The cost of not developing some understanding of what impacts your finances is high. Credit is much more accessible than ever before. Corporate pension plans and job security are a thing of the past. An explosion of financial advisors and the introduction of technology and new products are making the world of personal finance more complex. Unfortunately, an annual government awareness program and a few tweets here and there is not going to stem this tide.

It’s up to you to take charge.

To be considered truly ‘financially literate,’ there are three areas in which you should be highly proficient:

1. Technical knowledge
2. Self-knowledge
3. “Other Guy” knowledge

Technical knowledge is the ability to make a budget so you can plan to pay off debt for example. It’s the understanding of key concepts like how compound interest works and whether you should invest in an RRSP or a TFSA.

Most of us already have some technical knowledge and if we don’t it’s something that’s easy to attain.  There is no shortage of free information available to help you learn about the different personal financial topics that exist. There is the Financial Consumer Agency of Canada online library of resources on how to take control of your money, pay off debt, and know your rights as a consumer right available on their website. There is a plethora of financial literacy books, personal finance bloggers, YouTube videos, podcasts and web tutorials out there.

But while it is crucial to understand the technical side of personal finance, it’s even more critical to have self-knowledge, which is the ability to think critically, without emotion, before making a purchase. Given our personal debt loads, this is an area of financial literacy that needs to be improved, as we often buy before we think, especially with big-ticket purchases like houses and cars.

In addition to taking emotion out of the picture on a big purchase, you also need to have knowledge of the other guy. In other words, you need to know what’s in it for the salesman or advisor.

Consider what happens when you go to the bank. How many times have you been to a teller only to have them “interest” you in investing the cash sitting in your chequing account or get a new credit card? What about when you are trying to buy a home and end up qualifying for a mortgage that is six times your annual income?

When you think about the seller or the financial advisor’s motivation, you’re more likely to question before you buy – especially on emotionally charged purchases like cars and homes.

Putting It All Together

Let’s say you need to buy something as simple as a cellphone. Before you decide to make that purchase, take our three-pronged approach to evaluate your financial decision:

1. Research the technical knowledge you need to understand the contract by asking questions like how many minutes are included with the plan, how much data do I get, what are the payments terms and other details.
2. Understand WHY you want to buy that particular phone. Can you afford to buy it outright or will you need to go on an expensive payment plan? Does it have to be a brand new $2,000 Apple iPhone or are you willing to go for something less costly? Ask yourself if this is an emotional decision or a rational one.
3. Recognize the seller’s motivation. Is he going to make more money if you buy the iPhone or an extra accessory? Is he pushing you towards the latest gadget or is he willing to help you find a phone within your budget? Think and ask questions because his motivation affects the advice he gives and ultimately the amount you will spend.

So while promoting financial knowledge is a good idea, there’s only so much that the government, or a new budgeting spreadsheet, will do for your finances and your literacy. You need to take charge yourself. You need to learn how to engage in critical self-evaluation.

For more on how to improve your financial literacy and critical thinking skills, tune in to today’s podcast or read the complete transcript below.

Additional Links and Resources

• 10 Personal Finances Books That Make Great Gifts
• How Our Emotions Can Lead to Debt Problems
• Straight Talk on Your Money website

FULL TRANSCRIPT – SHOW 218 A Three-Pronged Approach to Financial Literacy

Doug Hoyes:    Every year the Federal Government, through the Financial Consumer Agency of Canada, proclaims November to be Financial Literacy Month. Is there any point in the Federal Government promoting Financial Literacy Month? Does it accomplish anything? This year’s theme is Invest in your Financial Well-being.

The government wants to encourage Canadians to take control of their finances and reduce financial stress by making a budget, having a savings and debt reduction plan, and understanding their financial rights and responsibilities. Sounds good, right? The first Financial Literacy Month in Canada was in 2011, so this year marks the eighth official Financial Literacy Month, and since this is Season Number 5 of this podcast, that means I’ve already done four shows over the last four years on financial literacy education in Canada.

On my first show on the subject – Episode 9 back in November 2014 – my guest was Jane Rooney, Canada’s financial literacy leader then and now. In 2015 on show number 62 my guest was Dave Mitchell, a retired high school teacher, with his thoughts on how financial literacy can be taught in school. And in 2016 on show number 116 my guest was Prakash Amarasooriya, a young man heavily involved in his community with lots of ideas to share. And last year, on show number 166 I decided not to have any guests and I just went off on a 15-minute rant explaining why I didn’t think the government’s approach to financial literacy will work.

And here we are in 2018, and we are having the same conversation yet again. Has anything changed? Do we even have a financial literacy problem, and if we do what’s the solution? Obviously the government believes we have a financial literacy problem or else they wouldn’t be spending a lot of money on Financial Literacy Month.

The conventional wisdom is that we have a big financial literacy problem in Canada because debt levels are high and we tend to over-concentrate our assets in real estate, which is very dangerous. But I can make the argument that we’re doing fine. The economy seems to be doing well, bankruptcy rates are low, house prices are still decent, so maybe everything is fine. But I get it: Household debt is near record high levels and saving rates are at record lows, and that indicates that we aren’t good with money.

If two of the stated objectives of Financial Literacy Month are to encourage Canadians to pay off debt and save money, I’d say that it doesn’t appear to be working. So, to avoid me going off on another 15-minute rant, I have asked Ted Michalos to join me to keep the discussion on track.

So, Ted, the economy is doing well but we have record levels of debt, so what’s your opinion? Are we financially literate, or not?

Ted Michalos:   I don’t think debt levels have a lot to do with it as a measure of financial literacy. I go out and I buy an expensive house and I put a mortgage for two-thirds or three-quarters of the value, does that mean I’m financially [illiterate] or I have a lot of debt? I mean, the two things don’t necessarily connect. It’s a bad connection.

Doug Hoyes:    Okay, so before we get off the rails here, then, let’s start with the basic question. Let’s start with a definition: What is financial literacy? What are we talking about and how do you define it?

Ted Michalos:   It’s your ability to make reasonable financial decisions, so it’s a combination of knowledge and action.

Doug Hoyes:    Okay, I think there’s more to it than that, but I think that’s a good start. So let’s cover the basics of that first. So if financial knowledge is important, why is it important? I mean I can go on the Internet and I can use the Google and I can find everything I need to know, so is it really necessary to understand the difference between a TFSA and an RSP, you know, can’t I just Google what I need to know when I know it? Is it really that important?

Ted Michalos:   See, I knew you were going to ask me that question because I’ve got it right here in the script.

Doug Hoyes:    We’ve got a script here, okay.

Ted Michalos:   There are some basics about this stuff, five reasons why being financially literate is important now. So a hundred years ago every transaction you did was with cash, so cash is pretty easy to understand; you either have it or you don’t. If you don’t have it, you can’t spend it and you can’t get into too much trouble. Today nobody has cash. In fact, you know, my kids’ Monopoly set now comes with a credit card instead of paper money and it just drives me nuts.

Doug Hoyes:    Is that true? Wow.

Ted Michalos:   So people aren’t being taught to use cash anymore and the psychology behind a credit card or credit is significantly different.

Doug Hoyes:    Yeah, so everything is credit and debt now, which is electronic. You don’t have that cash in your hand so it’s not quite as real as you …

Ted Michalos:   You just don’t feel like it’s happening.

Doug Hoyes:    And as a result you can get into a whole lot more money. Okay, so that’s a good reason why it’s important to be financial literate. Reason number two?

Ted Michalos:   Yeah, we suffer the results of our decisions more than we ever have in the past, so in the past I could be a poor money manager throughout my life and I retire, I get a company pension and I’d be okay. Well, there are very few company pensions anymore, I mean we contribute to our employees RRSPs and hope that they’ll look after themselves, and we’re pretty typical. So now if I’m a poor money manager throughout my life I could end up just on government pensions.

Doug Hoyes:    Well, and we live a lot longer too, I mean a hundred years ago you retired at 65, died at 67 —

Ted Michalos:   And everything was okay.

Doug Hoyes:    Yeah, it was all good back then. So okay, we suffer the consequences of our decisions a lot more, so therefore it’s important to make good decisions.

Ted Michalos:   To make better decisions.

Doug Hoyes:    Okay, that makes sense.

Ted Michalos:   Okay, so the third reason: Finances are a lot more complex than they used to be. So remember the first point was you had cash, you spent it, it was gone and you couldn’t spend any more. Well now you’ve got access to so many different credit tools, you’ve got so many different saving vehicles. Now, there’s no way that any one person can be fully knowledgeable on any of this stuff anymore, particularly someone that’s- you know, that’s not what they do for a living.

Doug Hoyes:    Yeah, and so as a result I can much more easily make perhaps not the optimal decision, I put it in this and that and so on.

Ted Michalos:   Well, and you’re influenced by marketing more than you ever were in the past, so this is the newest thing, it must be great, you go out and you do it.

Doug Hoyes:    Yeah, and back in the days of cash, I took my cash and I bought my stuff. Right, there wasn’t a whole lot of marketing at the general store.

Ted Michalos:   And the extent of your bank accounts was I put it in a savings account so I could buy the next big thing.

Doug Hoyes:    And that was probably back when they actually paid interest in a savings account, so those are the good old days. So okay, so those are three reasons why being financially literate is important.

Ted Michalos:   So number four, let’s talk about technology. So it used to be if you wanted to have a bank account you had to actually go into the bank. So now if I want to deposit my pay check … My pay check is automatically deposited like most people, but if it wasn’t I’d take a picture on my phone and it’s in the bank. So I don’t go to the branch anymore, I don’t necessarily fully understand the whole system anymore, it’s just all automated.

Doug Hoyes:    Well, and I’m not going to mention what bank I’m with because I think they’re all the same, but I’m now getting this message popping up saying, we need to enable [two factor authentication], you know, what’s your phone number, what’s your email, please click it here.

Ted Michalos:   Text me here, phone me here.

Doug Hoyes:    Yeah, and so I’m thinking, okay, well if I lose my phone or if my phone’s in the car and I’m trying to make a transaction, what, I can’t get into my own bank account now? And I’m reasonably sophisticated.

Ted Michalos:  Reasonably.

Doug Hoyes:    I have a kid who can show me how to turn on my phone, so that’s good, but what if I’m a senior and I don’t have a smartphone and I don’t know how to do all this stuff, ew? You know, so I think that technology is great, but it also makes things a little more difficult, so it’s one more thing to learn about.

Ted Michalos:   Right. And the last [person] is that there’s just so many people doing it. Let’s just use the bank as an example. It used to be you’d go into the bank and you’d see the teller, you’d know the teller or the teller would know you, and they’d ask you about your kids. I actually still get this level of service at my bank.

Doug Hoyes:    Oh wow!

Ted Michalos:   Because they know me, and my kids are cute. But most people don’t know who they’re talking to anymore, there’s no relationship anymore, and they do that on purpose, there’s a selling experience when you need a new service but beyond that it’s, you know, you’re just a number in the machine.

Doug Hoyes:    Okay, so that’s five good arguments why it would be good to have more financial knowledge, be more financially literate, but, you know, I also made the point at the start that after eight years the government’s approach to financial literacy doesn’t seem to be working, so is there any point in the government continuing to lead the charge on improving financial literacy? And before you answer the question as to whether government lectures are the solution, because I think anyone who is listening to this podcast knows what your answer would be, I’m asking a rhetorical question.

Let me ask you a real question. So you mentioned that you’ve got, you know, three cute daughters, they’re all like little kids; they’re not teenagers yet. Kids learn through trial and error, reading, asking around, you know, watching their parents. Lectures from teachers are probably not the best way, in most cases, to learn real-life skills or to get people to take action, so should the government continue to fund Financial Literacy Month? Is there any point?

Ted Michalos:   Well, let’s start with a really short answer. Should the government teach me how to cook dinner?

Doug Hoyes:    That’s a good question.

Ted Michalos:   I don’t think the government can be any more effective at teaching financial literacy than it can at teaching my kid how to make spaghetti sauce. I think it’s one of those skills that at that high level what the government is doing, they’re providing- it’s a photo op for the government, this is something we’re doing, it sounds like motherhood, we’re doing something good.

Doug Hoyes:    You’re saying it’s political? Is that what you’re saying? You’re saying the government is doing something political to help them get re-elected.

Ted Michalos:   The utility of Financial Literacy Month is questionable, in my opinion.

Doug Hoyes:    Questionable, there you go. So there’s your condemnation of it.

Ted Michalos:   Right.

Doug Hoyes:    Okay, so we can all agree that we can be better at managing our money, and we can all agree that government programs are probably not the best path to freedom.

Ted Michalos:   Correct.

Doug Hoyes:    So what can we do? So how can we as individuals be more literate about managing our money? Because the whole point of this show is to give practical advice to people, not to be speaking in fancy words and code that doesn’t mean anything. So at the start of the show you said that financial literacy is knowledge plus action, knowing what to do and how to do it. Now, I said I think there’s more to it than that, so the Doug Hoyes three-pronged approach to financial literacy here – and I guess I should patent that phrase – is there are three things: Technical knowledge is important; self-knowledge and knowledge of the other guy would be the three prongs that I would talk about.

So, I think to consider yourself to be financially literate you need the technical knowledge. That makes sense.

Ted Michalos:   Yeah.

Doug Hoyes:    But also those other two things. So you agree that technical knowledge is important; that was how you started off. So to complete the discussion, give me some examples of what we are talking about when we say you need technical knowledge?

Ted Michalos:   Okay. So, first and foremost – and it’s not the order that we’ve got them in the script here – the most important thing you’ve got to understand is the concept of interest. Interest is simply how much it costs for other people to use money, so it’s renting money from somebody else. When you put money in a savings account the bank pays you interest because they’re using your money someplace else. When you borrow money from a bank on a credit card, a loan, a line of credit, anything, you are paying interest because you are using somebody else’s money. Understanding interest and compounding interest is the single most important thing, and very few people actually get that.

Following from that, then, you need to be able to keep track, there’s an accountability issue, so how do you make a budget; how do you keep track of what you’re earning and what you’re spending? It’s just ins and outs. Don’t let the accounting terms scare you or intimidate you, but if you don’t actually keep track of how you are using your money how are you going to change the way you use it?

And third, you need to understand some key differences to some of the products that are out there. So for example, right now you can get a tax-free savings account, TFSA. How is that different from an RRSP? So the jargon is quite intimidating for a lot of people and we should set a list of specific jargon, specific terms you should be familiar enough with, at least to understand what they are to see if you’d want them.

Doug Hoyes:    And I think what you’re describing is how most people would think of financial literacy. Yeah, okay, I need to understand how interest rates work and what compounding is and all the rest of it. And that’s the focus of the government’s website, when you look at it, you know, all of these things, but, you know, is it important for me to know all of those things, or is it important to know them when I need to know them? And most importantly, is the government doing the right thing on their website saying, okay, here’s all the basics, that’s what we’re going to explain? Is that really what the government should be doing?

Ted Michalos:   The role for the government in education is done through the schools and trying to educate the general public with a website or an ad campaign that lasts for a month every year, it’s ineffective is my opinion, it doesn’t make any sense.

Doug Hoyes:    I mean my opinion is there’s tons of resources out there.

Ted Michalos:   Right.

Doug Hoyes:    Why not …? There’s really no excuse why you can’t learn the difference between a TFSA and RRSP yourself, I mean there’s tons of —

Ted Michalos:   If you want to.

Doug Hoyes:    If you want to, yeah, I mean it’s not like a hundred years ago where if I couldn’t make it to the library I couldn’t learn anything. Now we’ve got all the knowledge of humanity on my phone, so I mean there’s tons of resources out there: FCAC has the Financial Literacy section on their website. Obviously there are Web articles, YouTube, tons of great personal finance books out there. There really is no excuse for not having access to the information, but I guess you hit the key point: you actually have to want to do it.

Ted Michalos:   And it’s got to be in a digestible format for you. So I could do a Google search right now on TFSAs and I could get one report from a technical advisor that will tell me all the minutiae of it, the actual tax laws associated with it, or I could get one from a bank saying these are the reasons why you should invest the money in this way and how it will grow. So there’s more to it than just the technical knowledge; you’ve got to be able to interpret it and appreciate it at your own level of expertise, and that’s probably where the education role comes in.

Doug Hoyes:    Yeah, but even searching around on YouTube, well okay I can find it, a two-minute video explaining the basics of a TFSA, or I can find a 30-minute lecture, so the resources are probably out there but you have to go and look for them.

Ted Michalos:   Yeah, and you have to use them.

Doug Hoyes:    And you have to use them. So okay, you know, my opinion is there’s no shortage of books, websites, blogs, apps, publications on personal financial topics.

Ted Michalos:   Did you mention books?

Doug Hoyes:    Yeah, you know books. We’ll talk books, I’ve got some suggestions. I think more knowledge is good, but I don’t think that’s the biggest problem when it comes to why financial literacy education is failing. I think the much bigger problem, and what’s much more important is actually understanding yourself, you know some self-knowledge. So I mean you mentioned my book so let’s talk about it, you know my book, “Straight Talk on Your Money”. I talk about how we don’t make rational decisions, we think we make all our decisions by gathering the facts in making a rational decision, but, you know, my opinion is facts don’t matter when it comes to making decisions.

Ted Michalos:   Whatever feels good or feels right.

Doug Hoyes:    Whatever feels good; it’s based on emotion, exactly right. So now I mean people are listening to this going, well of course facts matter. Well yeah, facts matter to the outcome. If you jump off a two-storey building you’re going to break your leg, that’s just a fact, so the outcome will be determined by the facts, but we don’t consider the facts when we make a decision, we consider them after the fact to justify our decision. So let me give you some examples.

Buying a house: I mean why are house prices so high? Well, you know, we want to own and so instead of renting I’m owning, I want to keep up with the Joneses, so even the renting may make more financial sense. That’s what we do.

Cars: Now you’re a car guy, you understand cars. Why is it that people buy cars? Is it because they analyze the fuel economy and the safety rating and that’s how they come up with the best car to buy, or is it something other than that in most cases?

Ted Michalos:   Oh damn, the single most important reason for most people is the colour. I like the way it looks.

Doug Hoyes:    Well yeah, I like the way it looks, exactly right, it feels —

Ted Michalos:   I like the way it makes me feel.

Doug Hoyes:    I can visualize myself driving to work in this car and that’s why I buy it, and then after the fact, if people ask me I say well it’s got really good fuel mileage —

Ted Michalos:   And the safety rating is high.

Doug Hoyes:    And the safety rating is high, and all the rest of it. Now those are all, you know, big dollar examples, but I think it’s the same for every kind of decision we make, so let’s talk about the book here: “Straight Talk on Your Money”. Page 8 I put a little bookmark in here, because I ask the question about toothpaste, which is not a big dollar decision, and I asked the question: So what brand of toothpaste do you currently use? How long have you been using it? Why did you start using that brand, and does that brand meet your criteria for the best toothpaste?

So I guess if we were informed consumers we’d make a chart and we’d say well okay, cavity prevention, whitening, breath freshening, cost, these are all the reasons that we should select a toothpaste, and yet in actual fact why do you use the toothpaste you use? Well, because I’ve always used it. That’s the one my parents used and now I use it, or well when I got married my spouse used that kind so I just switched to that kind. I mean maybe it was because it was on sale.

Ted Michalos:   Probably.

Doug Hoyes:    But is it a rational decision that we picked the toothpaste? No, it’s probably just entirely emotion. So if that’s how we’re making all these decisions, then that’s you know … Well, I’ve got more examples. There was the Caltech wine-tasting study. They took a bunch of the same bottle of wine and on some of them they put a higher price than others, and they asked people, hey, which one tastes better? Well, you know what happened.

Ted Michalos:   Right.

Doug Hoyes:    The higher-priced wines scored higher in taste even though they were identical. On Podcast No. 199 I had Robert Gignac on and we talked about the Diderot Effect, so I just bought a bigger house and so … or maybe a newer house, something a little better, and I look at it and oh, I can’t have my old couch anymore.

Ted Michalos:   You need stuff.

Doug Hoyes:    I need better stuff; even though I was perfectly happy with that stuff last week, now I’m not happy with it again. Again, it’s not a rational thing, it’s an emotional thing. So let’s go to the practical advice section of the show because otherwise I’m just going to keep ranting on and on in here. How can someone recognize that they’re making emotional decisions and kind of pull back and make it a little bit more rational?

Ted Michalos:   Okay. So you probably won’t recognize that you’re making an emotionally-based decision, so what we want you to do is just ask yourself some simple questions before you do something.

Doug Hoyes:    Yeah, because you’re in a bubble.

Ted Michalos:   Right.

Doug Hoyes:    And you can’t tell you’re in a bubble when you’re in a bubble. So okay, so what kind of questions should you be asking yourself?

Ted Michalos:   So probably the first one: Do you need it? So whatever this thing is you’re thinking about purchasing, buying, renting, do you actually need it? So are you getting it to fulfill a specific need, or are you getting it because I just saw an ad on TV and it looked pretty cool, or the model looked nice, or whatever the heck it was, right?

The second question then, okay, I’ve decided that I need it – can I afford it? So this one, nobody ever thinks of that. Sometimes they might think, can I afford the monthly payment, the weekly payment, can I actually afford to buy this thing that I’m buying? And I would add in here: Do I need it now? So do I need it? Do I need it now? Can I afford it? Because that’s kind of a sequence of events. I do need it but I don’t need it today so it doesn’t matter if I can afford it.

Doug Hoyes:    Yeah, and if I need it, or want it, and don’t have the cash for it today then obviously I’m going to have to finance it if I want it today, which brings a whole another component to it.

Ted Michalos:   Or you’re going to find a substitute. So that’s the next one. So, do I need it? Can I afford it? Is there an alternative? And sometimes the alternative, I mean it’s things you don’t think of. I’m not suggesting everybody go out and start doing Uber instead of buying a car or something, but there always are alternatives that you should at least take a second to consider.

Doug Hoyes:    Well, instead of the name brand toothpaste that I’ve always been buying is there some cheaper version?

Ted Michalos:   Buy whatever one’s on sale this week. People won’t do that.

Doug Hoyes:    Well, and maybe there’s valid reasons for not doing that, but again it’s have you thought about it, is really what you’re saying.

Ted Michalos:   Right. And so the last bullet really would be: Do you need to make this decision today? Is there any urgency to what you’re doing? So lots of times, particularly with big ticket items, people are either pressured into it because of the sales, or they pressure themselves into it: I want it now, I need it now, I’ve got to have it now. Almost always that’s not true. Put it off for a couple of days and maybe put it off for a couple of weeks, maybe a couple of months.

Doug Hoyes:    So waiting a few days, that’s makes perfect sense, because, you know, that’s a good one. I think that brings us then to the final element of my three prongs of financial literacy, which is understanding the other guy. So any time you buy something there’s you and then there’s the person who is selling it to you. Any financial transaction there’s two parties to it, and of course that person has their own biases, their own objectives, and so on.

So sometimes it’s really easy to figure it out. I go to the car dealership and I’m met by the car salesperson. It’s pretty obvious what the relationship is: They are there to sell me a car. So I go in there and I’m all on guard and I know they’re going to try to sell me something so I’m ready. But a lot of times it’s much less obvious and we already used the example of the bank. I go into the bank and I don’t get the same level of personal service you get, but I go in there occasionally and of course they can see who I am when I put my little card in the machine, and they go “Oh, Mr. Hoyes, I see that you have some cash in your bank account, would you like to invest in one of our mutual funds because you’ll earn a much greater rate of return?”

And on the surface you think, well that’s pretty good, you know, they’re obviously looking out for me. Well no, actually they earn a commission for selling you the mutual fund; they don’t earn anything if it stays there in the savings account. And I talked about this on Podcast No. 213 with Sandy Martin where she talked about the compensation matrix. The bank person, if they see that you’ve got some money in your bank account, will never suggest, hey, why don’t you make a payment against your mortgage and pay it down quicker? Why don’t you pay down your line of credit? No, it’s always something else where they earn a greater rate of return.

So sometimes waiting is the answer. Obviously the real answer is to think about what the other guy’s motivation is and what they’re saying. So what’s your practical advice to help someone understand the motivation of the other guy?

Ted Michalos:   Okay, so here’s a technical term for everybody. You’ve probably heard it before: caveat emptor.

Doug Hoyes:    Ah yes, Latin.

Ted Michalos:   “Let the buyer beware.” So, nobody is going to assume responsibility for you except for you. At the end of the day it’s your money, you’re the guy who has got to make the decision, the lady that’s got to make the decision, the person that’s making the decision.

Doug Hoyes:    You’re the boss.

Ted Michalos:   Nobody else is going to do that for you, and at the end of the day, if you make a bad decision you’re the one who has to live with the consequences. Be skeptical: Whoever you’re talking to, don’t necessarily believe them, they’ve got their own agenda and it doesn’t have to be an evil or a nefarious agenda, it’s just different than yours. The most important person to you is …

Doug Hoyes:    You.

Ted Michalos:   You. The most important person to them is them.

Doug Hoyes:    And that’s really what we’re talking about here, understanding that the person on the other side of the transaction has an agenda. Well, what would their agenda possibly be? The car salesperson, it’s easy to understand. The bank person, it’s a little trickier.

Ted Michalos:   Well the car salesperson, you bring that one up. The car salesman is not actually selling you a car, the car salesman is selling you the decision to buy the car, and then you sit down with the finance manager who sells you the car and six other products at the same time that you weren’t even thinking about.

Doug Hoyes:    And that’s why you’ve got to be skeptical and that’s why you’ve got to have your —

Ted Michalos:   And you’ve got to know what their agenda is.

Doug Hoyes:    Well, and as I said in chapter 3 of “Straight Talk on Your money”, nobody cares about your money as much as you do, and that’s really the point you’re making.

Ted Michalos:   There you go.

Doug Hoyes:    Well, I mean experts are buyers, bank tellers get paid a commission for what they sell you, and again Sandy Martin talked about the compensation matrix and how they are compensated, so, you know, you buy the mutual fund and they get a commission, you pay down debt, they don’t.

So let’s wrap up this three-pronged approach to financial literacy with a simple example. So let’s say that, you know, Ted, you’ve got a relative, a nephew, who is a teenager, and they come to you and say, “Hey, Uncle Ted, I’m going to the mall to buy a cell phone, so you’re wise, you’re a wise old man-

Ted Michalos:   Thank you.

Doug Hoyes:    -what advice would you give me on buying this cell phone?” So we’ve got the three prongs of financial literacy. So technical knowledge: What kind of things would you be telling them to be aware of?

Ted Michalos:   So you need to understand not only the features you’re looking for on the phone, but the features you’re looking for in the plan, the service plan for the phone. So the technical knowledge is how does the device work and how am I going to use that device? So that makes sense. So with the phone it’s I needed to have a decent camera because I like to take pictures of the dogs when they’re running in the yard. I needed to have a built-in calendar function because I use it like my personal planner. The service plan I never check so I don’t care about those minutes, but I’m talking to my kids all the time on the phone so I need lots and lots of minutes that I can share between plans, that sort of thing.

Doug Hoyes:    All teenagers need tons of texts; they don’t actually talk on their phone so —

Ted Michalos:   That’s right, so you need to understand the technicalities of the device or the service plan, whatever you’re getting too.

Doug Hoyes:    And that’s the kind of thing where you can go on the website, read through it all and understand what all the features are and what —

Ted Michalos:   You’ve got to do your homework ahead of time before you get there. This is part of knowing about the device, and again your point about knowing about yourself. You need to know what you want before you go shopping, or they’re going to tell you what you want, which is whatever they want to sell.

Doug Hoyes:    Well, and that’s the second prong is this self-knowledge, so understanding why it is that I want to buy that $1,000 new iPhone as opposed to something else that probably also takes pictures and sends texts.

Ted Michalos:   Right.

Doug Hoyes:    It’s a self-knowledge thing, so understanding what you yourself want. Okay, so the third prong, then, is understanding what the other guy’s motivation is, so the guy at the mall who is selling me this phone, I shouldn’t be taking his advice on what the best phone is, or how should I be approaching that?

Ted Michalos:   Well, again you’ve got to be skeptical, you’ve got to assume that he’s got an agenda and that he has to sell so many phones a day if he wants to keep his job, that’s how he gets paid. On the other hand you don’t have to assume that he’s evil, like he’s not going to put you in something that’s completely worthless, or if you get the vibe that that’s what’s happening you need to go someplace else. I mean there’s an inherent level of assumed trust in any kind of sales transaction. You don’t know what the salesman knows. You know what you need and hopefully they can find the right product for you, but at the end of the day they’re going to find a product for you, something for you to buy, whether or not it’s what you need or not.

Doug Hoyes:    Yeah, and I think that’s a good way of putting it. You shouldn’t assume that they’re evil because they’re not, they’re doing a job, I mean that’s what they’re there for.

Ted Michalos:   That’s how they make their living.

Doug Hoyes:    But by the same token, you shouldn’t assume that they’re perfectly aligned with you too. They might need to get rid of a certain brand of phone this month because they’ve got too many of them, so that’s the one that they’re pushing.

Ted Michalos:   Yeah, there’s the classic Christmas movie, right, where the Santa Clauses at Macy’s are telling him to shop someplace else, Macy’s is telling him to shop at Gimbels. It never happened in the real world because Santa Claus-

Doug Hoyes:    No, that’s definitely a fantasy.

Ted Michalos:   -Santa Claus doesn’t work in a real world. I lost you with that one, didn’t I?

Doug Hoyes:    Uh-oh, uh-oh, we’re not going to trash Santa Claus in this podcast, there are certain lines we just cannot go over. So okay, big picture, then, I think what you’re saying, if I may put words in your mouth, is you’re not a huge fan of the government being the lead dog on how to improve our financial literacy.

Ted Michalos:   Yes, I see it for what it is, and not very useful.

Doug Hoyes:    Okay. And so your advice to the average person listening to us today, then, who wants to be more financially literate is what?

Ted Michalos:   You have a responsibility to educate yourself, and there are lots of free resources available, and, as we mentioned earlier, you could Google any one of these topics. First and foremost, understand the concept of interest, compounding interest, and then second, understand that you need to appreciate what it is that you need, what you’re shopping for, before you actually go out and spend any money.

Doug Hoyes:    Yeah, and compounding works both ways. If you’ve got money that’s in savings it’s compounding, it grows, and if you’ve got debt, well it goes the other way, so.

Ted Michalos:   Right.

Doug Hoyes:    Okay, well I think that’s great advice and that’s why I say there’s three prongs to it. You’ve got to have the technical knowledge, tons of resources out there, feel free to use them – lots of them are free or have very low cost, but understand why you’re making the decisions you are and put yourselves in the shoes of the other guy so that you understand what’s motivating them.

Ted Michalos:   It’s not in anybody’s best interest, except for yours, to actually increase your financial literacy. It’s not in the bank’s best interest for you to understand how this stuff works, it’s certainly not in the retailer’s or seller’s interests for you to understand how all this stuff works. It’s only in your interest because you’re protecting yourself now and yourself for the future.

Doug Hoyes:    Yeah.

Ted Michalos:   Simple as that. I mean it’s up to you, your success is up to you, it’s not up to the government, it’s not up to any of these other advisors, it’s entirely up to you.

Doug Hoyes:    Right. Excellent, well I think that’s a great way to end it. Ted, thanks for being here today.

Ted Michalos:   Always happy.

Doug Hoyes:    That’s our show for today. Full show notes, including a transcript and links to everything Ted and I talked about today can be found at hoyes dot com, that’s h-o-y-e-s dot com. Everybody, enjoy Financial Literacy Month.

Thanks for listening. Until next week, I’m Doug Hoyes and that was Debt Free in 30.

The post A Three-Pronged Approach to Financial Literacy appeared first on Hoyes, Michalos & Associates Inc..

All 10 books are listed below, with the time stamp from the podcast, if you wish to jump ahead and listen to my comments on a particular book.

General Money Management

1. The Wealthy Barber Returns by David Chilton (2:35)
2. Wealthing Like Rabbits by Robert Brown (3:20)
3. 397 Ways to Save Money by Kerry K. Taylor (9:40)
4. Stop Over-Thinking Your Money by Preet Banerjee (11:06)
5. Debt-Free Forever by Gail Vaz-Oxlade (11:54)
6. Protecting Your Money – A Guide to Identity Theft and Fraud by Kelley Keehn (14:24)

Real Estate

7. When the Bubble Bursts by Hilliard Macbeth (19:32)
8. Burn Your Mortgage by Sean Cooper (23:26)

Retirement

9. Victory Lap Retirement by Jonathan Chevreau and Mike Drak (27:19)

Thinking

10. Thinking, Fast and Slow by Daniel Kahneman (28:48)

Of course, I am also quite proud of my own book, Straight Talk on Your Money, which I discuss briefly at the end of the show.The first five books on the list are great for all age groups. Books #6 and #9 are particularly good for either seniors or adult children of seniors, and book #10 is great for anyone who wants to take a “deep dive” into how our brains work.

I hope you enjoy the list!

FULL TRANSCRIPT – SHOW #170 10 Personal Finance Books That Make Great Gifts

It is December, 2017.  We’ve just finished Financial Literacy Month, where many people talked about some of the personal finance books they’ve read to learn about money management, and now as we head into the holiday season, I know what you are all thinking:

What books should I give as gifts this year?

And yes, of course, I think everyone should buy dozens of copies of my book and give them to everyone you know, but there are lots of other great books, so if I was starting a personal finance library, or if I wanted to give books to my adult children, or my co-workers, to help them better manage their money, where would I start?

That’s the question I’ll answer on this edition of Debt Free in 30.

Today I present a list of 10 personal finance books that you should read, or give as gifts.

Here’s how I compiled the list:  I picked books that I have read, so there may be lots of better books that I haven’t read, but since I haven’t read them, they aren’t on my list.

Next, all but one of the books on the list are by Canadian authors, and are written for Canadians.  There are lots of great American books, but I want to read about Canadian topics, like RRSPs, not American concepts like 401Ks.  The one American book on this list is not strictly a money book; it’s a thinking book, so the fact that it’s not a Canadian book doesn’t matter.

I also picked books that are readily available.  I checked, and they are all available at Amazon.ca, and most are easy to find in libraries and your local bookstore.

Finally, I picked books from four different categories:

1. General Money Management
2. Real Estate
3. Retirement
4. Thinking

And yes, I will admit that I made up these categories, but these categories allow you to focus on books that meet your interests.

That’s why this is not really a top 10 list.  There are lots of other books that perhaps you should read.  I have two real estate-themed books on this list.  If you are really interested in real estate, there are lots of other good books on that subject, so your list of important books will be different.

With that background, let’s get started with the first six books on the list, all from the category of General Money Management.

First, I would start with one of the best selling Canadian personal finance book of all time, The Wealthy Barber Returns by David Chilton, which is a follow up to his first book, The Wealthy Barber, which was also a best seller.  I’ve put The Wealthy Barber Returns and not the original book The Wealthy Barber on the list because the original one is much harder to find, and it’s expensive if you can find it, but, as I record this, The Wealthy Barber Returns is selling for about $10, brand new, on Amazon, so it’s a great value.

I like this book because it’s easy to read.  The chapters are short, there is a minimum of technical jargon, and he uses a story telling format, so it’s like reading a story, and not at all like reading a textbook.

Book number 2: If you like the narrative format, a more recent book is Wealthing Like Rabbits by Robert Brown.  Now full disclosure: while I’ve only exchanged voice mail messages with David Chilton, I’ve actually met Robert Brown, and I like him, so that may cloud my judgement, but I don’t think so, because I read his book before I met him.

The first time we met was back in 2014, when he was a guest here on Debt Free in 30.  Here’s what Robert Brown told me when I asked him to explain the title of the book, since I had never heard of the word wealthing, because, as I said to Mr. Brown, I don’t think the word “wealthing” exists.

Robert Brown: It exists now. And wealthing comes from an idea in the book where we take the word wealth, which you’re right is traditionally a noun, but turn it into a verb.

I think we use the word saving too much. We save in our RSP; we save when we go out for dinner and I think that whenever we do any saving that contributes to our overall net wealth we should call that wealthing. It’s just a little bit more fun and a little bit more exciting. And if you wealth like a rabbit, then you become wealthy very quickly.

Doug Hoyes: Because rabbits multiply very, very fast. And if you want to read the book you’ve got some examples of how that actually works. So, “wealthing” for you is more than just saving then.

Robert Brown: Sure, wealthing is a lifetime experience where you make a commitment over the course of your life. You’re putting a little bit more money away every week and building your net wealth.

Doug Hoyes: And as I’ve said off top, I’ve read the book. I think it’s a great book. Each chapter starts with a quote and the first quotation in the book is from Homer Simpson, so I was on board immediately, I watch that show every week.

In the book you talk about a bunch of other things, zombies, you’re quoting I believe both Captain Picard and Spock in different chapters in the book. The opening chapter I think is a fantastic chapter. You contrast two different paths. And I’m going to let people read the book to read it because I can’t describe it. It’s a fantastic opening chapter where you tell the story of a person who followed this path or that path and obviously one path is a lot better. Tell me what the main message then is that you’re trying to get across in this book. What’s the basic concept? What’s the key message here?

Robert Brown: Let me touch on a couple of things. The book is entitled Wealthing like Rabbits but its sub title is an Original Introduction to Personal Finance. And what I think makes my book a little unique is the style in which it’s written. I didn’t use a lot of charts or graphs or analysis to teach about money management and personal finance. I did use a lot of humour and antidotes and pop culture references. You mentioned Homer Simpson. You will also find quotes in there from Sheldon Cooper and Shrek. And every chapter’s a little different, a little eclectic if you will in the message that it teaches.

You talked about the first chapter which is a story about a lady named Lisa. She’s 57 years of age and in the first time we tell Lisa’s story she’s having a bad morning. She had a fight with her husband the night before about money and as you walk through the chapter, the story of Lisa, you can see examples of small decisions she’s made throughout her lifetime which have impacted her finances by the time she’s 57; and she’s got a bit of a tough road to haul.

We tell the same story over again and this is the same Lisa at 57 years of age, but she’s made different small decisions throughout the course of her life and those decisions have accumulated into a much brighter, financial future.

So, it’s not that Lisa in the first chapter has done something horrible. She’s invested in Texas oil stock that went south; she just made small decisions better the second time around which accumulated into a better lifestyle. And that’s how we kick off the book.

Doug Hoyes: And maybe that’s a really good summary of the book that it is – life is a whole series of small decisions and you’re right the difference between the really successful person and the not so successful person isn’t that, well I bought Apple stock 20 years ago and now I’m a multi-millionaire, it’s little, tiny things over and over that either work or don’t.

So, why don’t you give us one example of a little, tiny thing? And throughout the book there’s hundreds of examples, but what is – we like to talk about practical advice here on the show. What is one practical thing that I could do or not do, as a resident of this fine country of ours, that would either set me up for a greater chance of financial success or do the opposite?

Robert Brown: I’ll refer you to the chapters on mortgages or housing and there are actually three chapters in the book dedicated to specific things on housing; because your first home is arguably the most important purchase decision you will make throughout your lifetime. And I’m a big proponent of small houses as opposed to great big monster houses and I tell the first chapter is around mortgages.

And I tell the story of mortgages by telling the story of two brothers who are plumbers; you may have heard of them Mario and Luigi. And Mario and Luigi each go off to the bank to buy their first home with $100,000 down payment. Brother number one buys a big expensive home that he really can’t afford but he manages to talk the bank into giving him that mortgage. His brother Luigi buys a more modest home that cost $175,000 less. But as we go throughout the chapter, Mario actually ends up spending $400,000 more than his brother by the time he gets the mortgage paid off. And throughout that chapter we teach how a mortgage works and the different terms that come with a mortgage. But we also show how a smaller down payment and default insurance and spreading it out over a longer period of time cost his brother so much more money.

So you can see why I’m such a big fan of Wealthing Like Rabbits.  Robert tells a story, so it’s easy to understand, but his philosophy is very closely aligned to my own thought process.  In the example he just told about Mario and Luigi he illustrates the perils of buying too big a house, a theme I also discuss in my book.

Wealthing Like Rabbits has lots of great advice, so it’s definitely on my reading list.

When it comes to money management, there are only two ways “increase your bottom line”, or have more money left over at the end of the month; you either have to increase your income, or reduce your expenses.  There are lots of books out there about how to find a better job, but on the “how to save money” side of the equation there is one book that is easy to read and is packed with lots of practical tips, and that book is 397 Ways to Save Money by Kerry K. Taylor.

Kerry, who has been a guest twice on this podcast, is the proprietor of the Squawkfox.com blog, which is packed with money saving ideas, like her blog post from earlier this year titled How to Save $2,940 a Year on Lunch. http://www.squawkfox.com/save-money-lunch/

That’s Kerry for you; she doesn’t tell you how to save $3,000; it’s the more precise $2,940 that she uses, and it’s the same in her book; she didn’t want to water-down her advice by giving you 400 ways to save money if the last three weren’t very good, so she stops at 397.

She gives advice on things like saving money on homeowner’s insurance, and gives more esoteric advice, like brushing your dog’s teeth to save on vet bills.  I don’t have a dog, so I’ll have to take her word for it on that one.  Most of her advice is easily implementable by anyone; you don’t need any special skills to follow her advice to save money.

Here’s the best part: 397 Ways to Save Money is available now on Indigo.ca and Amazon.ca for less than 10 bucks.  That’s a great deal.  Follow one of Kerry’s 397 tips and you’ve got your money back.

Next on the list is another well known Canadian author, and that’s Preet Banerjee with his book Stop Over-Thinking Your Money: The Five Simple Rules of Financial Success.

What makes this book so good, other than the fact that it’s written by a Canadian, for Canadians?

Well, as Gail Vaz-Oxlade says in her endorsement on the cover, and I quote: “Five simple rules.  That’s all.  Follow them.”

I won’t tell you Preet’s five rules (you will have to get the book to read them), but I will tell you that rule #3 deals with debt, and I agree with what he says (and his advice is similar to the advice I give in Myth #8 in my book). Again, this is an easy book to read, you don’t need to know any technical jargon, and it’s available online and in bookstores everywhere.

I just read Gail Vaz-Oxlade’s endorsement from Preet Banerjee’s book, and no list of Canadian personal finance books would be complete without a book written by Gail.

Next to David Chilton, the next best selling Canadian personal finance author is Gail Vaz-Oxlade, who has also been a guest a few times on this show.  I could fill up the entire top ten list with her books, but if I had to pick just one, it would be Debt-Free Forever, because, you know, I like being debt free, so that’s my pick for number 5 on our list.

It’s a great book to give as a gift, particularly if you know someone who is struggling with debt.

Those of you who have watched Gail’s TV shows, like Till Debt Do Us Part, will know that she advocates a “tough love” approach.  Perhaps a better way to say it would be that she believes in discipline.  She wants you to take charge of your life, and she knows it not easy, but again, she’s got lots of practical advice to help you become debt free.

Her latest book is Money Talks: When To Say Yes and How to Say No, which is a book that walks you through how to talk about money with family and friends.  It’s also a great book.

Gail also co-wrote a book with Victoria Ryce, published last year, called CEO of Everything, which is a great book if you find yourself suddenly single.  Victoria was a guest twice on this show, so I’ll put links in the show notes to those interviews.

See my point?  I could pick lots of Gail’s books to include on this list, but since I’ve limited myself to one book per author, I picked Debt Free Forever.

Of course you are not limited to one book per author, so if you are a Gail fan, pick as many as you like.

The final book in the General Money Management category is written by another Canadian author who, like Gail, is often seen on TV and who has also written many books, and that’s Kelley Keehn.

Kelley has published many books, including books for everyone like A Canadian’s Guide to Money-Smart Living, and The Money Book for Everyone Else, as well as special interest books like The Woman’s Guide To Money and The Prosperity Factor for Canadian Kids

Those are all good books, but my favourite is a book she wrote that you can’t buy on Amazon, and I don’t think it’s in bookstores.  The book is Protecting You and Your Money: A guide to Avoiding Identity Theft and Fraud, and it’s a book she wrote for the Chattered Professional Accountants of Canada, and it’s available on the CPA website; I’ll put links in the show notes.

I’ve got this book on my must-read list because it’s the only book that deals specifically with identity theft and fraud, which are very serious problems for all Canadians, but particularly for seniors.

When Kelley Keehn was a guest back on podcast #132 she told me that Canadians lost an estimated $2 billion to mass market fraud last year, and when she was a guest back on show #75 I asked her for practical advice on protecting yourself from fraud and identity theft, and she gave me some of the tips from her book.  Here’s a small sample of her advice:

Kelley Keehn: There’s so many things that we can do. Number one we really want to slow down. We want to be careful when we’re clicking email. We want to be careful when we’re picking up the phone. Do we even need to pick up the phone? And these tips we need to have conversations with our parents and our kids as well, not that they’re picking up a home phone. They don’t do that.

Doug Hoyes: No, they don’t know what it is, no clue.

Kelley Keehn: But I know my mom still does. And just is this reasonable because the phone spoofing is really good. They can actually make it sound like the Toronto Police calling you. So, just slowing down, is this logical, would my bank ask me any of this? Being more careful of what we’re putting online, have a family conversation about it. Realize how important our information is, stop giving it out.

And then when it comes to full on identify theft, the easiest thing you can do is just check your credit report. If someone is applying for a credit card, a loan, something of that in your name, it will show up on both of your credit bureaus. So, in Canada there’s two main credit reporting agencies, Equifax and TransUnion. Make sure if you go online you go to the .ca’s and you would see there that somebody applied for this XYZ Financial or something, you’re like that’s not me. Now that will tip you off that identify theft is happening. Now it might be too late to really ward that off but at least you can clean it up.

Doug Hoyes: So, would you be doing that once a year, more frequently?

Kelley Keehn: If you’re in a low risk situation you don’t really do a lot, you don’t use your – you know, I would say once a year is fine. What you can is also get a credit monitoring service. You have to pay for that. But maybe if you were a high risk person like me that goes online all the time.
Doug Hoyes: Travels a lot.

Kelley Keehn: Has to do Facebook, has to do Twitter for their business, I put myself at risk. You might want identity theft insurance if you also feel that you’re at risk. But what you can do with both credit reporting agencies is put a pro active fraud alert on your account. This is not if you’ve been a victim, you’re just saying hey I want to be pro active, it costs $5 for each credit reporting agency and it lasts six years.

And what that does is it’s an extra layer of protection where if someone’s trying to get a cell phone in your name or something like that, the lender has to give you a call. It says on the file give a call so you want to use your cell phone number. ‘Cause if it’s you legitimately trying to get a bank loan you don’t want them calling home to authenticate that it’s you. So, that’s a great extra layer of protection. And everyone should be checking their report at least once a year to see if things are accurate even if you don’t require credit, at least to see if some things on there.

And then very lastly is making sure you know what mail is coming in, not very lastly I’m going to have one more tip, make sure you know what mail is coming in and when, especially for older people, people that vacation a lot, business people, they really need to be concerned about that. Because if bills are going missing that could be a first red flag too, that mail is being diverted.

And so, you could say a lot of younger listeners will say well, I’ve done everything digitally I’m online with all my bills, that’s great, my personal finance hat comes on saying make sure you’re checking those bills that you’re not overcharged and all that type of stuff. ‘Cause when we don’t get it in the mail, sometimes we forget to comb through and like you said look for those little purchases, a couple of dollars here, a couple of dollars there that weren’t you ’cause if you’re not noticing that, the fraudsters will go for the big kill.

And then very lastly shred absolutely everything. Everything, everything, even if it came in – unless it says Dear Occupant, if it has your name on it, shred it.

That’s just a very small sample of Kelley’s advice on protecting yourself from identity theft.  I’ll put links to my two interviews with Kelley, but for a lot more practical tips, her book is called Protecting You and Your Money: A guide to Avoiding Identity Theft and Fraud, and it’s a book she wrote for the Chattered Professional Accountants of Canada, and it’s available on the CPA website, and the best part is that it’s available for less than $10 bucks, so it’s a great deal, and I’ll put links in the show notes if you want to purchase a copy or two.

Real Estate

So the first six books on my reading list are general money management books, but the next two deal with a topic that everyone seems to be talking about, and that’s real estate.

The first one, book number 7 on the list, was released in 2015 and is called “When the Bubble Bursts: Surviving the Canadian Real Estate Crash” by Hilliard Macbeth.  Mr. Macbeth is a portfolio manager, and he’s advised clients for almost 40 years.  He was a guest back on podcast # 89, and I started by asking him why he thinks Canadian real estate is in a bubble?

Hilliard MacBeth: Well, in the research I found that it’s very unusual for house prices to increase at such a rapid rate over such a short period of time. So, people have what’s called the recency bias, where they view the last five or 10 years as the norm. And the problem with that is when you look back longer, 20, 30, 40, 50 years, which is easy to do, there’s lots of data available, you find out this is a very unusual situation.

The symptoms of a bubble are pretty straightforward, a period of rapidly rising prices, people tell each other stories as to why that makes sense and people experience regret or fear of missing out. Regret that they didn’t get in earlier or fear of missing out that if they don’t get in now they’ll never get in. And then the fourth symptom is the media start talking about the bubble. So, we’re contributing to that right now I guess. [laughs]

Doug Hoyes: There you go. Well, I suspect the media’s way ahead of us on talking about this. So, you think we’re in a bubble because real estate prices – and I guess we have to clarify a little bit, certainly in places like Toronto and Vancouver, real estate prices are much higher today than they were a year ago, five years ago, 10 years ago. Presumably there are places in the outskirts of the country that have not moved much. So, is this a localized phenomenon? Or is this everywhere in Canada?

Hilliard MacBeth: It’s a great question and actually there’s a bit of a myth that’s developed. It actually started during the election campaign last year, it was by a politician that was running for re-election that it was just Toronto and Vancouver, but the reality is different from that. The bubble is widespread throughout Canada. And prices have increased by two and a half to three times, three times in Vancouver and Toronto, and two and a half times. There’s probably some places in Canada where the prices have only gone up two times. But everywhere there has been rapid increases in prices over the last 15 years.

And the thing that I want to impress on people is how unusual that is. It’s extremely unusual. And the reason it’s not sustainable is that houses are basically bought out of income so people pay their monthly mortgage payments, their maintenance costs, their interest, their taxes, all that stuff that goes with being a home owner. They pay it out of income. And incomes have maybe risen 15% over the last couple of years, 1% a year depending on whether you take after tax or pre-tax, it doesn’t really matter that much. Inflation has been similar, it’s been under 2% for quite a long time.

So, for house prices to be tripling during that same period, the ratio of house-price-to-income, which the income determining what people can afford to buy, has gotten so stretched that it’s a bubble that cannot possibly be sustained. And unfortunately for many, many Canadians it’s going to be very harsh and painful when the bubble bursts.

We recorded that interview back in the spring of 2016, so over a year ago, and I think Hilliard Macbeth’s warning that when the real estate bubble bursts it will be harsh and painful is now becoming more obvious to more people, so if you want a big picture view of where the real estate market is at in Canada, When the Bubble Bursts is a great starting point.

That’s the big picture view; what if you just want to know how to pay off your own mortgage faster?  The obvious book to buy to answer that question is Burn Your Mortgage by Sean Cooper, which is book #8 on my list of 10 books for your personal finance library.

Sean Cooper was a guest back on show #81, after he became something of a media sensation when he lived frugally and paid off his mortgage in just over three years.  He returned this year on Show #129 where he talked about his new book, and that show, as I record this one, is our most downloaded show of the year.

Sean was very frugal, and worked more than one job, and that’s how he did it.  He freely admits that if you were married with children, and not single like he was, it would be much more difficult, but he still has good advice for everyone who has a mortgage.  You can listen to my two podcasts with him for more details, but here’s a quick snippet from Sean Cooper.  I asked him whether or not you need to already own a house to benefit from his book; here’s his answer:

Sean Cooper: Well, my book you don’t have to own a house to benefit from it, you might be a first-time home buyer or be a renter who wants to get into the market. So, basically in order to purchase a house you have to have all your finances in order. So, if you have a lot of credit card debt, it doesn’t make sense for you to go out and buy a house and take on a mortgage and more debt. So, it’s about getting your financial house in order.

So, for example I talked about it in the beginning of the book setting a goal because for so many people what keeps them from being homeowners is they’re not able to come up with that down payment. So, basically by setting yourself a specific goal of how you’re going to come up with your down payment, I find that effective. So, basically say I want to buy a house in for example three years time and I’m going to save for example a $60,000 down payment and then figure out exactly how much from each paycheque you need to save to reach that down payment. Because $60,000 on itself seems like a massive amount of money but kind of breaking it down into smaller amounts it makes it seem less intimidating.

Doug Hoyes: So, really the first part of the book you’re laying the ground work for basic financial principles, anyone can use. You don’t have to be a homeowner; you don’t even have to want to buy a home I guess. These are principles that will work for anyone who wants to get their financial life in order.

Sean Cooper: Exactly. Everyone will benefit from reading the first part of the book.

Doug Hoyes: So then the second part of the book, which I would summarize as being home buying and mortgages, obviously this is a section much more geared towards people who want to buy a house and obviously you’re going to need a mortgage to do it. So, what are the kind of areas that get covered in the part two, home buying and mortgages section?

Sean Cooper: Well, I kind of walk people through the whole situation of purchasing a house and things to look at. So, for example some people have to make big decisions like living in the, in urban area or suburban. And then of course you have to decide on property types, so, condo, townhouse or detached house, so, I kind of look at the pros and cons of that and I go through the list of needs and wants when you’re a homebuyer.

Because I find a lot of people nowadays are getting needs and wants mixed up. For example things like granite countertops, stainless steel appliances, people seem to be putting that on the needs list rather than the wants list. So, it’s kind of taking a big picture approach to buying a house and seeing exactly if you want those things how much money it’s going to cost you. But it’s going to be a trade off because it’s going to take you that much longer to pay off your mortgage so it’s just kind of taking a big picture overview of your finances.

That’s Sean Cooper, talking about his book Burn Your Mortgage.

Retirement

When it comes to personal finance, once you’ve dealt with the basic topics like budgeting, saving money and money management, and then figured out what to do about real estate, the next logical topic is retirement.

Again, there are lots of great retirement books, and many of them explain the mechanics of how much you need to save for retirement, but the retirement themed book I’ve got on my list is Victory Lap Retirement by Jonathan Chevreau and Mike Drak, which has an interesting take on preparing for retirement. In fact, they actually present an alternative form of retirement, which is quite interesting.

The traditional view of retirement is that you work for the same company until age 65, and then you retire, and live off your company pension.

Of course that is not reality for most Canadians.

Most of us don’t have a pension, and many of us will either retire well before age 65, or keep working past age 65.

The concept behind a Victory Lap is that retirement does not need to be a “hard stop”, where one day you are working, and the next day you playing golf.  Many of us will take a victory lap by easing into into retirement, working part time, or spending our time and perhaps earning some income by pursuing our hobbies or other interests.

To actually take a Victory Lap some advance planning is required, and that’s why I think Victory Lap Retirement is a great book for anyone contemplating retirement.

The final book on my list is totally different from all of the other books.

In fact, it’s not a personal finance book at all, but it does help the reader understand how and why we make the decisions we make, financial and otherwise.

The book is Thinking, Fast and Slow by Daniel Kahneman.  Dr. Kahneman is a professor at Princeton University, and he is the only non-economist to have won the Nobel Prize in Economics, which he won in 2002 for his work on decision making.

This is an academic book, so it’s not an easy read like The Wealthy Barber Returns or Wealthing Like Rabbits, but if you stick with it, it will challenge the way you think.

He talks about how we humans make decisions, and while he did not invent the concept, he uses the notion of System 1 and System 2 decisions to show that while we think we make rational decisions, it is really our System 1 “gut” that is responsible for most of our decisions.

I obviously agree with his points, and my book, Straight Talk on Your Money, reaches the same conclusion, that we humans make most of our decisions based on emotion, not rational thinking, so if you want a book that will make you think, Thinking, Fast and Slow is a great read.

I could keep listing books; there are many other great ones, including some by authors who I’d like to get on the show in 2018, but I like to keep Debt Free in 30 to around 30 minutes, so I’ll stop there, but what I will do is a put a list of all of these books, and some that I haven’t mentioned, in the show notes over at hoyes.com

If you’ve got other ideas, feel free to tag me in a tweet @doughoyes and I’ll share them out.

So there you go, your holiday shopping is done, head to your local bookstore for these great books.

And, while you are there, pick up Straight Talk on Your Money; it’s the newest of all of the books I’ve mentioned, so there’s a good chance your gift recipient hasn’t read it yet, so that alone makes it a good choice.

If I had to categorize Straight Talk on Your Money, it is a general money management book, because I deal with 22 myths that get people into financial trouble, and I end every one of those 22 chapters with practical advice.

But it’s also similar to Daniel Kahneman’s book in that I also spend time exploring how and why we make the decisions we do.  Obviously I don’t have a PhD, and there is no chance I’ll be winning a Nobel Prize anytime soon, but what I do have is my notes from the in person consultations I’ve done with well over 10,000 Canadians in financial trouble over the last two decades, and I think that real life experience gives my book a somewhat unique perspective.

It’s also easy to read, widely available in book stores and on-line, there is a Kindle and Kobo ebook version, and there is also an Audiobook version available on Audible and Apple iTunes, so if you like listening to me on this podcast, you can hear me read the entire book.

So there you go, 10 books to help you start your own personal finance library, or gift ideas for friends and family.

And remember, the nice thing about paperback books is, if you are gentle, you can read them, and then give them away as gifts!

And just think, by spending $100 for four or five books, you may save yourself and your friends and family thousands of dollars in the future, so it’s the gift that keeps on giving.

That’s our special personal finance book edition of Debt Free in 30.

Full show notes, including a transcript and a link to every book I’ve mentioned can be found at hoyes.com, that’s hoyes.com.

Thanks for listening, happy holidays, until next week, I’m Doug Hoyes, that was Debt Free in 30.

The post 10 Personal Finance Books That Make Great Gifts appeared first on Hoyes, Michalos & Associates Inc..

So, the solution to all of our financial problems is to make a budget? I disagree.

In my experience, budgets don’t work for most people because they don’t stick to them. They get discouraged, and they end up worse off than before.

I’ve talked a lot about what I believe is a better alternative to budgeting.

You can watch my videos on my secret to not budgeting on YouTube or listen to a previous podcast about why I think making a budget is a waste of your time. You can even read Chapter 17 in my book Straight Talk on Your Money.

However what I want you to take away from today’s podcast is that I believe the solution to our financial literacy problem runs deeper than budgeting.

Financial Literacy Means Asking The Right Questions

Canadians are carrying record levels of debt, so obviously we have a problem, and despite the government’s best intentions, budgeting won’t solve it.

So what’s the solution?

On today’s show I make two comments:

• First, my clients have an income problem, not a debt problem, with our average client earning income about 40% less than the median income in Ontario. Obviously budgeting won’t help if you don’t earn enough, so that needs to be a focus for discussion.
• Second, we need to teach critical thinking, which is more important than basic budgeting. We need to have the skills to make real life decisions about where to save, whether to rent or buy. Even making the right choice about what cell phone plan you should buy requires critical thinking. On the podcast I talk about how and why we should design financial literacy lesson plans for students around these topics.  How we can teach them to ask the right financial questions.

If you have kids, listen together and talk to them about how they can think critically about their finances.

Resources Mentioned in the Show

• Financial Literacy Month, Government of Canada website
• CRTC, Simplified Cellphone Wireless Code
• Preet Banerjee video, Is Renting Always a Waste of Money?

Previous Financial Literacy Podcasts

• Should the Government Promote Financial Literacy? Jane Rooney Responds
• Should We Teach Financial Literacy In High Schools?

FULL TRANSCRIPT – Show #166 Financial Literacy Solutions

November is Financial Literacy Month in Canada. The first financial literacy month was in 2011, and in 2012 the Parliament of Canada proclaimed that each November would be Financial Literacy Month. The Financial Consumer Agency of Canada, a division of the federal government, under the leadership of the Financial Literacy Leader, co-ordinates activities across Canada.

This year the theme is “Take Charge of Your Finances: It pays to know!” and the government is encouraging Canadians to “take concrete actions to better manage their money and debt, including making a budget, having a savings plan and understanding their financial rights and responsibilities.”

Okay, that all sounds good. Who can disagree with making a budget, and having a savings plan, and understanding your financial rights and responsibilities?

Well, I can disagree with it, and I will.

Today on Debt Free in 30 I want to give you a completely different take on financial literacy. I think the experts have it all wrong.

Financial literacy is an issue we cover every November on this show. Back in 2014, on show #9, my guest was Jane Rooney, Canada’s Financial Literacy Leader, who continues in that job even today.
Should financial literacy be taught in high school? That was the discussion back in 2015 on show #62 with Dave Mitchell, a retired high school teacher with decades of experience.

Then last year, in 2016, my guest on show #116 was Prakash Amarasooriya, who at the time was a member of the Toronto Youth Cabinet who launched a petition urging the Ontario Ministry of Education to beef up their Grade 10 career studies course to include basic financial skills like budgeting.

And here we are in 2017, and once again we are talking about financial literacy.

Is there any point in continuing this discussion?

The government has been working on their mandate to improve the financial literacy of Canadians for 7 years. Yet during that time:

• Total household credit has increased 31% from 1.6 trillion to 2.1 trillion dollars
• Consumer credit including credit cards, lines of credit, car loans and similar revolving debt has increased 17% from 503 billion to 590 billion dollars
• Total household mortgage debt has increased 37% from 1.1 trillion to 1.5 trillion dollars
• And the debt-to-income ratio in Canada has ballooned from 160% to almost 168%.

I think that, given these numbers, you could easily argue that the entire financial literacy education process has been a dismal failure.

The counter argument, of course, is that our precarious financial situation proves more than ever that there is a big need for financial literacy education. Just because the message hasn’t gotten through to everyone yet doesn’t mean we should stop trying.

Here’s my take on this issue.

I said at the start of the show that the government is encouraging Canadians to “take concrete actions to better manage their money and debt, including making a budget…”

Okay, let’s start there. The government is suggesting that our financial problems are caused by not having a budget, and therefore if you make a budget, you can solve some of your problems.
I disagree, for two reasons.

First, as we know from our Joe Debtor study, the average person in Ontario with so much debt that they have to file a consumer proposal or bankruptcy has an income that is about 40% less than the median income in Ontario. That’s often caused by the lack of a good, steady job or having reduced work hours.

So tell me this: if you are a recent college graduate, with a lot of student loan debt, and you can’t find a full time job in your field, and you are surviving working two lower paying part time jobs, how will making a budget help you?

If you had to take substantial time off work because of an injury, or to take care of a sick child or aging parent, is budgeting going to take care of the fact that your income is too low to pay all of your bills?

If you have an income problem, you already know it. A budget won’t help you manage money that you don’t have.

But what about people who have a decent income; wouldn’t a budget help them manage their money? As regular listeners to this podcast know, I’m not a big fan of budgeting, because most people don’t stick with it. What good is a spreadsheet or budgeting app that you abandon after three months, or three weeks?

Sure, a budget might help you identify some spending you can cut back on. But based on my experience a budget doesn’t keep people out of debt. If it was that easy, we’d all be doing it.

Managing money effectively means more than balancing your budget. It means:

• Making sure you keep up with all your bill payments and, once you have reduced your debt, setting aside some savings for your future, and
• Not getting in over your head in the first place.

I think there are a lot of better ways to manage your money than budgeting. I won’t go into those ways now, but I’ll put some links in the show notes to two You Tube videos I’ve done on the subject, and it’s also covered in Chapter 17 of my book Straight Talk on Your Money.

The second objective – not getting in over your head in the first place – is a lot harder.

The truth is that the cause of our money problems, if you actually have a decent income, is not that you aren’t budgeting, but that we don’t give enough thought in advance to the decisions we need to make.

Money decisions are difficult, because they involve math. Money is numbers, and numbers are math, and most of us don’t like math and think it’s just too hard. So when we are sitting with the mortgage officer at the bank, and we’re trying to decide if we should go for the 20 year or the 25 year amortization, we freeze. We don’t know how to calculate an amortization schedule in our heads, but even if we have an app that can do the math for us, we still aren’t sure how to make that decision.

• Having some math ability certainly helps when answering mortgage questions like:
• How much do I need for a down payment?
• Should I choose a fixed or variable rate mortgage?
• Should I make monthly, bi-weekly or weekly payments?
• What kind of pre-payments can I make?
• What’s the pre-payment penalty if I have to sell early?
• What’s better a second mortgage or home equity line of credit?
• Do I need mortgage insurance?

And here’s a math question almost no-one asks: What is the effect on my monthly payment if interest rates rise?

We have the same problem when we are trying to decide if we should get a car loan, or a car lease. Which is better? How long should the term be? How much interest am I paying?

Should I contribute to my TFSA, or RRSP? Should I pay down my mortgage, or put more money in my RRSP?

These are all, at least in part, math questions, and if we don’t think we are good at math, we don’t know how to make the correct decision.

So if we don’t know how to do the math to make the decision, what do we do?

We let our emotions decide, and we follow the crowd.

Should I buy a house, or rent? That’s partially a math question, and math is hard, so we let our emotions guide us. “I really want to buy a house, because all of my friends have one” is often how we make decisions. “If I don’t get into the market now, I never will” is letting our fear of missing out rule our decision making.

So what am I suggesting here? Math is hard, so we should just give up?

No.

I think there is a solution but it’s not just about teaching financial math.

If you listen to the financial experts, they will tell you that yes, they agree, we have a math problem, so we need to teach kids about compound interest, and amortization schedules, and lots of other money math.

But think about it: does it make sense, in Grade 10, to be teaching high school students about mortgage amortization schedules? What are the chances that a kid in Grade 10 is going to be buying a house and getting a mortgage anytime soon? Not very likely, I suspect.

Let me say it again: math is an issue, but it’s not our primary problem; our problem is that we don’t think through our decisions before we make them. We use our emotions, and we follow the crowd.

So here’s how I would teach financial literacy to high school students.

I would teach them using real life case studies.

Lesson #1: you want to buy a new cellphone, so you go to the kiosk at the mall, and they say “hey, here’s a phone, it’s free, you just sign up for this plan”. That’s a very common situation for a high school student. So here’s the lesson: what questions should you ask to evaluate how good a deal you are getting?

My guess is that most people think “free phone, this is great!” and that’s it. That is obviously an emotional response, and we are following the crowd because we want a new cellphone because all of our friends have the latest phone.

So what questions should you ask? That would be a great class discussion. Off the top of my head, I would want to ask:

• What would the phone cost if I bought it without a plan?
• What would the phone plan cost per month if I provide my own phone so I don’t need to buy a new one?
• What is included in the monthly fee?
• How many cellphone minutes?
• How much data?
• What are the long distance charges?
• What are the overage charges?
• What is your service coverage area?
• What does the phone’s warranty cover?
• What if my phone is lost or stolen?
• How much is the security deposit?
• How do I pay the bill each month? Can I pay electronically?
• How long is the contract for?
• What if I want to cancel early?

Off the top of my head I just came up with over a dozen questions that you should ask before signing on the dotted line for a new cellphone. I’m sure if I thought about it longer I could come up with another dozen good questions to ask.

How many of those questions would a high school student know to ask?

The class project could be to compare contracts from different providers.

Obviously there is some math involved here, but it’s mostly critical thinking. At the end of the course the students will have created a questionnaire they could use in real life to help them make a cellphone buying decision.

That’s the first section of the course. I’m not a professional educator so I don’t know if that’s one class or many, but that’s where I’d start: using a real-life example to teach critical thinking.

Lesson #2: payday loans. Students aren’t getting payday loans, but one class could be spent walking through the concepts. It’s scary, so if done correctly it would make an impression on them. If you understand how high payday loan rates are, you would be less likely to try to access them in the future.

As an aside, almost 4 in 10 graduates with student debt have a payday loan in our bankruptcy study. So teaching this lesson early is way more important than teaching them about mortgage amortization.

As I said earlier, most of my clients who get payday loans have an income problem, so just understanding how high the payday loan rates are is not a solution. People get payday loans because they think they have no other options.

So here’s the project for the class: Your parents get paid on the 5th of the month, but the rent is due on the 1st of the month. How do you pay the rent without having to resort to a payday loan?

That would be an interesting class discussion, and I know that that is actually a situation that many student’s parents will have faced. And it’s a situation that some of them will face soon after graduation, so it’s a very practical and useful discussion topic.

The obvious answer is to save money up in advance, but that’s not always possible. What else can you do? My answer would be to talk to the landlord and work out a plan, which is a lot cheaper than getting a payday loan, but it would be interesting to see what ideas the students come up with.

Lesson #3: credit cards. The question for the class: if your parents let you use their credit card to buy a new pair of jeans, and the deal is they will give you one year to pay them back, but you have to pay the interest, how much do those jeans cost you? How is interest calculated? What’s a minimum payment? How much money can you save by saving up to buy the jeans, instead of putting them on credit?

Lesson #4: Student loans. How do they work? How do you qualify? How does repayment work? What if you can’t find a job after you graduate; how do you repay the loans? What is financially better: college, university, or learning a trade?

You get the idea. I would pick areas that students are likely to encounter, and then I would teach them how to think through the decision. There would be some math, but the math would be secondary to learning how to ask questions and think critically.

Of course, these same concepts could apply to adult financial literacy education as well.
Instead of spending our time teaching an adult how to make a budget, perhaps a series of case studies on the rent vs. buy decision for housing, or how to evaluate a car loan, would be more productive.

These wouldn’t have to be in class sessions. A series of You Tube videos, done properly, could easily demonstrate these concepts.

In fact, there are already a lot of good videos out there. For example, Preet Banerjee has a You Tube video called Is Renting Always a Waste of Money? …that’s had more than 2.5 million views, and it does a great job of explaining the math and other factors in the buy vs. rent decision.

Now of course you can’t blindly believe every video you see on YouTube, but if you watch a few of them you’ll start to see some basic themes and understand the concepts, and you can learn a lot, for free. You just need to spend the time and effort to do your own research.

That’s how I would tackle financial literacy education, but I suspect we’ll be having this same discussion again next year.

That’s our show for today. Full show notes, including a full transcript and links to everything I mentioned today, include a link to Preet Banerjee’s You Tube video, can be found on our website at hoyes.com, that’s hoyes.com

Thanks for listening. Until next week, I’m Doug Hoyes, that was Debt Free in 30.

The post Financial Literacy Needs More Thinking and Less Math appeared first on Hoyes, Michalos & Associates Inc..

While it’s true that we carry significant mortgage debt (it increased 5.9% last year), my biggest concern is that consumer debt increased roughly 3.4% from a year earlier.

Consumer debt includes credit card debt, personal lines of credit, and car loans. It is debt we incurred to buy consumer goods. I don’t care how low interest rates are right now, Canadians have a debt problem.

National Steering Committee on Financial Literacy

The federal government is also concerned with how Canadians are managing their money. They are so concerned that they created a special National Steering Committee on Financial Literacy. Part of this committee’s mandate is to empower Canadians to “manage money and debt wisely”. Members of the committee are to include representation from “the public, private, and non-profit sectors”.

Licensed Insolvency Trustees are appointed and regulated by the federal government to help people deal with debt. According to the Office of the Superintendent of Bankruptcy:

Licensed Insolvency Trustees (LITs) are federally regulated professionals who provide advice and services to individuals and businesses with debt problems. LITs help people make informed choices to deal with their financial difficulties.

So the federal government says that Licensed Insolvency Trustees are experts in debt management. I agree. As a Licensed Insolvency Trustee our firm meets with thousands of individuals every year who are dealing with overwhelming debt. We listen to their stories, ask questions to better understand their situation, and provide them with advice about their options. This may, or may not, include a consumer proposal or bankruptcy, but our role is to provide advice to help them find the best solution for their circumstances.

Here’s what we know

1. The Government of Canada agrees that Licensed Insolvency Trustees are the most qualified professionals to help Canadians deal with debt.
2. Licensed Insolvency Trustees meet with thousands of people every year who are struggling with debt.
3. The Government of Canada has created a committee specifically to improve the financial literacy of Canadians part of who’s mandate is to help Canadians manage debt wisely.

Would you not expect that at least one Licensed Insolvency Trustee would be on the committee? There’s not.

The National Steering Committee on Financial Literacy just announced their committee members. They include representatives from the banks, credit unions, investment advisers and the life insurance industry. There is one credit counsellor, but not a single Licensed Insolvency Trustee is on the committee.

It’s surprising that, on a government financial literacy committee whose mandate is to help Canadians manage debt, the lenders are represented, but the professionals that the federal government acknowledges are debt management experts, are not.

Why is that?

I don’t know.

I applied to be on the committee.

As a Licensed Insolvency Trustee I meet with people every day who are experiencing severe financial problems. In addition to that, our firm conducts an in-depth study every two years where we collect information to better understand why the average person files insolvency. We call this average insolvent person Joe Debtor. This report is released to the public to help others understand what causes people to become insolvent and eventually file bankruptcy or a consumer proposal. This insight would be useful in helping Canadians make wise debt decisions.

Unfortunately, not everyone agrees.

I received an email effectively saying thanks, but no thanks.

Thank you for your application for membership on the National Steering Committee (NSC) on Financial Literacy and also for your patience during the selection process. Over 120 applications were received from individuals representing a broad range of public, private and non-profit organizations from across Canada. We carefully considered all applicants.

I want to acknowledge your commitment to strengthen the financial literacy of Canadians and thank you for your interest in working with me as member of the Steering Committee. However, I regret to inform you that you were not selected to be a member. I greatly value collaborating with all organizations who have an interest in this important issue and would like to continue to work together as we implement the National Strategy for Financial Literacy.

The new committee will be publicly announced in the near future by the Commissioner of the Financial Consumer Agency of Canada (FCAC).

Thank you again for your dedication to help strengthen the financial knowledge, skills and confidence of Canadians.  Your commitment is greatly appreciated.

Sincerely,

Jane Rooney

Financial Literacy Leader

Moving forward

I understand that not everyone who volunteers on the committee will be selected. I understand that fact, but what I don’t understand, is that in a time of record debt levels, the Government of Canada did not select at least one of their own licensed debt experts to be on the committee.

I’m not criticizing any of the members who were selected to be on the committee. I assume they all have extensive financial knowledge and will do their best to advocate for the every day Canadian. More than half of the committee members have previously worked for the government, providing insight from the public sector. I personally think more representatives with private sector experience would be beneficial to this committee, but until I see their recommendations made, I won’t pre-judge their results.

Despite not being selected to serve on the committee, my firm and I will continue to do our part to educate Canadians on the problems that are caused by excessive debt. We will continue to publicize and promote the government programs that are available to help Canadians deal with their debt.

We publicize and promote these programs, and other newsworthy items within the personal finance realm on our YouTube channel, our weekly podcast, and our blog. It’s why we conduct additional research and advocate for the indebted consumer. Whether we’re on a committee or not, we’re here for you, the every day Canadian. Helping Canadians deal with their debt is what we do.

The post Why Doesn’t the Federal Government Consult Their Own Debt Literacy Experts? appeared first on Hoyes, Michalos & Associates Inc..

Is there a need for financial literacy?

Prakash thinks so.

Every day I would notice people coming into the bank and living in this kind of what I call a cycle of poverty. They would be living in their overdraft credit card advances and just paying off interest every month and just the bare minimum payments.

A study by the Investor Education Fund states that 9/10 high school students have at least one financial product. This begs the question, with so many young students using more financial products, how can we expect this younger generation to succeed financially when we don’t provide them with the tools to do so?

From 2009 to 2016 the number of students who believe financial literacy should be taught in the classroom increased from 57% to 69%.

There’s a study done by the Investor Education Fund where one in four don’t feel that their schools are doing an adequate job in teaching financial literacy and one in four feel they don’t make great spending decisions.

If Ontario high school students feel unprepared to manage their money after graduation, we’re not aiding their transition into adulthood. Once they break out into the real world their financial education primarily comes from people who are looking to make a profit on the consumer’s investment.

What can be done?

The petition from the Toronto Youth Cabinet proposed changes to the Grade 10 careers course. The remodeled course would include:

1. Budgeting, how to create one, as well as how to follow it.
2. Mortgages, down payments, amortization periods. Even something as simple as explaining their definitions and purposes.
3. The ins and outs of leasing, financing or buying a car.

Reforming the careers course was the optimal choice for the Toronto Youth Cabinet’s proposal because it seemed like the path of least resistance. In order to start adding financial literacy into Ontario’s curriculum it’s a lot easier to add pieces into an existing course – one that was already being looked at by the Ministry of Education – as opposed to adding a full course on its own.

For more of our discussion with Prakash Amarasooriya and details of the proposal, listen to our podcast or read the full transcript below.

Resources Mentioned in the Show:

• Follow Prakash on Twitter
• Toronto Star article on Financial Literacy in the Classroom
• CBC interview with Prakash
• Debt Free in 30 podcast with Dave Mitchell on Financial Literacy in High Schools.

FULL TRANSCRIPT show 116 with Prakash Amarasooriya

Doug Hoyes: November is financial literacy month and every year at this time you hear lots of news reports about the low state of financial literacy for all age groups, you and old. Every year someone suggests that financial literacy needs to be taught early, in high schools so that we can learn good money management habits when we’re young. In fact we talked about this exact topic last year on show number 62 with Dave Mitchell, a retired high school math teacher, who believes you can plant the seed of lifelong confidence if you teach students some basic math calculations in high school. Learning the power of compounding is an important skill.

But is high school the place to teach this? Is financial literacy a math issue or should it part of other courses? Or is high school too early to be teaching students about money? My guest today has some very definitive opinions on these and other questions, so let’s get started. Who are you and what do you do?

Prakash Amarasooriya: Hi there, so my name’s Prakash Amarasooriya, I’m the School Board lead for the Toronto Youth Cabinet.

Doug Hoyes: The Toronto Youth Cabinet, so tell me about that, what is that?

Prakash Amarasooriya: Sure, so Toronto Youth Cabinet is an official part of City Hall. They were constructed quite a few years ago in order to make sure the youth’s voice was represented in the city and so, as a School Board’s lead my job is to bring educational initiatives from the school Boards and connect it with City Hall.

Doug Hoyes: And how much do you get paid to be on this Toronto Youth Cabinet?

Prakash Amarasooriya: So, we do it purely on a voluntarily basis.

Doug Hoyes: Wow, okay. So, you’re not selling any books or trying to promote anything other than what you think is actually right. So, you are as unbiased as anybody can be on this. So, tell me a bit about your background then?

Prakash Amarasooriya: Sure. So, I personally work for a bank. But prior to that I, in high school, my first experience with money was when my parents first lost their jobs simultaneously in the 2008 financial crisis. When that happened I think it was my first wakeup call that money’s not guaranteed and that it’s something I need to be conscious about and need to be prepared for the future.

When that happened I started, I obtained five part-time jobs in order to sustain myself. Once I started self teaching myself about financial literacy I noticed a lot of my peers don’t really have that knowledge. And so I started learning on my own but I started having conversations with people and I noticed that this is starting to become a drastic need.

Once I graduated from university I went into business and I went into banking specifically. And every day I would notice people coming into the bank and living this kind of what I call a cycle of poverty. They would be living in their overdraft credit card advances and just paying off interest every month and just the bare minimum payments. And so I noticed that this is something that if parents do they pass on to their children as well. And it continues. And education if done right can be a way to break the cycle.

Doug Hoyes: So are you of the view that then we are not very financial literate in general?

Prakash Amarasooriya: Not at all, I think there’s been statistics done that Ontario is pretty bad when it comes to personal finance and debt. There’s a study done by the Investor Education Fund where one in four don’t feel that their schools are doing an adequate job in teaching financial literacy and one in four feel they don’t make great spending decisions. And only one out of four people think that they’re well prepared to manage their money even after graduating high school.

Doug Hoyes: So, even high school students realize that they aren’t very good at this.

Prakash Amarasooriya: Agreed, yeah.

Doug Hoyes: And is that an education thing then, is that what the root of the problem is? You’ve already said that well, parents pass this down to their children. So, I guess in a perfect world parents would teach all their kids everything they need to know about it. But in your own personal experience your parents who are, obviously smart people and hardworking, but they didn’t have the skills to teach you. That’s why you believe the schools have to step in.

Prakash Amarasooriya: I think there’s a lot of factors in this. I think parents don’t know everything and so for those families that are unfortunately not knowledgeable in this topic they unfortunately don’t pass on that knowledge to their children.

Doug Hoyes: I told my kids I did know everything.

Prakash Amarasooriya: Okay, I apologize.

Doug Hoyes: Just to be on – but everybody else, I understand what you’re saying, yeah okay.

Prakash Amarasooriya: And there’s also I think other aspects too. We I think are a product of a society as well and when sometimes other contributions are like consumerism. I think a lot of youth buy things without thinking about saving that money, which is an investment in themselves and they buy things they don’t really need at that moment like shoes and other necessities, sorry, things that they think are necessities but aren’t really. And so, part of the curriculum that we want to address is things like behavioural change and understanding what your needs are versus what your wants are.

Doug Hoyes: So, what is currently taught in high schools today, let’s start with that and then we can talk about what you think should be taught. So, what is on the curriculum that today that relates in any way to financial literacy?

Prakash Amarasooriya: So, when we did our curriculum review we noticed that there’s only four courses in the Ontario curriculum that address financial literacy. Two of those courses are not mandatory and the other two courses only go as far as talking about simple and compound interest as well as I believe annuities. And that’s the only two topics that we found in the curriculum.

Doug Hoyes: So, these are math courses. So, now let’s talk about what you think, or what the Toronto Youth Cabinet has proposed. You did not propose a sweeping change to the math curriculum, you proposed something different.

Prakash Amarasooriya: So, we proposed putting into the Grade 10 careers course. And the reason why we put that I think mandate I think for the proposal is because there’s three reasons for this. One, you can’t have a successful career if you’re not able to manage your money. Now there are rare instances where that’s possible but in general if you’re able to sustain a financial [lifestyle]. In general if you’re able to have a successful career, it’s because you’re able to manage your personal finances.

Second when it comes to the careers course itself it’s been deemed relatively ineffective by many students and I think in economic terms it’s a high opportunity cost and there’s a lot of people who think they can be doing better things with their time and we agree. And third is a mandatory course, meaning that everyone would have a chance to learn this topic regardless of whatever their future aspirations are as well regardless of their socioeconomic status and background.

Doug Hoyes: And I mean I’ve got two sons, one of whom is Grade 11 so he’s very familiar with the careers course and another one who’s in first year of university, so, again not too far in the distant past. And I think what you said is exactly correct, I recall both of them telling me, well I don’t know if that was the most productive use of my time and those were not the exact words they said but that was my interpretation.

So, you’re saying we’ve got this slot in the calendar anyways, and it’s a slot that is not being fully utilized. The general opinion amongst the students is we’re not getting a huge amount out of it. So, why not use some of the time for financial literacy education? So, what would you put in then to that course that is not now there?

Prakash Amarasooriya: So, I think a lot of people when they heard about the careers course had high expectations for it. We don’t want to take the grade aspects that are currently in it. They do talk about I think resume building as well as future job aspirations in the future.

Doug Hoyes: So, those are good things.

Prakash Amarasooriya: Those are good things.

Doug Hoyes: You’re not opposed to that. So, you’re not saying take the careers course, cancel it and replace it with a financial literacy course.

Prakash Amarasooriya: No.

Doug Hoyes: You’re saying take what’s there and build on that. So, okay figuring out what kind of jobs are out there, what the prerequisites for them are, how to do resumes, that sort of thing. And then once you start working and have money, okay how do you handle it as kind of a logical progression.

Prakash Amarasooriya: Exactly. I think ideally I would like it be a full course on its own but we chose this route because it’s the path of least resistance. We know it’s very difficult to actually add a course let alone even reform one. And so we wanted to find a way that wasn’t too difficult, it would be a win/win situation so we could hopefully make small gains and hopefully once people recognize there is financial literacy in the curriculum. And people have been okay, this is great, we want more of it, we can hopefully move forward from there.

Doug Hoyes: Now is it true that the careers course is a half course?

Prakash Amarasooriya: Yes, it’s a half semester course.

Doug Hoyes: Half a semester so half a year and the other half would be a civics course, is that –

Prakash Amarasooriya: Yes.

Doug Hoyes: So, you’re taking half a year, which already has some stuff in it, you would either speed or delete some of the stuff that’s there. What would you actually add then to the course?

Prakash Amarasooriya: So, topics we would like to add is budgeting. I think a lot of people know what a budget is but many don’t use it. And this can help, especially youth. Once they’ve built these good habits early on I think they can I think understand the value of what it is.

Other topics in talking about preparing for the future are how to buy a house and what that includes. So, things like mortgages, down payments, amortization periods. Even the definitions of these terms I think would be useful to youth. How to buy a car, what does that entail? What is leasing, how is that different from financing and buying? And so, once you start thinking about this early on, we think that this can prepare people to start looking at the bigger picture and not just making day by day spending decisions.

Doug Hoyes: Well, this show is called Debt Free in 30 and obviously that’s the topic near and dear to my heart. What debt related topics would you have in this? Obviously you’ve talked about mortgages, you’ve talked about car financings and things like that, would you address things like credit cards for example?

Prakash Amarasooriya: For sure. The reason why we proposed putting this into Grade 10 is because you’re two years away from actually being legible for a credit card. You’re also now old enough to create your own chequing account and you’re also going to be starting to look into student loans in the future. If you start doing this around Grade 10, this is the age where you can start saving. A lot of people start, a lot of youth nowadays actually have part-time jobs and so this might be the perfect time to address them early on and build proper saving habits so they can start kind of preparing for the future a lot earlier and with more time.

Doug Hoyes: Yeah and it’s an interesting because so Grade 10 is that the right time or is that the wrong time? And you’ve given the reasons why you think it’s the right time. I mean I guess the counter argument to would be well, there’s no kid in Grade 10 who’s going to be buying a house any time soon. And there’s no kid in Grade 10 who’s going to be financing a car any time soon. I mean sure by the time you’re in Grade 10, Grade 11, I guess you’re 16, 17 years old, you can go out and buy some old car or something. But the chances of you being able to finance a brand new car are virtually zero.

So, are we teaching them a bunch of things that will fantastic knowledge 10 years ago when they’re in a position to use them, are we teaching things too early that they will have then forgotten?

Prakash Amarasooriya: So, I’ll be honest and say there are going to be students who go through that course and say you know what? It’s not relevant to me now so I’m not going to pay attention to it so I’ll think about it when it comes time to. But there’s two things I want to say to that, one is if you build a culture around people who look at this course and say you know what? This is important, you’re going to need to learn it and people get excited for this course. Then youth when they enter this course will be you know what? It might be nothing to me now but I know it’s going to be important in the future so let me start paying attention.

And I think two is because a lot of people I think complain regarding, they don’t learn useful topics in schools. This is a way to give them, okay you know what? You’ve complained about this, it’s not being done, here you go. If you take advantage of this, it’s up to you, but if not that’s your opportunity to lose. But we can’t say that unless we actually give them the opportunity to have that choice.

Doug Hoyes: So, it’s hard for me to think about when I was in Grade 10 ’cause that was a few decades ago. But what would make me excited to learn some of this stuff?

Prakash Amarasooriya: So, I think also thinking about the changing world we live in. We want to make sure that we’re engaging them in ways that relate to them. So, that includes involving technology. In our research we’ve been looking into different types of financial literacy ventures and there are a few that are app based as well as computer based. And they involve activities that can hopefully put students outside their comfort zone and make them think in the long-term picture of things.

We also want to make sure that teachers are adequately prepared for this. This means ensuring sure that they are confidently and competently ready to teach this course. We know a lot of teachers admitted that they maybe would like to teach this topic but they don’t feel adequately prepared to do so. Other financial literacy partners have actually come up with lesson plans for teachers and parent guides that can kind of address that kind of I think lack of knowledge. And so this is something hopefully that the ministry does take on but there is great work already being done and there are resources online for people who are interested in that topic.

Doug Hoyes: We’re recording this in the middle of November, which happens to be financial literacy month. You and your group actually spoke to the Minister of Education. Tell me about what happened on November the 1st, 2016.

Prakash Amarasooriya: Sure, so we, in developing this proposal, we came up with like a strategy on how to get it known. We released a petition in order to get I think public attention on this issue because we believe that if people knew about this that there was no way they would reject supporting this idea. And so, once we released the petition it kind of took off a lot faster than we expected. We got a lot of media attention on it, we got a lot of supporters early on and within two weeks we actually got a response from the ministry actually asking, sorry, inviting us to meet with them.

And on November 1st, we had a meeting with the Ministry of Education, Mitzie Hunter. And we came in and we kind of pitched why we think this is the best route to do it and why it’s needed. And to our surprise it was actually – they were very receptive to our idea and they were like we’re in. And so, on two days later on the Thursday on November 3rd, they posed a press release saying that they will be implementing financial literacy into the Grade 10 careers course.

Doug Hoyes: We just don’t know what the exact timing of that is at this point.

Prakash Amarasooriya: Agreed, yeah. So, we’re – it’s relatively new and so we are I think in the waiting stages of what that actually means. They usually curriculum takes three to four years in its course but we heard from the ministry that it will be hopefully expediting the process because they are already currently looking at the careers course.

Doug Hoyes: So, it was under review anyways. This is something that can then be added into it. Now I know nothing about education but that doesn’t stop me from having an opinion on it. And I think you will find that every single human being went to school so we all think we’re experts on it. Like I know I’m not a doctor, I’ve never done an operation so I wouldn’t pretend to understand that. But school yes, we all have school stories.

So, given that I have zero actual knowledge or background in this let me tell you what I think. I think that what you think make sense but would it not – and I understand what you’re saying, this is our first step, we’d love to reform the whole world but let’s start with a manageable bite size piece. You know, it’s like if you want to eat an elephant, how do you do it? Well, one bit at a time. And that’s really what you’re saying, right?

Prakash Amarasooriya: Right.

Doug Hoyes: So, the careers course was going to be reviewed anyways, there’s some room to make some changes. I would think that as a next step after that, it would make sense to look at the whole picture. So, certainly some of financial literacy is math and as you identified there are a couple of courses already that touch on this, perhaps not specifically. And understanding basics like compounding interest and what that means and how a mortgage amortization schedule works and so on is important. That’s probably best done in a math course as opposed to in a careers type course.

But there are other elements to financial literacy as well. You used the word consumerism, I guess other ways to express that would be peer pressure, societal pressure. The reason that I do a lot of the things that I do is because the people around me are doing them, encouraging me to do those sort of things. So, you gave the example of someone who goes out and buys a pair of shoes that perhaps they didn’t need. Why did they do that? Well, I suppose it’s because some of their friends were doing the same thing. So, are there other courses that could be touched by this, math for example? I don’t know in high school if there are courses that deal with marketing and social studies and that kind of thing if there are elements to that. You know, are there other courses where this could potentially be relevant as well?

Prakash Amarasooriya: That’s a good question. Like you mentioned, financial literacy is something that affects everybody. And it’s kind of difficult I think to put it into other courses because as the ministry has already stated they put it from Grades 4-12  and they said it’s being dispersed throughout the curriculum.

My argument to that is because when you disperse something around the curriculum people don’t actively think about that topic. So, we mentioned things like consumerism, if they’re taught about it kind of vaguely throughout their educational experience, they may not get the time to think about okay how does this actually affect me?

If you put it into a dedicated course that directly confronts this topic, you get an opportunity for them to ask questions to a teacher and being you know what, you’ve been trained in this aspect, tell me why I shouldn’t be thinking this way. Tell me why I shouldn’t buy those shoes now or maybe why I shouldn’t buy the fancy car and that shouldn’t be goal. And if you create a dedicated space for that I think it speaks stronger than if you were just to disperse it across multiple curriculum, multiple courses.

Doug Hoyes: Because someone can be a champion of it I guess too. If I’m a math teacher and this is 45 minutes and one lesson that we’re going to hit on this, okay fine here’s how the math works and that’s it. We’re not going to put it into the bigger picture. So, is there enough stuff you can take out the careers course to put in the stuff that you want to put in?

Prakash Amarasooriya: Yeah and I think that’s the other thing. A lot of people mentioned that in their careers course, a lot time is being wasted with personality tests, which they feel are just time fillers. And a lot of them watch movies. I know from my personal experience we just watched movies half the time. And so, I don’t think it’s a valid criticism to say that there is not enough time to be done.

If there was more construction and more stability within creating a proper course because like you mentioned it’s only a half year course. And so having – if you did a class by class basis and of course allowing for leniencies between missed classes and stuff like that, you can come up with a comprehensive curriculum that addresses the key components of careers as well as what needs to be taught in financial literacy, at least in the beginning stages.

Doug Hoyes: So you think it is possible then to actually do it. Do you worry that, not just students, but everybody from the ages of zero to 100, are bombarded with all these conflicting messages. That hey, you’ve got to buy this, you’ve got to have that, the whole consumerism thing. Is that even a bigger influence in our lack of financial literacy than the fact that maybe we’re not so good at the math. Is that really the biggest problem we’ve got?

Prakash Amarasooriya: I think you’re right. I think there’s a lot of outside pressures, especially in our ever changing world, especially with social media. I think a lot of youth when they go online they see, people always post their positive experiences and they post that they’re travelling, they’re posting that they’re buying these new things and they’re showing them off on their social media. Youth might just think that that’s what the whole point is and maybe not think of the long-term goals of buying those things.

Doug Hoyes: Yeah the whole point of Instagram is to show what I bought or what trip I went on.

Prakash Amarasooriya: Or what food you had.

Doug Hoyes: What concert I’m going to, that sort of thing. So, that’s why people are tweeting their lunch all the time. Yeah, that’s a good point and again, when I was a kid, when I was 40 we didn’t have any of this stuff. There was so such pressure to be showing people what, you know, I think I’m doing or should be doing and that kind of feeds all into it.

So, will forcing, forcing is the wrong word, but will having people recognize these influences be part of the course that you’re proposing? In other words is it going to be here’s how the math works or is it going to be more of a step back that here’s how the decision making process works, here’s all the things that are influencing you. Is that going to be part of the curriculum or can it be?

Prakash Amarasooriya: I think we do want to I think make it as inclusive for everybody as possible. If we take away the math aspects of it, that may be too complicated for some students and may disengage them. But if we ask those questions that they will have already asked themselves and hopefully engage them in a discussion. Like early on I think the first thing they should talk about is what do you consider a need and what do you consider a want?

If you know the difference between those two things can you understand what my actual goals in life are? Are they monetary, are they family oriented, are they goal based? And if you can start asking those questions many students can understanding what financial decisions they want to make and what they value compared to what they need or what other people want to enforce upon them.

Doug Hoyes: And that’s a good step. So, it’s going to be perhaps a year or two or three before the curriculum’s actually changed. Let’s say that I am in Grade 9 or 10 or 11 or 12 today or let’s say that I’ve got kids or people I know who are in high school. What advice would you give them, what resources would you point them to, what would you tell them to focus on today, given that perhaps the school system isn’t going to give them what you think they need?

Prakash Amarasooriya: Okay. So, I think two things would be, one in terms of saving, I don’t think it can be stressed enough that students should save money more than they should be spending. I think there’s a famous quote by Warren Buffet that you spend after you’ve saved. Saving you have to consider an investment to yourself, you’re paying yourself first. You always pay things like your bills and other expenses first but saving is investing in yourself. And once you have money to save you can do things like investing and such.

And the second thing is that I know that the financial consumer agency of Canada, they have great resources online of all financial literacy partners that do great work already in financial literacy and many of them have resources as well as books and online modules where you can learn about topics that may interest you that may not be involved in a careers course such as stocks, investment. Those are topics that I think are more specialized that may not relate to everyone but I think a lot of people may have an interested in.

Doug Hoyes: Yeah and so that’s the FCAC that you’re talking about. So, what I’ll do is I’ll put links to that in the show notes over at hoyes.com and I think you’re hitting on a key point and that is ultimately they’re responsible for financial literacy is you, it’s not my parents, it’s not my school. They can certainly provide resources and that’s great but ultimately if you want to learn about money, this is 2016 there’s this thing called the inter webs that has tons of information out there. And some of it will be just plain wrong, some of it won’t apply to you, but isn’t that the whole point of becoming literate is to read the differing points of view, read the different things that are out there and make some decisions for yourself?

And if we can teach students to think, isn’t that really the ultimate battle? And that’s what you’re saying, critical thinking. So, well and I mean you mentioned budgeting for example, I’ve got a couple of videos on YouTube where I say you know what? Budgeting for a lot of people don’t make any sense at all, for some people it does. Well, what’s the difference, does it apply to you? Well, those are the things that you got to look at for yourself and can decide.

Prakash Amarasooriya: Exactly. I think what you mentioned hits the nail on the head is that there’s no one size fits all kind of solution to this. We want to present in education just the variety of options and it’s up to each student to say you know what, this is what works for me. I may not be interested in that but having the option and opportunity to do so is I think what our key point is.

Doug Hoyes: Excellent. Well, I think that’s a fantastic way to end it. And, you know, stay tuned to the news I guess as time goes on. Because as you said in November 2016 the Toronto Youth Cabinet has met with the Minister for Education for Ontario who appears to be receptive to the idea of making changes to the careers course in Grade 10 to introduce more elements of financial literacy. Great, thanks very much for being here.

Prakash Amarasooriya: Thank you for having me.

Doug Hoyes: That was my discuss with Prakash Amarasooriya who is the volunteer School Board’s lead for the Toronto Youth Cabinet, giving us his thoughts on financial literacy in Ontario high schools. And specifically he believes that the Grade 10 careers course is the place where there is some room to add some financial literacy education. He believes that Grade 10 is the right opportunity. Students are sophisticated enough, starting to have part-time jobs, starting to have some money and therefore that’s the time to do it.

So, what’s my take on what Prakash had to say? Well, I absolutely agree that more education is better and I agree based on what he’s told me that the Grade 10 careers course probably is a place where there is some opportunity to increase financial literacy education.

I do believe that financial literacy should not just be one half year course, one part of one half year course in grade 10. I think incorporating it into the math program and some other courses is also important. But hey, the more education the better, I don’t object to it. What I will say is this, I think the most important skill when it come to financial literacy is critical thinking, being able to think critically.

As we talked about on the show we are bombarded with advertising, from the social pressures of our friends who are buying this and buying that and to be able to think critically and think through why we are buying something. As Prakash said, want versus needs, that’s a very important concept, if we can learn those things then that will improve our financial literacy considerably. And that’s not just for youth, that’s not just for somebody in Grade 10, that applies to every age group.

That’s our show for today. Thanks for listening. Full show notes are available at our website at hoyes.com and I will put links to everything we talked about and some further resources on financial literacy. Thanks for listening, until next week I’m Doug Hoyes. That was Debt Free in 30.

The post Financial Literacy: Does it Belong in Ontario’s Curriculum? appeared first on Hoyes, Michalos & Associates Inc..

The Education Goal Is About Planting Seeds

I ask Dave whether there is a point to teaching things like RRSPs, RESPs and investing to high school students who will most likely forget the information once they leave high school. Dave explains that although we don’t always remember the exact formula or details of a lesson, having a basic understanding that it exists, is enough. He points that

I think what you’re doing, Doug, is planting a seed. And if you introduce students to this and you spend a little bit of time, you discuss it, you look at it, analyze it and you give them a sense of confidence that they actually have a grip on it, then later in life, they may not remember specifically how to do those calculations in detail, but as you well know with things like YouTube…I think you can really fly with some of these things.

Dave’s point is that if you give students the confidence to understand a concept, they can reference things like the internet later in life to remember how to do it, and therefore, you’ve planted a seed that has lasting effects. In his experience, Dave asserts that

I’ve just seen too many lights come on over the the time that I was teaching in the classroom and students saying thank you for showing me this because I have an understanding now.

Students Should Learn To Be Skeptical

My personal opinion is that the most important thing that we can teach students in high school is to think critically and to be skeptical. If students have the ability to ask questions, do their research and avoid taking information at face value, those skills will help them in their financial future.

Dave agrees with me that it’s important for students to check facts and ask questions and tells me about one student who went with his parents to purchase their car. In the classroom they had learned how to calculate car payments and when the salesman told his parents how much the car would cost each month, the student decided to run the numbers for himself. It turns out that the salesman’s calculations were off and the student ended up saving his parents $15 a month over the course of their payment term.

Dave explains that because the student learned how to do the calculations in school and he was able to think critically about the information being given, “he knew how to figure it out [and] that knowledge was power to him”.

Are We Doing Enough?

We established that teaching students to think critically and to be skeptical in the real world are important skills to learn. But are we doing enough?

Dave points out that

…it would be important for people involved in education to have, to continue to have, a good overview and a look at what’s in the curriculum from time to time, and then saying, are we keeping up? Should we be adjusting? Should we be doing more? And my feeling is we could probably do even more.

I believe that teaching financial math is important. Learning how to calculate interest and understanding concepts like compound interest are necessary for figuring out loan payments and the kinds of debt that they students will inevitably take on as adults. That way, even if students forget how to calculate interest, they may remember why it’s important to do the calculations and can fill in the gaps using sites like YouTube or Khan Academy. Dave believes that giving students the confidence to learn financial concepts in school will allow them to use tutorials on these kinds of sites to teach themselves the calculations that they may forget and take responsibility for their own ongoing education, for the rest of their lives.

Listen to the full show for more information about:

• How to calculate a loan payment.
• What financial concepts are currently being taught in high schools.
• Why financial literacy is important.

Read the full transcript with Dave Mitchell below.

Do you think we should be teaching financial literacy in high schools? Does it matter that students might forget how to do the math or is it most important that they simply understand that those concepts exist? Let us know your thoughts by leaving a comment below.

Resources Mentioned in the Show:

• Dave’s website – Arithmecode
• YouTube
• Khan Academy

FULL TRANSCRIPT show #62 with Dave Mitchell

Most of the time here on Debt Free in 30 I have guests on that I agree with. I may play devil’s advocate and ask questions that sound like I’m disagreeing with them, but most of the time I’m on the same page as my guests. Not today. Today my guest is a guy I’ve known for many years. He’s a really good guy, really smart but there is a topic we disagree on and that’s what we’re going to talk about today.

As many of you know, November is financial literacy month here in Canada and one of the topics that comes up every year is how should we teach financial literacy in schools? I think that’s the wrong question. I think a better question is there any point in teaching financial literacy in schools? I have two teenage sons; both of them are in high school. And I was once a teenager in high school myself, so I have a vague understanding of what it’s like to be a teenager. If you’re a teenager in high school, you most likely don’t have a full-time job, you don’t have much money and you don’t have access to credit. So, is there really any point in teaching a high school student about RRSPs and RESPs and investing?

I’m not convinced that teaching those concepts to someone who may or may not use them for ten years has much benefit. It’s like learning French, if you don’t use it, you lose it. How many of us took years and years of French in school, but can hardly speak a word of it today? Most of us I bet. And that’s my opinion on teaching financial literacy in schools.

I agree that as Canadians, our level of financial literacy is appallingly low. The facts speak for themselves. We’re carrying record levels of debt. I see an increasing number of people getting payday loans, which are almost always a horrible idea. There’s almost always a better option. And yet people get them. It may be desperation, but in a lot of cases it’s a lack of knowledge about how interest rates work. As a society we lack basic financial knowledge, so teaching it is a good idea.

I’m just not convinced that teaching it to high school students, who can’t apply it right away, is a useful exercise. But, maybe I’m wrong. I’m not a high school teacher, so let’s ask someone who actually understands the world of high school education. Let’s get started by welcoming my guest. Who are you and what’s your background?

Dave Mitchell: Hi Doug, good morning. My name is Dave Mitchell and I taught high school math here in Kitchener for 30 years at Grand River Collegiate and at Cameron Heights. And these days since retiring from the classroom in 2004, I speak at educational conferences in Canada and the United States sharing ideas with teachers on how to make math more engaging and interesting for students. I also am involved in educational publishing and I have a series of booklets, CD’s and DVD’s, all of which are based around that same theme of making the study of math more engaging for students.

Doug Hoyes: And obviously math has a lot to do with what we’re talking about today. And what I’m going to do is put in the show notes over at hoyes.com, links to all the stuff that you’re talking about so if people are interested in finding out more about what you’re talking about, the stuff that you’ve done, they can find it there.

So, let’s, before you and I get into a fist fight here, let’s start with the basics. What is being taught in schools today? And I understand that you can’t give me an overview of everything that’s taught all over North America. But, why don’t we concentrate on what is being taught in Ontario, which is probably comparable to other parts of the country with respect to financial literacy. What is in the curriculum now to the best of your knowledge?

Dave Mitchell: Well, historically, what happened was the students who were not in the upper academic stream, got most of the financial part of the curriculum presented to them, and the students who were in the straight academic math stream got very little of it, which seemed odd because students, as you know, are always asking the question why should we learn this? What value does it have? And actually the application of math in financial matters is one of the most common, everyday, hands on you can get a grip on it type of things you can imagine. And it’s a perfect response to students. Let’s take an in-depth look at this so you understand the nuts and bolts of financial math calculations, simple interest, compound interest, annuities. How are these things actually worked out? Where do they come from? How are the calculations done?

And my experience was that students loved and appreciated that aspect of mathematics, it was something concrete, something they could get a grab on. And years ago, when we had grade 13, and I’m going back now many years, within grade 13 there was a course called math of investment. And it was one of the best courses in all of high school math for hands on understanding of the way financial calculations are made. And the students who took that course loved it and many of them went on to be – to take studies relating to financial math, accounting and the like, that sort of thing. They were so intrigued by the calculations, the finance of math that they were motivated to go and do it. And sadly, that course got dropped from the curriculum. And I remember thinking to myself, what a mistake, what a mistake.

So, that’s what happened historically. Just checking with a friend of mine who’s a math department head here in town, a week or so ago in preparation for speaking with you today, I found that there is still math finance discussions in the basic math and applied math courses and there is some in the academic math. But probably it would be such that you could argue there’s room for a lot more.

Doug Hoyes: And so, if I’m a high school student, you’re talking about two different steams here, the basic stream and the advanced stream I think is what you’re calling them?

Dave Mitchell: Well, we sort of have a math for everyday life and the terminology changes from time to time. But it’s a math for everyday life, and then applied math, and then an academic math.

Doug Hoyes: So, there’s kind of three different categories to it.

Dave Mitchell: Right.

Doug Hoyes: And so math for everyday life, what are we talking about?

Dave Mitchell: I’m sure there it would be calculations that are fairly straightforward and every day, like how does simple interest work? And there’s an uncomplicated or simple formula for simple interest as you know. And the students would also look at compound interest. And with calculators being the way they are now, it’s fairly straightforward to show a student how to do those calculations.

So, you could say if I’m investing so much money for such a length of time at 10% per annum compounded semi-annually, how much do I end up with? They would also look probably at payments, car payments and the like. And I would think more likely they would work from tables. I’m not sure on that one but I think they would work from tables. Say in the math for everyday life to figure out a rough idea of what a mortgage payment would be or a car payment would be. It wouldn’t be too intricate a mathematical look at it, but it would be enough to get a sense of what these things would turn out to be.

Doug Hoyes: And is that something every student in high school would get or just people in a certain steam?

Dave Mitchell: Well, once again, my understanding there is that certainly in math for everyday life there would be a look at it at a very fundamental and everyday level; in the applied math I believe that’s the case. And in the academic math I think there is a look at it and probably in some cases a more advanced look at it. I know my friend who is the math department head also teaches IB math, The International Baccalaureate Math, and he said there they have quite an in-depth look at the mathematics of the financial calculations for annuities and the likes. So, there they would really be getting into some sophisticated math and they have at least a discussion for, I would imagine, several weeks on how these things work.

Doug Hoyes: So, there is some stuff being taught today. There might not be a huge amount of consistency. It may depend on what program, what courses you’re taking. So, let’s get back to my basic point which is well isn’t that all really kind of a waste of time. So, simple interest, okay I get that. I think that’s a concept you can teach someone and they will remember ’cause it’s not that hard, it’s simple that’s why it’s called simple interest. But what about the more complicated things? When you try to apply those to real life if it’s something I’m not going to be using for years and years and years, is there really any point teaching that?

Dave Mitchell: I think what you’re doing Doug is planting a seed. And if you introduce student to this and you spend a little bit of time, you discuss it, you look at it, you analyze it and you give them a sense of confidence that they actually have a grip on it. Then later in life, they may not remember specifically how to do those calculations in detail, but as you well know with things like YouTube, you can simply search for a tutorial on “calculation of compound interest” for example. And somebody there would present a tutorial that would be a good discussion of how these discussions are made. And if the seed had been planted and now you’ve got the refresher at your fingertips through YouTube I think you can fly with some of these things.

Doug Hoyes: So, do you need to plant the seed? ‘Cause I totally agree with what you’re saying about modern technology and I know, one of my sons in particular, learns all sorts of stuff on YouTube. He’s a visual learner, that’s how he does it and he tells me all sorts of stuff. He’s way over my head, I have no clue what he’s talking about. So, maybe that’s the answer. What we really need in all areas of life is a just in time learning system. So, okay I’m now old enough that I can go out and buy a car, finance a car, well maybe now’s the time then that I go on YouTube, find some videos, learn it and be ready to go. Does it really matter what I learned in high school ten years earlier?

Dave Mitchell: Well, life goes by so quickly. And you can easily miss the boat on something. And let me give you a concrete example. A friend of mine, a fellow who grew up with me here in town, who has had his working career in New York City, after he had established his career and was working for a number of years, he learned by chance that there was an opportunity to put away money from his paycheque on a regular basis into a deferred compensation fund.

And over the years that he was contributing to this, this grew to oh a sum of about $400,000 that he will be able to enjoy and use throughout his retirement. And he said the only way he even knew of the power of this, and the power of say something like compound interest, was not because he had studied it in school. He regretted that he had never even learned about it when he was in high school, but he learned from a friend. Then when he started to investigate what went on when you have compound interest working in your favour, he was astounded and he started telling his friends. And some of them, even though they had only say ten years to go in their working career, started to put money aside and were absolutely amazed at what it produced. And they had the regret that they didn’t know earlier that this was available and the power that it had.

Doug Hoyes: But if he had learned it earlier, would it have made an impression on him? I guess we don’t know the answer to that.

Dave Mitchell: No, we don’t know. But he’s the type where that seed could have made a huge difference for him. And he told me, had I known about this at the beginning of my working career, he said I would have been able to grow that fund into a million dollars rather than $400,000.

So, once again, there are lots of things that one might study in school at any level and you have a hard time connecting A to B. You know, I learned A and therefore I can do B and it helps me accomplish C in my life. However, learning – I think all learning is of value and some of these things that are practical that students seem to be clamouring for, I think that’s a real key to sort of grab hold of them and say look there’s more to this math than just figuring out how to solve a quadratic equation or to solve a geometric series or to understand a geometric series you can start applying it and then look what this can mean over the course of your life. It can make a huge difference.

Doug Hoyes: So, the gist of your argument is, education in whatever form it is, maybe isn’t the end goal, it plants a seed and that seed leads to something else, which leads to something else, which leads to something else, and therefore, you can’t draw a linear relationship to it. So, if we were teaching more of this stuff in high schools, elementary schools, whatever, then at least by the time we got to later life, the light bulb might come on and we might go yeah I have some vague recollection of something like that. And therefore, it does have value. So, I’m taking a much too simplistic view of it is what you’re saying.

Dave Mitchell: Well, I think so. If you start with simple bank accounts and deposits versus withdrawals for young students and how to write cheques, even though cheques are going out of fashion, but you can have quite a discussion even with very young kids about budgeting and that sort of thing and start it off. And then I think by high school age it is appropriate to know the basics of these things that we’ve discussed and at the level at which the student can understand and deal with mathematical concepts, the complexity of what you look at could increase.

And I’ve just seen too many lights come on over the time that I was teaching in the classroom and students saying thank you for showing me this because I have an understanding now.

And I had an example of a grade 13 student, once again this is ancient history, but here’s what happened: we had looked at how to calculate mathematically the amount that a car payment should come out to each month, you know, given all the parameters. So, this student went along with his mom and dad when they were looking at purchasing a car. And the salesperson said okay here are the conditions and your monthly payment should work out to $250 a week and this was a while back. So, the student hauled out pencil, paper, had the calculator and went through the calculation and said no it should be $15 less a month. And the person, who was the salesperson, said no, no, no I’ve checked in the table here and my calculation is correct. So, the student was firm about this and the fellow went back to his tables and said I’ve made a mistake, you’re correct. So, the student came in the next day and was so happy to report that he had saved his parents $15 a month over the course of the payment schedule for this car. And he knew, he knew how to figure it out, that knowledge was power for him.

Doug Hoyes: And it was something that was applied really quickly. So, well okay let me throw a different concept at you, then. I agree that understanding how to do the math is important. And understanding, you know, the difference between simple interest, compound interest and those are mathematical concepts. But I think what’s even more important is the ability to think. And I think the illustration that you gave, just illustrated that. The student was sitting there and he was skeptical. He didn’t say oh well this salesman knows what he’s talking about so I’m going to just keep my mouth shut, he must be right. The student in fact said the exact opposite. Well, let me double check.

And so, I think if I was designing a financial literacy program in school, yes I’d want to teach them math, but even more importantly I would want to teach skepticism. And I don’t know if that’s the word for it or not but not taking things at face value. When I’m looking at a proposal from a salesman on a loan, I should have the wherewithal to ask questions, question assumptions and whatnot. Am I right on that?

Dave Mitchell: I would certainly agree. And in general, I would hope that education produces a healthy amount of skepticism in the sense that one does not take something without thinking it through and perhaps checking facts. And with the availability of the internet, now checking facts and figures, that’s so much more readily available than it was years ago. But yes, no you’re certainly correct on that. I would argue that’s part of it.

Now I have a very interesting anecdote too about a personal situation that happened years and years and years ago when – my wife and I have three children and they were all very young. We had somebody selling insurance come to the door, knocked on the door. And I ended up having about a three hour discussion with this person and the family allowance cheque, he had a plan. Take this family allowance cheque and deposit, it was either all or some of it, every month and here’s how much money you would have by the time your student reached age 17, 18 to go to post-secondary school.

And I looked at the calculations and they weren’t making sense to me. So, I did what my student had done, hauled out the calculator, took a pencil and paper, made the calculation and he was incorrect. He was incorrect. And he said, no, no, no I’m correct. Here are my tables, it says right here, this is what the result is. And I said, no you’re interpreting your tables incorrectly. And I showed him why he was interpreting the tables incorrectly. He was inadvertently adding an extra year to the calculation. Just the way the tables were set up, it wasn’t fraudulent, he was just mistaken. And when I showed him the mathematics of why it worked, he was amazed. And this was a young person at the beginning of his career and I said have you not studied this aspect of financial calculations? He said no.

So, I spent the next two hours volunteering to teach him. I didn’t have to do it. I just wanted to do it. And he thanked me when he left the door. I didn’t end up taking him up on his offer, but I felt kind of good because I thought well, for the rest of his career; at least he will be interpreting his tables correctly because he knows the math behind it.

Doug Hoyes: And that’s pretty important. Well, so just to conclude then what you’re saying then is, yes this is important and even though it may not flow all the way through life, specifically in that format, you’re planting a seed at the educational level and if that also leads to a healthy skepticism that’s a good thing. And that’s really what we need in our school system.

Dave Mitchell: Yes, I would agree with that and I would also think that it would be important for people involved in education to have, to continue to have, a good overview and a look at what’s in the curriculum from time to time. And then saying are we keeping up? Should we be adjusting? Should we be doing more? And my feeling is we could probably do even more.

Doug Hoyes: There’s always more than can be done ’cause the world does change very quickly. That’s an excellent note to wrap up the segment. Dave, thanks very much for being here.

Dave Mitchell: You’re welcome Doug, thank you.

Doug Hoyes: Thank you. I’ll be back with the next segment right here on Debt Free in 30.

Doug Hoyes:   It’s time for the Let’s Get Started segment here on Debt Free in 30. Every expert agrees that the level of financial knowledge in Canada could be better. That’s obvious from the massive level of debt that we carry, both as a country and as individual Canadians. I suspect that every one of us, myself included, has made bad financial decisions and often the cause of those bad decisions is a lack of financial knowledge. So, perhaps teaching financial concepts is a good idea.

So, what’s my opinion on how we should teach financial literacy in high school? As I said at the start of the show, I don’t see a lot of point in talking about retirement savings with a high school student. However, I do think there are two areas where high schools should devote some time to educating students. First, financial math. Understanding interest and compound interest is critical if you want to have any hope in later life of understanding how much interest you’re going to pay on that loan you want to get to buy a car or a house. So, I’ve asked Dave Mitchell to come back. And Dave, I’d like you to give us a quick illustration of how you can do a really rough estimate of what I should be paying on the loan. So, let’s assume I’m sitting there at the car dealership. It’s a used car, it’s $10,000 and the salesman tells me it’s going to be a loan, 10% interest, I’m going to pay it off over five years. Now I can’t do that amortization schedule in my head, but I’d like to get at least close to know ballpark wise what it’s going to be. So, walk me through how you would kind of think that through?

Dave Mitchell: Right, well we try to come up with a benchmark and then work from there. So, if we have $10,000 a year. Sorry –

Doug Hoyes: $10,000 in total is the loan.

Dave Mitchell: Yeah, $10,000 in total is the loan. And we’re paying that off over five years then our principle is $2,000 a year. So, the 10,000 divided by five gives us 2,000 a year. So, if we want to calculate a monthly figure, divide that 2,000 by 12 and we get about $167 a month, just in the principal.

Doug Hoyes: And that makes sense, okay 10,000 divided over five years. I mean really you’re taking 10,000 divided by 60 okay $167 a month. Okay, so I know my payments going to be at least $167 a month but obviously I’ve got to pay interest as well.

Dave Mitchell: Yeah, then we’ve got the interest component. So, just for the sake of simplicity if we look at 10% on $10,000 is $1,000 to cover a one year. And if we divide that by 12, that’s $83 a month. So, if you take $167 and $83, we’re up to $250 a month.

But as we know, that’s higher than what you’re actually going to pay because you’re going to be paying this off monthly. And each month when you make a payment, part of that payment is principal and part of that payment is interest. So, we know that the monthly payment has to be less than $250. And now it’s easy to go to the computer and search for an amortization schedule or an amortization calculator or a loan calculator and check out the numbers and I believe you’ve done that.

Doug Hoyes: I did that and the actual number is $211.

Dave Mitchell: Right, so things are making sense. We know it can’t be $250 or higher. It’s got to be less than $250. $211 seems reasonable and I think what people could do is once they’ve got that sort of benchmark upper limit of $250, they could on their own, go to the computer and do a search for an amortization calculator or loan calculator and punch in the numbers. But they’ll have to know how to apply those numbers properly.

So, they’ll have to know their principal is $10,000; their interest rate is 10% per annum or per year. That’s likely compounded either semi-annually or quarterly, and they’ll have to know that. It could be compounded monthly, but I would guess semi-annually or quarterly, probably. And they’ll have to know how long they’re going to – what the amortization period is rather, so, in this case, five years with monthly payments. And that’s what you did and that’s where you came up with – with the help of the computer of the $211 per month.

Doug Hoyes: Yeah and so what we did was a rough estimate while we’re sitting there in the dealership and then we can kind of verify it later. And I guess that’s kind of my point and that’s why I think the second thing you have to teach in school is skepticism. Stated more simply, we should teach students to think and not just blindly accept whatever the person selling us the loan tells us.

So, when you go into that car dealership to buy a car and the salesman says, yeah no problem, we can put you in this car for only $300 a month, do you know what questions to ask? You should be asking what interest rate am I paying? How long is the loan for? What other fees am I paying other than interest? Are there pre-payment penalties, late fees? What happens if I miss a payment? We focus too much on the monthly payment, often, and forget to ask the important questions.

It’s common now to be able to get a seven or eight year car loan. That’s crazy if you’re buying a used car that may only last for three years. You need to be skeptical and ask a lot of questions to make an informed decision.

If I was trying to teach skepticism in school, I’d do it with case studies. I just gave you one. You’re going to a car dealership, what questions would you ask? A 16 year old kid in high school is very interested in buying a car, so understanding the math and the skepticism, I think are very practical skills. But that’s just my opinion. I’d be interested in hearing your thoughts so feel free to comment right on the show notes on hoyes.com.

I’ll be back after this quick break to wrap it up. Dave, thanks for being with me today. That was the Let’s Get Started segment right here on Debt Free in 30.

Doug Hoyes: Welcome back, it’s time for the 30 second recap of what we discussed today. On today’s show Dave Mitchell, who has 30 years experience as a high school teacher, said that teaching financial literacy in high school is very important because even if students don’t remember everything they’re taught, by planting the seed of knowledge in high school, Dave believes that we can equip students for success later in life. That’s the 30 second recap of what we discussed today.

So, what do I think of Dave’s opinion? Well, as I said at the start of the show, I don’t see a lot of point of spending a lot of time in high school teaching kids concepts that they will quickly forget. However, I am willing to concede that Dave’s concept of planting a seed does make some sense. If you’re exposed to concepts like compound interest in high school, even if you don’t fully grasp the intricacies of a calculation, it does at least allow you to know what questions to ask.

Dave’s example of the student who helped his parents when they were getting a car loan is a great story, primarily because the student was skeptical. He didn’t just take the salesman word for it. He knew which assumptions to question, he asked questions, he did the math to back up his thoughts and as a result he got his parents a better deal. That’s financial literacy in action, and that to me is the perfect result, a student who understands the basic math but more importantly also knows when to be skeptical and ask questions.

That’s our show for today. Full show notes are available on our website including links to everything we discussed today including some good loan calculators and amortization calculators and links to Dave Mitchell’s website where he has lots of great resources for math teachers and students. All of those resource are at hoyes.com, thta’s h-o-y-e-s.com. Thanks for listening, until next week, I’m Doug Hoyes. That was Debt Free in 30.

Bonus Podcast Only Segment

Doug Hoyes: It’s time for the bonus, podcast only segment here on Debt Free in 30. Our radio show is only 30 minutes. That’s why it’s called Debt Free in 30 and sometimes we have other things we’d like to talk about so we tack them in here at the end in the podcast only section.

So, Dave, let me ask you a question. I’m joined again by Dave Mitchell who was a high school teacher for 30 years and continues to work in the educational field providing resources and teaching to teachers across North America. So, if you were put in charge of the curriculum with respect to financial literacy, what kind of changes would you make? What would you be doing? What ideas, what thoughts do you have on this whole concept?

Dave Mitchell: Well, one thing that comes to mind is the idea of demonstrating to students that you can learn so much of this now on your own by going to a site like YouTube and you could for example search for “simple interest tutorial”. And there would probably be 50 tutorials or more that come up. And some of them will be quite good.

So, even if you know nothing about financial matters and the calculations involved, you can teach yourself. And it doesn’t matter whether you’re a 14 year old student in grade nine or you’re 35 and you’re working and looking at becoming more financially literate yourself. You can teach yourself.

My wife and I wanted to put in hardwood floors in our home and I decided to do it myself. I learned how by going to YouTube. Found a tutorial, watched it about 10 times, knew all the steps and I did it. And there’s a satisfaction when you learn these things for yourself, too. And I think that would be one thing we can do is make sure students understand, and that adults understand, you can learn yourself. The internet opens all these doors.

Doug Hoyes: And that’s maybe something a little new for us. Because when you and I were kids there was no such thing as YouTube.

Dave Mitchell: Exactly.

Doug Hoyes: When we were young adults there was no such thing as YouTube. And it isn’t a natural thing for us. Well, back in the day I’d go to the library to learn something. Well, nobody goes to the library anymore because everything is on your computer for the whole world. And I guess that’s a piece of practical advice then that you’re giving to people.

Dave Mitchell: Right. And it’s not just YouTube, there are other sites. There’s one for example called Khan Academy. And that is a learning site and you can go there and type in virtually any topic and get a tutorial on that topic. So, the doors are wide open.

Doug Hoyes: Yeah and I’m familiar with that site. It’s a fantastic site. My kids have certainly used it. There’s all sorts of stuff there. So, I guess whatever you learned in school, and the people who are listening to this show have probably graduated from school by now, they may have kids or grandchildren in school. Yes, what you learn in school is important. But I guess what you’re saying it’s even more important that you take responsibility for your own ongoing education for the rest of your life. There are resources out there, make use of them.

Dave Mitchell: Certainly and it’s rewarding. The satisfaction you get when you started out not knowing something and you learned how to actually accomplish something.

Doug Hoyes: It’s pretty cool and with something like YouTube or video learning you can sit there and watch. It’s kind of like being in the classroom only you can pause it, skip around and go back and watch it again until you get it. So, it’s a great resource. Great, thanks for sharing that with us Dave and thanks for being with us today. That was the bonus podcast segment right here on Debt Free in 30.

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Keep these tips in mind when talking to your kids about debt:

Be Honest

Making excuses for why there are suddenly fewer television channels or why the annual family vacation isn’t happening or why they can’t have the new laptop they’ve been asking for is a bad idea. You teach your children to be honest with you and that they can trust you, so you need to show them that it works both ways. Having said that, kids don’t need to know everything. So tell the truth, but spare the gory details for adult conversation.

Keep it Age Appropriate

If your children are elementary school aged or younger, use simple terms that they can understand. To them, the most important thing to know is that they’re still going to be loved and cared for and that it’s not their fault.  To a young child, a family crisis such as a job loss or layoff may actually be good news as they get to spend more time with their parent while they look for new work. Try to avoid having emotional discussions or falling apart in front of your young children – save those moments (which you are entitled to have) until after bedtime.

Tweens and teenagers have a much better grasp on money and will be better able to understand cutting back. Don’t spend lots of time drawing their attention to things they can’t have or things they can’t do, instead, focus on ways the family can work together to balance the household budget. If you currently pay to have services performed such as mowing the lawn or babysitting for younger siblings, this is an opportunity for an older child to step in, do these tasks and “earn” some money (albeit less than you had been paying) – this not only helps to reduce the family budget, but also allows your child to feel like they are contributing and still able to have some spending money of their own. A big concern for older teens is going to be their ability to attend university or college. A frank discussion about what you will or will not be able to help them pay for is best for everyone and will help them to set realistic expectations for what their post-secondary education will be like.

Young adults are beginning to live at home for longer and they are apt to figure out there is something financially amiss. In this age category, it may be time to insist that they start to contribute to the household as well.  Young adults look to their parents as financial role models, so let them learn from your debt troubles along with you so that they don’t end up in the same situation in the future.

Use it as a Teachable Experience

No matter what age your children, telling them about debt problems can be a wonderful chance to engage them and teach them about family finances. You may decide to implement spending jars so that everyone can see exactly how much is left to spend in any given jar at any time. You may suggest that a teenager look for a part-time job to help pay for the new jeans/shoes/video game/phone that they just have to have. It’s also a great opportunity to discuss the differences between want and need (a concept many adults still struggle with!).

Our children are woefully under educated about finances from the current education system. Coming together as a family to talk about and address debt problems can help to set them up with tools that they will use for the rest of their lives such as budgeting, accountability, and structure.  This will significantly reduce the odds that they will experience financial distress of their own in the future.

Assure Them You Have a Plan

At any age, your kids are going to want to know one thing in particular – that it’s all going to be okay. A time of financial difficulty can be a chance for a family to pull together and meet challenges head on as a unit. And this is where we can help.

If your family is dealing with financial uncertainty or is having trouble meeting your minimum payments, you may benefit from having a free meeting with one of our trustees. We can review your debt problems and financial situation with you and help you to come up with a plan – the right plan for you and your family – to get you back on track.

The post Include Children In The Debt Conversation appeared first on Hoyes, Michalos & Associates Inc..

Why should we teach kids about money?

I asked Robin whether it might be a waste of time to teach children about money management when they don’t have any of their own.  She explained that the consequences for both parents and children are too high not to start teaching financial literacy from an early age.  For parents, supporting adult children using money that you’ve worked hard to save, especially during retirement when you had planned to relax, is not the ideal situation.  For kids, growing up without properly understanding money management creates a large gap in their life skills and reinforces bad habits that will affect all aspects of their future lives, including their relationships and even physical health.

To combat these consequences, Robin suggests that we start the discussion early.  What we often forget is that kids do have money from birthdays, holidays, or allowances and they will need to make choices about what to do with that money.  Make sure that any discussion that you have with them is appropriate for the age and maturity of the child.  Talk about small steps that they can take to save their money and explain why saving is an important part of earning money.

What challenges do parents face when it comes to financial literacy?

Money management isn’t always easy and teaching it to someone else can be just as difficult.  There are many reasons that discussions about money might not take place, but it’s important to overcome those challenges and make it a priority. In Robin’s book she explains that challenges include a lack of knowledge by parents, not knowing how to approach the topic, limited opportunities to talk about money, or parents might not be good at money management themselves.  If any of these reasons are holding you back from speaking to your children about money, Robin recommends that you,

…look for teachable moments.

Look for opportunities to build a money lesson and learn with your child as you go along.  The best way to teach your child about finances is to act as a role model.  Actions speak louder than words and your child is absorbing everything that you do.  As Robin points out,

your kids are picking up these things by watching and listening and learning from you.

Is money a taboo topic?

For many, discussions about money can be uncomfortable and embarrassing.  Whether you’re struggling with your finances or have a lot of money, it can be a sore subject.  However, by not talking about money, our kids are deprived of those lessons that might set them on the right path financially as they get older.  CPA Canada conducted research demonstrating that,

teens who talk about money with their parents at home, feel more optimistic and confident about their financial futures.

One reason that money is a taboo topic at home is that parents fear having to answer sensitive questions about their salary, mortgage, or bills.  Robin suggests that we address these questions but in an age appropriate way.  Speak in general terms about salaries in your industry or take a question about mortgages as an opportunity to discuss the housing market in general.  Children do not need to be privy to specific information, but they should not be shut out of the conversation about money.

Extending The Conversation To Include Young Adults

Filing Tax Returns

In her book, Robin suggests that teens file their tax returns for a number of reasons:

1. To learn how to fill out tax forms properly, specifically employment forms.
2. Entitlement to refundable tax credits.
3. Start to build RRSP contribution room.

Credit Cards

An individual can get their own credit card once they reach 18 years of age.  However, Robin reminds us that even before that time, your child can have a supplemental card on your account. Keep in mind however, that all transactions will come from your account.  She lays out the pros and cons of getting a credit card at a young age:

Let’s Get Started Bonus Segment

Robin agreed to continue our conversation and discuss three healthy habits from her book, A Parent’s Guide to Raising Money-Smart Kids.

Good Debt Vs. Bad Debt – Good debts are for purchases that could potentially increase in value, including assets like a house, car, investment in a business, or education.  Bad debts are for purchases of consumption items such as clothing, dinner out, or entertainment that do not increase in value. When buying these items, it is always important to have the money before you buy.  Knowing the difference between good debt and bad debt is necessary for making a financial plan, passing this knowledge on to your children, and modelling positive behaviours when it comes to money management.

Delayed Gratification –  It is just as important to know when to save.  Delayed gratification is the ability to wait for rewards. Robin explained that kids who demonstrate this ability tend to be successful later in life. Robin explains the importance of this life skill when it comes to good financial habits stating,

…that’s what goal setting is all about.  It’s really like spending less today in order to save for tomorrow.

Creating A United Money Front – When teaching our children about money management, making sure that we as parents are on the same page is necessary for the lesson to sink in.  Parents should make a plan about how to approach their child’s request for money.  If the answer is different for each parent, your child might take advantage of this knowledge, especially as they get older.  To echo Robin’s earlier argument, parents need to model positive financial behaviour.  By creating a united front, your child will realize that spending and saving money is a serious action and that knowing when to spend or save is a beneficial life skill.

Resources Mentioned 

• Robin Taub – A Parent’s Guide to Raising Money-Smart Kids
• Robin Taub’s website
• The Investor Education Fun
• Robin’s Blog – Tangerine Forward Thinking
• Robin’s Blog – Turbo Tax

FULL TRANSCRIPT show #23 with Robin Taub

Doug Hoyes: We’ve had a number of shows where we’ve talked about issues specific to seniors.

Our second show we had Dr. Leanne Davies on talking about her work with seniors and all the debt problems they had. We’ve touched on it with a few other experts as well. What we haven’t talk about it is the other end of the spectrum. What happens, what are the issues, the money issues, the personal finance issues related to families, young people, teenagers that age group?

And so today we’re going to talk about that. I’ve got a great expert on the line so let’s get started. Tell me who are you? What do you do and what book did you write?

Robin Taub: Hi Doug. My name is Robin Taub. I am a Chartered Professional Accountant by training and currently I’m working as a financial literacy consultant, speaker, and blogger. And what that means is I help my clients create financial literacy resources that help Canadians understand their personal finance and investing. The resources range from blogs, speaking engagements and as you mentioned I wrote a book called A Parents Guide to Raising Money Smart Kids.

Doug Hoyes: Cool. And I’ve read the book and I’m going to put notes in the show notes. I’ll put links as to how you can get that book, where you can get it. You can buy it as a hard copy, you can buy it as an e-book and it’s a great resource.

But let me kind of play devil’s advocate here. So, I think everyone would acknowledge, yes it’s really important to raise kids who know about money and who are money smart. But is it really? I mean isn’t it kind of a waste of time trying to teach a ten year old kid about budgeting and credit cards when they don’t have any money? I mean isn’t money something you can only learn about when you have money and it’s really best to learn by experience?

Robin Taub: Okay. So, let’s start with your first question which is why is it important to raise kids who know about money or are money smart? So, I think it’s important not just for our sake as parents but for the sake of our children, because if we don’t there are consequences for both of us.

So, as parents we might end up supporting our adult kids financially or bailing them out of a financial mess like an expensive divorce or bankruptcy, something you know a lot about it. And that can really take place at the expense of us, the parents, could happen while we’re trying to enjoy our retirement and we might not even be able to afford to bail out our kids. So, certainly we want our kids to be financially literate and financially independent.

And then the consequences for our kids are also significant because if they are not financially literate, they’re going to be lacking a basic life skill, something they’re going to need throughout every stage of their lives. And they can also start to develop bad habits, like living beyond their means, that become hard to break as they get older. And I’m sure you see this a lot, people who struggle with money, it spills into other areas of their lives like their personal relationships and even their health. So, I think it’s really important.

But to answer your other question, is it a waste of time to try and teach a ten year old about budgeting or credit cards when they don’t have money? First of all you want to start early and lay the foundation. But it’s really important to do that in an age appropriate way.

So – and that’s something that my book lays out as – there’s a chapter for each age, from young kids, pre-teens to young adults. So, yeah you definitely want to make sure you’re speaking to them about money topics that are appropriate for the stage that they’re at.

And you mention also that they don’t even have money but that’s not even true really ‘cause ten year olds do have money from birthdays and holidays and they might get an allowance from their parents or they might do odd jobs to earn money. So, they have some money and they’re going to be making these choices. And you want them – and I agree with what you said that it’s best for them to learn. You know you do learn the best from your own experiences and especially from mistakes that you make. So, that’s why it’s so important to start when they’re young because that’s when the stakes are low.

Doug Hoyes: So, what you’re saying is if we don’t learn then there’s consequences and you kind of laid them out. They ripple all the way through into later in life. So, okay I’ll buy your argument that it’s important to raise money smart kids. But is that hard to do? What are some of the challenges that you see in trying to raise what you call a money smart kid?

Robin Taub: So, it can be hard for most people, for a lot of people, especially if you’re not good at it yourself. But if that’s the case, it can also be an opportunity for you to learn too while you’re teaching your kids.

Someone like me or someone like you that has a financial background that’s a financial professional, it wasn’t hard and it was very natural. But the typical Canadian parents face challenges. And those challenges include a lack of knowledge, like they just don’t even know what to discuss. They don’t know how to approach it. Parents feel like they don’t have the time. And sometimes they feel like they’re lacking the opportunity to talk to their kids about money. So, I try to recommend that you look for teachable moments. So, an opportunity in your day to day lives, as you go about your day to day family lives to build in a little money lesson. And again for me that came very naturally because I’m always kind of thinking about financial matters and my husband is also a Chartered Professional Accountant, so it wasn’t something that we shied away from and I think that was actually really good for my kids.

Doug Hoyes: And so really what you’re talking about then is, in addition to being a teacher, you’re really being a role model as well. So, I mean like you, I’m a parent, I’ve got two teenagers. I’m also married to a CPA, so that’s kind of creepy.

My theory is that the most important way that I can teach my kids is to be a good role model. Instead of me giving them a lecture on proper money management, I would assume that being a good role model is the most important way that you can raise what you call money smart kids?

Robin Taub: Absolutely. And that’s actually the first chapter in my book is the importance of being a good financial role model for kids because actions do speak louder than words. And teenagers, like you and I both have, they’re going to sniff out any kind of hypocrisy and they’re going to call you out on it. So, you cannot – the old do as I say, not as I do, that is not going to fly. And you really have to, as I say, walk the talk. Nobody’s expected to be perfect, but you really do have to do your best to you get your own financial house in order so that you can lead by example.

And I’m sure parents listening will agree that that’s an important concept to being a good role model for your kids in a lot of different areas of your life. You know personal finance is just one, but you want to set a good example in terms of how you take care of yourself, your health, your relationships with people, your work ethic, all those things. Your kids are picking up these things by watching and listening and learning from you.

Doug Hoyes: Yeah you can’t tell your kids it’s bad to smoke cigarettes if you smoke.

Robin Taub: Right.

Doug Hoyes: That’s just not going to work.

Robin Taub: Right, exactly. And you can’t tell your kids to live within their means if they hear you and your spouse talking about oh my god how are we going to pay our bills or how are we going to pay off the credit card? They really do absorb a lot just by osmosis.

Doug Hoyes: Do you think that money is a taboo topic in a lot of houses?

Robin Taub: Yes, unfortunately.

Doug Hoyes: And why is that? I guess you just have to acknowledge it and get over it then. Is that the solution?

Robin Taub: Yeah, I mean it’s an uncomfortable topic for a lot of people. And I think it can be uncomfortable if you’re not doing well and you’re struggling and you’re not good at this. You know it’s a little bit embarrassing to share that with the kids.

It’s also hard if you have a lot of money. You know I’ve spoken to groups of affluent Canadians or I’ve spoken to wealth managers that work with affluent Canadians and it can be an uncomfortable topic there as well because there’s an abundance of resources. But the problem is that, if you don’t talk about it, you’re depriving your kids of an opportunity to learn, to learn from you, their parents.

And there’s research that CPA Canada did that shows that teenagers who talk about money with their parents at home, feel more optimistic and confident about their financial futures. And parents who are most successful at teaching their kids, it’s because they talk about it with them often. And you know, it’s not an off limits topic.

Doug Hoyes: So, you talk about talking about it. On page five of your book, you’ve got a cartoon of a child asking her father, so how much money do you make? Is that something that parents should be talking to their children about or how do you address that question?

Robin Taub: Right. So, that’s the reason why it’s taboo often because your parents are worried that they’re going to get these sensitive or uncomfortable questions.

So, one is how much do you make or another could be do we have a mortgage or how much is your mortgage? Or my son used to ask my husband if he had a good quarter, because he has his own business.

So, I think again, I said it earlier, age appropriate. So, you’ve got to take your child’s age and maturity into account when you answer these questions. And you have to stress confidentiality because yes, I’m encouraging openness in conversation but these aren’t things you want your kids to share with the rest of the world. These are private family matters to some degree. So, you want to make sure that they understand that and I’m not sure that kids have to, need to know exactly how much you make or exactly how much your mortgage is. First of all, that’s information – it’s not their responsibility to make ends meet in the household.

But you don’t want to deny, like you want to be honest with them. You don’t want to deny their questions or their curiosity. So, you can talk to them in a more general – like give them a range. So, you can say people in my line or work or people that are CPA’s, they make anywhere from this much when they graduate from University and start working. And then they work their way up. And the average in Canada, the average CPA in Ontario, or Canada, makes this much. So, you can kind of – you can talk about what a doctor might make depending if he’s a specialist or not or what the minimum wage is things like that. You can always talk about general concepts around earning, saving, spending and donating money without divulging things that make you really uncomfortable.

Doug Hoyes: And that makes sense, yeah. So, it has to be age appropriate. You’ve got to explain to the child that this is information for the family, not be broadcast on Twitter. And as a result they can learn from it without being overburdened by it. That’s very good advice.

We’re going to take a quick break here. I got a lot more questions. So, I will be right back. This is Debt Free in 30.

Segment 2

Doug Hoyes: We’re back on Debt Free in 30, and my guest today is Robin Taub, who is a chartered professional accountant, an educator, and the author of the book A Parent’s Guide to Raising Money Smart Kids.  We talked about younger kids before the break, so now let’s talk about older kids.

I believe in Canada you have to be 18 years of age or older to obtain a credit card in your name.  My question is should you?  Is that a good idea?

Robin Taub: So, yes you have to be the age of majority and even before that, you can get a supplementary card let’s say on your parent’s credit card as a teenager. But that is – any purchases made on that card, if it’s a supplementary card, would just go onto your parent’s account. But to have your own credit card, in Ontario it’s 18.

Okay, so the question is, is that a good idea? So, credit cards we all know are very convenient and safer than carrying around cash. And there’s other advantages too, like frequent flyer points and stuff like that that you can earn if you use a credit card. The other thing is, it lets you start to build a credit history, which is important later on when you borrow money for let’s say a house or a car. And if you have good credit, a strong credit history, you will be able to negotiate a better interest rate.

But the risks, there are risks with having a credit card. And it’s really important to sit down with your child and make sure they understand how a credit card works, like the basics. Cause you’d be surprised, some of them are really naive. They don’t understand that it’s buy now, pay later, that you’re actually borrowing money. They just – unless you sit down and show them how a credit card works when they were younger, they just may not know.

So, you want to just go over these basics that you have a credit limit that’s predetermined that you’re not supposed to go over, that you have to pay, the amounts accumulate over the months and then you have to pay one lump sum on the due date. And if you don’t then you’re going to be paying compound interest at an extremely high rate. If you don’t make your payments on time or if you miss your payments there’s going to be fees and penalties and there’s probably an annual fee involved with having a credit card.

So, all of those very basic things, they don’t know. And they need to understand before they even think about getting a credit card. And obviously if they do go out and get their own card they should make sure that the limit is set extremely low so that they can’t get into trouble by accident. And I think once they understand it, it’s good experience for them to use a credit card, to see how that credit card cycle works, the cut off date, then you have like three weeks to pay it. And it’s a good introduction to the real world of paying bills. As long as it’s sort of done in a bit of a controlled environment where you’re keeping an eye on it and you’ve kept the credit limit extremely low.

Doug Hoyes: Do you worry about fraud when there’s credit cards out there?

Robin Taub: Sure I do. I mean I’ve had my credit card compromised, my debit card compromised. Probably it’s happened to everyone at some time.

The only – the thing that makes it a little riskier with teenagers is they overshare everything. They overshare their personal lives and they also overshare their financial information. So, things like texting, debit or credit card numbers or pins or even taking like a picture of a credit card and posting that on social media. There are so many risky thing.  Kids are very trusting. I know that my kids have told me that it’s not unusual for someone to give them their own debit card and pin if someone’s going to buy fast food or something like that and they’re not going along with them. Or someone will give their smart phone pass code if somebody is going to Starbucks and they want to pay using their Starbucks app.

So, they’re very naive and trusting in that way and I think that in most cases it’s probably okay, but I don’t think it’s a good practice to be getting into and I think it’s better to be safe than sorry when it comes to this stuff. Because if your identity is stolen, if you’re subject to fraud or identity theft, it can be a hassle, to clear your name and cancel everything and get everything sorted out. So, you really want to be mindful of that. And I think there’s just this tendency for kids to just be very out there with everything and it’s not smart when it comes to your money.

Doug Hoyes: Yeah and I guess it all comes back to what you said at the top of the show that you have to look at things in an age appropriate manner. I’m not one of those guys who said oh well you should never have a credit card then because something bad might happen. You certainly never to have a credit card, that’s fine. If you’ve made that choice no problem, use a debit card, use cash. But if you are going to use a credit card and there are some reasons to use them, you lay them out. You’ve also got to be careful about it and obviously posting them on social media is not the way to do it. Hey, look I’m proud. I’ve got my first credit card. That’s not what you want to do.

Robin Taub: No, and the other thing too, the best defence against fraud is – I mean in addition to like safe guarding your pin and always knowing where your card is and being careful, is reviewing your bank, your credit card and bank statements on line. It’s so easy to do.

Most young people are very mobile and all the banks now have these mobile apps where you can just log in and look at the activity in your account. And if you see something suspicious or weird, all you have to do is call the bank and notify them and you know, the appropriate steps will be taken, whether you have to cancel your card and get a new one, or they’re just going to investigate.

So, that’s – and I think that’s also a good step to being financially literate, because you’re reviewing your transactions, you know where you stand, you know what your credit card balance is, like what you’re going to owe at the end of that period. It’s just another way to stay on top of your finances and prevent fraud or identify theft.

Doug Hoyes: Yep, makes perfect sense. Well, those are some great ideas. I really appreciate you for joining me. Today that was Robin Taub. She wrote a book and I’m going to have all the notes on our website but the book was called A Parent’s Guide to Raising Money Smart Kids. It’s got a lot of practical advice. You can go to our website at hoyes.com and get all the links to that. Robin thanks very much for being with me today.

Robin Taub: Thanks Doug.

Doug Hoyes: We’ll be right back here on Debt Free in 30.

Segment 3

Doug Hoyes:  Welcome back.  It’s time for the 30 second recap of what we discussed today.

My guest today was Robin Taub, author A Parent’s Guide to Raising Money Smart Kids, and she told us why raising money smart kids is important.

She said you don’t want your kids to develop bad money habits and start living beyond their means, and have debt problems, because that’s not good for young adults.  As a parent, you want money smart kids so you don’t end up having to bail them out if they have problems.

How do you do that?  Robin gave lots of examples, but it starts with being a good role model for your children.

That’s the 30 second recap of what we discussed today.

So what’s my view on raising money smart kids?

I agree with Robin, and I think every child is different, so there is no “one sizes fits all” approach that will work in all cases, but I do believe that it’s important that you don’t excessively shelter your kids.  We often learn more from our mistakes than we do from our successes.

That’s why I think it’s important for young children to be exposed to financial decisions at an early age.  Most kids have some money, from an allowance, or doing chores, or from birthday gifts.  Encourage them to think about where they want to spend their money, and that will teach them one of the most important money lessons there is: you can only spend a dollar once.  Once it’s gone, it’s gone, so making a plan is essential, at any age.

That’s our show for today.

If you have a question you want answered on the show or any other comments, email us at DFI30 at hoyes.com

Full show notes with links to everything we talked about are available on our website at hoyes.com, that’s h-o-y-e-s-dot-com.

Thanks for listening.

Until next week, I’m Doug Hoyes, that was Debt Free in 30.

Let’s Get Started Segment

It’s time for the Let’s Get Started segment. I’m Doug Hoyes and I’m joined today by Robin Taub who wrote a book. And in that book she lists 10 healthy habits of financial management. We’re pressed for time; we’re not going to get to all of them today. But I’d like to pick on three of them.

So, let’s start with the concept of good debt and bad debt. So, in your book on page 10 of the book Parent’s Guide to Raising Money Smart Kids, you talk about it’s important to understand the difference between good debt and bad debt. Explain to me your concept there.

Robin Taub: So, I think in life you can’t really avoid debt. Because for the big purchases, substantial purchases in your life, you’re going to need to borrow money. So, I talked earlier about getting a mortgage on a house or maybe investing in a business or buying your first car. But there’s a difference between debt that you take on to purchase an asset that has a potential to go up in value or to help you make a living or even for example if you have to borrow money to go to university you’re investing money in your future earning power.

So, those are examples of good debt because the debt is associated with something that is an asset. Bad debt on the other hand is debt that you incur to purchase consumption items, so clothes, restaurant meals, entertainment, things that don’t appreciate and don’t go up over time where sometimes they actually go down the minute you walk out of the store with them.

So, these are just consumption items that you really should have the money already saved before you buy them. This isn’t the kind of thing you want to put on your credit card. Because as I said earlier, if you can’t pay it off, you’re going to be paying compound interest monthly at very high interest rates. And before you know it, that consumption item has cost you so much more than the original sticker price.

Doug Hoyes: Which I guess gets into your next point, point number 7 on your 10 healthy habits of financial management which is, it’s important to teach delayed gratification and setting of financial goals. Tell me about delayed gratification.

Robin Taub: So, that’s the ability to wait for rewards. And that’s something that really young kids, like two year olds, three year olds can start to learn. And there’s a famous experiment called the marshmallow test and you should Google it because it’s very, very interesting.

But it does show that kids who can resist temptation and have willpower are successful, young kids who show those skills, are successful later on in life. It means that they have the ability to delay gratification, wait for rewards. So, for example to put money away and savings rather than go out with friends for a fun night and spend it all or the ability to buckle down and study, rather than just wasting time watching T.V.

So, the ability to do what you have to do now and delay gratification is a really important life skill that translates really well in the financial world. Because that’s – that’s what goal setting is all about. It’s really like spending less today in order to save for tomorrow.

Doug Hoyes: And really the point is, it’s not just a financial skill, it’s a life skill. That’s really what you’re talking about there. So, number 10 on your list, present a united money front. So, obviously you’re talking about this I guess in the context of families. What do you mean by that? How do you do that?

Robin Taub: Parents should ideally be on the same page financially speaking. So, if a child comes to you and they want something or they’re asking for you to buy them something, I think the answer should really be the same, whether they’re asking mom, who might be the more frugal one, or dad who’s more of a spender. And the answer should be based on your values as a family, like what’s important to you and the goals you set and of course your financial means and resources.

But what can happen if you’re not on the same page and you don’t have a united front is that your kids will sense that and they will take advantage. Again, teenagers, older kids, will sort of take advantage of that if they know they can go to one parent and get the answers that they want. And they know going to the other parent, they’re going to be told no. They will try to get away with that.

Doug Hoyes: And so the solution then is we’ve got to make a plan in advance.

Robin Taub: Yeah, I mean I think you have to have shared family values and those values will sort of dictate what your financial priorities are too and your budget and that translates down to your children and their budget and their goals and things like that.

Doug Hoyes: Well, and you’re right. Young kids, and I guess older kids, are very good at playing one off against the other. So, the skill as a parent is to say, okay before I answer that question let me go talk to your mother and make sure we’re on the same page here, ‘cause I think I know what the answer is. But let’s make sure I’ve considered all the facts and then we’re on the same page

Robin Taub: Yeah, I mean it’s pretty much I think true with all family decisions, like whether it’s your child asking you to stay up past their curfew or going on vacation with their friends or whatever permission they’re seeking. And this could be they want to buy something that’s expensive or do something that’s expensive. I think you always want to come to that decision as parents, as a united front, rather than, you know, one parent agreeing and one parent saying no right away without even consulting with the other.

Doug Hoyes: Makes sense, then you can’t get in trouble. I appreciate it, thanks very much for joining me. That was Robin Taub, who wrote A Parent’s Guide to Raising Money Smart Kids and you can get all the links at hoyes.com. Thanks Robin.

Robin Taub: Thanks Doug.

Bonus Podcast Only Segment

Doug Hoyes: It’s time for the podcast only bonus segment here on Debt Free in 30.  Our radio show only runs for 30 minutes, actually less with commercials, so sometimes we run out of time, and that happened today in my discussion with Robin TOBE.

In the first segment we talked about very young children.  I want to talk about older kids.  Teenagers, young adults, who are in high school, or university, moving on in life.

They probably have part time jobs. Maybe they’re about to finish high school and going into University. If you make less than a certain amount, you don’t have to pay taxes. So, most kids in high school or university aren’t paying taxes. But in your book you still recommend that you file a tax return. Why do you say that?

Robin Taub: So, as you mentioned if you make less than the basic personal amount, which is about $11,500, you don’t pay any federal tax. But if you don’t fill out the employment forms properly, it is possible that your employer could withhold and remit tax to CRA. So, the only way to get that tax back, to get a refund is to file. So, that’s one reason.

Another reason is, you may be entitled to re-fundable tax credits. And if you don’t file you will not get them. And then finally, filing a tax return lets you start to build RRSP contribution room. So, if you’re working and you have earned income, as you know a certain percentage of that is one of the limits as to how much you can put into your RRSP a year and obviously you want to get your kids into good habits. And one of those is savings. And saving in a RSP because the tax advantage is a great first step. So, those are three reasons.

Doug Hoyes: Okay and that makes sense. So, even a 17 year old is building up RSP room if they have earned income.

Robin Taub: I believe yes. I don’t think there’s an age restriction on –

Doug Hoyes: But I guess even if the age restriction is 18, the point is still the same thing, build up the income.

Robin Taub: Build up the savings – like a tax free savings account you do have to be 18 to open. I would have to double check on the RSP but yes, the idea is to put it into the RSP where there’s no tax on the earnings within the plan. And also you’re entitled to deduct your contribution and you don’t even have to deduct it the year you make a contribution. You can carry it forward to a year when you’re earning more income and you’re in a higher tax bracket.

Doug Hoyes: So the point here is that even teenagers should get into the savings habit.

We’re not saying that a teenager should invest in a Tax Free Savings Account or an RRSP.

You have to be 18 years old to open a TFSA.  There is no lower age limit on opening an RRSP, but you have to have earned income, so in most cases a teenager won’t open an RRSP.

However, they should still understand how they work, because once they reach their 20’s and are working full time, they may be ready to start investing seriously.

That’s it for the bonus podcast only segment.  Thanks again to Robin Taub for joining me today.

I’ll be back next week with another all new show.

Thanks for listening.

That was Debt Free in 30.

The post The Importance Of Teaching Kids That Money Matters appeared first on Hoyes, Michalos & Associates Inc..

Today’s guest is Robert Brown, author of a new book called Wealthing like Rabbits – An Original Introduction to Personal Finance. Robert gives us a lot of practical advice, including his thoughts on house buying, mortgages, and debt in general.

What’s Wealthing

Robert describes “wealthing” as a savings plan with the overall goal of increasing your net worth.  His analogy to rabbits suggests that if you make saving a habit, your net wealth will continually multiply;  and eventually the habit becomes a lifetime commitment that will pay off in a big way.

In his book, Robert tells a story about a woman whose small decisions in life have affected her financial situation at age 57.  To make his point, he rewrites her story using a set of alternate choices  that make a big difference for her overall financial wellbeing. Simply put, the small choices that you make everyday, can be the difference between just getting by and increasing your net wealth.

Modest Mortgage, Bigger Wallet

Today’s world is fast paced and filled with unrealistic ideals.  Robert suggests that we should scale back on our expectations for housing and the size of the mortgage that goes along with it.  Even though interest rates might be low and the value of your home could stand to increase, he explains that:

…[buyers] should be looking at it from the perspective that they should still buy a modest home and take advantage of those low interest rates to pay off as much of the principle on that mortgage as they can before those rates go up.

One reminder that his book touches on is that, as the price of a home increases, so do the costs associated with that home.  A larger house means higher heating and cooling bills, higher insurance rates, property taxes, and even additional furniture to fill up the space.  As one of the largest, if not the largest purchase that you will make in your life, your house buying experience should look at the bigger picture and contribute to – not hinder – your “wealthing” habits.

The Balancing Act

Chapter 10 of Robert’s book discusses the fine line between saving for the future and paying off debt. Doing both at the same time, can be a difficult tight rope to cross and Robert acknowledges that life is not always easy and that adjusting to new or changing financial situations can be tough.  His advice reverts back to his original argument that saving should become habit, even if you’re still paying off debt.  He explains that,

…even if you’re putting away as little as 10 dollars a week or 20 dollars a week for your long term savings, while your aggressively paying off your debt, I think it’s important.

By putting away a little bit at a time, you’ve created a solid foundation for the day when all of your debts have been paid off.  It is all too common that people work hard to pay off their debts but have put nothing aside for the future.  The stress of always trying to get ahead never quite goes away.  Instead, Robert stresses that it is important to start saving for the future as early as possible by forming “wealthing” habits that become automatic.  In his words,

…make it as easy as possible, make it automatic, make it happen on the same day that you get paid so that you don’t miss that money.

Practical Advice from Robert Brown

Robert advises readers to be mindful of their credit cards.  Although convenient and instant, when you swipe your credit card, you have not made a purchase.  Instead, you have borrowed money from the bank or credit card company with the promise that you will pay it back.  Robert considers credit cards as a tool, that when used wisely and correctly, have the ability to make life easier and more efficient.  However, neglecting or abusing this tool can lead to serious debt problems.

Robert warns that,

…just because you’re paying off your credit card bill each month, doesn’t necessarily mean you’re using your credit card properly.

If the money that you charged to your credit could have been saved to grow your net wealth or a specific goal such as your child’s education instead of impulse buying, then your credit card was used improperly.

Extended Interview Segment

We continued our conversation with Robert past the radio show and learned that he advocates treating yourself on a weekend to a smaller treat, such as Starbucks.  He makes the comparison between spending $10 at Starbucks and spending $200 elsewhere.  Of course, all things in moderation; but the key point here is to rethink the way that you spend and consider those opportunities to increase your savings.

Robert goes on to discuss his distaste for pay day loans the debt that they often lead to.  Just like credit cards, he sees these organizations as a financial tool that need to be used properly.  However, all too often, this is not the case.

In short, treat yourself to Starbucks every now and then as an alternative to impulse spending, and skip the pay day loans to create and maintain effective “wealthing” habits.

Resources Mentioned in the Show

• Wealthing Like Rabbits by Robert Brown
• Amazon – Wealthing like Rabbits

FULL TRANSCRIPT show #14 with Robert Brown

Doug Hoyes: Welcome to Debt Free in 30 where every week we talk to industry experts about debt, money and personal finance. I’m Doug Hoyes. Today we’ve got a great show for you. I’ve got an author with me today, so let’s get started. Who are you and what book did you just write?

Robert Brown: My name is Robert Brown and I’ve written a book entitled Wealthing like Rabbits, an original introduction to personal finance.

Doug Hoyes: Now I’ve read the book.

Robert Brown: Thank you.

Doug Hoyes: And I liked the book, which is why I had you on the show here. But why don’t you give us, for those who haven’t read it, give us an overview. So, “wealthing like rabbits”. I’ve never heard of the word wealthing. I don’t think that’s a word that even exists.

Robert Brown: It exists now. And wealthing comes from an idea in the book where we take the word wealth, which you’re right is traditionally a noun, but turn it into a verb.

I think we use the word saving too much. We save in our RSP; we save when we go out for dinner and I think that whenever we do any saving that contributes to our overall net wealth we should call that wealthing. It’s just a little bit more fun and a little bit more exciting. And if you wealth like a rabbit, then you become wealthy very quickly.

Doug Hoyes: Because rabbits multiple very, very fast. And if you want to read the book you’ve got some examples of how that actually works. So, “wealthing” for you is more than just saving then.

Robert Brown: Sure, wealthing is a lifetime experience where you make a commitment over the course of your life. You’re putting a little bit more money away every week and building your net wealth.

Doug Hoyes: And as I’ve said off top, I’ve read the book. I think it’s a great book. Each chapter starts with a quote and the first quotation in the book is from Homer Simpson, so I was on board immediately, I watch that show every week.

In the book you talk about a bunch of other things, zombies, you’re quoting I believe both Captain Picard and Spock in different chapters in the book. The opening chapter I think is a fantastic chapter. You contrast two different paths. And I’m going to let people read the book to read it because I can’t describe it. It’s a fantastic opening chapter where you tell the story of a person who followed this path or that path and obviously one path is a lot better. Tell me what the main message then is that you’re trying to get across in this book. What’s the basic concept? What’s the key message here?

Robert Brown: Let me touch on a couple of things. The book is entitled Wealthing like Rabbits but its sub title is an Original Introduction to Personal Finance. And what I think makes my book a little unique is the style in which it’s written. I didn’t use a lot of charts or graphs or analysis to teach about money management and personal finance. I did use a lot of humour and antidotes and pop culture references. You mentioned Homer Simpson. You will also find quotes in there from Sheldon Cooper and Shrek. And every chapter’s a little different, a little eclectic if you will in the message that it teaches.

You talked about the first chapter which is a story about a lady named Lisa. She’s 57 years of age and in the first time we tell Lisa’s story she’s having a bad morning. She had a fight with her husband the night before about money and as you walk through the chapter, the story of Lisa, you can see examples of small decisions she’s made throughout her lifetime which have impacted her finances by the time she’s 57; and she’s got a bit of a tough road to haul.

We tell the same story over again and this is the same Lisa at 57 years of age, but she’s made different small decisions throughout the course of her life and those decisions have accumulated into a much brighter, financial future.

So, it’s not that Lisa in the first chapter has done something horrible. She’s invested in Texas oil stock that went south; she just made small decisions better the second time around which accumulated into a better lifestyle. And that’s how we kick off the book.

Doug Hoyes: And maybe that’s a really good summary of the book that it is – life is a whole series of small decisions and you’re right the difference between the really successful person and the not so successful person isn’t that, well I bought Apple stock 20 years ago and now I’m a multi-millionaire, it’s little, tiny things over and over that either work or don’t.

So, why don’t you give us one example of a little, tiny thing? And throughout the book there’s hundreds of examples, but what is – we like to talk about practical advice here on the show. What is one practical thing that I could do or not do, as a resident of this fine country of ours, that would either set me up for a greater chance of financial success or do the opposite?

Robert Brown: I’ll refer you to the chapters on mortgages or housing and there are actually three chapters in the book dedicated to specific things on housing; because your first home is arguably the most important purchase decision you will make throughout your lifetime. And I’m a big proponent of small houses as opposed to great big monster houses and I tell the first chapter is around mortgages.

And I tell the story of mortgages by telling the story of two brothers who are plumbers; you may have heard of them Mario and Luigi. And Mario and Luigi each go off to the bank to buy their first home with $100,000 down payment. Brother number one buys a big expensive home that he really can’t afford but he manages to talk the bank into giving him that mortgage. His brother Luigi buys a more modest home that cost $175,000 less. But as we go throughout the chapter, Mario actually ends up spending $400,000 more than his brother by the time he gets the mortgage paid off. And throughout that chapter we teach how a mortgage works and the different terms that come with a mortgage. But we also show how a smaller down payment and default insurance and spreading it out over a longer period of time cost his brother so much more money.

Doug Hoyes: So, the counter argument to what you just said, you’re saying that a thing I can tangibly do is, instead of buying that monster home, instead of buying the $500,000 or million dollar home or whatever it is, buy a home that is a nice home but I can afford it.

The counter to that is yeah, but if I buy a bigger home, I’m going to be wealthier because it’s going to go up in value more. I mean if the house prices are going to double in the next twenty years, shouldn’t I buy a million dollar home? Interest rates are so low, what does it matter? I’m going to have a two million dollar home in twenty years. If I only buy a $200,000 home now I’m only going to have a $400,000 home if things double. Shouldn’t I buy the absolute maximum that I possibly can? Shouldn’t I mortgage myself up to the hilt? Interest rates are low. It’s free money. Why wouldn’t I follow that conventional wisdom?

Robert Brown: Well, there’s a whole bunch in that question Doug and I’ll try and take it one at a time.

Let’s talk about interest rates first. It is true that interest rates are historically low right now and have been for five or six years. But for those people that are looking at buying their first home, they shouldn’t be looking at it from a perspective that interest rates are low, I should buy as much house as I can buy. They should be looking at it from the perspective that they should still buy a modest home and take advantage of those low rates to pay off as much of the principle on that mortgage as they can before those rates go up. I don’t know when they’re going to go up. You don’t know when they’re going to go up, but eventually they are going to go up and it’s better to pay off some of your principle now before that eventually happens.

And in terms of the large home growing in terms or market value more than a smaller home, both homes will go up as the houses go up. But with the larger home you’re going to have to deal with things like larger heating costs, larger insurance costs, larger property tax cost, all of those things add up. It’s been argued by me and by others that, you know, one of the biggest restrictors to people being able to save for the future is the money they’re putting into their home.

Doug Hoyes: And you’re right, it’s not just the mortgage that I have to think about. It’s the bigger home, I’m going to need more furniture. I’m going to have to have a bigger utility bill. I’m going to want bigger landscaping. It’s all of those things that pile up and that’s why you’re saying, well the smaller home, everything else is going to be smaller too, look at the big picture.

Robert Brown: Look at the bigger picture. When we talk about mortgages, people tend to evaluate their home purchases in terms of the price. They don’t consider the full cost of the interest and the fees that come with a mortgage as well. And on a larger home they add up dramatically. And we cover all that in the book.

Doug Hoyes: And those are great chapters. Like you say there’s three chapters that really talk about home ownership, mortgages that kind of thing which is probably the single biggest expense anyone has in their life, the single biggest purchase that they make. If you can save a lot of money on that then that’s obviously going to increase your wealth longer term.

We’re going to take a quick break here on Debt Free in 30. My guest is Robert Brown. He is the author of Wealthing like Rabbits. Brand new book that just came out in 2014. You can find more about it at his website. What’s the website where people can find out about the book, Robert?

Robert Brown: They can find it at my website www.wealthinglikerabbits.com or they can go to amazon.ca

Doug Hoyes: And I will put links to everything we talk about in the show notes over at hoyes.com. We’ll be right back to talk a little bit more. You’re listening to Debt Free in 30.

Announcer:       You’re listening to Debt Free in 30. Here’s your host, Doug Hoyes.

Doug Hoyes: We’re back on Debt Free in 30. My name is Doug Hoyes. My guest today is Robert Brown, who is the author of a book called Wealthing like Rabbits that has just come out.

And chapter 10 in the book is called the “Balancing Act”. And part of the chapter you talk about savings versus paying off debt. So, we all know that saving for the future is very important if you want to buy a house; if you want to retire you’ve got to save money. I don’t think anyone’s going to argue about that, not controversial at all. But getting out of debt is also very important.

So, if you have debt, but you also want to save for the future, what should you do? Should you pay off all your debt first and then start saving? Should you start saving while paying off your debt? What’s the balancing act? Oh, I guess that’s why the chapter’s called that. Explain to me your thought process on that. How do I decide how much I should be focusing on paying off debt? How much I should be focusing on saving? What’s the thought process there?

Robert Brown: Well, that chapter in the book stems from one of the criticisms that is common to a lot of personal finance books in that, it’s real easy in a book to say that we all should save some money for our future. It’s easy to say in a book that we should stay out of debt. It’s easy to say that we should all put 20 percent, at least 20 percent down on a down payment home. So, in the books everybody does. But in reality life sometimes throws us curves and it’s not that easy and we have to make decisions or prioritize where we put our money or where we focus our attention.

So, in the paying off debt versus savings argument, I believe that you should at least start to save as early in life as possible. There’s no if, ands or buts about it. Everybody has to save some money for their future, even if you have a little bit of debt.

The argument’s been made that the debt should be paid off first before you start saving because the interest rate on that debt might be higher and I agree with that. But if you’re starting to save early enough, money will be allowed to compound long enough that the money will exceed the money that you have to pay in the debt.

And on top of that I think even more importantly is that people need to establish the habit of saving as early in life as possible. Even if it’s just a small amount while you’re paying off the debt, habits are forming, all habits are forming and it’s important that you start the habit of saving a little bit of money every week or every two weeks for your long term future. After that you need to focus on the debt.

Doug Hoyes: So, that’s a key point you’re making there. And really you’re making two different arguments. You’re saying that on the one hand, okay you understand the math. If I have a credit card that carries an interest of 20 percent, and I can put money in my savings account or my TFSA or my RSP and earn one percent, it doesn’t make a whole lot of sense to be investing at one percent when I’m paying 20 percent on my credit card. So, in that scenario, allocating the money to paying off debt is just simple math. But you’re making the other key point that saving is habit forming. And that’s really why you’re saying even if I do have a bunch of debt on credit cards and I’m going to throw most of my money at that, I have to establish the habit right now of putting aside 20 bucks every pay cheque or whatever it is. That’s really your key point, isn’t it?

Robert Brown: That’s really my key point. I’m not at all suggesting that we don’t have to deal with a debt and that we don’t have to be aggressive about paying if off, absolutely we do. But it’s also important that we get in the habit of saving for our long term future. So, even if you’re putting away as little of 10 dollars a week or 20 dollars a week for your long term savings, while you’re aggressively paying off your debt I think it’s important.

There’s a lot of examples of people that aggressively pay off their debt. And then once they’ve done so they go out and purchase something or do something else with their money and they never get around to starting that long term savings plan.

So, even if they’re out of debt by the time they’re 40 or 50 years of age, if they haven’t put any money down for the future, they’re now faced with saving that over a shorter period of time. It’s incredibly important that we start the habit of saving as early as possible.

Doug Hoyes: And what’s your advice on how to actually do that? Is there any special magic to it? Should I make sure it comes off my pay cheque? Should it be automatically come out of my bank account or does it not matter, it’s the saving that’s really the important thing?

Robert Brown: It’s important that the habit becomes as easy as possible. So, I’m a big fan of paying yourself first, making an automatic contribution to your RSP, to your tax free savings account, wherever you’ve allotted that money. But make it as easy as possible, make it automatic, make it happen on the same day that you get paid so that you don’t miss that money.

I use an example in the book about a student who gets their first big job and they’re making I think I said $40,000 in the book, $40,000 a year in the book. And how much in that first job will they get paid if they get paid weekly with their two kids and some of the company benefits coming off that. Most of the time we don’t know exactly how much money we’re going to make until we see our pay cheque and then we adapt to that amount. So, why not adapt a little bit more. Get yourself in the habit of putting 20, 25, 30 dollars a week off your paycheque, into an RSP, into a tax free savings account as soon as you get it and then you never feel that loss.

Doug Hoyes: And you get psyched up to do it and it becomes therefore, automatic.

So, back to the topic of debt then because of course this show is called Debt Free in 30. In the book you talk about credit cards and you use the phrase “borrowing, not paying” I believe. So, explain to me what you’re talking about. I go to the store with my credit card, what’s the mentality I should have?

Robert Brown: Well, you should understand that you’re not paying for whatever you bought at the store with your credit card. You are borrowing the money from a bank with your credit card. You haven’t paid for anything until you pay the credit card company back.

Doug Hoyes: So, which is counter intuitive because I went to the store, I paid for that thing and got the thing or the store wouldn’t have given me the thing if I didn’t pay for it.

Robert Brown: And you’re in debt for it. And I think a lot of people have got so comfortable in paying with their credit cards that they forget that they’re actually borrowing the money and they haven’t paid for anything up front.

Doug Hoyes: Well, I’ve long advocated that we should change the name to debt cards and then that would make it a little –

Robert Brown: Or borrowing cards, that works for me.

Doug Hoyes: Or borrowing cards. So, are you against credit cards then?

Robert Brown: No, I’m not against credit cards. I think they can be a valuable tool, if used properly.

The analogy I have used before is that a credit card is like a really Dexter Morgan sharp knife in your kitchen when you’re cutting dinner. Properly used it can be used online to get things that you can’t get through a cash transaction. They can be a valuable tool to build up your credit rating. But if used improperly, they can cause years and years of financial harm.

Doug Hoyes: So, a credit card you just said is a tool, which means it is neither, moral or immoral it’s just a thing. It’s just like a pen or a hammer. It’s how I use it that is the key to it.

Robert Brown: It is how you use it that is the key, but unfortunately a lot of Canadians aren’t using their credit cards properly. I think about 50 percent of all Canadians aren’t paying off their credit cards each month or just making minimum payments. They’re just making payment on it.

And another thing I think people should consider, and we covered it in the book, is just because you’re paying off your credit card bill each month, doesn’t necessarily mean you’re using your credit card properly. Did you buy something on your credit card that interfered with your ability to put some money away for your kid’s education? Could have that money you spent at the pub with your credit card been put toward your children’s education fund? Just because you’re paying it off monthly doesn’t mean you’re using that money as wisely as you could and I think people need to consider that.

Doug Hoyes: Yeah and I guess you’re really saying credit cards are easy.

Robert Brown: Yeah, it is easy. It’s a piece of plastic that you pull out of your wallet and you don’t feel that same level of pain as you do when you pay with cash.

Doug Hoyes: Yeah and that’s why if you want to save money, one way to do it is to switch to cash. Very interesting, I’m glad you were on the show with me today Robert.

So, once again the name of the book is Wealthing like Rabbits and the website where you can find out more about the book is www.wealthinglikerabbits.com

Robert Brown: www.wealthinglikerabbits.com or it’s also available at www.amazon.ca, the Canadian site.

Doug Hoyes: Yep, and that’s where I bought my version. I bought the Kindle version so if you want to download it to your Kindle reader right now it’s there.

Robert Brown: Kindle and e-pub version, they’re both available.

Doug Hoyes: And so if you go on, e-pub would be through –

Robert Brown: Kobo.

Doug Hoyes: Kobo, so it’s available either way. It’s also available in bookstores, Chapters here –

Robert Brown: It’s available in select Chapters inside the greater Toronto area but not all Chapters across Ontario.

Doug Hoyes: So, go to the website and you can order it right directly from there as well then.

Robert Brown: Absolutely.

Doug Hoyes: Fantastic. I will put links to all of that in the show notes over at hoyes.com. Thanks for being with me today.

Robert Brown: Thanks for having me Doug. I’ve had a great time.

Doug Hoyes: We’ll be right back to wrap it up. You’re listening to Debt Free in 30.

Announcer:       You’re listening to Debt Free in 30. Here’s your host, Doug Hoyes.

Doug Hoyes: Welcome back. It’s time for the 30 second recap of what we discussed today. My guest today was Robert Brown, author of Wealthing like Rabbits, An Original Introduction to Personal Finance.

He gave his opinions on many topics. He believes you should buy a less expensive house then you can afford so you’re not burdened with a huge mortgage. And he says we should think of using a credit card as borrowing, not paying. He also believes that both saving and paying off debt are important. That’s the 30 second recap of what we discussed today.

So, what’s my take on Robert’s message? First let me say that I really enjoyed his book, Wealthing like Rabbits. As I said on the show, I thought the first chapter was brilliant and that chapter alone is worth the price of the book. I don’t get a commission on the sale of the book but I still think it’s a great book to give as a gift or to give to anyone who could use some easy to understand, fun to read personal finance advice.

So, with that unsolicited commercial out of the way, here are my thoughts. I completely agree with Robert’s opinion that it’s better to buy a house that you can reasonably afford, then to buy the biggest house you can finance. I’ve done hundreds of bankruptcies over the years for people who bought too big a house, incurred a lot of debt to furnish it, got behind on their mortgage payments and ended up with massive debt. You’re better off renting than buying a house bigger then you can afford.

So, what about his comment that saving and getting out of debt are both important? Well, obviously they’re both important but I’m not sure I completely agree with him on that one. I’ve seen too many people over the years who have $50,000 in credit card debt but they’re also investing in Canada Savings Bonds through work or on some other kind of savings plan. It makes no sense to me to pay 20 percent interest on your credit cards while you’re earning two percent on your investments and you have to pay tax on your investment earnings.

Robert’s point is that obviously debt elimination should be your priority but saving is a habit and the sooner you get into the habit the better. I’m not completely sold on that idea but I see his point. If you have $500 extra each month and $480 of it goes to pay off debt and $20 goes to savings, I guess the $20 you put in your savings wouldn’t have made a huge dent in your debt. So, it’s not totally crazy to use that small amount of money to get into the savings habit.

I still prefer that you eliminate your debt, but I also agree that each of us have to think for ourselves and decide how best to spend our money. If you think you will be out of debt relatively quickly and saving will then become your priority, starting a savings habit now may be a good idea.

That’s our show for today. This show is on the radio every week and also available on our website and on iTunes. So, please go to hoyes.com for a full list of participating radio stations and details on how you can download the show to listen on your iPod or smart phone.

Full show notes are available on our website and I’d love to hear your comments which you can leave right on our website at hoyes.com. Thanks for listening, until next week I’m Doug Hoyes. That was Debt Free in 30.

Announcer:       Thanks for listening this was Debt Free in 30. Thanks for listening to the radio broadcast segment of Debt Free in 30, where every week your host Doug Hoyes talks to experts about debt, money and personal finance. Please stay tuned for the podcast only bonus content starting now on Debt Free in 30.

Doug Hoyes: Welcome back to the podcast only segment on Debt Free in 30.

My name is Doug Hoyes. My guest is Robert Brown, author of Wealthing Like Rabbits. We were having a great discussion and then ran out of time because on the radio portion we’ve only got 22 minutes.

So, I had a couple of more questions for Robert based on my reading of his book. So, I thought I would ask him to stick around and he’s graciously agreed to do so.

My first question for you, Robert, and we’re not on the radio now this is just on the podcast, so we can talk freely amongst ourselves.

Robert Brown: So, I can let loose a little bit?

Doug Hoyes: You can let loose now. You can take your tie off. Starbucks, which is a place you can buy coffee.

Robert Brown: And expensive coffee.

Doug Hoyes: Right. And so as a bankruptcy trustee, and you as a personal finance advocate, I would assume that what you’re always telling people is you shouldn’t go to places like that. You can make coffee at home a lot more cheaply than what you can buy at Starbucks. And I must confess I’ve never actually bought anything at Starbucks. My son once took me there cause he got a gift card or something and bought me a something, something, grand something, something. And it’s very expensive. Like a coffee there is I think 45 bucks or something. I don’t know exactly.

Robert Brown: Well, let’s start here – and I’ll go in a couple of different directions here Doug. Anyone out there listening to this podcast right now that knows me is laughing because I spend far too much money at Starbucks. I am one of their most regular customers. And Starbucks has taken a lot of abuse from the personal finance world over the years and that’s a classic – you can save money, $4 a day by making your coffee at home and avoiding the lattes at Starbucks. So –

Doug Hoyes: Well, there you go; you’re making my point then. And so $4 a day, five days a week, that’s $20. And so over the course of a 50 week year that’s a $1,000. I think you’re arguing exactly for what I just said, which is you should avoid Starbucks or any place like that. So, tell me why I’m wrong.

Robert Brown: Well, in the book I talk about Starbucks and like I said it’s been beaten up pretty bad by the personal finance world overall and I said you know what? Bite me, I love Starbucks. And that’s what I say in the book.

But what we often find is that when we look at people’s personal finance, Starbucks or a luxury coffee isn’t really the root problem of why they’re in financial trouble. We see a lot of examples of – I use the example in the book of buddies driving to Starbucks in a Mercedes Benz and then we blame his underfunded RSP on his coffee?

And I do say later in the book if buddy’s going to Starbucks 15 times a week and buying a grande cinnamon dolce latte with an extra shot of espresso when he can’t afford clothes for his children, then he shouldn’t be going there.

But I think the larger context is that we can treat ourselves to the little things like a Starbucks now and then if we’ve got our overall financial picture in order. And I think we’ll find that if we buy small homes and reasonably priced cars and save some money for our future, it will be a lot easier for us to drop by Starbucks and get a coffee in the morning.

Doug Hoyes: Well, in fact I think in the book you talk about it’s a week night, it’s a Saturday night or whatever, I’ve got a choice. I can go out to a fancy restaurant and spend a lot of money on a taxi and a babysitter and a fancy meal and a nice bottle of wine or I can do what?

Robert Brown: You can go to Starbucks and I say skip the big fancy dinner in a restaurant. Cook a nice dinner at home and then drop by your local Starbucks or Second Cup and have a nice coffee and a little treat and read a book.

Doug Hoyes: So, Starbucks is expensive when you compare it to making your own coffee, but when you want a treat, spending 10 bucks at Starbucks is a lot better than spending $200 somewhere else. And I guess that’s kind of your basic point.

Robert Brown: Everything in context. And the argument that I make is that these $6 coffee and treat at Starbucks isn’t going to do the same damage to your personal finance as an $800,000 home if you can’t afford it.

Doug Hoyes: Yeah and we often miss the forest through the trees I guess. We rail against the $8 coffee living in our $800,000 home. That’s the one that’s doing the most damage.

Robert Brown: All things in balance.

Doug Hoyes: Yeah so you got to look at the big picture. Well, I’m sure you’re the first person on this show that has ever advocated for Starbucks, so there you go.

Robert Brown: There’s another part in the book where I talk about looking for a fun thing to do on a Saturday night that doesn’t cost a lot of money. And I find that young couples are often going out for dinner and going out for drinks and visiting family. And I actually recommend that they just stay home and cook themselves a little dinner and get some romance in their lives and sleep in the next morning, an inexpensive way to have some fun. This is the podcast, right? [laughter]

Doug Hoyes: Yes, this is the podcast. You can say the word romance on here and we won’t get shut down by the CRTC.

So, I think you’re making a very valid point. You have to look at the big picture here. And looking at one thing or the other, you’re missing the point. If Starbucks is the treat, as opposed to flying to Florida for a week is the treat, then obviously it’s a no-brainer.

Robert Brown: And I’m not suggesting anybody go to Starbucks if they’re struggling to make their mortgage payments or if they’re struggling to pay off their debt. That comes first. But if you need a little treat then Starbucks will –

Doug Hoyes: Then that’s a good way to do it.

Well, okay so let’s talk about something that will be far less controversial because I’m sure you and I are on the same page on this one.

You talk in the book about all the different kinds of debts. You talk about mortgages, credit cards and whatever and there is one type of debt that I get the feeling you’re not a big fan of and that’s pay day loans. So, tell me why, give me your thoughts on pay day loans.

Robert Brown: Well, there’s two chapters in the book dedicated to borrowing. One is called Debt and Disease Part 1 and it’s dedicated strictly to credit cards. Debt and Disease Part 2, we take a look at other borrowing. We take a look at lines of credit, home equity lines of credit, bank loans, we talk a little bit about consolidation loans if you get yourself in a little bit of trouble. And the way the book talks about different borrowing types is I compare that to different types of smoking. Credit cards become cigarettes, lines of credit become cigars and the phrase I use for pay day loans places if I’m going to stay true to this whole –

Doug Hoyes: Quote me from the book. What did you say?

Robert Brown: “If I’m going to stay true to this whole debt as smoking theme then I need to come up with one final smoking metaphor to accurately depict our last debt subject which is going to be pay day loans. Pay day loans are like chomping down on a big wad of moldy chewing tobacco until it morphs into a thick slimy gob of carcinogenic goo in your mouth and horking it into a dirty butt filled ashtray before you use a filthy discarded needle to mainline the viscous shit brown gunk directly into your lines. That’s the only time I swear in the whole book.

Doug Hoyes: And it’s a pretty gross image I would say there that you have given us. So, you’re not a big fan of pay day loans.

Robert Brown: Not a big fan of pay day loans. I can make arguments are valuable, financial tools. If you use them properly they can really help with your finances, they can help you build a credit line.

Lines of credit, home equity lines of credit, while I believe they are often misused, if you use them properly they can also be valuable financial tools. Bank loans have their place and consolidation loans have their place as well if you’re disciplined enough to not allow yourself to fall back into debt.

There is nothing good about pay day loans. I am surprised they are as prevalent in our society as they are today. I think they should be more strictly regulated then they are. Overtime I think they should be illegal. There’s nothing good about them. Never, ever get a pay day loan.

Doug Hoyes: So, how do you really feel? [laughter]

And I completely agree with what you’re saying but let me play devil’s advocate here. So, it’s the 29^th of the month, my rent is due on the 1^st, I don’t get paid till the 5^th. I got to pay my rent. I’m $300 short. So, what is really the big deal about going to a pay day loan place, borrowing the $300? I know I got a paycheque coming in five days later. I can pay it off. My rent is paid. It’s all good. I’m good with the landlord. It’s all good, like that to me would be the obvious case where a pay day loan wouldn’t be the end of the world.

Robert Brown: The price you would pay for that privilege in terms of interest would make the credit card companies blush. And that assumes that you’re in a position to pay that off with your first pay day loan, which often people aren’t because that’s the situation they’re in to begin with. If they were in a financial position and were able to pay their rent, they wouldn’t be going in the first place.

So, what often happens, too often happens is they end up missing that payment and then it accumulates and accumulates. There’s examples of people paying over 600 percent annually for interest on pay day loans.

I don’t care if you have to take that money out on your credit card – well I do care. I don’t want to see you have to take it on your credit card, but that’s better than a pay day loan. I would rather you pay your landlord late than go to a pay day loan place. There is always another option.

Doug Hoyes: Yeah and I agree with you. I think that’s the key. There is always another option. We look for the easy option. Oh well the pay day loan place is there. I’ll just get the money and go with it. But you’re right. If you go to your landlord and say look I’m really sorry. It’s going to be five days late, the landlord maybe is going to yell and scream at you and call you every name in the book. But it is unlikely that you’re going to be evicted because you’re five days late. It’s probably not even legal in this country, so pay him five days late and understand that you’ve got an issue.

Robert Brown: And then deal with it by next month.

Doug Hoyes: And then deal with it by next month. That’s a much better way to do it, excellent.

Well that was Robert Brown telling us why he doesn’t like pay day loans. But he does like Starbucks. That’s the first time we’ve ever had a segment on that. I appreciate you sticking around for the bonus podcast segment Robert Brown, author of Wealthing like Rabbits.

Robert Brown: Thanks for having me.

Doug Hoyes: Thank you.

Announcer:       Thanks for listening to the podcast only bonus segment of Debt Free in 30. For more information on today’s show please go to hoyes.com and type the word podcast into the search box for more information on every episode of Debt Free in 30. Until next week, this was Debt Free in 30.

The post Wealthing Like Rabbits With Robert Brown appeared first on Hoyes, Michalos & Associates Inc..

While financial literacy programs are important, Ms. Roseman makes the point that

If I’m not in the market to buy a house, you can talk to me all you want about mortgages, but I’m not going to pay attention. You have to hit people when they are ready to listen and absorb information, which is usually when they are on the cusp of making a purchase.

Where Do We Get Advice?

You have to deliver financial information at the right moment, using a “just in time” model, which is tricky. That’s why Ellen believes that we tend to get advice from people with a vested interest: the car salesman, the banker, the mortgage broker, and the real estate agent. The problem is that, as Ms. Roseman says, “they all have skin in the game”, so consumers need to find someone to give them advice who is not biased. Ellen Roseman hopes that the Financial Literacy Leader’s new database of information will help consumers find answers to their questions from unbiased sources.

But are there unbiased sources of financial information? It’s not the banks. Ms. Roseman says:

There are too many people in the financial literacy game who are biased. People have a lot of trust in the banks. The banks are biased. They support their shareholders over their consumer’s interests. They are always trying to return more money to their shareholders. That means that a lot of their marketing is king of gimmicky.

For example, bank’s sell “balance protection insurance” on credit cards to low income Canadians. What does Ms. Roseman think of that product?

They don’t need it. It’s not a good product. It’s sold by banks very sneakily, and it doesn’t even cover your balance. It only covers your minimum payment….You’ve got to realize that banks are not your friend.

Wow.

Sadly, it’s true. Banks are not your friend, but that’s true of all businesses. Businesses exist to earn a profit, not to look out for your best interests. So where can you turn for good advice?

Ellen Roseman suggests following journalists with large media organizations, who are not usually connected to any specific financial interest. Unfortunately they tend to be writing about issues that are “trendy and hot”, so they may not have the advice you need, when you need it. She also advocates reading articles by personal finance bloggers, who are ordinary people with an interest in personal finance. Their blogs generate lots of comments, so that’s a good way to learn important financial lessons, based on the experience of ordinary Canadians.

Ellen Roseman’s Practical Tips

So Ellen’s number one tip before you make a financial decision: Google it. Do your research from many sources, so you can form your own opinion.

Tip Number Two: when researching a company, search on Google for the “company name + complaints”. If a lot of previous customers are complaining, that’s a warning sign for you.

Tip Number Three: Always ask yourself “what’s the worst case scenario?” If you are hiring a moving company, the worst case scenario is that your possessions are damaged or lost in the move, so to protect yourself take pictures of your possessions at the start of the move.

Be Alert For Scams

By considering the worst case scenario we can also be alert for scams. Seniors often fall victim to telephone and email scams. Ellen’s advice:

You must be a lot more suspicious. Never say “yes” right away. Don’t buy from a door to door salesman until you have completed your research.

It takes time, attention, and work, but if you make a mistake it may take a long time to recover.

How Can We Improve Financial Literacy in Canada?

Educate consumers to consider the downside.

When you tell people “motherhood” stuff their eyes glaze over, but if you say “look at this person’s really bad experience, this happened for these reasons, it can happen to you to if you’re not careful” at least you will get their attention.

That’s what Ellen does in her column in the Toronto Star. She tells stories to educate consumers about the downside of bad financial decisions, so we can all learn from other’s mistakes.

Explain the downside. Explain the risks. Do your research. Be suspicious. Watch your money.

Resources Mentioned in the Show

Ellen Roseman’s website

Ellen’s Books, available on Amazon:

• Fight Back: 81 Ways to Help You Save Money and Protect Yourself from Corporate Trickery
• Money 101: Every Canadian’s Guide to Personal Finance
• Money 201: More Personal Finance Advice for Every Canadian

Other Resources:

• Better Business Bureau
• Home Stars.com
• Ministry of Consumer Services of Ontario
• Gripevine.com

Recent Articles by Ellen Roseman:

• How a Bank Repossessed the Wrong Car
• Let’s Protect Seniors from Being Exploited

FULL TRANSCRIPT show #10 with Ellen Roseman

Doug Hoyes: Welcome to Debt Free in 30, I’m Doug Hoyes. My guest today is Ellen Roseman, a columnist for the Toronto Star and author of many books on personal finance. It’s Financial Literacy Month, so I invited Ms. Roseman on the show and started by asking for her take on financial literacy in Canada.

Ellen Roseman: Well we finally have a financial literacy leader, this was something that came out of the taskforce on financial literacy’s report a few years ago and just took forever to get started, but Jane Rooney is in that job as of last March and she is going really quickly in terms of consulting and putting together a financial literacy strategy and she’s focusing on groups that tend to be somewhat disadvantaged.

She started with seniors, people over 65. I got some criticism from readers saying seniors are very different and it’s true, the over 65 to probably 75 are much more active and connected than the over 75, and I think that’s where the real problems lie, with the over 75 group. Now she’s looking at newcomers to Canada and Aboriginals and all this is good. So she’s going to — as well they have a database of resources, so like a central clearing house where you can find all kinds of financial literacy tools and help.

As for Canadians’ state of financial literacy, I think it’s still hit or miss. I think the learning that people in the education field are realizing is that if I’m not in the market to buy a house you could talk to me all you want about mortgages but I’m not going to pay attention, you have to hit people when they’re ready to listen and absorb information, it’s usually when they’re on the cusp of making a purchase of some kind.

So you have to be delivering it at the right moments and that can be tricky and I think that’s a good reason why most people listen to advice they get from people with a vested interest, you know the salesman, the banker, the mortgage broker, the real estate agent. Those are the ones who are giving them information during the transaction and what they need to do is say, you know they all have some skin in the game, I want to find someone who is not into this transaction who can just give me objective information.

So that’s where I’m hoping the Financial Literacy Database will help you find good objective information about you know how to pick a real estate agent, how to pick a mortgage broker, what you should know about penalties if you take a five year mortgage and then you have to break it in midstream and so on.

Doug Hoyes: Do you think that’s possible? Do you think it’s possible that there can be unbiased advice? So I understand what you’re saying, there’s going to be this database with all these resources. So let’s say that me, as a bankruptcy trustee, I write an article about your credit report and how things work on your — I have no vested interested in a credit report, I don’t sell that service, it has nothing to do with me but then do I have the expertise to be putting the information out there? Is there really anybody who is both unbiased and yet also has the expertise to advise consumers?

Ellen Roseman: Well I think that you made a good point, that there are too many people in the financial literacy education game who are biased and people have a lot of trust in the banks. The banks are fully biased, they support their shareholders over their consumer’s interests, they’re always trying to return more money to their shareholders and that means that a lot of their marketing is kind of gimmicky.

I just got a report from someone who followed a bunch of low income Canadians around and they all have balance protection insurance on their credit cards. They don’t need it, it’s not a good product, it’s sold by banks very sneakily and it doesn’t even cover your balance, it just covers your minimum payment if you get sick or if you die. You know you got to realize that banks are not your friend.

So everybody has a bias of some kind, you’re probably better off if you’re dealing with journalists who are full time employees of you know the media corporations because they’re usually not connected to any specific financial interest, but then you know they’re looking at the stuff that is trendy and hot and will score well on the internet.

I like the personal finance bloggers, there’s quite a lot of them in Canada and they are just ordinary people who took an interest in their money and started writing about it and it’s not so much what they write, it’s the fact that the popular ones get many, many comments from other people and if you go through a couple hundred comments to somebody’s blog post from other interested citizens who have taken an interest in their money you start to get a sense of the truth and you get a sense of what to look for and what questions to ask.

I was at a financial literacy conference yesterday and there was someone there who did a lot of research with Canadians about money and he said there’s a big difference between people under 50 and people over 50. The over 50 tend to trust much more and when they go for advice they will get a couple of recommendations and they will sign up right away and then they’ll put their trust in someone and they will keep that trust there until the very end, unless of course they run into problems. They trust the media as well and I get a lot of those people saying you know, “whatever you say that’s what I’m going to follow”.

So that’s not the best approach. They said people under 50 are much more sceptical, they do realize that there’s no one truth, there’s many truths and they do a lot of searching on the internet before they even start looking for a financial advisor. So they’ll go to maybe five or ten or 15 different sites and check out what’s going on and what the articles are all about and what the comments are saying and then they’ll start looking. So they’re at least comparison shopping online, which doesn’t take all that long and can really equip you much more and make you less trusting because I think in today’s world you can’t be that trusting.

The people who write to me get into trouble because they’re not that trusting and they don’t do their online research. The ones that really upset me are when they deal with companies that I know of that are just scoundrels and you know they lose their money, sometimes they can get a refund on their credit card, but they’ll write to me and they’ll say “Boy oh boy I wish I had checked your website”, because I’ve got a few of those on my website, or “I wish I’d gone online and seen that the Better Business Bureau gave them an F and then there’s an alert”.

They do it afterward, they don’t do it ahead of time and there’s lots of information on the internet. So you have to always just try to avoid that speed and impulse to you know do it quickly, get it over with and do the research ahead of time instead of later and then realize how much warning there was on the internet that you didn’t pay attention to at the time.

Doug Hoyes: So your number one tip then for people is Google, is that kind of what you’re saying?

Ellen Roseman: Yes, yes very much so. I know that for certain older people they’re not that used to the internet and it’s hard. But with a tablet it makes it so much easier and what I always put in my searchers is “company name + complaints” and that usually brings up complaints and those are worth reading. And then go to the Better Business Bureau, see what kind of grade they have, if it’s anything to do with the home go to homestars.com where they have ratings out of ten.

Go to the Ministry of Consumer Services in Ontario, they have a consumer beware list and they also have lots of information about shopping and what your rights are and just get a little bit more acquainted with the information online. There’s another interesting site, I don’t go to it often but it’s called Gripevine and it was started by Dave Carroll, who is a Canadian musician, who did this amazing YouTube video a number of years ago called United Breaks Guitars.

Where the airplane threw his guitar onto the tarmac and damaged it and then wouldn’t pay him back and he got so many views on YouTube that he became a celebrity and went around the world and now does customer service stories and did a book, and Gripevine is his idea and there’s a few of these around where they try and bring the consumer and business together online to resolve their problems. So that’s another one to look at.

Doug Hoyes: Well I’ll put those links in the show notes then because I think those are good resources. So really it’s up to me as a consumer to do my own thinking, my own research in advance. That’s the bottom line on what you’re saying.

Ellen Roseman: Yeah and you know it depends on the size of the purchase too. If it’s a $50 purchase you’re not going to put as much time into it. But I get people, like somebody wrote to me about a move where they’d been in a house for 40 years and they were taking everything out of the house and the moving company was packing it and they were moving it somewhere else and she was upset.

Well first of all this is an older woman, she got the name from friends who were happy and she said that nothing was damaged but she found that some of the items that were in her basement didn’t make it to her new place and she had no proof. She didn’t take any photos, she didn’t seem to have you know any way of proving that stuff that was in her old house didn’t move to her new house and I thought what kind of trust did she have?

You know it’s always good to try and think ahead, like the other habit of mine is to say “what’s the worst case scenario”. When I’m moving my entire household the worst case scenario is either things get damaged or they disappear so how can I avoid that, well I’ll take photos of everything. It’s not so hard you have a cell phone now with a camera and just keep photographing things.

So always think what’s the worst thing that can happen before you go ahead because especially with anything to do with your home bad things happen. So when they say “give me 100% of the money because I got to buy my supplies”, you say if I pay you a 100% I have no leverage if things go wrong and I can’t bargain with you because I paid you the entire amount so I’m going to keep my down payment as low as possible. So that kind of habit of mine helps a lot.

Doug Hoyes: Yeah those are very good pieces of advice and they’re practical things too. We’re going to take a quick break. I have a few more questions with Ellen Roseman right here on Debt Free in 30.

Segment Two

We’re back to continue my conversation with Ellen Roseman, a columnist with the Toronto Star. In the previous segment we were talking about seniors and in the whole aspect of financial literacy you mentioned that Jane Rooney in her new role this year, seniors was the first area that they focused on. You wrote an article back, I guess it was middle of October, October 21st, the title was Let’s Protect Seniors From Being Exploited.

So this is kind of the theme that you’re talking about here and as I said you know last week we had Jane Rooney on the show and she was talking about her efforts on behalf of seniors. So we know it’s a serious problem. You ended the column and the last two sentences were, “Financial literacy is crucially important, but it’s not a panacea. Let’s put money into enforcing consumer laws and protecting the vulnerable from tricksters”. So what are the things you’re worried about there, what are you advocating there?

Ellen Roseman: There’s a lot of fraud and scams aimed at seniors, both online and telemarketing. I hear those complaints all the time and every time you think that you know what the scams are, there are new ones that come up. I once spoke to a group of retired teachers and someone said “you know I was really I thought pretty smart about things but then I got this call from someone saying that they were from Microsoft and they thought my computer had problems and it could crash and I would lose my photos and I was so grateful I thought “that’s great, now you’re helping me”, and then you know that’s a well-known scam but she just hadn’t heard of it.

They’re very clever at playing on your fears and your needs and again you have to just get a lot more suspicious and if somebody calls you or sends you an email, you know never say yes right away. Hang up, do some research, ask for a phone number and call them back, sometimes they never want you to call them back so they won’t even give you a phone number, and a lot of that people come to your door as well.

There are, maybe not so much in London, but in Toronto door to door sales people are just relentless and they have all kinds of ways that they can talk their way into your house and then put something in your basement, a water heater and now they’re trying to rent you a furnace as well, which is a horrible economic proposition because you probably pay double or triple the cost of the furnace over a 15 year period.

You just have to be you know firm, say “no if I want a furnace I’ll call you back, I’ll let you know” and don’t get into any kind of a relationship with a door to door seller, a phone seller or even online. And now a lot of companies are telling you they want you to pay your bills electronically and they’ll send you an email saying your new bill is ready.

So the scammers are getting into that too and they’re pretending to be the bank or the phone company and saying “your new bill is ready and by the way your last two payments didn’t go through and click here so we can update your account”. So again just be really cautious and there are a lot of tricks going on.

Doug Hoyes: So you’ve got to be suspicious, you’ve got to be sceptical but ultimately it’s up to you because I guess really what you’re saying is there’s a new scam every day, you can’t sit around waiting for the government to protect you because the government isn’t going to be able to protect you. You really have to have your eyes open and that transcends every area of finances, right. If I’m going in for a car loan I’ve got to think about that too, maybe I’m not being scammed but I better know what the numbers are going in.

Ellen Roseman: Yes, yes exactly and do a little bit of shopping first and find out, you know, what are the various deals that you can get on car financing. It all takes time, it all takes attention, it’s no fun but if you make a mistake you know it can be so long till you dig yourself out of your mistake and if you’re not lucky it ends up on your credit record and there could be a collection agency involved.

I think the internet is still a pretty good source of scams. Often people will see free trial and it’ll be a cosmetic or a drug or vitamins and so they sign up for the free trial and then they’re told there’s just some shipping costs to Canada and they need your credit card to cover the shipping costs, which are under $10.

But then in the course of giving them your credit card they slip in some sneaky language that you probably didn’t even see saying that it’s actually a monthly subscription and there you are caught getting these monthly packages in the mail that cost about $75 or $80 each and every time you try and cancel you get a new package and it can be just horribly annoying and scary and hard to get out of. So the internet is probably a breeding ground for very many things that can take your money away.

Doug Hoyes: It’s almost as if you’re saying that if you were the head of you know financial literacy education in Canada, and  I’m putting words in your mouth here but tell me if I’m wrong, you’re almost saying that it’s not just about understanding how the math works, it’s really about taking that big step back and saying I’ve got to be sceptical, I’ve got to be suspicious, not in a bad way but I’m the only one who can protect myself, no one else is going to be able to do it so yeah it’s going to take some work.

But maybe what we need to do to promote financial literacy in this country is to show everyone the downside, like you said earlier, here’s the risk of making that decision. If that’s what all our education was directed towards, here’s all the bad things that can happen if you sign that piece of paper, I wonder if that would wake people up more than having online calculators or something. I don’t know if that would work or not.

Ellen Roseman: Yeah, I agree. I think that when you tell people motherhood stuff they turn off, their eyes glaze over. But if you say look at this person’s really bad experience, this happened for these reasons it could happen to you too if you’re not careful. At least you get their attention, at least you get them reading it and tell it in the form of a story. It might be hard for the government to do that but I certainly try to do that in my column and people learn a lot they say because they remember these stories and some of them are incredible.

Like I just did one the other day about a woman who bought a car and she had a loan for the car and she was paying it faithfully and then a bailiff shows up at her door and he’s collecting for another bank and he says you know “I’ve got the paperwork that shows you in default on the loan” and she says “you’re not even my bank”. So afterwards someone said she could have fought the bailiff but she didn’t so they towed her car away.

Then it turned out that the dealer had briefly sold the car for a very short time to someone else before she had it, the person never actually took possession or anything else, but they reused the same form and the bank got confused and went after the vehicle that this woman had instead of the other woman’s vehicle. So that’s kind of stuff people remember and they just think, “what will happen if it happens to me?”

So you’ve got to be careful and you’ve got to be suspicious and you’ve got to stand up for your rights. This woman spent two days, taking time off work, just chasing the dealer and chasing the bank and trying to get them to stop selling the car at an auction, which you know she’d never get the car back and then she’d never repay the loan because she wouldn’t even have the vehicle anymore.

Doug Hoyes: Yeah and I read that article you wrote and I guess the message there is if you’re buying a vehicle, and you wouldn’t think you need to do this when you’re buying a brand new vehicle, but you can go to Service Ontario. I think you mentioned it in your article, you can do a lien search, a PPSA search on the vehicle if you have the VIN number and you can see if there’s anything registered against it.

There shouldn’t be any need to do that in the case of a new car but here you go, there’s a classic example. So that’s what it comes down to I guess, that’s what it comes down to and I think you’re right, the articles you write in the Toronto Star a lot of them are, “well here’s what happened to this person”, this is a real story, it’s a warning flag for everyone else to not fall into that trap.

Well I think there you go, we’ve invented a new theory of financial literacy education here today and that is explain the downside, explain the risks in the form of a story, that’s what we’re going to remember a lot more than me giving a lecture on proper budgeting techniques. That’s what people are going to remember.

Ellen Roseman: Yes that’s right and you can budget all you like but if you’re wasting money through not paying attention to your consumer purchases you’ll have much less money to save in the future. And so yeah you have to look at the future, but you also have to look at what you’re doing with your money on a day to day basis and are you paying too much, are you not doing your research, are you falling for tricks.

And it’s probably helpful for people to spend an hour a week maybe calling some of their suppliers and asking them “do I have the best deal, do you have a better deal for me, what am I paying for, do you have new plan that’s come out since I got my current plan?” and often that can save you some money that you can then put into RRSP.

Doug Hoyes: I think those are fantastic, practical pieces of advice. I really appreciate you being here, thanks very much Ellen.

Ellen Roseman: Okay, thanks Doug. Bye.

Doug Hoyes: Great, thank you.

Third Segment

Doug Hoyes: Welcome back. It’s time for the 30 second recap of what we discussed today. My guest today was Ellen Roseman who believes that financial literacy is important but also believes that we often go to biased sources for financial advice, like the banks, and that can lead us to buy products we don’t need. A better source of advice is independent journalists and personal finance bloggers who share advice from their own personal experience.

That’s the 30 second recap of what we discussed today. So what’s my take on this? I fully agree that financial literacy education must be more than just discussing budgeting techniques. Ellen’s column does a great job of sharing stories so that we can learn from the mistakes of others and ultimately I believe that’s the best way to promote financial literacy.

For every financial decision you make, ask yourself “what’s the downside?”, “what are the risks?”, then do your own research from independent sources and make an informed decision. That’s our show for today. You can find full show notes with links to everything we discussed today at hoyes.com. You can also subscribe to the show on iTunes or any other podcasting service. Thanks for listening. Until next week, I’m Doug Hoyes, that was Debt Free in 30.

Bonus Segment

Welcome back. My guest today is Ellen Roseman, a columnist with the Toronto Star and she’s already given us some great practical advice and some thoughts on how to improve financial literacy in Canada. I don’t think it’s an exaggeration to say that she wrote the book on financial literacy in Canada. In fact she wrote two books specifically on that topic, Money 101: Every Canadian’s Guide to Personal Finance; and Money 201: More Personal Finance Advice for Every Canadian.

Her most recent book is Fight Back: 81 Ways to Help You Save Money and Protect Yourself from Corporate Trickery. I’ll put links to all those books in the show notes. The radio show portion of Debt Free in 30 is only 22 minutes long so I had to edit out some great practical advice that Ellen gave. It’s great advice, easy to do with virtually no cost and it could save you a lot of money. So here’s more practical advice from Ellen Roseman.

Before the break we were talking about some practical things you can do and Ellen your comment was, hey if I’m hiring a mover to move all my stuff, and this applies in every facet of your financial life, think about what the worst case scenario is and protect yourself for it, one thing you can do then is take a photograph of all the stuff that’s being moved so you know that it ends up where it’s supposed to be. Where else does taking picture make sense you know in the financial world?

Ellen Roseman: It makes a lot of sense with your home insurance policy where they advise you to do an inventory every year. Now I know all of us have a lot of stuff in our house and if you’re going to write it all down it could take you weeks and weeks. So do a photograph of all the major rooms, you know taking pictures of the things in the room that tend to be more valuable. Some people now use the video feature and they just do the video and maybe talk a little bit about here’s this and here’s this and here’s this because if there’s a fire in your house, all of a sudden you have no memory anymore of what it was in every room, so it’s good to have.

Doug Hoyes: That’s great additional advice from Ellen Roseman, and that wraps up the bonus segment here on Debt Free in 30.

The message today is that financial literacy is a lot more than just learning how to balance a chequebook or make a budget.  That’s obviously important, but even more important is to develop the mindset that you are in charge of your financial life.

Be suspicious.  Be skeptical.  Think.  And do simple things like take pictures of your stuff on a regular basis, for insurance purposes, or before you move.  It’s easy to do, and it make save you a lot of time and trouble in the future.

Thanks for listening.  I’ll be back next week with a new edition of Debt Free in 30.

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