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Recommendations to Task Force on Financial Literacy

5/12/2010

Recommendations to Task Force on Financial Literacy: Right Knowledge, Objective Decision Making, Focus on Twenty- and Thirty-Somethings

Yesterday morning, on behalf of Money Life Skills, I presented recommendations to the federal Task Force on Financial Literacy at the Royal York Hotel in Toronto.

The Task Force on Financial Literacy was appointed by the federal Minister of Finance in June 2009 with the objective to “provide advice and recommendations … on a national strategy to strengthen the financial literacy of Canadians,” with a final report due at the end of this year.

As part of its public consultation process that ends this week, the group heard from well-known organizations that put forth a variety of suggestions including: establishing a centralized clearinghouse for financial information, focusing on low-income families that have the most need as well as delivering financial literacy modules or embedding this content in to existing courses in the school system.

We offered a fresh perspective to the panel by delivering the following three recommendations:

1. Right knowledge is key: Empowering Canadians to make confident financial decisions requires them to have the right knowledge. The information and tools provided to individuals, couples and families must be customized to their needs and made affordable.

2. Separate decision making from product: By offering private financial education workshops, we can provide Canadians with unbiased information that is accurate and appropriate. By separating the knowledge from the sale of a financial product, individuals can make objective, rational decisions suitable for their financial and life context.

3. Focus on twenty- and thirty-somethings: Although educating students in schools will benefit future generations, Canadians in their twenties and thirties require financial help now. Folks in this age segment experience a succession of life events that require them to make decisions about money, such as starting a full-time job, getting married, buying a house, buying a car and saving for children’s education.

Our presentation was supplemented by a formal written summary submitted to the Task Force on April 30, 2010.

Participate: What are your thoughts on improving financial literacy? How can we empower people to make confident financial decisions?

I look forward to your input!

Regards,
Neil

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A Home is Not an Investment!

3/22/2010

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Canadian Business magazine ran a cover story recently that boldly declared that “buying a house is a bad investment.” I would take it a step further: a home that you live in is not an investment at all.

Home ownership is on the minds of many Canadians. With mortgage rates at historic lows and changes forthcoming to mortgage qualification rules as well as the expected impact of harmonized sales tax to new home purchases in Ontario and B.C., many folks are tripping over each other to buy their dream home.

I am often asked: “Is this the right time to buy a house?” And my response is always the same, “the right time is when it’s right for you.” It’s a rather tongue-in-cheek response, but my point is that if you plan to live in the house that you buy, your personal lifestyle should justify buying a home.

Perhaps you recently got married or just had a baby and need more space or you are in a relatively steady and secure job that you expect to keep for a few years. If you believe that you can commit to a home for at least five to ten years, then it may be the right time.

Trying to time the real estate market or choose the perfect location in hopes of a future windfall are considerations that are not as important compared to your life stage. In fact, we may not quite get the windfall that we expect when we sell our house. The magazine article factually demonstrates how real estate investments often significantly lag behind stock markets over the long-term.

Nevertheless, Canadians are avid homeowners. According to a 2008 Statistics Canada report, more than two-thirds of Canadians owned their place of residence. Renting is perceived as “throwing away” money, but the reality is that we often don’t compare the total cost of renting versus buying – we just look at the monthly mortgage payment and the monthly rent.

So keeping in mind that a home is not an investment, consider these three recommendations before buying a home:

1.       Take your time! Build up some substantial savings, perhaps holding your investments in an RRSP or TFSA that can be drawn later to use towards buying a home. A higher down payment will significantly reduce the total mortgage interest and mortgage loan insurance component – especially at the 20% down payment level.

2.       Do a total-cost comparison of renting versus buying. As part of their series on step-by-step home buying, Canadian Mortgage and Housing Corporation (CMHC) has a useful list of costs that may apply to you with a new home purchase. These include property tax, maintenance, land transfer and appraisal costs. Also, getsmarteraboutmoney.ca has an excellent rent versus buy calculator that allows you to experiment with different scenarios.

3.       Commit for at least five to ten years. If you cannot, renting may be a better choice – especially if you have a mobile lifestyle and prefer to be non-committal. If you’re a smart investor, you can invest the difference and potentially yield better returns than in real estate.

If we can help empower you to make better decisions with your major purchases, you may be interested in our SPEND workshop. Or if you’d like to become a wiser investor, check out our INVEST workshop. Have a look at the workshops that we offer!

Regards,
Neil

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Decisions, decisions ...

2/12/2010

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As I prepare for Tuesday's launch event, I'm amazed by the number of decisions each of us makes every day. We make many decisions in the “blink” of an eye, as renowned author Malcolm Gladwell described.

Unfortunately, it appears that we make important financial decisions in a “blink” as well.

Need to buy some mutual funds? Well, there are over 2,000 choices in Canada. So, we choose a few, hoping they make us money, and if they start dropping in value, we switch to other ones.

Need a half-decent chequing or savings account? Well, we’ve got dozens to choose from. So we just choose the bank across the street. We end up paying hundreds of dollars in unnecessary bank fees each year.

Need an investment advisor? Well, they're on every other street corner. We decide without asking too many questions. Let’s hope they’re not running a Ponzi scheme!

Do we make these rushed judgments because we prefer to take the path of least resistance? Are we too overwhelmed by the choices? Or were we just never taught how to make good financial decisions?

Tuesday's event is called “An Evening of Confidence” because I want to bring to the forefront our collective concerns about money. We didn’t learn the life skills to be smart about money in school or while growing up. That’s okay – that’s in the past now.

Given the economic turmoil of recent times, we’re all interested in shaping up our finances. So let’s seize that opportunity to prompt a renewed focus to take control of our money and become more confident in making financial decisions.

Look forward to seeing you on Tuesday evening!

If we can help empower you to make more confident financial decisions, please get in touch! Contact us in a “blink”!

Regards,
Neil

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Recommendations to Task Force on Financial Literacy

A Home is Not an Investment!

Decisions, decisions ...

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