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Feeling poorer? Inverse wealth effect may add to Canadians' spending gloom – CBC News



It is inevitable that if incomes fail to keep pace with a 6.8 per cent inflation rate, more Canadian wage earners will be forced to scrimp. 

But economists who study financial behaviour have found that even those who can afford to keep spending are also looking for ways to cut back.

Anyone who got a pay hike of less than 1.8 per cent this year actually took a more than five per cent cut in their “real” or after-inflation income. It means that those without savings, who spend what they earn, have no choice but to buy less — or go into debt.

And retailers have begun to notice. Earlier this month, shares in U.S. chains Target and Walmart, and Canadian Tire in Canada, declined sharply as falling sales showed up in the bottom line, leading markets lower.

Urge to economize

But there are increasing signs it is not just those without savings who are looking for ways to spend less. Research on something called “the wealth effect” has shown that the many Canadians who have savings invested in real estate, stocks or cryptocurrency are not exempt from the urge to economize.

“What we expect is that as wealth goes up, consumption would increase and as wealth declines, we would expect a decrease,” said Mark Kamstra, an economist who studies behavioural finance at York University’s Schulich School of Business in Toronto.

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Though originally based on economic ideas of how people should behave, the wealth effect actually happens in the real world, repeated studies have found.

While at first some economists insisted the effect only applied to liquid investments, like stocks or bonds where returns could be extracted and spent, there is a growing body of research showing the notional value of your home — even if you have no plans to sell it and extract the value — can change your willingness to spend.

When house prices are soaring at 20% a year, it’s hard for homeowners not to feel rich even if they have no plans to sell. (David Donnelly/CBC)

Those who have studied the wealth effect, including Bank of Canada governor Tiff Macklem in 1994 when he was but a humble researcher for the central bank, have concluded the phenomenon is real. Nonetheless, there is still debate, and even contradictory studies, over exactly how it works. As Kamstra explained, while theory proposes a simple model with a few variables, the real world is inevitably complicated and messy. 

“There are well-known reasons to fear that constant or declining share prices may exacerbate a slowdown in the economy by depressing the consumption spending of households,” said the report for the U.S. National Bureau of Economic research.

House rich

The report’s conclusions, however, were that “the housing market appears to be more important than the stock market in influencing consumption in developed countries.”

Macklem, who was studying overall national wealth rather than looking at individuals, suggested the reason why things like stocks and bonds had a lesser effect was that a smaller proportion of people owned them. By comparison home ownership in Canada runs at about 70 per cent.

Certainly the classic anecdotal example for the wealth effect is housing and car sales, where, as the price of relatively modest houses begins to rise in a neighbourhood, new and sometimes expensive cars begin to appear in driveways.

WATCH | Home sales are slowing, as are prices:

Canada’s housing market sees signs of cooling as interest rates rise

1 month ago

Duration 2:03

Experts say higher interest rates are causing a slowdown in Canada’s hot housing market, leading to fewer sales and a slight drop in the average selling price in March.

The anecdote has research to back it up from the Reserve Bank of Australia (RBA), the Down Under equivalent of the Bank of Canada.

In 2015, when Aussie house prices were rising at about 10 per cent a year, the RBA study showed that, “there is a robust cross-sectional relationship between changes in housing wealth and new vehicle registrations.”

Not only that, but the authors put a number on it, showing that every one per cent jump in housing wealth led to a half per cent rise in new car purchases.

Psychology of wealth

The reason why the housing example is especially interesting is because for the most part, those homeowners who bought the cars were not planning to sell their houses to realize the increase in value. That indicates a psychological effect.

“I mean, really, are you wealthier if you are a 50-year-old and your house has doubled in value?” Kamstra asked rhetorically. “What are you going to do? You still have kids in high school. You’re not going to move from the neighbourhood. You can’t downsize. How is that wealth in any sense?”

He points to another study from Britain, that, quite reasonably, shows the strength of the wealth effect depends on individual circumstances. For example, older homeowners who are considering downsizing respond more to the notional value of their homes when making spending choices.

Do you feel rich enough to buy a Lamborghini? It’s not a myth, an Australian central bank study showed people whose house prices rose bought more new cars. (CBC)

Similarly, those who own securities such as stocks, or have taken a cryptocurrency stake, are the ones who most feel the effects as those investments rise and fall. A 2018 study from the University of Ottawa has shown that “both financial and housing wealth have significant effects on Canadian consumption,” and that homeowners only tend to use their house as the proverbial piggy bank when house prices are rising and interest rates are low. 

That window may be closing.

As many commentators on home equity lines of credit, or HELOCS, have observed, Canadians may have gone overboard in borrowing up to 65 per cent of their homes’ value to spend on things like renovations. As interest rates rise and home prices fall, that kind of borrowing and spending is likely to decline.

Buying frenzy

And while people with blue chip portfolios may be willing to sit out a market downturn, the Investment Funds Institute of Canada reports that mutual fund holders sold off billions of dollars worth of their investments in March, a trend that may expand if stocks fall further, locking in declines. New market traders who got in during the GameStop frenzy and the cryptocurrency boom likely felt rich when prices were rising, but are also likely feeling poorer now, said Kamstra.

As the conflicting studies have shown, even with access to historic data, teasing out the impact of the inverse wealth effect is not easy. Measuring it in real time is even harder, but according to pollster Nik Nanos there are signs we may already be seeing its effect. 

“Canadian consumer confidence continues to decline with negative pressure on all dimensions tracked, including job security, real estate values, personal finances and forward-look on the economy,” said Nanos in a release of confidence data this week.

And whether you spend less because you actually are poorer or just feel that way, pinching pennies when your future wealth seems uncertain may be a natural impulse that’s hard to resist.

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Vinclum cheat investors of $1.5m — with lure of $16m profits



Alleged Vinclum Corporation fraudsters conned their creditors of more than $1.5m, a sum which was to be used to leverage $16m in an investment scheme that never took place.

Robert Allen, then director of Vinclum Corporation, Toronto, together with Daniel Carrasco, Wojciech Karcinski (often referred to as Peter Karcinski) and several other individuals employed by the Vinclum Group, allegedly persuaded their investors to wire funds for the scheme.

Allen and his associates reportedly convinced one financial services director to part with an initial $250,000.00, which in several stages would eventually generate profits of $16m. A second party, acting on behalf of six clients, invested a further $1.25m in the scheme. The funds would be used for the purchase of DLCs (Documentary Letters of Credit).

A DLC is a frequently used banking instrument in international trade. It instructs an issuing bank to pay a seller, normally in connection with the export of goods, with the bank acting as an intermediary in the transaction. The holder may be able to borrow against a future payment, at a loan-to-value ratio of up to 50%. Allen and the Vinclum Group were said to have connections with international banks that would facilitate a legal scheme to exploit this instrument.

Under the scheme, when a $4m DLC was redeemed, it generated cash of $2m. These funds would be used to purchase a larger DLC of $32m, which would generate $16m in cash, which would then be distributed between the alleged fraudsters and the victims.

The victims wired the funds with the belief that DLCs would be bought and monetized. However no such DLCs were purchased in relation to the agreement, it is claimed.

Despite repeated requests, and assurances by the Vinclum Group that the funds would be returned, no refund has been received.

A motion for injunction has been filed to freeze the assets of the accused while fraud investigations are underway.


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More Charges Dropped Just Days Before Trial Against Activists Who Exposed Animal Cruelty at Excelsior Hog Farm



ABBOTSFORD, BC – Several criminal charges were dropped by the Crown yesterday against three animal rights activists just days before their four-week trial is set to begin on Monday, June 27. Amy Soranno, Roy Sasano, and Nick Schafer are accused of exposing animal cruelty at Excelsior Hog Farm in Abbotsford, BC in 2019, and still face a combined total of 14 indictable charges of Break and enter and Criminal Mischief. A press conference will be held in front of the BC Supreme Court in Abbotsford on the first day of trial.The Crown gave no explanation when it dropped some of the remaining charges yesterday against the three activists. The Crown similarly dropped all charges last month, without explanation, against a fourth activist, Geoff Regier, after his lawyers argued in a pretrial hearing that police and the BC Society for the Prevention of Cruelty to Animals (BCSPCA) had engaged in misconduct.Soranno, Sasano, and Schafer, who together with Regier are calling themselves the Excelsior 4. The three activists could each be sentenced to years in prison if convicted.

What: Press conference & start of four-week trial for the Excelsior 4When: Monday, June 27, press conference at 9am, trial at 10amWhere: BC Supreme Court, 32375 Veterans Way, Abbotsford, BC

“The Excelsior 4 case started three years ago with a total of 21 charges hanging over us,” said Amy Soranno, one of the Excelsior 4 defendants going to trial on Monday. “But before the jury has even been selected, the Crown has dropped all charges against one of us and reduced the number of charges against the rest of us.”Until last month, Regier had faced similar charges for his role in blowing the whistle on Excelsior. In July 2019, Regier made contact with the BCSPCA—the only animal abuse enforcement agency in BC—and provided the private charity with video evidence of criminal animal cruelty at the hog farm. However, instead of recommending charges against Excelsior, the BCSPCA violated its own confidentiality policy in order to turn Regier over to police. The trial comes more than three years after the exposure of animal cruelty at Excelsior, yet the hog farm has never had to answer for the video footage clearly depicting animal abuse. A short video was recently published about the Excelsior 4 case, with an incisive look at how industry has avoided accountability, how the police mishandled evidence, and how the Crown is criminalizing activists. View the 7-minute video here: “The fact that we still face prison time while Excelsior Hog Farm is free to continue its abusive practices is a mockery of justice,” said Soranno. “This case further illustrates the clear bias against animals and activists by the animal agriculture industry, BCSPCA, and police. Our trial will shine a light on the criminal animal abuse taking place at Excelsior, and the failure to hold them and other animal farms accountable.” The trial also comes more than a year after a Freedom of Information disclosure revealed that the BCSPCA has no capacity to enforce anti-cruelty laws at animal farms in BC. Activists point to the abuse carried out at Excelsior as just one example of the BCSPCA’s failure to take enforcement action despite ample evidence of criminal animal cruelty. “BC needs an enforcement agency that is accountable to the public, not a private charity that is unfit for the role and only answerable to its board of directors,” said Soranno. In addition to demanding that the hog farm be held accountable, the Excelsior 4 and animal rights activists across the province are calling on BC Agriculture Minster Lana Popham to replace the private charity BCSPCA with a more accountable government agency to enforce against animal cruelty in BC. In the interest of transparency and accountability, activists are also demanding the installation of Closed-Circuit TV cameras at all animal agriculture facilities in BC. “With no national regulations governing animal welfare on farms and virtually no government oversight on farms, one of the only ways abuse and mistreatment of farmed animals comes to light is through whistleblower and hidden camera exposés,” said Animal Justice in a recent statement. “Preventing journalists and animal advocates from exposing animal abuse restricts freedom of expression, one of the most important human rights in Canada.” For more information about the Excelsior 4, the story behind their charges, and how to take action against animal cruelty:
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Is The Canadian Online Gambling Industry Regulated?



Like in many western countries, gambling is a popular pastime for many Canadians. Throughout Canada’s evolution, it has strived to give its citizens the freedom of gambling across the provinces. Thanks to this, casinos in the country have grown and thrived over the years, from land-based casinos to the more modern online gambling sites.

Interestingly, government-sponsored sites have also joined the online trend. While other nations globally move from one extreme to the other in terms of their stand on gambling, Canadian lawmakers have generally used an even-handed approach despite the attraction of quick and easy money.

Generally, the country’s laws are flexible while simultaneously protecting the public’s welfare.


History of Canada’s Gambling Laws

The ‘90s marked a new age for the gambling industry in Canada because of the computer and internet boom. The first online casinos also launched during this era, and you no longer had to risk gambling in unlicensed casinos in Sweden if you could not access legal casinos. Avid gamblers could simply go online, although they were much fewer in number.

The first reason for this was only a few people owned computers. There was also a concern about the absence of online casino regulations. As the industry expanded, governments began establishing rules to control the sector. Today, traditional and online gambling is prevalent in the country since accessing casinos is much simpler now than before.


Is the gambling sector legal in Canada?

Online gambling had been illegal for years in Canada until quite recently. Now, it is legal in Canada in different forms. All the ten provinces and the three territories have the premise to set their own rules. The minimum legal gambling age in Canada is 19, apart from Alberta and Quebec, where players are only allowed to gamble upon turning 18.

All casinos, lotteries, racetracks as well as other gaming establishments must abide by the rules stipulated by their territory or province of operation. As previously mentioned, some forms of gambling are legal in parts of Canada and illegal in others. The country has two gambling laws; the First Nations Law and the Provincial Law.

The latter accords each territory or province control over gambling activities within its jurisdiction. Subsequently, some provincial laws are stricter than the federal regulations.


Take away

Today, many Canadians enjoy gambling online, from sports betting and live tables to traditional games like slots. Now that it is legal, you can safely access any reputable and legal casino online and physically.


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