FINANCE

FINANCE Millennials gain financial freedom by not panicking

by Charlie Smith

What a difference a year can make. In March of last year, as the pandemic shut down economies around the world, stock markets took a major tumble.

For downtown Vancouver renters and financial bloggers Stephanie Williams and Cel Rince, it wasn’t the best of times. Williams, a 34-year-old receptionist, and Rince, a 32-year-old freelance book editor, don’t earn large salaries. But by embracing minimalism, not owning a car, and avoiding restaurants and alcohol, they had still managed to invest in index funds every couple of weeks for almost a decade.

However, the S&P 500—a broad-based index of 500 large companies—plunged 34 percent from February 19 to March 23 of last year.

In early April of 2020, they had some steely advice for other millennials: don’t dump investments in a market downturn.

“The worst thing you can do is sell when it’s falling,” Rince declared. “That’s the absolute worst thing you can do. You need to stay the course and wait for the market to recover.”

A year later, the couple can look back with satisfaction on the wisdom of those words. When contacted by the Straight, they said that their net worth has risen $130,000 since that article was published in the Straight last April. Their overall net worth is now around $575,000, without any big cash injections from their families. “We set our plan about, you know, eight to 10 years ago when we started investing,” Williams told the Straight. “We’ve stuck with it ever since. We’ve never changed anything.” The couple shared their story in their ebook, Incoming Assets: A Guide to Affordable Living in Vancouver. They feel that if they build up a $700,000 nest egg, they’ll be in a position to only do work that interests them.

Williams is employed by a company that deals with bankruptcy and insolvency, so she’s aware of how difficult the past year has been for those in precarious financial positions. She also recognizes that those making high incomes have prospered due to lower living expenses during the pandemic.

“I think there’s been a huge division,” she said.

At the same time, the couple noted that their ability to withstand the downturn has been inextricably linked to their “lowconsumption lifestyle”.

According to Williams, if a person avoids buying things for ethical reasons, they can end up with a lot more money. In particular, she pointed to the problems created overseas by the fast-fashion industry. She also cited the link between overconsumption and the accumulation of plastics in landfills.

“If you live a low-consumption lifestyle yet you make a normal income, it’s just a question of what you do with the surplus,” she said.

Because of the pandemic, the couple is spending even less than usual.

“We used to like to go to the movies pretty regularly,” Rince said. “That obviously hasn’t happened in a while. And, of course, we used to travel internationally at least twice a year and took little trips as well. We haven’t gone to Europe or Asia as we usually do.”

In lieu of travelling, they participated in some outdoor pursuits last summer when such activities weren’t being discouraged by public-health authorities.

“I went bungee jumping for the first time near Whistler and we did whitewater rafting near Squamish,” Williams said. “We had some really good times. I’m hoping this year to try skydiving for the first time.” g

Stephanie Williams and Cel Rince didn’t cash out when the market plummeted last spring.

The worst thing you can do is sell when [the market] is falling.

– millennial investor Cel Rince

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FINANCE Banks and credit unions: what sets them apart?

by Charlie Smith

Back in the mid-1990s, there was a very public battle between the Canadian Bankers Association and one of B.C.’s biggest credit unions. It erupted after Richmond Savings (which later become part of Coast Capital) launched an advertising campaign lampooning a fictitious “Humungous Bank”. It was led by greedy, uncaring executives eager to fatten profits at the expense of customers.

The CBA was particularly vexed over the credit union’s tag line, “We’re not a bank. We’re better.” That’s because the Bank Act prohibited nonbanks, such as credit unions, from holding themselves out as banks at that time. In an affidavit filed with the federal trademarks branch, a CBA lawyer acknowledged that the average bank was 54 times larger than Richmond Savings. Therefore, he claimed, the credit union was misleading the public by claiming it was superior when it was “relatively less sound and secure”.

Nowadays, bankers and credit union executives no longer engage in public spats like this. But they are still often competing for the same retail customers and residential-mortgage business. As a result, they’re not shy about touting their attributes.

Only this time they are also dealing with growing customer anxiety over the climate and cybersecurity.

In early January, the province’s largest credit union, Vancity, made a declaration on climate that caught the attention of its much bigger rivals based in Toronto. The Vancouver-based credit union declared that it planned to make its entire lending portfolio a net-zero carbon emitter by 2040.

Vancity’s chief external-relations officer, Jonathan Fowlie, told the Straight by phone that he recalls sitting with staff in front of a whiteboard discussing changes coming as a result of the climate emergency. They considered providing bridge loans to help someone who is displaced from one industry to transition into another. It felt academic at the time, Fowlie said, but only a few weeks later the credit union was thrust into a real economic emergency with the pandemic.

“It really crystallized for us the connection between climate action and the need for financial institutions not just to think about reducing emissions but also how we look at equality and people through the transition,” he stated.

That led to five commitments, including financing an equitable climate transition.

“Vancity has been acting on the environment and climate change for decades, and we do not lend to the fossil-fuel sector,” Fowlie said. “And so for us, that means that the pathway to net zero, as I said, is around working with our members to create large-scale change through an aggregation of supporting and enabling individual actions.”

Coincidentally, less than six weeks later, CIBC announced that it had joined four large U.S. banks as a strategic partner in the nonprofit RMI’s Center for ClimateAligned Finance. It’s helping the financial sector ensure that the global economy makes a transition to net-zero greenhousegas emissions by the middle of the century.

A week after the CIBC declaration, Canada’s largest bank, RBC, announced that it would achieve net-zero emissions on its lending by 2050. In addition, it promised to mobilize $500 million toward “sustainable finance” by 2025. Meanwhile, another of Canada’s large banks, TD, has also expressed a desire to achieve net-zero emissions by 2050.

The CBA website outlines many actions that banks are doing in this area. That includes working on implementing climaterelated disclosures advanced by the Michael Bloomberg–chaired Task Force on Climate-Related Financial Disclosures. According to CBA director of media strategy Mathieu Labrèche, all the banks are doing this.

“I think TCFD, essentially at this point, has become the gold standard, globally,” he told the Straight by phone.

But the banks still have a public-relations problem in this area. That’s because on March 24, Canadian banks didn’t fare very well in a report released by several environmental groups, including the Sierra Club, Rainforest Action Network, and Indigenous Environmental Network. Banking on Climate Chaos 2021 listed Canada’s five biggest banks among the top financiers of fossil-fuel companies in the world. RBC ranked fifth; TD was ninth; Scotiabank was 11th; Bank of Montreal was 16th; and CIBC came 22nd.

Where the banks are on firmer ground might be with their investments in technology. The CBA’s vice president overseeing banking transformation and strategy, Marina Mandal, told the Straight by phone that the six largest Canadian banks invested approximately $100 billion in technology from 2009 to 2019.

A lot of that, she said, was aimed at ensuring Canadians feel comfortable banking online and through mobile devices, knowing that their data is protected. She added that banks are “absolute leaders in data protection, cybersecurity, and privacy”.

“But also, it’s an ongoing effort as we see new threat actors across the board,” Mandal noted.

So where else might federally regulated banks be “better” than provincially regulated credit unions? She pointed to advantages created by a “comprehensive credential and consumer protection framework” created by federal regulators such as the Office of the Superintendent of Financial Institutions and the Financial Consumer Agency of Canada, backstopped with policies developed by the Ministry of Finance.

“You’re basically getting the benefit of something across the country that is aligned,” Mandal said.

There are higher deposit-insurance guarantees for provincial credit unions in B.C. than federally regulated banks. But according to Mandal, “there have ben concerns expressed by provincial governments and other stakeholders about the sustainability of that.”

“So depending on your perspective, it’s either a good thing or a bad thing,” she said.

Boards of directors of Canadian banks are elected by shareholders, whereas credit union boards are elected by their members. A recent paper published in Research in International Business and Finance compared 636 banks and 636 credit unions matched by the largest loan category, size, and county locations in the United States from 2010 to 2017.

“Our multivariate analysis results suggest that, in general, credit unions engage in less risk-taking than banks, irrespective of the risk measure being considered,” researchers Christine Naaman, Michel Magnan, Ahmad Hammami, and Li Yao concluded. “However, regulatory oversight (i.e. federal or state charter) reduces the risk-taking gap between banks and credit unions. We further find that increased competition has different effects on risk-taking behaviors in credit unions and banks.”

Back at Vancity, Jonathan Fowlie said that because banks and credit unions control trillions of dollars, they can collectively have an enormous impact on the direction of the economy. He said that because his financial institution is owned and directed by its members, this has a “significant impact on the way we think about these things”.

“When we get to net-zero matters a lot, obviously,” Fowlie declared. “But even more important is how we all get there and whether we leave people behind. When you look at Vancity’s commitments, we’re taking a people-centred approach.” He left it unsaid whether the same is true for Canada’s humungous banks. g

For decades, banks and credit unions battled for market share in B.C., but nowadays stakes are higher for people worried about climate risk and cybersecurity. Photo by Designer 491 / Getty.

I think TCFD…has become the gold standard, globally.

– CBA spokesperson Mathieu Labrèche