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