In March, the federal government released their much-anticipated budget. Alongside the budget cuts we've all grown to know (but admittedly, not love) was an interesting, yet perplexing, announcement: Canada is getting rid of the penny.
Although for a while it seemed everyone had an opinion about it (putting new meaning to the term 'a penny for your thoughts?'), most of us just felt, well, confused.
To ease your mind, we're offering our 'two cents' (and plenty of puns), providing you with everything you need to know about a penny-less Canada and frankly, how it can benefit us all.
Penny wise and pound-foolish
Over the years, inflation has devalued the penny to 1/20th of its original purchasing power. As it stands, each penny costs 1.6 cents to produce (or .6 cents more than its actual value) causing an $11 million deficit each year.
Although most of us were largely unaware of it until recently, the general public has been picking up the tab for the penny's less-than-market value through our taxes. That's right, the penny is costing us 11 million unnecessary dollars every year.
Furthermore, the one-cent piece also costs businesses and financial institutions a 'pretty penny' to handle, store and transport a piece of currency that holds little economic value.
Needless to say, it's about time we axed the little copper coin, but how will we get on without it?
We will soon find ourselves without two pennies to rub together
The government plans to cease distribution of the penny in the fall of 2012, which essentially means they are going to slowly start eliminating the coin from our daily transactions.
When that time comes and distribution ceases, businesses will be asked to return their pennies to financial institutions to be melted down.
But fear not penny enthusiasts - although the penny will no longer be minted, we can use them to make an exact payment if we still have some lingering in our change purse come fall.
It's also important to know that the elimination of the penny only impacts cash transactions - debit and credit purchases as well as paycheques, personal cheques and electronic transactions will still use the cent.
Furthermore, the government isn't entirely sure how long it will take to fully eliminate the penny because of speculated "penny hoarding," so the penny will likely take years to fully disappear.
So my pennies are gone, now what?
To manage penny-less change, a rounding system will be implemented for cash transactions after tax is calculated. Transactions ending with .01, .02, .06 and .07 will be rounded down and those ending in .03, .04, .08 and .09 will be rounded up.
Before you panic about your $4.48 latte being rounded up to $4.50, let's take a look at how getting rid of the penny is going to benefit consumers.
How it (literally) makes cents for you and me
As we've mentioned, you can keep using pennies indefinitely to make exact change. You can also redeem any rolled pennies you might have at financial institutions, so you aren't losing money on the pennies you have in your possession.
The rounding of cash transactions should have little or no impact on consumers. Mathematical modeling and case studies from other countries have demonstrated that the rounding system evens out for people over time; so while maybe you had to round up a purchase one day, you might get to round down the next.
Plus, think of all the times you've dropped your pennies in a take-a-penny-leave-a-penny bin, told the teller to keep the change, or let nearly a dollar in pennies weigh down your wallet. The reality is, most people aren't using their pennies effectively anyway.
Potential tax savings
Saying goodbye to the penny also means bidding farewell to the $11 million yearly deficit it creates and the tax dollars that go toward filling that void. The use of other coins, which are actually worth more than they cost to produce, will be used more frequently.
The best news: this can translate into a budget surplus and the ability to refuel some of the budget cuts announced alongside the decision to drop the penny. It also means our tax dollars will be going to the services that are important to us, rather than to make up for the fiscal loss caused by the penny.
For businesses, the penny gone is a penny earned
Businesses can continue to price in one-cent increments (yes 99 cent pricing is here to stay), and will have no need to change their prices.
As with consumers, the rounding system will even out for businesses as well. But more importantly, the decreased cost and effort associated with carrying, handling and purchasing the penny will likely help to fuel business earnings, which means a potential economic boost.
Even the environment will profit
By discontinuing the mint of the penny, Canada is able to reduce the base metals being used to create it and can recycle the materials from the pennies melted down.
In addition, since billions of pennies no longer need to be transported across the country, the negative environmental effects of distribution are lessened as well.
It worked for them and it will work for us
Eliminating the one-cent piece has been very successful in other countries. Australia, New Zealand, Finland and many others eliminated the coin with little impact on citizens and some great corresponding financial benefits.
Perhaps the new rounding system will take a bit of getting used to, but this is a small adjustment for some potentially big personal and economic gains. Indeed, a more effective economy is good for everyone.
There's just one problem....how does "a nickel for your thoughts" sound?