The Greatest Enemy is You!

Foreword Canadians are on the brink of a retirement crisis. Due to years of avoiding talk about the future, and not planning accordingly, 75% of Canadians have no defined pension plan – that is, no guaranteed retirement income. We are already seeing the effects of our, and a number of institutions’, lack of planning. Even though the first group of baby boomers is only expected to retire in 2012, increased health care needs added another burden to the financial health of each and every one of us. With our aging population, the escalating cost of health care has already taken away 45-50% of budgets of most provinces, and because so many Canadians maintain an unhealthy lifestyle the numbers are only likely to rise. It is difficult to determine who is at fault, because we are largely responsible for our own circumstances. But we are not the only ones culpable. The responsibility should be shouldered by four parties: Banks, Insurance companies, the Canadian Government, and the people. First let’s consider each individual’s role. So many Canadians do not bother to acquire basic knowledge about personal finance. Because so few adequately understand how money works, saving for retirement is not made a priority. So often we get caught up in the present and neglect to think about the future. But giving some thought to the future now will make retirement a lot more comfortable. Everyone deserves to lead life with dignity. That’s true for the youth of the nation as much as it is for the elderly. Now that we are starting to see some of the consequences of financial naivety, we must take measures to educate future generations. If we are to prevent financial crises, personal finance must become a mandatory course in high school and university. We must also take the time to educate ourselves and our loved ones. Of course, this is no easy task when the financial institutions we trust lead us astray. Banks are another guilty party, as they engage in gauging and they misuse the trust placed in them by the government and the public. There is an abominable lack of transparency and standardization in legal documentation. Banks are not upfront about the cost of breaking a mortgage, for example. When interest rates are low many homeowners are encouraged to break a fixed mortgage to improve cash flow; but when you calculate the administration and break fees this option could be just as expensive as sticking to the original terms. The true cost of credit cards and carrying credit card debt is not explained. The details are so buried in the fine print that one would have to be a lawyer to do some digging and understand all of the details of these documents. Banks are also infamous for promoting GICs, term deposits, and checking accounts, often using fear tactics and almost always charging exorbitant fees. The interest returns on ‘safe’ investments hardly match the rate of inflation. Perhaps worst of all, resources are so unequal between financial institutions and the public that those who might want to enforce legal rights are discouraged from even trying. The essential question is, “How can ordinary people win the money game against banks and insurers?” Put bluntly, “How can an amateur hockey player win against NHL players?” The difference is too great. Insurance Companies share a lot of the banks’ abuses. There is a lack of transparency and a lack of standardization in legal documentation; products that are not suitable for clients are sold simply because they are more profitable for the company; and insurance companies tout investment products with returns that might be worse than GICs and term deposits, once management fees are factored in. Finally, the Government, at both the Federal and Provincial levels, is responsible. The present tax and welfare system encourages an underground economy, which makes fair distribution of the tax burden and social benefits impossible. This puts a disproportionate burden on honest, hardworking taxpayers. To put a halt to the abuses of Banks and Insurance Companies, Government regulators should enforce standard legal documentation for various products offered by these institutions. Lobbying by these institutions should also be outlawed; they are so powerful that no politician in power dares to put an end to their greed, so their greed is permitted at the expense of ordinary folks. To solve the problem of inadequate representation, a “Financial Arbitration Centre” with regional offices should be created to provide a quick and inexpensive way for clients to bring complaints of the abuses they suffered at the hands of Financial Institutions; the present court system is too bureaucratic and too expensive for ordinary Canadians. Unfortunately, these reforms are unlikely to occur under the present minority government, and it seem this minority status will be a permanent feature in Parliament given that smaller parties, like the Bloc Québécois, which are unlikely to become a governing party take away a substantial number of seats from bigger contenders. Although there is little we can do about larger organizations, we can do work on the individual level. I’ve assembled this collection of essays because the more knowledgeable you are about where your money goes, the better you can take control of your financial future. I will discuss the issues listed above in the three sections of this book: Your Money, Your Business, and Your Future. In “Your Money” you will find a number of articles explaining the nature of your relationships with your bank, the tax agency, and yourself. I set the facts straight about the costs of real estate, and some of the misconceptions many Canadians have about borrowing through a mortgage and paying it off early. When you understand what’s really happening to your money you can make wiser decisions. Rather than following the advice of friends and neighbours, who may be just as uncertain as you are about financial decisions, you’ll learn where to turn for advice and money management. Once you know how to better manage your relationships with bankers, insurers, and taxmen you can keep more money for yourself. “Your Business” is a section dedicated to business owners (and entrepreneurs who need to know the ropes). This section includes articles about everything from starting up to succession planning. Inside you’ll find some information about tax deductions and partnerships. Read the articles that most interest you and that you feel apply to your unique situation. And of course, if you have any other questions you can contact me. The third, and last, section is entitled “Your Future,” though perhaps it should be “Your Life” or “Your Family.” This is because many of the articles in this section discuss your retirement goals, and retirement planning has an enormous impact on the quality of your life and on your loved ones. You will also find articles about trusts and estate planning, your legacy, and general insurance. It can be difficult to think about the future, but this is where financial planning is most important. It’s impossible to predict the future, but intelligent financial planning can help you prepare for what life has in store. I hope that you will find these articles helpful. My aim is to educate, because if you are able to keep more of your money and successfully manage your finances, you can prevent a lot of financial stress. And having less stress enables you to lead a happier, healthier life. How to Manage your Relationship with the Two Greatest Deterrents to Your Wealth Accumulation Goal A dying Canadian summoned his Lawyer and Accountant to his bedside. He turned to his Lawyer and said, “I’d like to change something in my will before I go.” The lawyer responded, “Of course, anything you wish. What change needs to be made? ” To this the dying man replied, “Instead of having a burial, I want to be cremated.” The man’s lawyer asked him what he would like done with the ashes.