Blogroll
class_exists('GooglePR') ? GooglePR::bar(): '';
Apr
7
Credit Cards for Teens
Filed Under Credit Cards | Leave a Comment
The consumer credit industry has reached a new low.
Tonight, as I was flipping past MuchMusic, I saw a hip advertisement set to an even hipper soundtrack advertising prepaid MuchMusic MasterCards. The fine print in the ad indicated that teens as young as 13 years old could get one if their parents signed up for them and took responsibility for the account.
Now, the cards are prepaid — not secured — so once the balance is gone, it’s gone. Yet, I cannot help but wonder what sort of message this sends to kids, most of whom have absolutely no sense of responsibility when it comes to money. Hell, most adult Canadians are struggling to control their financial situation, with a median balance of around $2400 carried on credit cards around the nation. How can kids be expected to do any better?
It seems to me that the idea is to get kids to consider consumer credit to be a viable payment option from an early age. The credit company execs have to be drooling, thinking, “If we can get them in the habit of using a credit card at 13, just think of the potential interest we’ll make off of them by the time they’re 18 and eligible to rack up thousands of dollars in charges on a real credit card!”
Hopefully most parents are going to be smart enough to avoid this sort of offer, but there is always going to be that bratty 13 year old that convinces Mommy and Daddy to put a few hundred on a prepaid card for him so that he can buy the latest XBox 360 game off Amazon.
Of course, one could argue that such a card presents kids with a gentle introduction to the world of consumer credit, free from the potential consequences like a tarnished credit score. But that is precisely the problem: the fact that there are no risks associated with the cards presents the impression to kids that credit cards simply exist to provide free money. They do not see the realities like monthly bills, compounding interest, and, of course, stains on their credit report and the consequences associated with them. All they see is a product at the other end of the world, and a 16-digit number being their ticket to obtaining it.
Not exactly the fiscal responsibility that I want to instill in my children — when I have them, of course.
~TFN
Feb
18
I finished reading Smart Couples Finish Rich: 9 Steps to Creating a Rich Future for You and Your Partner
Unfortunately, I found the first three chapters (84 pages) to be filled with nothing but pure fluff. The rest of the book provided a modicum of reasonable information from time to time, but there was little focus on practical knowledge, and much devoted to fuzzy, heart-warming, you-can-do-anything-you-want-to-do ramblings. The following presents a summary of the chapters of the book.
Introduction - Why Smart Couples are Taking Control
The introduction begins with a story about Bach and his wife Michelle in their newlywed days. He describes how they initially fought quite a bit about personal finance because the two were not on the same page when it came to money matters. One wanted separate bank accounts, another wanted a joint account; one wanted the other to pay the electricity bill, the other thought she shouldn’t have to. You get the drift. The moral of the story: couples need to discuss money matters and be in agreement in order to be successful.
Bach continues by spouting the usual financial mantras: you don’t have to be rich to invest, you must learn about finance in order to be successful, etc., but does not provide much in the way of getting me excited to read the book.
Chapter 1 - Learn the Facts and Myths about Couples and Money
In the first chapter, Bach “debunks” five myths that apparently many people have:
- If we love each other, we won’t fight about money
- It takes money to make money
- We don’t make enough yet to invest
- Taxes and inflation are now under control
- If we don’t talk about money, everything will work out okay
The chapter concludes with a True/False test that each member of a couple is to take to determine their level of knowledge about their financial situation, and to see if they are on the same page.
Chapter 2 - Determine the True Purpose of Money in Your Life
Here, readers are encouraged to think about what money means to them and how having money would impact their lives. Bach calls this Purpose-Focused Financial Planning™ and discusses how to create a Value Circle™ to identify the values that are important to you in your life.
This chapter might have been fine (if not a little cheesy) if it was not littered with what Amazon calls Capitalized Phrases (CAPS) — phrases like Value Circle™ or Purpose-Focused Financial Planning™. This is true especially when they’re trademarked. It makes me feel like I’m reading a pamphlet, rather than a book.
Chapter 3 - Plan Together… Win Together
Next, Bach discusses the importance of.. you guessed it: planning together as a couple. He uses clichés like “failing to plan is planning to fail” to get his point across, and instructs readers on how to set up a FinishRich File Folder System™ (yet another CAP), which deals with organizing your file folders in such a way that your accounts, tax returns, and all other financial documents are easily accessible — something anyone with the IQ of a carrot could do without assistance. Finally, Bach finishes the chapter by discussing the importance of setting realistic goals.
Chapter 4 - The Couples Latté Factor™
In this chapter, Bach unveils the concept that has made him famous: the Latté Factor™. Bach asserts that many people make the argument that they have no extra money to invest and, at the same time, they’re withering away money each day on little extras such as snacks, coffee, etc. The idea is that if people discipline themselves and avoid such purchases, they will have more than enough to save for retirement.
This is fairly sound reasoning, but as Margot Bai (author of Spend Smarter, Save Bigger) argues, saving on the little things can only take one so far. What about the bigger decisions in life that can save someone so much more, such as coughing up a higher down payment to avoid paying mortgage loan insurance, buying a used car instead of a new one, or paying off a mortgage faster in order to save tens of thousands of dollars in interest fees? I agree that spending needs to be kept in check, and certainly agree that there is just about no one out there (except maybe Casey Serin) that can argue that they cannot afford to save anything, but the idea of tracking every little expenditure is quite like counting calories on a diet — it just doesn’t work.
Chapter 5 - Build Your Retirement Basket
This is the first chapter in which Bach™ actually begins to discuss retirement planning — 97 pages into the book. Unfortunately, there is nothing new here. Readers are encouraged to pay themselves first, and to save 10% of their income. If they want to be rich, they should save 15% of their income, and if they want to be really rich, they should save 20%. Great, but there is really nothing here that I did not learn years ago from David Chilton’s excellent (and much more entertaining) book, The Wealthy Barber, Updated 3rd Edition: Everyone’s Commonsense Guide to Becoming Financially Independent
Bach continues by discussing the basics of 401(k) plans and IRA’s (equivalent to company-run and self-directed RRSP’s in Canada, respectively), cautions against investing too much in the company for which one works, provides guidelines for asset allocation, and warns readers to avoid “cubicle copying” — making investment decisions based on what coworkers or friends are doing.
Chapter 6 - Build Your Security Basket
Here, readers are encouraged to save 3 - 24 months of expenses in a money market account in the event of a job loss, death in the family, or another life event. Bach then discusses the importance of establishing wills or living trusts, purchasing adequate health, disability, and life insurance, and then explains the different types of policies available.
This is all probably sound advice for Americans new to personal finance and insurance, particularly since it covers the differences between HMO’s, PPO’s, and POS’, but for a Canadian with even a smidgeon of financial sense, this chapter can be skipped.
Chapter 7 - Build Your Dream Basket
We next return to fluff. Bach encourages readers to enumerate their dreams, and provides a table where readers are instructed to write down what they want, why they want it (what values the dream will satisfy), how much it will cost, and how they’re going to get it. He then outlines various plans for investing based on the length of time it will take to save for the dream.
In a nutshell, Bach recommends that money for short-term dreams (< 2 years) should be put into a money market account, while those wishing to invest for mid-term dreams (2 - 4 years) should put their money in short-term bond funds or balanced funds. Finally, money for long-term dreams (4 - 10 years) should go in index funds.
Surprisingly, Bach does briefly discuss Exchange-Traded Funds (ETF’s), touting them as the next best thing due to their low management expense ratios. Being The Finance Newb, these types of funds were new to me. Unfortunately, while glorifying ETF’s, Bach neglects to mention that since they are traded on an exchange, they are subject to same commissions as regular stocks when buying and selling, and thus should only be purchased in larger sums, rather than on a monthly basis.
Chapter 8 - Learn to Avoid the Ten Financial Mistakes that Couples Make
As the chapter title suggests, Bach then discusses ten financial mistakes that couples tend to make:
- Having a 30 year mortgage
- Not taking credit card debt seriously
- Trying to get rich quick by day trading
- Buying stocks on margin
- Not starting a college savings plan soon enough
- Not teaching your kids about money
- Neglecting to sign a pre-nuptial agreement
- Not having a greater purpose beyond the two of you
- Not figuring out who’s responsible for what
- Not getting professional financial advice
At this point in the book, I had had more than enough of the abundant cheese littered throughout the book (such as mistake #8). I was also unimpressed by mistake #10 given that Bach is a financial advisor himself, and thus has a vested interest in making such a statement. I’m not saying that financial advisors are not important; rather, I’m just questioning whether or not Bach is the man to be recommending them.
Chapter 9 - Increase Your Income by Ten Percent in Nine Weeks
Finally, Bach encourages readers to attempt to get a raise or, if they are self-employed, to raise their prices so that they increase their income by 10%. He first writes that people should take a good hard look at the work they do, determine exactly how they add value to their organization, and then eventually ask for a raise.
I’m not convinced that this chapter has any place in a book on personal finance. Of course, bringing in more money will help anyone to save and invest for retirement. But I don’t need a financial advisor telling me — a software developer — how to run my career. I read the book to learn about planning for my retirement, and to learn about the various types of investment vehicles out there to help me do it. Leave career planning to me — or to another more qualified author.
The Bottom Line
The one thing that had me really worked up over this book was the abundance of fluff and talk about values and goals. If I wanted a life coach, I would have purchased a book by Dr. Phil. Seeing as Bach is not a psychologist, then he should lose the presumptuous marriage counseling and teach me about the subject for which I read the book: personal finance and retirement planning. Bach could have removed about half the book and still have easily presented all the financial information that he did.
I also would have liked to have seen Bach’s financials. If an author is giving advice on becoming rich through investing, then he or she had either already be rich (through investing — not other avenues such as book deals), or well on his or her way there. In either case, seeing that Bach was successful in the markets would have added to his credibility in my books.
On the other hand, the book is an easy read, and presents a gentle introduction to retirement planning for beginners who really have no knowledge in the area (and I mean no knowledge, because I am not extremely well versed in this area, but I still found the material of the book quite basic). If you are fresh out of school and are looking for a book to get you started, this might be the book for you. But, then again, if you’re Canadian, you’d do much better to read The Wealthy Barber, Updated 3rd Edition: Everyone’s Commonsense Guide to Becoming Financially Independent
In short, skip this book.
My Rating:
~ TFN
Feb
7
Welcome to Finance Newb
Filed Under My Finances | Leave a Comment
Greetings, and thank you for visiting. Over the recent months, I have been pleased to find a number of high-quality Canadian personal finance blogs that I have been following religiously. In an effort to make a contribution and to satisfy my own desire to discuss personal finance with whomever will listen, I have decided to start a blog of my own.
I am a 26 year old software developer gearing up to start a 16-month internship in May 2007, working for the world’s largest tech company in Markham, Ontario. Prior to this, I am finishing up the third year of an Honor’s Bachelor of Science in Computer Science at The University of Western Ontario, in London, Ontario. Additionally, in the spring of 2008, I will be marrying my girlfriend of seven years, who is a Registered Nurse already in the workforce.
So why do you care? Well, chances are that you don’t. But I’m presenting my short biography to give you an idea of who I am, and at what stage I am at in my life. My fiancée and I are currently over $80,000 in debt from student loans, a car loan, and a few minor consumer credit indiscretions. Though we have worked on and off throughout the past years, we have little to show for our efforts other than some nice furniture, a number of electronic goodies, and a couple of bellies that have packed on a few extra pounds from eating out one too many times.
It was not until I read a copy of The Wealthy Barber, Updated 3rd Edition: Everyone’s Commonsense Guide to Becoming Financially Independent
Nevertheless, I’m now awake and taking charge of my situation. My fiancée and I will each be making around $43,000 per year over the course of my internship, which is decent for a couple living the student lifestyle. We have an aggressive plan to increase our net worth by over 50% over the 16 months in which I’ll be working. We’ll also be saving for our wedding, and saving enough to pay for tuition in my last year of school following the internship. Finally, I plan to take the Canadian Securities Course this summer to ameliorate my financial education.
This blog is intended not only to track my progress and ensure that I’m staying on course with my financial goals, but also to provide information to others new to personal finance. Despite the fact that I have inhaled just about any financial book that I could get my hands on in the last few years (within reason, of course — I am in school), I consider myself to be new to the world of personal finance. As such, I feel that others just starting out in the subject may benefit from the learning that I am undertaking in my spare time.
Due to the fact that I’m currently finishing up the school year, my posts will be few and far between. However, once May comes, I will be updating several times per week. I invite you to check back in from time to time, and would be happy to discuss financial matters with you any time. Feel free to contact me via the Contact link above, or to leave comments on my posts. For those already versed in the area of personal finance, I would certainly appreciate a word of advice from time to time, or a note letting me know if the information I present is not quite correct. After all, I am the Finance Newb!
Thanks for visiting!
~ TFN