What These Financial Terms Mean:
Bonds – obligation to pay. Bonds can be Federal, Provincial, Municipal or Corporate. They are a low-risk investment that provides interest payments and a guaranteed rate of return within a designated time.
CDIC (Canadian Deposit Insurance Corporation) – is a federal Crown corporation created by Parliament. CDIC ensures Canadians’ savings in case their bank or other CDIC member institution fails or goes bankrupt. CDIC is NOT a bank. CDIC is NOT a private insurance company. Banks in Canada can fail. It does not happen often, but it has happened, and it could happen again. If your bank or other CDIC member fails or goes bankrupt and your savings are covered by CDIC, you will get up to $100,000 of your savings back. If your savings are NOT covered, you might lose them.
Your savings are covered…
- If your bank (or the institution you bank with) is a member of CDIC.
CDIC only ensures savings if they are at one of the member institutions.
- If the accounts or financial products you have are insured by CDIC.
CDIC only ensures certain types of savings.
Commodities – any tangible good; product that is the subject of a sale or barter. Bulk goods such as grains, metals, and foods are traded on a commodities exchange or on the spot market.
GDP (Gross Domestic Product) – total final value of goods and services produced in a national economy over a particular period of time, usually one year. The GDP growth rate is the primary indicator of the status of the economy.
The difference between the US and Canada is the US GDP includes the private sector, the public sector and foreign business operations that occur inside the United States. Canada does not include that. Canada calculates all goods and services produced within a year, with no duplication, to be the measure of GDP.
GIC – (Guaranteed Investment Certificate) When you buy a Guaranteed Investment Certificates (GIC) from a bank, trust company, or credit union, it's like you are lending them your money for a while. The financial institution pays you to borrow your money for a set number of months or years. In most cases, the longer you agree to put your money in a GIC, the more interest you will make. With some GICs, if you need to get your money back sooner, you won’t earn any interest. In fact, you may have to pay a fee or penalty. There are two main kinds of Guaranteed Investment Certificates (GICs):
- GICs that pay you a set interest rate for using your money for a certain amount of time.
- GICs that pay varying amounts of interest, based on how well the stock market (or a related index) is doing. These GICs are called index-linked or market-linked GICs. Although you can’t be sure how much you will earn with this type of GIC, it gives you a chance to earn more if the stock market does well.
Goldilocks Economy – term coined in the mid-1990s to describe an economy that was “not too hot, not too cold, just right,” like the porridge in the fairy tale. Adroit Monetary Policy was credited for an economy that enjoyed steady growth with a nominal rate of inflation.
Fiscal Policy – use of government spending and taxation policies to achieve desired goals
Inflation – rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market; in other words, too much money chasing too few goods
Investment – purchase of stocks, bonds, mutual fund shares, real property, collectible annuities, etc., with the expectation of obtaining income or capital gain or both in the future. Investment tends to be longer term and less risky than speculation.
Monetary Policy – the efforts of a nation’s central bank aimed at influencing inflation rates, economic growth, and interest rates by varying the supply of money
Mutual Funds – a type of regulated Investment Company that raises money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities. At least 90% of its income must come from dividends, interest, and gains from the sale of securities; not more than 30% can come from stock held less than 3 months, options, and futures transactions. It must distribute at least 90% of its income; a corporate tax is paid on undistributed income.
Options – someone who has bought a call or put option but has not yet exercised or sold it. A call option holder wants the price of the underlying security to rise; a put option holder wants it to fall
Puts – contract that grants the right to sell a specified price a specific number of shares by a certain date. A put or call is considered a capital asset when held by a non-dealer
Recession – downturn in economic activity, defined by many economists as at least 2 consecutive quarters of decline in a country’s GDP
Risk – measurable possibility of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable.
RESP (Registered Education Savings Plan) - The Government of Canada allows savings for education to grow tax free until your child named in the RESP enrolls in education after high school. The child named in an RESP is known as a beneficiary. A parent, grandparent, other relative, or friend, can open an RESP for a child. The person who opens an RESP is called a subscriber.
Steps to Opening an RESP: Opening an RESP is not difficult. In fact, you just need to take a few simple steps:
Get a Social Insurance Number (SIN) for yourself and for anyone you name in your RESP as a person you are saving for. There is no fee to get one; however, certain documents are required. Contact 1 800 O-CANADA for more information or visit a Service Canada centre near you.
Apply to the Canada Revenue Agency for the Canada Child Tax Benefit if your family net income is $75,769 or less. This form is generally provided at the hospital where your child was born.
Choose the RESP provider that best meets your needs. RESP providers include most financial institutions, such as banks or credit unions, as well as group plan dealers or financial services providers.
Decide on the type of RESP you want to open.
Decide on the type of investment that will make your money grow.
Put some money into your RESP.
RRSP (Registered Retired Savings Plan) - Any income you earn in the RRSP is usually exempt from tax for the time the funds remain in the plan. However, you generally have to pay tax when you cash in, make withdrawals, or receive payments from the plan.
Setting up an RRSP: You set up a registered retirement savings plan account through a financial institution such as a bank, credit union, trust or insurance company. Your financial institution will advise you on the types of RRSP and the investments they can contain. You may want to set up a spousal or common-law partner RRSP. This type of plan can help ensure that retirement income is more evenly split between both of you. The benefit is greatest if a higher-income spouse or common-law partner contributes to an RRSP for a lower-income spouse or common-law partner. The contributor receives the short-term benefit of the tax deduction for the contributions, while the annuitant, who is likely to be in a lower tax bracket during retirement, receives the income and reports it on his or her tax return. You may want to set up a self-directed RRSP if you prefer to build and manage your own investment portfolio by buying and selling a variety of different types of investments.
Stagflation – term coined by economists in the 1970s to describe the previously unprecedented combination of slow economic growth and high unemployment (stagnation) with rising prices (inflation)
Stock – ownership of a corporation represented by shares that are a claim on the corporation’s earnings and assets
Stock Market – organized market, such as a Stock Exchange or an Over-the-Counter market, where stocks and bonds are actively traded
Variable life insurance – is a form of life insurance under which the death benefit and the cash value of the policy generally fluctuate according to the investment performance of a separate account fund. Some variable life insurance policies guarantee that the death benefit will not fall below a specified minimum. The cash value generally grows tax deferred.