Andy (who is 35 years old) and his wife, Angela (32 years old) are recent immigrants to Canada. They earn a combined income of $163,000 annually, and save more than 15% of their income each month. They aim to reduce their work hours in their mid-50s and retire at 60 with an annual income of $120,000. This lesson plan examines the optimal saving and investment strategies to achieve personal finance goals.

Appropriate Subject Area(s):

Personal finance, financial planning

Key Questions to Explore:

• What are the pros and cons of investing in a savings account?
• What are the pros and cons of purchasing an investment property?
• What are the benefits of having a work pension? How can employees fully utilize work pensions?
• How does inflation (i.e. a rise in the general price of goods and services) affect retirement planning?
• What is a syndicate mortgage?
• What is diversification?

New Terminology:

Syndicate mortgage, GIC, diversification.

• A syndicate mortgage is an investment where a group of investors pool resources to finance a single mortgage, usually for a commercial project.
• Guaranteed Investment Certificate (GIC) is a secure investment that guarantees 100% of the original amount that you invested. Your investment earns interest, at either a fixed or a variable rate, or based on a pre-determined formula.
• Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The rationale is that such a portfolio will, on average, yield higher returns and pose a lower risk than any individual investment found within it.

Materials Needed:

A copy of the article

Introduction to lesson and task:

Andy and his wife Angela are recent immigrants to Canada. They earn a combined income of $163,000 annually, and save more than 15% of their income each month. They aim to reduce their work hours in their mid-50 and retire at 60, with an annual income of $120,000.

They have taken the following actions to achieve this goal:

• They have bought a principal residence for $440,000, using a home equity line of credit and cash. This home generates a rental income of $19,800 for Andy and Angela, while they spend $28,000 on maintenance and upkeep.

• They have also purchased a home for $700,000 with an outstanding mortgage debt of $419,000 which they plan on paying off over 25 years.
• They have $56,000 saved up in their tax-free savings account, $7,000 in a registered retirement savings plan and $78,000 in a private syndicated mortgage.
• They save $917 in their TFSA and $950 in a savings account every month.

This reality leaves the couple with three options:

1. Seek higher paying jobs to increase annual savings.
2. Postpone retirement – work past 60.
3. Reset retirement goal.

Action (lesson plan and task):

• Ask your students to state the pros and cons of saving a portion of their income monthly.

Saving at regular intervals (i.e. monthly, weekly, bi-weekly etc.) is a healthy habit because it enables individuals to deal with unexpected expenses, plan for retirement, spend wisely and benefit from compound interest.

• Ask your students to state examples of savings and investment options available.

There are numerous examples ranging from regular savings, bonds, Treasury Bills, Guaranteed Investment Certificates, stocks, commodities, mutual funds and real estate.

• Ask your students to do some research on retirement planning:to state the importance of having a retirement goal and to state how inflation impacts retirement planning.
• Ask your students to do some research on the difference between a TFSA and an RRSP and to state the pros and cons of each.
• Ask your students to define a Guaranteed Investment Certificate and to state its pros and cons.
• Ask your students to state the pros and cons of owning an investment property. Ask them to state some of the expenses associated with owning one.
• Ask your student to explain the concept of diversification in relation to investing.

Consolidation of Learning:

• Ask your students to do some research on the benefits of having a work pension and to explain why it is important for individuals who have such pensions to frequently contribute to them.

Hint: A pension plan is a retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker’s future benefit. Most pension plans today are defined contribution pension plans, meaning the employer’s contributions are fixed. Typically, company pension plans give employees the option to contribute towards their pension, with a promise of matching contributions up to a limit ranging from 1-6% of their salary.

Success Criteria:

• After completing this lesson, students should have a better understanding of the importance of setting personal finance goals and effective planning and execution to achieve those goals.

Confirming Activity:

• Ask your students to explain why it is important to maintain a diversified investment portfolio.