“Financial Capability: is a relatively new term that was chosen in 2005 by the participants of the first Canadian national symposium on “Canadians and their Money” (www.fcac-acfc.gc.ca/eng/Publications/SurveyStudy/Misc/PDFs/SEDI-FCAC_FinCapability_e.pdf)
to encompass the notion that we, as independent adults, should not only be knowledgeable about the basic areas of personal finance but we should also feel competent in making independent decisions as well as be able to take responsibility for our financial well-being.
A generation ago, “financial capability” for most Canadians meant knowing how to balance a chequebook, paying off one’s mortgage and, if one was fortunate, to collect a guaranteed pension at the age of 65. Within the last two decades, with increased job insecurity, the complexity of family life, and an explosion of financial products and services in the marketplace, many people feel overwhelmed by the overload of decisions to be made on a daily basis and rely, often to their detriment, on the often self-serving advice of members of the financial services industry.
It is true that there are numerous public, para-public and private financial institutions that profess to provide Canadians with financial information. Given our 24/7 access to the internet in particular, one would think Canadians had all the information they needed to acquire knowledge and make informed decisions.
Unfortunately, that information is often biased to sell a specific product or focus on one area of personal finance without taking into consideration the individual’s overall personal objectives and other concerns. Independent professional advice is available to those who can afford to hire an expert, but many Canadians cannot afford nor find the help appropriate to their needs. In fact, most adults should be able to understand and apply the basic concepts of financial planning to their situation, and armed with this knowledge, be in a better position to make informed choices and avoid either making costly mistakes or dealing with outright fraudsters.
The Federal government has already established the Financial Consumer Agency of Canada (www.fcac-acfc.gc.ca) which has begun conducting surveys on consumer financial knowledge in Canada and supporting web-based financial education for young people but I think the FCAC should be much more proactive, in providing direct assistance to adults of all ages in developing financial capability.
Sunday, November 30, 2008
Tuesday, October 21, 2008
Fear and Loathing in the Markets strikes again...and again
Few people with any kind of financial interest in the markets are unaware of the current crisis, how it started and how various governments are trying to stabilize the situation and avert a freeze on global credit that would lead to a further meltdown in portfolio values.
No one knows how long this crisis is going to last( check out Warren Buffet's missive at http://www.nytimes.com/2008/10/17/opinion/17buffett.html) This appears to be always the case with seemingly "one of a kind" financial tornadoes that actually do pass thru our lives with surprising regularity every 5 or 10 years (i.e. 2001 aftermath of 9/11, the tech boom and bust of the late 90's, Black Monday in October of 1987) and so on.
So what does all this mean for you and for me? For anyone with money invested in securities,either registered or unregistered, the first question to ask oneself is "do I need this money now?" If yes, you have to weigh the cost of borrowing other funds to meet short term needs against the cost of crystallizing losses now if you convert your securities to cash. If you must sell stocks, consult a tax accountant before giving the sell order because the choice of whether to draw from a registered or unregistered account and which securities to sell may yet save you some taxes which will hopefully lessen the pain of your stock losses.
If you don't need the money and assuming you have it invested in the asset mix best suited for your risk profile, then leave it where it is for now. Avoid checking your portfolio obsessively- limit yourself to once a week or so. This will prevent you from rushing into action and give you time to reflect on how you will eventually re- balance your portfolio in order to restore your optimum asset mix.
This will likely be sometime after the U.S. Presidential elections and ideally at some quiet interlude in the financial storms so you can do an objective review of your holdings as you would ordinarily do when following a regular portfolio monitoring schedule.
Because in the end, you cannot predict nor control what the markets- and others are doing. You can only control your actions. So at least if you govern yourself according to your needs and your schedule, you will never have cause to regret a decision because you know it was the best decision you could make at the time.
No one knows how long this crisis is going to last( check out Warren Buffet's missive at http://www.nytimes.com/2008/10/17/opinion/17buffett.html) This appears to be always the case with seemingly "one of a kind" financial tornadoes that actually do pass thru our lives with surprising regularity every 5 or 10 years (i.e. 2001 aftermath of 9/11, the tech boom and bust of the late 90's, Black Monday in October of 1987) and so on.
So what does all this mean for you and for me? For anyone with money invested in securities,either registered or unregistered, the first question to ask oneself is "do I need this money now?" If yes, you have to weigh the cost of borrowing other funds to meet short term needs against the cost of crystallizing losses now if you convert your securities to cash. If you must sell stocks, consult a tax accountant before giving the sell order because the choice of whether to draw from a registered or unregistered account and which securities to sell may yet save you some taxes which will hopefully lessen the pain of your stock losses.
If you don't need the money and assuming you have it invested in the asset mix best suited for your risk profile, then leave it where it is for now. Avoid checking your portfolio obsessively- limit yourself to once a week or so. This will prevent you from rushing into action and give you time to reflect on how you will eventually re- balance your portfolio in order to restore your optimum asset mix.
This will likely be sometime after the U.S. Presidential elections and ideally at some quiet interlude in the financial storms so you can do an objective review of your holdings as you would ordinarily do when following a regular portfolio monitoring schedule.
Because in the end, you cannot predict nor control what the markets- and others are doing. You can only control your actions. So at least if you govern yourself according to your needs and your schedule, you will never have cause to regret a decision because you know it was the best decision you could make at the time.
Sunday, September 7, 2008
Laertes’s Lesson
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry
Lord Polonius to his son Laertes in Shakespeare’s Hamlet, 1603.
This was good advice to the young student, Laertes, in Shakespeare’s time and it is still good advice today. Never lend friend money that you can’t afford to lose and be very careful when you get offered a loan that sounds too good to be true.
But there is such a thing as “good credit”, that is a loan taken to finance an investment which will reap future rewards, such as an education leading to rewarding employment. So the question for today’s student is….
To borrow or not to borrow…(abject apologies to Shakespeare).
Should you, as a cash-starved seeker of knowledge, take up your banker’s friendly offer for a credit card and/or a line of credit, to “supplement” your government student loan?
First of all, figure out if you are a “spender” or a “scrimper”
If you are a spender- and you know if you are if you shop “to relax”, or like to buy tickets for every new show or find yourself drawn to the latest gadget-and stay away from those too good to be true credit offers. Stick to your plain vanilla student loan and one, only one, emergency credit card (to be kept out of sight in your wallet). Do not, I repeat, do not take a line of credit because it will only tempt you to spend money “cheaply” that you do not have.
But what if the student loan/ your savings/mom and dad’s stipend are not enough? Get a part-time job. In fact, get a fun part time job, like at a student bar featuring live bands or a funky cafe because it will kill two birds with one stone, you’ll earn income while being entertained. I do not understand the argument that students should not be “distracted” from their studies; you are young, energetic and hormones are raging. It is not a question of whether or not you will be distracted, but how, and at least while working you are not spending money but earning it.
If you are a scrimper on the other hand, you may have sufficient funds to support your quasi-monastic lifestyle but perhaps you are not taking full advantage of the offers that come your way. Do apply for the “no interest until you graduate” student loan and learn how to invest the funds prudently but for profit until you are ready to pay back the principal. Do apply for a credit card and use it regularly, but always repaying the balance in full each month, in order to build up your credit (something impossible to do as a student 25 years ago, ask your parents). But you are too smart to take up the line of credit offer unless you had a valid reason to do so I don’t even need to advise you about that.
What if you are already up to your ears in debt? Do not put your head in the sand and hope it will go away. Make yourself a strong pot of coffee, sit down in a quiet place and look at your bills with an objective eye. No time for regrets now. List your debts (creditor, total amount, monthly payment with due date, annual interest, fees being charged) on one piece of paper ranked from the highest interest rate to the lowest interest rate (you can do this on a computer of course, but there is nothing like a sharp pencil and a manual calculator to focus one’s attention to the task at hand). What is your monthly income? What is your “what I need to live” budget? Whatever surplus you have after paying for your room and board must be applied to your highest ranked debt with minimum payments made to the other debts until you knock each one off. No surplus? Think about getting that fun part-time job discussed earlier. Still cannot make ends meet? Then see your campus financial counsellor (if you haven’t already) and discuss your options frankly.
Remember, there is a reason why all the banks want you as a customer: you are young, smart and have great earning potential ahead of you. But don’t allow yourself to become a marketing victim, take charge of your finances now and, as Lord Polonius so wisely said, “to thine own self be true”
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry
Lord Polonius to his son Laertes in Shakespeare’s Hamlet, 1603.
This was good advice to the young student, Laertes, in Shakespeare’s time and it is still good advice today. Never lend friend money that you can’t afford to lose and be very careful when you get offered a loan that sounds too good to be true.
But there is such a thing as “good credit”, that is a loan taken to finance an investment which will reap future rewards, such as an education leading to rewarding employment. So the question for today’s student is….
To borrow or not to borrow…(abject apologies to Shakespeare).
Should you, as a cash-starved seeker of knowledge, take up your banker’s friendly offer for a credit card and/or a line of credit, to “supplement” your government student loan?
First of all, figure out if you are a “spender” or a “scrimper”
If you are a spender- and you know if you are if you shop “to relax”, or like to buy tickets for every new show or find yourself drawn to the latest gadget-and stay away from those too good to be true credit offers. Stick to your plain vanilla student loan and one, only one, emergency credit card (to be kept out of sight in your wallet). Do not, I repeat, do not take a line of credit because it will only tempt you to spend money “cheaply” that you do not have.
But what if the student loan/ your savings/mom and dad’s stipend are not enough? Get a part-time job. In fact, get a fun part time job, like at a student bar featuring live bands or a funky cafe because it will kill two birds with one stone, you’ll earn income while being entertained. I do not understand the argument that students should not be “distracted” from their studies; you are young, energetic and hormones are raging. It is not a question of whether or not you will be distracted, but how, and at least while working you are not spending money but earning it.
If you are a scrimper on the other hand, you may have sufficient funds to support your quasi-monastic lifestyle but perhaps you are not taking full advantage of the offers that come your way. Do apply for the “no interest until you graduate” student loan and learn how to invest the funds prudently but for profit until you are ready to pay back the principal. Do apply for a credit card and use it regularly, but always repaying the balance in full each month, in order to build up your credit (something impossible to do as a student 25 years ago, ask your parents). But you are too smart to take up the line of credit offer unless you had a valid reason to do so I don’t even need to advise you about that.
What if you are already up to your ears in debt? Do not put your head in the sand and hope it will go away. Make yourself a strong pot of coffee, sit down in a quiet place and look at your bills with an objective eye. No time for regrets now. List your debts (creditor, total amount, monthly payment with due date, annual interest, fees being charged) on one piece of paper ranked from the highest interest rate to the lowest interest rate (you can do this on a computer of course, but there is nothing like a sharp pencil and a manual calculator to focus one’s attention to the task at hand). What is your monthly income? What is your “what I need to live” budget? Whatever surplus you have after paying for your room and board must be applied to your highest ranked debt with minimum payments made to the other debts until you knock each one off. No surplus? Think about getting that fun part-time job discussed earlier. Still cannot make ends meet? Then see your campus financial counsellor (if you haven’t already) and discuss your options frankly.
Remember, there is a reason why all the banks want you as a customer: you are young, smart and have great earning potential ahead of you. But don’t allow yourself to become a marketing victim, take charge of your finances now and, as Lord Polonius so wisely said, “to thine own self be true”
Saturday, August 16, 2008
Madonna and me- Both 50 and Kicking it!
What does it mean to turn 50? For the Material Girl, it appears to mean just keep doing what you have been doing all along i.e. shaking that booty and grabbing headlines through any means possible.
For the rest of us though, it's a wake up call, it's "now or never" or indeed, it's about transitioning into our next phase of life, whatever that may hold. It's time to take stock of our resources and assess if we have what it takes to realize our personal objectives going forward. If you are fortunate, you are in relatively good health, the one area over which we have little control, despite all our medical technology. It is my personal theory that if you make it through your fifties, the decade when hereditary or lifestyle abuse problems are most likely to crop up, you're "good to go" for another 30 years. Either way, good health or no, this is the time to address your personal wealth situation and make some big decisions.
Still have personal debt? Make eliminating debt your priority. Up to age 45, it makes sense to take on debt to finance and education or purchase a home while putting savings into registered retirement savings plan (RRSP) for long term compounding of investment returns. After age 45, the rule of thumb is to concentrate on wiping out debt, particularly if you have fallen into the line of credit trap (and I'll admit I have) to finance family expenditures. You can do this by easing up on RRSP contributions if you have to (assuming you have been fully funding your RRSP to date) or doing your RRSP contribution and then using the refund to pay down debt (AND REALLY DO THIS- DON'T SPEND IT!).
Maybe more drastic measures are needed to put you in the black during this critical pre-retirement decade? Look at your income and your expenses. If you are not making enough money (and who is?) think about ways to augment your income by taking on a part-time job or starting your own business (get advice on how to deduct expenses from a tax accountant). If overspending is the problem, take a hard look at how you can reduce overhead expenses (such as cable/internet/telephone utilities, a growing budget breaker) and incidentals such as banking fees and entertainment. If teenagers and adult kids are sucking you dry, now is the time, for your sake and theirs, to talk about sharing expenses and monitoring spending. Let your kids pay their own cellphone for starters, and watch how they will cut down their usage voluntarily, and learn how to be responsible for paying bills on time.
If you are not in good health, do review your will, your power of attorney (mandate in case of incapacity in Quebec) and talk to your family about your financial situation (i.e. disability or other insurance, business concerns) and your personal wishes in the event you are not able to manage your own affairs. If you are in good health, do the same, because of course we never know what can happen around the corner.
Regardless of your health and wealth profile, do take this time to reflect on what is important to you. Are you doing the things that give your life meaning? Are there obstacles real or imagined that are keeping you from making a difference in your community? Look for inspiring stories of people who started second careers or found new purpose in their lives after age 50 (apparently this a growing phenomenon as baby boomers have no intention of going gently into that good night) and have a wonderful time getting to 60!
For the rest of us though, it's a wake up call, it's "now or never" or indeed, it's about transitioning into our next phase of life, whatever that may hold. It's time to take stock of our resources and assess if we have what it takes to realize our personal objectives going forward. If you are fortunate, you are in relatively good health, the one area over which we have little control, despite all our medical technology. It is my personal theory that if you make it through your fifties, the decade when hereditary or lifestyle abuse problems are most likely to crop up, you're "good to go" for another 30 years. Either way, good health or no, this is the time to address your personal wealth situation and make some big decisions.
Still have personal debt? Make eliminating debt your priority. Up to age 45, it makes sense to take on debt to finance and education or purchase a home while putting savings into registered retirement savings plan (RRSP) for long term compounding of investment returns. After age 45, the rule of thumb is to concentrate on wiping out debt, particularly if you have fallen into the line of credit trap (and I'll admit I have) to finance family expenditures. You can do this by easing up on RRSP contributions if you have to (assuming you have been fully funding your RRSP to date) or doing your RRSP contribution and then using the refund to pay down debt (AND REALLY DO THIS- DON'T SPEND IT!).
Maybe more drastic measures are needed to put you in the black during this critical pre-retirement decade? Look at your income and your expenses. If you are not making enough money (and who is?) think about ways to augment your income by taking on a part-time job or starting your own business (get advice on how to deduct expenses from a tax accountant). If overspending is the problem, take a hard look at how you can reduce overhead expenses (such as cable/internet/telephone utilities, a growing budget breaker) and incidentals such as banking fees and entertainment. If teenagers and adult kids are sucking you dry, now is the time, for your sake and theirs, to talk about sharing expenses and monitoring spending. Let your kids pay their own cellphone for starters, and watch how they will cut down their usage voluntarily, and learn how to be responsible for paying bills on time.
If you are not in good health, do review your will, your power of attorney (mandate in case of incapacity in Quebec) and talk to your family about your financial situation (i.e. disability or other insurance, business concerns) and your personal wishes in the event you are not able to manage your own affairs. If you are in good health, do the same, because of course we never know what can happen around the corner.
Regardless of your health and wealth profile, do take this time to reflect on what is important to you. Are you doing the things that give your life meaning? Are there obstacles real or imagined that are keeping you from making a difference in your community? Look for inspiring stories of people who started second careers or found new purpose in their lives after age 50 (apparently this a growing phenomenon as baby boomers have no intention of going gently into that good night) and have a wonderful time getting to 60!
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