EXHIBIT 1: SMITH FAMILY FINANCIAL INFORMATION

Electricity, water, sanitary services, and garbage pickup $225 Natural gas $125 Mortgage payment $877 Home insurance $150 Home security $55 Groceries $750 Telephone, long distance calls and home Internet $90 Cell phones/Smartphones $140 Car loan payments $520 Car gas, maintenance, and insurance $430 Clothing $200 School programs and dues $150 Childrens programs $850 Restaurants $450 Approximate minimum credit card payment $174 Other Church donations $50 $100 Notes: Expenses for the childrens programs include (per month): Karate $120 Gymnastics $160 Piano lessons $225 Guitar lessons $125 Hockey $220 RRSP contribution room carry-forward for 2012: Amber $95,300 Joel $25,200 As long as Landon remains under the age of six, the family will qualify for Universal Child Care Benefit payments of $100 per month, which will increase total income. Family assets and liabilities Cash $850 Chequing account 1,300 Current savings 2,200 Home (market value) 300,000 Mortgage 130,924 Home furnishings 5,500 Joels car 1,500 Ambers car 18,000 Car loan 13,500 Credit card balance 5,800

EXHIBIT 2: GUIDANCE FOR THE SMITH FAMILY FINANCIAL PLAN Section 1:

General discussion

How do you react to the Smith familys current situation? What do you think of their financial goals? Are there other goals that would be more appropriate? Will you be able to help them?

Discuss:

1. The composition of the Smith family balance sheet.
2. The family financial goals.
3. How they can achieve their goals, implement a financial plan, and evaluate their plan.

Section 2: Planning with personal financial statements

To start, tell the Smiths that they need to put together a monthly budget that lists their income and expenses. Between the two of them, the familys after-tax monthly income is $4,800, which is approximately 72% of their combined gross pay. As the kids have been getting older, a number of lessons/programs have been driving expenses. Use the information in Exhibit 1 to complete a personal cash flow statement for the Smith family. Based on this statement, will the family be able to meet its goals? Use the information provided to prepare a family balance sheet. What is the familys total net worth? Using the case data supplied so far, will the family be successful in achieving its lifestyle and savings goals? Why or why not?

Section 3: Time value of money and its impact on family goals

In your discussions, Amber and Joel determined some initial savings goals, which included their plan to save towards their retirement and childrens university education. They intend to put this money in an account that will earn about 5.5% (with monthly compounding) every year, up to the time that their oldest child starts university. At nine years of age, their oldest child has nine years to go until university begins. The Smiths mentioned that they do not know anything about RESPs, so include a discussion on these to help them understand how RESPs work, along with the benefits of investing in them. Amber believes that it is important to have $100,000 saved before Luke starts university will they be able to meet this goal? Is this goal realistic?

Section 4: Using tax concepts for planning.

The Smiths want to assess their tax situation for 2012. Using the information provided in the case, calculate the total tax that the family will pay, assuming that Amber and Joel will use any applicable deductions to minimize taxes owing. The purpose of this section is to give the Smiths a preliminary idea of the taxes they will owe for the 2012 taxation year, due April of 2013, and to get an idea of whether they will be receiving a refund next year. The Smiths have not made any RRSP contributions and neither spouse has a pension plan. Be sure to include Canada Pension Plan (CPP) and Employment Insurance (EI) contributions in your calculations. The following links will provide useful rate information for EI and CPP: - EI - www.taxtips.ca/cppandei/eirates.htm - CPP - www.taxtips.ca/cppandei/cpprates.htm EXHIBIT 2 (CONTINUED) Section

5: Banking services and money management

The Smiths have been looking at guaranteed savings options with their bank, in the form of bank term deposits, as they decide how to best use the money that they are planning to save. They would like to invest their savings and yet have money available when it is needed. Assume that bank term deposits have a minimum investment of $50. This presents no problem for them but the minimum lock-up period is one year, with some flexibility thereafter.

Available term deposits

Term Annual Rate of Return (%) 1 year 3.8 2 year 4.0 5 year 4.5 For this section, consider the following: i. What investment maturities should the Smiths consider in saving towards a different car? ii. What investment maturities should the Smiths consider in their RESP? iii. Are bank term deposits the right investment for all of the familys investment needs? iv. If most Canadian economists believe that inflation will be significant over the next two to five years, how might this affect the familys savings plans? v. Based on the personal financial statements that you have constructed so far, does the family have enough liquidity to do all of the things it plans to do? Will any adjustments be required?

Section 6: Assessing, managing, and securing credit

The Smiths have a credit card balance that is larger than what they are comfortable with, as they are getting close to their credit cards limit. For the last six months, they have made only the monthly minimum payment, to keep the account current. This payment is barely making a dent in the balance. Joel is concerned that if they continue to make only the minimum required payments they will never pay down this debt. Their current savings earn 4.5% interest with monthly compounding and their credit cards have rates that average 21.9% interest with monthly compounding. Amber and Joel would like you to show them the effect that the difference in these two rates is having on their savings goals and whether or not this situation is something they should worry about.

They were excited when they recently received a letter that invited them to apply for a new credit card with a $50,000 limit. Although they do not recognize the company offering the new card, several of their friends and neighbours have received the same letter. Amber mentioned that she is excited at the prospect of a new card, as it will make it easier to plan vacations and other purchases. It will make their needs and wants so much more affordable. The thought of another credit card concerns Joel slightly and he would like you to comment on this.

Section 7: Personal loans

Amber and Joel would like to spend no more than $2,500 on a down payment for Joels new (or newer) car. A friend recently offered them $1,200 for Joels old car and he is willing to pay cash and take delivery as soon as the Smiths are ready to sell. The car that Joel has his eye on is a used model that is currently at a nearby dealership, priced at $21,000 plus Provincial Sales Tax (PST) and Goods and Services Tax (GST), both at 5%. They would like to put their $2,500 of savings and the $1,200 proceeds from the old car against the newer model as a down payment. They will finance the rest of the purchase. The most favourable borrowing rates they can find are from the dealership, with the following terms (compounded semi-annually): 2.9% for three years, 3.9% for four years and 4.5% for five years. They would like to pay for the car as quickly as possible, but do not want to make a monthly payment that is any larger than $550 per month.