Return to home pageFrequently Asked Questions
Course
The course consists of a series of core modules, each approximately 15-20 minutes in length. Following each core module is a brief test to review the highlights of the course and to assess what you have learned. Once you have completed all of the core modules, you will be able to download a McGill Personal Finance Essentials attestation of course completion. The course also contains several optional bonus modules, which are solely for additional learning and development.
We recommend completing the modules in sequential order, but it is not required.
Once you complete all eight core modules, you will receive a McGill Personal Finance Essentials attestation of completion.
The McGill professors who participate in teaching this course do so via pre-recorded seminars. Unfortunately, it is not possible to speak with them about the material or receive personalized financial advice.
The credential ID and URL fields are not necessary for adding the course to your LinkedIn profile. All you need to do is type in “McGill Personal Finance Essentials” in the Name field and then find “McGill University” in the Issuing Organization field. Click “This credential does not expire” and that’s all there is to it!
Unfortunately, due to the high volume of course registrants, it is not possible to speak with our staff members by phone.
If you would like to change the language of your course, click “Profile” on the toolbar and then “Edit”.
Module 1: Introduction to Personal Finance
Each financial decision we make involves trade-offs between our present and future selves. Making a purchase today is great for present you, but the money you spent is no longer available for future you. Not making the purchase today may be unfortunate for present you, but future you will enjoy the flexibility of having access to those funds. Many Canadians will also have their plans disrupted at least once over the course of their lifetimes by unforeseen events like job losses, business failures or the onset of health issues. By investing time into your own financial literacy and adopting a balanced approach to managing your finances, you will become better equipped to handle any scenario that might occur.
Recent Statistics Canada data indicates that life expectancy for the average Canadian is approximately 82 years – 84 for women and 80 for men – and that a retired couple at age 65 has a nearly 50 percent chance that at least one partner will live to the age of 94. These longer lifespans require greater retirement savings.
Starting early is important because of the significant role that time plays in our personal finances. Due to the exponential effect of compound interest, when you invest your money, your investment income can be reinvested each year to generate additional savings. The sooner you start investing, the larger your savings can become.
This is the amount that Canadian households owe for every dollar of disposable income that they have.
Inflation refers to the idea that the cost of living – for example, rent, groceries, clothes, electricity, etc. – tends to rise over time.
Risk tolerance refers to your ability to psychologically endure the risk of losing money on an investment. There are many different factors that can affect your investment risk tolerance. Understanding your risk tolerance is crucial for making investment decisions that are right for you and helping you sleep comfortably at night.
The Additional Resources section of the course provides a helpful guide for choosing a financial advisor.
Module 2: Budgeting and Saving
The best companies in the world create budgets to track their financial positions, because they need to see where they stand financially and make adjustments if needed, all with an aim to achieve their objectives. Like you, these companies need to plan for their financial futures.
A budget allows us to see where we are financially today and helps us achieve our goals for the future – aiming for sustainable growth. For this module, sustainable growth means aiming for solid financial positioning in the short and long term. Trying to take care of “today you” and “future you”.
Bringing in stakeholders can help you achieve your financial goals. A stakeholder can be family, friends, your financial advisor, an accountant – anyone who has an interest in you achieving your financial goals.
Your expenditures are things you spend money on – from big items such as rent, mortgage, car payments, to smaller items such as transit expenses, trips to the movies, lunch out with friends, etc.
A surplus is the amount of money you have left when your income – or cash in – is higher than your expenditures. A surplus is what you are aiming for.
A deficit is the opposite of a surplus. This is when your expenditures are greater than your income.
There are many apps and online tools that can help you start budgeting. RBC has an Monthly Cash Flow Calculator that guides you through your income and expenditures, and helps you spot ways to save more.
Ideally all your income and expenditures should go in the budget to make it as accurate as possible. However, sometimes it’s hard to pull all that information together. In those cases, use an approximate amount, and then look to refine the budget as you move forward.
Just about anyone can create a budget. Keep in mind, your cash inflows don’t have to be income earned from a steady salary – it can be funds from part-time work, scholarship money, gifts, commission, bonuses and more.
Module 3: Your Money: Today and Tomorrow
Compound interest is the principle where the interest you earn also earns interest. This “interest on interest” increases your rate of growth over time.
It is generally better to have $100 today, because you could potentially invest that amount today and it would grow to something more than $100 in a year. At the end of the year, you will have the $100 you invested, plus the interest you earned on that original amount.
Compounding frequency is the number of times per year the accumulated interest is earned. The frequency could be yearly, half-yearly, quarterly, monthly, weekly, daily, or continuously (or not at all, until maturity).
Time value of money is the concept that money available today is worth more than the same amount in the future, due to its ability to earn interest.
Discounting is the concept of making money travel backwards in time. The reverse of compounding, discounting is the process of determining the present value of money that is to be received in the future.
Yes, as long as the interest rate is positive, the future value of money is greater than present value, because you can earn interest on the present value of money. The greater the interest rate, and the greater the time periods for which you invest your money, the greater that future value will be.
Providing you are investing $50 in the middle of the month and again at the end of the month, it is better to invest $50 twice a month. That is because the $50 invested at the end of Week 2 will earn interest in Weeks 3 and 4 and grow to something more than $50 at the end of Week 4 – and you will therefore end up with more than $100 at the end of Week 4.
Module 4: Understanding Debt and Borrowing
While the interest rate on a credit card is generally much higher than the rate on a line of credit, you wouldn’t necessarily pay more interest using a credit card. That’s because if you pay the balance off in full before your due date, your credit card purchases will not accrue interest (this is called the “grace period”). On the other hand, purchases made using a line of credit accrue interest immediately. If you are unable to pay off your credit card balance in its entirety, it would be beneficial to transfer the balance to a lower interest-bearing debt like a line of credit.
A fixed-rate mortgage offers a high level of stability. It may be a good choice for you if you enjoy the security of a rate that is guaranteed not to change for the term of the mortgage, and you are willing to pay a slightly higher interest rate for that security. It may also be a good fit if you prefer the peace of mind of predictable mortgage payments and amortization that are guaranteed not to change during the term of your mortgage.
A variable-rate mortgage may have lower interest rates than a fixed-rate mortgage, but also exposes you to some risk should the interest rates rise. This type of mortgage may be a good fit for you if you are comfortable with rate fluctuations to gain possible long-term interest savings.
Your credit history is all the information – such as credit accounts, balances due and details of your payment history – contained in your credit report. This information is collected and updated regularly by the two credit bureaus in Canada: Equifax and TransUnion.
Your credit score is a numerical calculation based on the information in your credit report.
By using your credit card and consistently making the required payments regularly – and always on time – it helps to prove that you are responsible while using credit. The longer you’ve had credit, the more history you can build with a credit bureau, and the higher your credit score can be.
A person would file for bankruptcy if they don’t have any financial means to pay their bills or debts. Because bankruptcy can affect a person’s credit worthiness for many years, it is important to carefully consider whether or not to declare bankruptcy, and get advice from a professional who may be able to suggest other options.
Cost of borrowing refers to the total charge – or cost – for taking on debt. Your cost of borrowing is made up of your interest payments as well as other financing fees, such as your credit card’s annual fee.
A secured line of credit is guaranteed by an asset, such as a home or a car. An unsecured line of credit, meanwhile, is not guaranteed by an asset. Because unsecured credit doesn’t require any form of collateral, it generally comes with higher interest rates.
A credit card is generally better for regular purchases, as it offers a convenient way to pay in-store or online. Plus, many credit cards come with points programs or cash-back options that reward you for using your card. A line of credit is typically best used when you require a larger sum of cash – whether it’s to pay for a big purchase that will take time to pay off, or to provide immediate cash flow. Because interest rates on a credit card are generally considerably higher than a line of credit, purchases made on a credit card would ideally be paid off before your card’s due date. A line of credit typically comes with a much lower interest rate, which can help you finance a larger expense or purchase over a period of time.
There are a number of factors that can affect the credit limit on your credit card:
The type of card you have – some cards have a fixed limit, which is the same for everyone Your Income – the higher your income, the higher your limit is likely to be Your debt-to-income ratio – this is the amount of other debt you already have, and how it relates to the income you earn Your credit history – if you have shown a responsible use of credit in the past, your limit will likely be higher than if you have a history of late payments and high balances
Also known as mortgage default insurance and commonly referred to as CMHC insurance, mortgage loan insurance is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage loan/ default insurance protects lenders in the event you ever stopped making payments and defaulted on your mortgage loan.
Module 5: The Art of Investing
Stocks are little pieces of corporations – when you buy a stock, you own part of the company. That’s why you make money if the company does well. Bonds, on the other hand, are IOUs. When you buy a bond you lend money to an entity – such as the government or a company – that promises to pay you back with interest.
Warren Buffett is one of the most successful investors of all time. He runs Berkshire Hathaway, which owns more than 60 companies. Known as the Oracle of Omaha, he first bought stock at age 11. He is also a notable philanthropist and known for his personal frugality despite his immense wealth.
A GIC stands for Guaranteed Investment Certificate. It’s a type of deposit investment that guarantees your original investment and usually pays a predetermined rate of interest for a set amount of time (the term).
A bull market is when stock prices are rising or expected to rise, and investor confidence is high. A bear market is the opposite – this is when stock prices are falling and investor confidence is low.
When you diversify your investment portfolio, inevitably some stocks will go up, and some will go down – and the stocks that do well will offset those stocks that perform poorly. Essentially, diversification helps to reduce the overall risk of your investments.
It is true that the stock market has crashed a number of times in the past, and it will probably go down again at some point in the future. However, history suggests that the market recovers from crashes (even though this is not guaranteed for the future) and, over time, the stock market has gone up.
A mutual fund is a portfolio of investments managed by professionals on behalf of a number of investors.
Investment expenses will have a major impact on your investment performance, and they vary widely depending on the type of investment you choose. While you shouldn’t necessarily pick the investment with the lowest expenses, you’ll want to carefully consider what the expenses are, if the costs are justifiable, and how they will affect how much money you take home at the end of the day.
An investment portfolio is a group of investments you will hold as an investor. Your portfolio may be made up of stocks, bonds, mutual funds, GICs and other investments.
Module 6: Retirement Planning
Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) pay a basic pension to eligible Canadian households. The Canada Pension Plan (CPP) and equivalent Quebec Pension Plan (QPP) serve as mandatory retirement savings programs. The exact amount received from these depends on several factors, such as the number of years you have lived in Canada or the amount of your contributions, as well as demographic and economic conditions, such as the performance of the stock market or level of inflation.
An employer-sponsored pension plan is a registered plan in which you and your employer regularly contribute money. The primary benefit of most employer-sponsored pension plans is that your contributions are matched by your employer up to a certain threshold. There are two main types of employer-sponsored pension plans: (i) defined-benefit (DB) plans, in which your employer manages the investments and commits to paying you a specific pension amount based on the number of years you worked for the company, and (ii) defined-contribution (DC) plans, in which you manage your investments and assume the long-term risk for their performance.
Both Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) are investment vehicles that reduce the tax you pay on investment income. Depending on your circumstances, one might offer more benefits for you.
A TFSA is more flexible compared with an RRSP, as you can withdraw your money at any time and use it for any purpose. However, it typically doesn’t have as high a contribution limit as an RRSP. An RRSP lets you set aside more and reduces your taxable income in the year you contribute, which is a great immediate benefit of investing in an RRSP.
However, an RRSP is a more complex account than a TFSA, because your withdrawals are treated as taxable income. It is therefore important to carefully consider your marginal tax rate in both the year of contribution and the year of withdrawal.
A Registered Retirement Savings Plan (RRSP) is an example of a tax-deferred account. The RRSP shelters what would normally be taxable income earned within the account until withdrawal. All contributions and earnings within the account, including interest, dividends and capital gains, are taxed as income only upon withdrawal.
Investments made inside a Tax-Free Savings Account (TFSA) are tax free as long as they remain within the account. All contributions and earnings within the account, including interest, dividends and capital gains can generally be withdrawn tax-free.
When you pay down debt, you have a “guaranteed rate of return” equal to the rate of interest you’re avoiding. For example, if you’re paying off a $5,000 credit card at 19.99%, you “save” having to pay interest of 19.99%. Another way you can look at it is that you’re “earning” a 19.99% rate of return on your investment.
What’s more, interest saved on paying down debt is not taxed, making the case for paying down debt even stronger. Generally speaking, therefore, paying down personal debt should be considered first – then any money left over can be considered for investment.
There are contribution limits for both RRSPs and TFSAs.
If you go over your TFSA contribution limit, you will incur a monthly penalty as long as the excess amount is still in your account.
Because your money grows tax-free within a TFSA, it can be a great retirement savings vehicle, and many advisors recommend saving in both an RRSP and TFSA for retirement. Plus, withdrawals from your TFSA don’t count as income, so you don’t need to worry about how this money affects government retirement benefits such as Old Age Security (OAS) or the Guaranteed Income Supplement (GIS).
Module 7: The Realities of Real Estate
Real estate is property in the form of both land and buildings. When people in Canada purchase real estate, they typically buy both a plot of land and a building. However, it’s also possible to buy an empty plot of land for later development. In the case of a condominium, also known as a condo, you typically buy a portion of both the land and a building.
There are several potential benefits of investing in real estate. The price of your property could rise. Regular mortgage payments help you set aside money each month by reducing your loan balance, which can be especially helpful for individuals who have a hard time saving. Owning a property provides protection against inflation and, in certain cases, can improve diversification of your assets. Currently, home ownership provides a tax-efficient investment opportunity due to Canada’s principal residence tax exemption. Lastly, some real estate investors are successful at generating passive income, such as in the case of rental properties.
As with any major investment, purchasing real estate involves risks. Although real estate values tend to increase over time, they can stagnate or decline, especially in economic downturns. There are also significant entry and exit costs when purchasing real estate, so if an unexpected event forces you to sell your home, the costs can be substantial. Interest rates can rise, potentially making future mortgage payments more expensive. Finally, depending on your financial situation, owning a home can actually make it more difficult to diversify your assets. This is especially true in expensive housing markets, where it’s easy to have most of your wealth tied up in the properties you own. When it comes to real estate, it is particularly important to be informed and make sure that any purchasing decision is right for you.
Some of the factors that affect real estate prices relate to the properties themselves, such as the size, age or location of the property, while others have more to do with macroeconomic variables, such as employment data, how many houses are on the market vs. the number of potential buyers, and the pace at which new housing is being constructed. Cultural factors also play a role, such as shifting desires toward living alone, preferences for larger or detached homes, and fears about rising house prices.
When buying a property, there are many potential costs to consider besides the purchase price. These include up-front costs, also known as closing costs. Some examples are federal and provincial sales tax for newly constructed homes, legal fees, home inspection fees, and land transfer taxes. Another potential cost is mortgage default insurance, which is currently mandatory in Canada for buyers making a down payment that is less than 20% of a property’s purchase price. Once you own the home, in addition to your mortgage payments, you will also be responsible for paying annual municipal and school taxes, maintenance and upkeep costs, and potentially condo or HOA fees.
Canada's national housing agency, also known as the CMHC, recommends that your total monthly housing costs including mortgage payments be no more than 32% of your pre-tax household income.
Any assessment of renting vs. buying depends on a variety of economic factors, such as the performance of real estate versus other types of investments, the direction of interest rates, and changes in government policies, as well as personal factors, such as your risk tolerance, savings discipline and how long you intend to stay in a specific property. There are paths to financial success and opportunities to grow your wealth as both a renter and an owner. It is possible as a renter to achieve similar or even better results than an owner, but it usually requires great discipline and commitment in terms of saving and investing.
Becoming a landlord has several potential benefits: the first is appreciation, meaning the value of your property might increase with time. The second is monthly income, assuming the rent you collect is greater than your costs of ownership. However, it’s important to note that being a landlord comes with challenges and is not for everyone. You might have months where your property is vacant. You may have tenants who miss their payments or damage your property, and you would need to manage all of the property’s maintenance and repairs. There will always be a possibility that the value of your property could depreciate or that interest rates could rise, lowering the effective return on your investment. Finally, renting out properties involves multiple tax considerations: rental income from properties held in your name is taxable at your marginal rate and rental properties are not eligible for the principal residence exemption, so if you one day sell your rental property for a profit, you will need to pay capital gains tax.
If you don’t have enough down payment to invest in real estate, you can consider investing in Real Estate Investment Trusts (REITs). A REIT is a firm that invests predominantly in income-producing real estate assets. You can invest into a publicly traded REIT security like you would any other stock.
Module 8: Behavioural Finance
Behavioural finance is the study of how investor psychology affects investors’ decisions and the financial markets. A focus on irrational or non-standard behaviour is generally the focus of the topic.
Four primary factors that affect an investor’s level of risk aversion are: level of wealth, age, personal situation, and personality.
This is a bias where investors rely too heavily on their prior beliefs – such as their view on the value of a company – and don't update those beliefs sufficiently when faced with relevant new information. Conservatism leads investors to under-react.
Representativeness is a kind of stereotyping that can lead to errors in judgment. In the context of financial markets, representativeness can lead investors to overreact to trends.
The disposition effect is a tendency for investors to sell stocks in their portfolio that have performed well, and hold on to stocks that have performed poorly.
Riskier financial securities should provide higher expected returns as they compensate for the risk the investor takes on when investing.
An aversion to risk is not considered irrational. Some investors will be very risk averse, while others will be more comfortable taking risk, depending on their circumstances and attributes.
Post-earnings announcement drift is a historical observation that stock prices tend to continue drifting in the same direction as their initial price reaction after an earnings announcement. For instance, stocks with positive earnings announcements tend to perform well even several months after the initial announcement.
Wealthy investors are typically more comfortable with risk as they can afford to take on more risk while investing. If their investments happen to do poorly, they will likely still have enough money to fall back on – while this may not be the case for someone who is starting out with less wealth.
