Then there are the mixed messages about saving for retirement: On one side of the teeter-totter are the Joes who tell you that if you aren’t making the maximum contribution to your RRSP every year, cat food will be too good for you. On the other side are the fellows who claim that you shouldn’t even put money in a retirement plan because the government will give you all you need. Who would you rather believe? The guy who tells you to go ahead and spend all your money because saving is a waste or the guy who tells you it doesn’t matter what you do, it won’t be enough and you’re a loser? Hmm.

The insurance industry has it’s own playground toy: On one side sits the boys in the t-shirts that say, “Term insurance is the best.” The lads on the other side are wearing t-shirts with the slogan, “Permanent insurance is the best.” So which is it?

Is it any wonder that people are confused?

While people typically associate me with debt, I’m here to tell you it’s not all about debt. Credit isn’t the monster. Ignorance is. And it doesn’t matter if you’re buying a house, buying insurance, or buying an investment, if you don’t have a balanced approach to your financial life, you’re going to be off-kilter.

People face this dilemma when they’re trying to decide whether to pay down their debt or save. When the media-focus on retirement saving heats up, the push to save can make a person question the pull to pay down debt. When interest rates are rising and those in the know propound on the benefits of being debt-free, saving is relegated to the back seat.

Doing anything whole hog and the to the detriment of the other parts of your financial life is not only shortsighted it’s dumb.

Sure, debt repayment is important. But so is having some money set aside for emergencies and to grow for the future. Debt-free isn’t the Holy Grail. It’s simply one step along the way to finding financial balance.

Tomorrow: More on Balance & Choice

With the financial crisis now making people pay attention, more and more people are joining the cause, trying to show what’s wrong with the system and help wake people up to reality.

Jason Kelly’s book, Financially Stupid People Are Everywhere, is a blast against the American money management system. Kelly is the author of eight books, including The Neatest Little Guide to Stock Market Investing, which was a BusinessWeek best-seller. Kelly blasts the government, blast corporations, and blasts people for being “stupid” enough to fall for all the crap they’re being fed. I particularly like this Kelly Quote:

“Notice how many of the items you’re told to buy are depreciating trifles, and how strongly you’re encouraged to buy them with debt. That’s no coincidence. Once they get most people on the treadmill, they keep them there for life.”

So what is it about people that they are so willingly led down the wrong path? Loads of people have been declaring for years that it’s important to save for the future. So why is that message resoundingly ignored, while the message to buy, Buy, BUY on credit becomes the message we chose to… well… buy? How is it that a mega-house with all the trimmin’s takes priority over setting some money aside for the future? Are we such children that the shiny thing is all we can see, with no concept of the consequence of spending our money – and more – on stuff?

Many of you are converts; that’s one reason you’re here. But who in your life still has their head buried in the sand and their butts up in the air, a clear target for lenders and marketers alike? And how do we get those people to pay attention to the damage they are doing to themselves and sometimes to the people who love them?

No savings means NO OPTIONS. There’s a lot of blah-blah-blah right now about how many people are heading into retirement without enough money to keep body and soul together. One solution being offered is to increase government pensions, which would come with a pretty significant hike in premiums. How about we simply bring in some rules about how much debt a body can carry relative to their income? Instead of using a credit scoring system that rewards borrowers who only pay their minimums, let’s create a system that’s based on financial sustainability.

Financial sustainability? Really? Is that even possible? Maybe, if we finally accept the fact that we can only spend money that we have. Is that just too big an idea for everyone to really get it?

We need to stop solving people’s problems – like higher CPP premiums to make up for no savings for retirement – and start showing them how to solve their own problems. We should create a disincentive for carrying consumer debt, not a safety net for people who had a great time spending and then ended up with no money later.  And we should create a sense of honour around how well people are taking care of themselves and their families, instead of focusing our admiration on fancy cars, big houses, and snappy threads.

When I saw the results of the survey, I did some head shaking and wondered just how representative the results were of the people who come to this website (and their friends/family), so I asked you to answer some questions. Here’s how the survey compared with what you said.

1. According to the survey, 63% of women are confident in their ability to manage money. I had a wide range of responses from 2 – 10, with most people piling up around 7-8 so we’re doing a little better than the Girls & Women survey respondents.

2. G&W survey: 89% of women say the final decision about spending household money rests with them. In our survey, 60% said they had the last word, while 28% said the decisions were joint. The rest fell into “no”, separate finances, uncooperative spouse, and take turns categories. It seems we’re a more cooperative bunch when it comes to managing our money with our partners.

3. G&W survey: 51% consult their significant other before making a financial decision. This was one of the biggest differences since almost all of you consult your partner (8-10 out of 10). Only 22% of you scored 7 or less on this question so it seems more of you are managing your money as partners than on the G&W survey.

4. Virtually all of you set a goal in the last year. This answer is one I’m so pleased to report on. But even more important, 86% of you said you had a plan to make the goal a reality. That differs significantly from the 75% of respondents to the G&W survey that reported they did not have a financial plan to achieve their goals.

5. G&W survey: 97% of women believe it is very important to teach today’s youth about financial matters, and up to 83% have taken actual steps to educate their children. Far fewer of my respondents were actively teaching their children about money. Get on that Mommy! (I adjusted for all the people who did not have children.)

6. In the G&W survey almost half of women say they get their financial info online or from newspapers. My survey showed that women prefer online info to newspapers 4 to 1. Y’all love financial blogs, and some of you use TV (what a surprise!) for your financial lessons. Those of you who do not take advantage of the traditional financial news services say it’s because you’re not interested in financial news (whatcha doing here?), don’t find the info relevant to your lives, find it boring or too theoretical, or find the same info being rehashed.

The financial services arena has been slow to recognize that one of the significant differences between men and women is that women want their information in the context of the rest of their lives. Money chatter for the sake of money chatter doesn’t interest many women. They want to talk money when it involves how to better deal with their aging parents, how to help their children, and how to create the kinds of family experiences they are interested in. And as for the constant rehashing of economic information without any context in terms of how that information will affect us, many women just yawn and turn away. This is a huge missed opportunity both in terms of education and building customer loyalty.

7. When it came to your level of financial know-how, you’re a pretty confident lot. Fifty-five percent of you ranked yourself between a 7 and an 8 out of 10 with another 7% of you at 9 or 10. The other 38% of you felt you were at a six or lower, with almost 15% at or below a 4.

8. More of you do NOT have an advisor you trust than do (61% to 39%). Some of you made it clear that while you had an advisor, you didn’t trust them particularly.

9. The G&W survey and my survey both showed that y’all think you know whom to turn to for financial advice. The G&W survey says, “Despite being portrayed as financially adrift, women know exactly whom to turn to when navigating financial waters, illustrating that for many women, managing their money, means managing their relationship with their financial advisors—enabling them to match their level of involvement to their needs and interest levels.” Hey, I’m all for that!

———-

The three winners of books are Katherine Mulski, Patti S., and Eetsyw. Please send me your choice of book: Easy Money, Debt-Free Forever, or Never Too Late and your snail mail address to getgvo@gmail.com. Never Too Late hasn’t hit my doorstep yet, but I’ll send it as soon as it does if that’s your choice.

Canadians carry a lot of debt, one of the highest in the world when you take into account both corporate and household debt. And despite being pretty smug about how much better we are than our American cousins, we’re fast approaching our day of reckoning.

Our HH debt has grown three times faster than income. In the spring it was at a record high of more than $1-trillion, which means we owe almost a buck-fifty for every dollar of disposable income we have. But that doesn’t seem to have slowed us down any.

According to TransUnion overall debt, excluding mortgages, was up 4.3% in the third quarter of 2010 compared with a year ago. Quebec posted the largest increase at 6.6%; Manitoba had the lowest at 2.6%.

Part of the problem is the ease with which Canadians have been able to get their hands on credit, combined with record-low interest rates. But with debt levels this high, even the smallest increase in interest rates will make us squeak.

And here comes a release from the Stats Man that shows that consumer prices rose 2.4% over the last year, fueled in large part by increases in seven of the eight major components that affect inflation.

• Transportation costs up 4.6% in October after rising 3.1% in September.
• Shelter costs up 2.8% compared with October 2009.
• Food costs up 2.2%, following a 2.1% increase in September.

If inflation is on it’s way up, interest rates won’t be too far behind.

The other part of the problem is the fact that we just frickin’ refuse to accept that we can’t keep spending more money than we make. I get that all the nice shiny stuff is appealing. I get that granite counter-tops and hardwood floors improve the value of our homes. I get that you need a car to get to work. What I don’t get is the willingness of so many folks to just turn their backs on reality and spending money they haven’t yet earned to have stuff they simply can’t afford. Yah, granite’s nice, if you can pay for it. And while you may need a car, you don’t need a snappy new car with all the bells and whistles; you want it. And don’t even get me started on technology toys.

The only way to fix the mess we’re in is to own up and stop spending more money than we make. And if we’re making less, we’ll have to spend less. Putting stuff on credit is only delaying the pain so you can scratch the gratification itch. And it’s not working for us. Neither is the whole idea that we are richer than we think. We’re not. Property values have started to correct across the country and we’re in hock up to our eyeballs. The fact that we’re in the hole 1.47% for every dollar in disposable income is the proof that we’re dumber than we look.

But Americans have been cutting back on television costs at a wicked clip. I’m not sure what the stats are here in Canada, but I have heard some interesting stories of late of people taking a stand and trimming back.

The crappy economy is being blamed for the fact that hundreds of thousands of people have cancelled their satellite, cable or telecommunication subscriptions in 2010. In an industry that had never before seen a decline, this came as a huge shock and had a lot of distributors panicking.

But is it only the crappy economy that has people trimming expenses? Or are consumers becoming savvier about how they can get their hands on entertainment? With many episodes of popular TV shows now available over the Internet, why would you pay for cable or satellite service when you can watch on your computer for free?

As I watched Alex on her laptop last summer, watching hours and hours of How I Met Your Mother, it occurred to me that TV land is experiencing a significant shift. Young’uns like Alex who spend their lives on their laptops naturally turn online for their viewing pleasure.  But even golden oldies like me are turning on their computers instead of their TVs. When I got my big-screen computer it meant I didn’t have to squint to watch free TV anymore, so I’m quite happy to hit up the Internet for my entertainment now. I guess we could call it Intertainment, eh?

And then I heard stories of people calling their cable companies and threatening to cancel their cable completely unless they got a better deal. The results: Three free months, specialty channels for free as incentives to stay, and bundled packages that saved up to 50% of what these relentless bargain hunters had been paying.

Companies like NetFlix are taking a bite out of TV-distributor profits. According to Nielsen, NetFlix had the highest average time spent per viewer among online brands with at least 250,000 unique viewers in March 2010.  Netflix also reported the strongest month-over-month growth in time spent per viewer (963.1%).

From my point of view the best thing that will come out of this is the elimination of the drek broadcasters offer us in off-peak periods. Already, networks like Mystery have great shows during the day and on weekends, up against not much else worth watching if you’re not a sports fan or a talk-show watcher. And if consumers show their clear preference for what they like to watch on the Internet, maybe that will push producers and broadcasters to make more of the kinds of stuff we like to watch instead of filling their airtime with yet another episode of Sue Thomas FBEye.

So have you changed your viewing habits? Have you cancelled or cut back on your cable or satellite packages? What are you doing differently to save money? And if it isn’t to save money, why (and how) are you changing your TV consumption patterns?

As if that’s not bad enough, these are averages. Live in a city like Toronto or Vancouver and your housing costs are eating even more of your income. And since the affordability index is based on buying a home with 25% down and a 25 year amortization, the news is even worse since there are a whole bunch of folks who never managed to come up with even the 20% down it took to avoid mortgage insurance.

Earlier this year in a poll I asked, “What do you think will happen to house prices in 2010?” Fifty-three percent of people who responded said they thought house prices would go up.

Really?

Well the Royal Bank disagrees. The ultra conservative financial institutions that makes it’s profit from selling optimism to the masses concedes that the Vancouver market is vulnerable to a price correction, and it was only because vendors are eating crow that the Toronto market isn’t headed into the dumper too.

Once upon a time, owning a home ate up about one-third of our resources. And according to my Life Pie, your housing costs shouldn’t exceed 35% of your net income, especially if you’re spending to the hilt in the other categories like transportation, life and debt.

If y’all think that getting into a house at any cost is the way to make money for the future I’d like you to do the following before you jump into the market:

Take the cost of your home on the day you buy it. Add the interest you’ll pay over the amortization you’ve chosen. Look at what you’d have to sell it for to actually make any money.

So if you buy a home and take a $300,000 mortgage at the current five year rate of 5.39%, you’ll pay off $32,878.93 in principal (so you’ll have that as an asset) at the end of the five-year term, but you’ll also pay a total of $75,841.67 in interest, so your house would have to sell for almost $376,000 for you to break even.

If you paid off the house assuming your interest rate didn’t go up (right!) and it took you the full 25 years, you would pay $243,603.24 in interest, so your house value would have to rise more than BEFORE YOU WOULD MAKE A PENNY.

Amortize for 30 years, and you’ll pay over $300,000 in interest, so if you sold your house for $600,000 you’d be breaking even.

Never mind taxes. Never mind upkeep. Just add the interest cost to the original purchase price. This is the step NO ONE takes, preferring instead to believe that the “appreciation” in the value of their homes has come without a cost. And it is perhaps this lax attitude that has allowed so many people to consolidate their consumer debt into their mortgages time and again without a blink of an eye.

It’s time we stopped looking at the housing market in our delusional ways. Yes, it’s nice to own a home, but owning a home at ANY cost doesn’t make ANY sense. If you can’t afford to come up with a downpayment of at least 20%, what makes you think you’re ready for homeownership? If your pouring more than half your income into your home, and you’re carrying consumer or student loan debt, you’re going to struggle to have a life. And if you’re not saving anything for the future, you’re a fool.

Y’know, when the banks start sounding like me, we are in big trouble!

According to Britain’s Institute of Promotional Marketing and the University of Westminster, “the buzz we get prowling for deals appeals to us on a much deeper level than researchers had expected.” Have the researchers been living under a rock? Don’t they know that we’re living in a world where we’ll crush a body to death in order to be the first one in the door to get the deal.

I scratch my head at the “revelations” that come from research. “That excitement might be rooted in our primal instincts to hunt for survival” Really? Where have y’all heard this before?

Not too far away from this enlightening research, which has yet to be published in an academic setting, was a titillating bit of news about a woman who bought a $350 pair of shoes she, “just had to, had to have” that were a size and a half too big. There was no tongue in cheek here. This was being reported with the brand of shoe and the shoe-wearer’s disappointment when the gel inserts she thought would make the shoe fit failed to do the job they weren’t intended for. Wow! Talk about bargain hunting making people do really stupid things. And talk about a really slow day for news.

We all know that people will do really weird things when it comes to scratching their consumerism itch. Folks go shopping when they are happy, sad, depressed, lonely, or out with friends. Tammy Faye Bakker is quoted as saying, “I always say shopping is cheaper than a psychiatrist.” Tammy Faye should have invested some money in a shrink.

Shopping has gone from what you do to buy the things you need to “a contact sport.” Did you ever see the episode of Friends when Monica and the girls physically tussle over the wedding dress Monica wants? That’s not actually as rare as sight as you might think. Just the other day I watched a woman grab a sweater out of another woman’s hands. “That’s mine” she growled. Eyes wide and lips trembling, the other woman looked like she’d been slapped. As Bill Bryson (one of my favourite authors) said, “We used to build civilizations.  Now we build shopping malls.”

So what’s with this obsession we have with shopping? Do we have so little purpose in our lives that the hunt for a deal has taken a prominent position? Are we so shallow and without real focus that stuff has replaced accomplishment? When did collecting the crap we need for our hobbies and pastimes supersede the actual doing of the hobby or pastime?  And when did shopping become a substitute for thinking, chatting, laughing, sharing.

I’m as human as the next chick. When I bought my cute little flats and got them at 25% off, I was very happy. And if I see a sale on ketchup, I’ll check my stores to see if it’s a good time to stock up. What really makes me scratch my head are the people who claim to have no money, but then drop bucks on crap they don’t actually need just because they haven’t yet figured out how to control themselves. And as for the people who can’t pass by a “good deal”, maybe Mad Magazine said it best: “The only reason a great many American families don’t own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments.”

The financial news has been full of talk about deflation. Almost everyone knows that inflation means the price of stuff is gonna go up.  But the flipside of inflation – deflation – is something most people have far less experience with. Like it or not, you might just have an opportunity to share in this interesting reversal since economic indicators say we may be headed for a period of deflation.

So what is deflation, and how will it affect you?

When an economy experiences a reduction in prices for it’s goods and services, that’s called deflation. Don’t confuse “deflation” with “disinflation” which is simply a slowing of inflation. Deflation is a full on reversal. And for many economists, deflation is a way more serious problem, largely because it’s tougher to control.

People are always bitchin’ about how inflation makes things more expensive, so one would think that a period of reduced prices would a be welcome respite. After all, if stuff becomes cheaper to buy, money will go further, right?

Yes and no. Yes, things will get less expense, and that can be good in the short-run, particularly for people living on fixed incomes. The No comes in when deflation drags on. When prices are falling, consumers are willing to wait for even lower prices before putting down their hard-earned dough. Inventories pile up. Sellers are forced to cut prices further to increase demand. Companies’ profits fall. That leads to production cut-backs, reductions in wages, layoffs and even the closing of facilities. Unemployment increases and since fewer people are working and have less money to spend (and less taxes are being paid) the economy cannot expand. There is no growth. People get even more scared, spend less, and the whole thing just spirals down.

The U.S. fell into a deflationary period during the Great Depression in the ‘30s; deflation hit 10% and unemployment hit 25%.  Japan went into a deflationary period in the ‘90s and that economy still hasn’t really recovered.

The big benefit of deflation is, of course, the fact that stuff gets cheaper. Yes, it’ll cost less to live. But less is relative, since deflation also brings reductions in income.

So what can you do to protect yourself (kinda) if we do fall into a period of deflation.

Reduce your debt. (Gee, Gail, that’s your answer for everything.) As we’ve already seen happening, interest rates go up for riskier borrowers during a period of deflation. Since growth is at a standstill, lenders are less willing to let you spend money you’ve haven’t yet earned.

Get your fixed expenses under control. If you lose your job, you’re going to be working on a bare-bones budget. High fixed expenses are anathema to survival. So those mortgage payments. car payments, loan payments that are gobbling up your paycheque are going to get even harder to stomach.

Build up your emergency fund. Since deflation brings higher unemployment, if you’re one of the newly unemployed, you’ll need an emergency fund (cash not a line of credit!) to survive.

Focus on increasing your personal marketability. Get some new skills. Keep your resume up to date. Look for ways to shore-up your employment prospects.

During periods of deflation, cash is king. Do whatever you can to store up your money. If the deflation thing never comes to fruition, you won’t be any worse off having some extra cash available for investing. If it does, you’ll breath more easily knowing you have some resources to see you through.

Assuming you had $100,000 to put down and got the mortgage at 3.7% (the lowest available at a major bank at the time I wrote this) and amortized your mortgage for 35 years (the longest available), your mortgage payment would be $3,809.75.

If the mortgage payment alone was to hit the 35% suggested in the Life Pie for what housing should cost (assuming you had no taxes, utilities, insurance and maintenance costs), you’d have to NET almost $11,000 a month to pull it off.

Okay, so the real estate market is a little overheated. What’s a body to do? You have to live somewhere, right?

I just wonder how those folks are going to cope with the rising interest rates when it comes time to renew. So I went back to the same bank I used for the mortgage quote (I used the one-year closed rate) to see how the payment changes. Their five-year closed rate is at 5.79% and that takes the monthly payment up to $4,964.42. This takes the percentage of your net income used for housing up to 45%, without taxes, utilities, insurance and maintenance costs. Ouch! Betcha that home-buyer will be putting those fees on her line of credit and her groceries on her credit card.

One of the reasons I chose the five-year rate is that new rules came into effect earlier this year that are designed to stop people for over-extending themselves. Now borrowers must meet the standards for a five-year, fixed-rate mortgage, even if they choose another term with a lower rate. (Anyone want to take bets on how long it’ll take for lenders to offer “special five year rates” so they can help customers get around this little mole-hill?)

While nobody seems very flustered by the fact that the Bank of Canada raised it’s rate another ¼% — hey, let’s not scare off the borrowers – if you’re carrying debt or planning to renegotiate a mortgage at some point in the future, you should be paying close attention.

But that’s just Vancouver, right? Elsewhere things are saner. Well, maybe. Calgary watched it’s home prices slip 8% at the beginning of the summer. If that happened in Vancouver, $80K of that $100K downpayment would be wiped out. Some people are under the impression that the drop off is a result of rising bankruptcies in the hitherto spend-free city. But it was an over-supply in housing that was the real culprit.

Earlier this month, Stats Can reported a drop of 5.3% in Canadian residential construction permits. And this week a National Post article quoted home sales as down 20% in June compared to June last year. That’s a whisper in the wind that there may be an over-supply of housing in the future. That doesn’t bode well for people who find they can’t make their mortgage payments and decide to downsize to something they can actually afford to carry and have a life too.

So how do you know if you’re contemplating buying in a over-heated market? Check the “affordability index,” which measures home prices against gross household income for an area.  Some pundits say you shouldn’t buy an area where the index is over 4, meaning that house prices are 4 times gross earnings. (When I was still just a kitten, the rule of thumb was under 2.5 times gross earnings. See how things change?) Vancouver’s index is sitting at almost 9.5. Toronto is at 4.93. The national average is just over 5.

Where do you find the affordability index? You’ll have to search the internet for it. And you have to look at the numbers and not so much at the yackety-yak that goes with ‘em. Since the numbers are often produced by banks, and banks are in the business of lending money, the “spin” is often designed to encourage borrowing. If a bank goes so far as to tell you that a market is actually overheated, take heed.

Keep in mind that the affordability index reports for an entire area. There may be pockets of very reasonably priced real estate within those areas, so don’t go getting all despondent and think you’ll never be able to afford anything. It will mean you’ll have to shop hard. And you’ll have to be patient. Someone else may be just about to bail and you’ll get your house on a sell-off at a considerable discount from the current “market” rate.

What you should not be doing is taking on more home than you can reasonably afford. If you do, don’t be surprised when you become “just another statistic” in the housing drama.

If you watched me on the Today Show a while back (if you didn’t see it look under Gail in the Media) you saw me want to get into the discussion about credit scores, which came to an abrupt close because there was no time. But the discussion needs to be had.

The credit scoring system was never meant to be a credit adjudication process; in other words, it was never meant as a tool for granting credit. It was developed as a MARKETING TOOL to help credit granters identify their most PROFITABLE clients. Yup, it was meant to highlight the clients who turned the biggest profit – read “didn’t pay their balances off in full” – so that more offers could be sent out to these suckers.

But the credit score has taken on a life of it’s own. Now it speaks to people’s worthiness: worthiness to rent, worthiness to get a job, and in some places worthiness to qualify for insurance. Are you frickin’ kidding me! Because some credit card company decides to report that I’m late with my payment, and my credit score plummets, I’m not worthy of health insurance or a better job? What the hell is up with that?

I’m going to be talking more about this over the coming months because I think it is a travesty that consumers are being held ransom to the credit score system. And I think it is ridiculous that Congress in the U.S. is actually not smart enough to see that the credit scoring misappliclation is actually at the very heart of their broken financial system. Com’on President Obama, if you think things need to change, start by looking at how this marketing tool is being misused to enslave people to credit.

As for the fools in Canada who think that throwing more information at us will help us make good decisions about our money: Wake up and smell the coffee! There is a huge gap between KNOWING and DOING. The question isn’t why don’t people know they should save. Of course they know. They’re not idiots. The question is why don’t they act, save, DO?

And as for pushing financial literacy into the school system, I’m going to state categorically that it will not work if there’s not support for financial literacy within the home. For kids to understand how money works – not know, but actually do – they need to have some money to work with. Not just pretend money like in a Monopoly game. If that were so we’d all be real estate moguls since virtually all of us have played the game at some point. For this to actually work, parents have to put some money into their kids’ hands and deliver the sound financial messages at home.

If a kid learns about the food guide and the importance of eating five to seven servings of fruits and veggies at school, and goes home to a dinner of a hotdog, chips and pop, the food-guide lesson goes out the window.

If you want your children to be smart about money, you have to give them an allowance, set some expectations for how that money will be handled, and talk, talk, talk, talk, talk about everything to do with money.

If you want a society that saves, you have to do more than say, “Savings is important.” You have to demonstrate how easy it is to save; as easy as it is to use a credit card, and twice as beneficial in the long run. You have to stop confusing them with investment baffle-gab and speak in English. And you have to break it down into very small, very manageable bites that can be easily digested.

Remember what a big hit The Wealthy Barber was? Millions of copies were sold. And the book was loved by children, young adults and the long-in-the-tooth alike. The messages David Chilton delivered in that book were clear and straight-forward. There was no mystery.

I’m hoping to do the same thing with Never Too Late when it arrives in 2011. Like Debt-Free Forever, it’ll be an action plan to move from where you are now to where you want to be. It’ll be easy to understand. And it’ll reinforce that everyone can have what they want, if they just KNOW what they want.

If David can do it and I can do it, how come everyone else is still blathering on in financial gooblydegook? Could it be that there is some percentage in keeping people confused? That’s how the credit score rose to such power. Hey, that’s how everyone who has crap to sell succeeds at selling their crap.

If North America is really interested in making sure people are financially literate, maybe we should start by speaking in plain English and making it a shunning offense to mislead and misrepresent. And maybe we should acknowledge the gap between knowing and doing and find a way to close that Great Divide. And for heaven’s sake, let’s get back to the practise of granting credit responsibly, not just looking at a credit score to determine how worthy a body is.

When my Ontario hydro bill came this month, it had an interesting attachment: the new prices that took effect May 1, and what’s coming down the road. Before the rise in rates, I was paying 5.7¢ per kilowatt hour (kWh). As of May 1, that went up 14% to  6.5¢. But that’s just the beginning. When the time-of-use meters click on, you will watch prices jump all the way to 9.9¢ a kWh… a 74% increase over the start-of-the-year price.

I know, I know, there are lower cost periods and doing your laundry off-peak will cost you 10¢ compared to the 20¢ it’ll cost on-peak (yup, double the cost babies). But the reality is that there are some things you can’t turn off. Lots of homes are heated with electricity, so there will be a lot of folks piling on the sweaters as they attempt to keep their heating costs from doubling. And while I have no problem with the concept of running my dishwasher at night so I spend 16¢ instead of 33¢, I don’t think my family wants to wait until after nine for me to turn on the stove and start cooking dinner (22¢ off peak versus 47¢ on-peak).

How the hell did Hydro get permission to raise rates by this much in one fell swoop? And what are all the people living on a fixed incomes supposed to do? Don’t tell me we’re in a low inflation period.

As if it’s not bad enough that our electricity costs are skyrocketing, the government has decided this is a good time to take the taxes we’re paying on hydro from 5% (GST no PST) to 13% (HST), so your bill’s gonna go even higher. Wow!

Electricity isn’t the only jump you’ll see when the HST comes into effect July 1. Costs are going up all over the place because of the HST is being applied to all sorts of things that were never subject to PST like:

dry cleaning services,

home service calls (that’d be the plumber) and maintenance (and the gardener) and renovations (and the roof repair man),

taxis, campsites, domestic travel of all kinds and hotels, so even staycations will cost more

magazines you buy by subscription

private resale of cars, including registration, along with GAS (are you kidding me? Gas isn’t taxed enough yet?)

vitamins and massages

golf green fees and gym memberships along with all the sports activities you have your kids in

everything you do to looook goooood (hair stylists, estheticians, fitness trainer)

cigarettes (time to quit) and nicotine replacement products (using your will power alone)

and they even get you when you croak since funeral services and legal fees are now subject to the 13% HST.

While some of these services are optional and you can find ways to manage your way around the increases (get your hair cut every 8 weeks instead of every 6), most people have to buy gas (aren’t we paying enough for gas now?) Expect to see other related costs like transit go up once the increased gas costs filter through. And the cost of running and maintaining a home are going up just as interest rates (and higher mortgage costs) are dinging people’s already tight budgets.

There will be tax credits similar to the existing GST tax credits for low income households in order to offset the effect of extending the HST to cover goods and services that were previously PST-exempt. If you’re an individual making less than $80,000 a year, you can receive $300 in Ontario Sales Tax Transition Benefit payments. If you’re in a family with an annual income below $160,000, you can receive a maximum of $1,000 in Ontario Sales Tax Transition Benefit payments. If you have a low or modest income, the Ontario Sales Tax Creditl offers up to $260 a year for each member of your family.

Don’t expect a hefty cheque that you can stick in the bank. These payments will be phased in, so you’ll be out of pocket until you get your money… if’n you do.

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If you haven’t voted on this week’s poll, go do it. I’m very interested to see how y’all are dealing with retirement in light of my new book, Never Too Late, which will be out at the beginning of 2011.

And if you haven’t let me know if you’re coming to the picnic, look at yesterday’s blog and lemme know.

Lose a job, have a child get sick, or watch your car die in the middle of a highway and the idea of putting whatever you need on a card and carrying a balance becomes a secondary issue to taking care of the big problem. But what is it that’s changed in our lives to make us think that when whatever we’re putting on our credit cards won’t come home to roost one day? How have we come to delude ourselves so thoroughly? What lets us rack up thousands of dollars in debt without batting an eye? And what lets us carry around balances on our credit cards, at huge interest rates, without losing our minds?

There are people who bemoan their debt while booking their next vacation. I’ve met folks who can’t drive a domestic car; they must drive a car they really can’t afford. And there are heaps of people who can’t seem to find the money to repay their old bad spending habits because they’re too busy traveling (on credit), eating out with friends (on credit) or shopping (on credit.) What makes some people immune to the gut-wrenching stress that other people feel when they owe money?

I believe part one of the problem stems from the fact that so many people are so far in debt that indebtedness has become normal. If your parents are in debt, your brother is in debt, your best friend is in debt, being broke won’t carry the weight for you as it does for the person who has grown up hearing, “debt is bad!”

I believe part two of the problem stems from the invention of the “minimum payment.”  People have stopped adding up what they owe and are focusing instead on how much they’ll have to come up with each month to keep their credit flowing. It is as if The Debt – the big whopping amount owed – doesn’t exist. And because minimum payments aren’t set high enough, it takes a really long time before the pain of not being able to come up with even the minimum hits home. By the time the debt is big enough for all those minimum payments to be a problem, people can’t see any way out, which leads to what I like to call Stupid Debt Tricks.

Stupid Debt Trick #1 is performed by a guy who thinks he has the system beat. He transfers the money for his mortgage payment to his line of credit to meet the minimum payment requirement, and then uses the line to pay his mortgage. The dope isn’t even covering the interest on his line.

Stupid Debt Trick #2 is used by the girl who, finding that she can’t live within her overdraft limit, arranges to have the extra she needs automatically transferred from her high-interest credit card. As if it isn’t bad enough that she’s living in overdraft, she’s taking cash advances to cover her overdraft’s overdraft.

Stupid Debt Trick #3 is executed by the couple who, realizing that they can’t live on the money they bring home each month and have fun, make all their mortgage payments from their line of credit. So while the Smart Money People search for ways to lower their interest cost by even half a point, Mr. and Mrs. No-Self-Control pay the regular interest rate on their mortgage plus the interest rate on their line on every mortgage payment.

Eventually even with the full arsenal of Stupid Debt Tricks at their disposal, the folks who think debt is normal finally run out of room. That’s assuming their circumstances don’t change first, leaving them with less money than they need to make their minimum payments AND buy food.

Debt isn’t normal. It’s anathema to life. Debt means no control, no way to bounce back from whatever pile of poop is reaching up to grab your foot. The sooner we move past “managing our debt” and get debt-free forever, the healthier we all will be.

I don’t believe there’s a bubble. I believe that current low interest rates and our access to credit, often undeserved, has let us bid up the prices of houses without concern for what those houses will cost us when interest rates increase. I believe that because CMHC guarantees the banks that they won’t lose their money even if a customer goes belly-up, that lenders have thrown all caution to the wind and have given money out that they should not have. Sound lending criteria went out the window with the whole-hearted embracing of The Credit Score. And I believe all this will bite us in the butt eventually regardless of these new provisions because much of the damage has already been done.

Isn’t it ridiculous that our banks went hat in hand to The Minister of New Rules, begging for some relief from their own lending stupidity. Really? Dumb Canadians have no control when it comes to borrowing and you, Oh Mighty Minister, must help them. What about the stupid lenders that gave all that credit to Canadians?

And are our mortgages really our biggest problem? Even if there is a correction in the housing market, those assets are still assets, right? What about all that unsecured debt consumers have taken on with absolutely no backing other than the signature of their poor, feckless selves?

These new changes are wishy-washy: Now you have to prove you can manage the five-year rate in your cash flow calculations. I think this is only a salve wiped across a pretty severe case of the Debt Pox, unlikely to do much real good. And I don’t believe the Minister of New Rules is doing anything but trying to cover CMHC’s butt when it comes to reducing it’s exposure to risk. Witness the fact that people buying investment property must now come up with 20% downpayments to qualify for CMHC coverage.

This is the second time the government has stepped in to protect CMHC. Last time, after giving Canadians the rope to hang themselves good and high – 40 year amortizations and 0-down options for CMHC-guaranteed mortgages – they pulled back to the 5% down rule with a maximum amortization of 35 years.  There was speculation that they would further increase the downpayment requirement and reduce the amortization, but that didn’t happen. Instead the Minister of New Rules decided that if you’re trying to consolidate your debt to your mortgage (referred to as “doing an equity-take-out”) you won’t be allowed to use more than 90% of the value of your home.

Once upon a time lenders followed a thorough investigative process when determining who would be able to manage credit and who would not. They looked at a customer’s character to see if she were working to built assets, not take on too much debt, and create a foundation as solid as a rock. They looked at her capacity to repay weighing her income against how she was spending her money. They looked at her collateral and her credit history – ALL of it.

Then came the Credit Score and lenders’ blind belief that this tool, above all else, is the best predictor of a customer’s ability to manage debt. Really? A tool designed to predict the most profitable customers – read “customers who pay the most in interest” so people who do NOT pay off their balances – is better than following sound lending practices? Hmm.

Now, people who only pay their minimums have been extended credit they don’t have a hope in hell of ever paying back because their capacities aren’t all that great and they have no collateral to speak of. Just look at the rising bankruptcy figures and you can see what’s to come. But, hey, they have great credit scores because they’ve been taking cash advances on their cards to make their minimum payments.

People, it isn’t a housing bubble that’s the problem. It is the fact that we’ve stopped using our brains. Lending people money to buy stuff isn’t smart when what you’re doing is encouraging people to spend more money than they make and live beyond their means. And the “tightening” of the mortgage rules will do little to save our asses when people will have to choose between paying their debt and eating.

The only thing that will eventually fix this problem is for our banks to be smart again. Once they were. Once they were some of the smartest banks in the world. Then they bought into The Credit Score and proved that they, too, could be dumber than dirt! They started giving credit to anyone who could sign her name, and they made sure that they used every trick in the book to get us on the hook. Now, with the potential for a slide in home prices around the corner, records levels of debt, and an over-exposed balance sheet, maybe they’ll finally wake up and smell the coffee.

Working with Princesses has really brought home just how much people buy into the “image” message. I’ve met chicks with thousands of dollars worth of designer shoes and not a penny in emergency or long-term savings. Looking good seems to have replaced common sense. Oy!

Once upon a time when you saw a doll in a snappy Diane Von F. dress sporting a pair of designer heels, you could assume she was making (or married to) some pretty big bucks. And if himself sped by in a BMW, you knew he made enough to be able to afford the mortgage-high lease rate. Not any more. Now Poor Joes and Shopgirl Susies are sporting the most expensive toys. And they’re doing it on credit. So not only do they have nothing saved, they’re actually mortgaging their futures to maintain the images they so wish they could actually afford.

The biggest stumbling block to becoming wealthy is pretending you are. The cost of keeping up the image of success – the cool digs, the snappy clothes, the fancy dining – erodes the saving you have to do to put a positive spin on your balance sheet.

Wealth doesn’t just happen. It takes conscious effort. The truth is that while most people say they want to be wealthy — or even debt-free —  they really just want other people to think they are. And so we have a culture of designer wear being sported be a crop of Wannabes.

People are always saying one thing and doing another with their money. Whenever I write about how important it is to save up a 20% downpayment for a home, it’s often followed by a barrage of email from people who say they’ll never be able to buy a home because they can’t afford that high a downpayment. Yet if you look at what they’re spending their money on, the reason they can’t save becomes pretty clear: they’re so busy shopping they have nothing left to save. If they cut back on their spending, and set a reasonable expectation for their first home, they could own their first home in about five years.

Now comes pressure from the Big Five Banks for the government to change legislation to make minimum downpayments higher and maximum amortizations lower. Hmmm. Seems we don’t have the good sense God gave a goose and we need new legislation to protect us from ourselves. Ouch!

Books have been written about the Invisible Rich: the people who live simply but have a bucketful of money stashed away. These people do not feel the need to define themselves by an expensive car, shoes that cost the equivalent of a mortgage payment or table-service at the snazziest club in town. They know that the only way to build wealth is to live well below their means. They put their financial independence well ahead of creating the right social image. And they work hard.

Frugality isn’t a dirty word among people who desire to be wealthy. They would rather live within their means and save a substantial portion of their income than bathe in the covetous attention of their friends and family.

Hey, if you’re happy spending every red cent you make, then you should do what makes you happy. But you can’t then whine about it when crap hits the fan and you have no cushion, no options. And if you’re determined that this is the year you finally take control of your money and your future, then it’s time to walk the walk instead of just talking the talk.

We all have the option of taking immediate gratification over the long term security that setting aside money brings. And yes, a shiny new car is a lovely thing. But it doesn’t beat having a big, fat F-U account. Like the ad says, “Sleeping well at night: Priceless.”

Savings and chequing accounts. If you hold your money with a Canadian financial institution that is a member of the Canada Deposit Insurance Corp. (CDIC), you’re covered for up to $100,000. Foreign banks with branches in Canada may also be members of CDIC and if they are you are covered. If not, you’re SOL, so check here before you put your money on deposit.

GICs and term deposits are covered too, as long as the term of the deposit is five years or less. The $100,000 limit is for all your non-registered accounts with a single bank. So if you have $80,000 in a savings account and another $80,000 in a chequing account, you are covered for only $100,000 — not the $160,000 total.

Joint accounts are covered separately so if you have $100K in your savings and chequing accounts and then open up a joint account with your son, partner or best-friend, the joint account is covered for another $100K.

TFSAs are also covered separately, but only for those products that are CDIC insurable like savings accounts and GIC with terms of 5 years or less. Investments like mutual funds would not be covered by CDIC.

RRSPs and RRIFs are also covered separately so you can have $100,000 in GICs or savings accounts (but not in mutual funds, stocks, or other investments ineligible for CDIC coverage) and yet another $100,000 in RRIF accounts. While RRSPs and RRIFs are specifically named in the legislation…

RESPs are not. However, since The Act does cover eligible deposits held by the trustee of a trust for another person as long as the trust disclosure rules are met, an RESP structured as a trust may qualify for separate coverage. You should check with your RESP provider for clarification.

If you have a life insurance policy with a Canadian insurance company, your benefits are protected by Assuris, (www.assuris.ca) which is a not- for-profit organization funded by the life insurance industry. Deposits are covered for up to $100,000.

Stocks, Bonds, Mutual Funds and the like may be covered under the Canadian Investor Protection Fund, which will cover you for up to $1 million in cash and securities, provided the dealer is a member of the Investment Industry Regulatory Organization of Canada. (www.cipf.ca.)

If you’re a member of a defined benefit pension plan and your company goes bankrupt, you may have reason to worry. Most pension plans come under provincial jurisdiction and provinces vary widely on their rules. If your pension plan is underfunded, your monthly payments may be less than anticipated. Ontario is the only province to insure the pensions of bankrupt companies through its Pension Benefits Guarantee Fund (PBGF), which backstops the first $1,000 per month in pension benefits per plan member if a company goes bust.