Category Archives: SmartMoney

Fixing the Financial Business

Financial Literacy – Let’s continue last month’s discussion: “Feeling Ripped Off?”

From bank tellers pushing unwanted products to financial advisors charging huge hidden fees for their “expertise” in managing your money, the financial business in Canada is broken.

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The must have (economic) trend of the holiday season!

by Michael Silicz

Ho ho ho – the holiday season is finally here! And you know what that means… It’s that time of year where, rather than relax with family and reconnect with old friends, we’re likely scrambling to purchase last minute gifts for those we care about. Collectively, many of us are trying desperately to show our love to friends and family by purchasing this holiday season’s must have holiday trend, gadget or gizmo for them.

So, what is the must have gift this year? Is it new Star Wars memorabilia? What about Elf on the Shelf? Or could it be organic beard balm for your hipster husband?

Well, these gifts may very well be the it gifts of the year, but as a financial guy, I really have no idea.

What I do know is economics, finance and policy. (Maybe this is why I am often seated at the end of the table during the holidays… hmm.) And when it “Streetnomics” (you know, the kind of ideas you learn in the real world on the street, as opposed to the abstract stuff we’re taught in university), the people out there can’t stop but talking about the latest craze: behavioural finance.

Behavioural finance is the “it” (for economists) this holiday season. It’s the Saint Kardashian of the economic world. It is, in terms of growing followers, the Khole of Instagram. Here’s the Coles notes of what you need to know to impress your family and friends this holiday season.

First though, it’s important to be reminded quickly of last (century’s) trend. In a nutshell, holiday pun intended, “rational expectation” economics of the past assumes that you and I are like the Architect in the Matrix, able to perfectly know what’s in our best interest all of the time. From deciding between buying a Big Mac or Teen Burger, or whether to invest in a bank stock or ETF, this theory assumes we are always making the best decision possible with all information available to us.

Well friends, the coolest, hippest economists out there are calling this theory into question. They believe that it’s about as real as Santa Clause. Enter behavioural economics.

Out of American university thought (hence the incorrect spelling) comes behavioural economics. It seeks to study the effects of psychological, social, cognitive, and emotional factors on the economic decisions of people and the consequences of them on market prices, returns, and resource allocation. Whereas traditional economic models of the past have assume markets to be efficient and always right, behavioural economics assumes that knowledge is imperfect, that said perfect information is not available, and that humans are ultimately bound to make mistakes. Putting it in street terms, people are not rational like machines, and will often make obvious economic mistakes that are contrary to their own self-interest.

This is big, exciting and powerful news for so many reasons! This new theory argues that people are more emotional than rational, hence leading to all sort of “biases” that introduce poor decisions into our lives. Rather than think like a computer, in this modern day where we are overwhelmed with choice and information, this theory argues that we make emotional decisions first, and then use rationality to justify them. How cool is that?

Behavioural economics has three main themes. First, people often make decisions based on approximate rules of thumb and not strict logic. This means that rather than compute things like Data in The Next Generation, people rely things they already believe that may or may not be true. Second, people “frame” their decisions through a collection of anecdotes and stereotypes that make up the mental emotional filters which they rely on to understand and respond to events. Last, and the most geeky, behavioural finance’s most important point relates to financial markets and how these biases create mis-pricings and non-rational decision making. In streetnomics, that means people in the market make all kinds of mistakes, leading to opportunities to profit. But more on that another day…

Bottom line, with so much information (and more importantly, misinformation), it is impossible to be rational and hence market irrationality is introduced into the system. Going back to The Matrix Reload, to quote the Architect, “as you so adequately put, the problem is choice.” Because of choice, behavioural economics and finance is the in topic this year – aren’t you glad you’re now in the know?

So, this holiday season, when you see people freaking out for some creepy shelf elf or spending hundreds of dollars on Star Wars Lego at higher than market price, you’ll now be able to understand, using streetnomics, why they’re being so irrational! By knowing the latest and greatest (economic) trend of the 2015 holiday season, you can now relax, unwind, and be the one in the know at your next holiday gathering.

Happy holidays!

Michael Silicz helps people separate the signal from the noise. He has experience in finance, law and public policy. If you have any column ideas or would like to see Michael write about a specific topic, email him at

Can you handle the truth?

How would you feel is someone said to you “You don’t deserve to be wealthy” or “You’re not important or rich enough to learn to be financially secure/independent”. You probably wouldn’t be very happy in the least and outraged at best. We may not be told straight up but there is always this underlying message bombarding us. For example, those that market debt sell this to us every day. Credit cards, loans, advances to name a few are all messages saying you won’t have the money so let us help you out and before you know it you’re in greater debt and the thought of saving any money vanishes. In addition, the consequences of the true cost of debt lies under the surface and is not transparent.
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Dealing with shrinkflation

It’s hard to believe, but the holiday season is already upon us all. When better than “the most wonderful time of the year” is there to talk about the economics that really affect people? (I like to call these concepts “streetnomics” – you know, the kind of economics you learn in the real world on the street, as opposed to the abstract stuff we are taught in university.) This month, I’d like to share a concept with you that affects us all, especially during the holiday season. Allow me to introduce one of my favourite streetnomic concepts: “shrinkflation.”

I know what you’re thinking… so stop it. It’s the holiday season, so get your mind out of the gutter! I am not talking about what happened to George in that one Seinfeld episode when he went into a swimming pool and came out feeling like a smaller man. No. I am talking about a concept in that needs to be better understood as it can lead to more informed consumers and most importantly, more money in your pocket.

Shrinkflation is the process of tangible consumer goods shrinking in size, weight or quantity, while their prices remain the same. Translated into streetnomics, that means you pay the same price, but receive less of the good.

You’ve likely seen this phenomena before throughout your life, but have never really had a name for it (corporate ‘Merica prefers to keep it that way if you ask me). Shrinkflation is bad if you’re a buyer, but good for the seller. And since most of us are buyers when it comes to food, shelter and clothing, believe me when I tell you – shrinkflation is not a good thing.

Now that you know about it, you’ll be able to see it everywhere around you. The supermarket offers the most readily available examples of shrinkflation. From 1.89 litres of 100% pure Florida orange juice (remember when they were 2 litres?) to less skittles, smarties and M&M’s per bag, Shrinkflation is all around of us. It seems like with every trip to the grocery store, shrinkflation is on the constant rise – smaller loaves of bread, less grains of rice per package, and less milk per jug means average consumers are paying the same price, but getting less for it.

Another popular place to see shrinkflation work its magic is at restaurant chains. From less McDonald french fries despite the same cost, to less pickles per A&W teen burger, shrinkflation is the concept responsible for you getting less for the same amount of money. This whole idea has big implications for consumers, and even affects how we measure economic growth.

Shrinkflation is bad. It’s very very bad. It’s a very very very bad man, Jerry. Here’s why.

Shrinkflation is absent from mainstream economic key indicators because it does not count as inflation. When economists measure the effects of inflation on consumers, they do so by measuring the cost of the same basket of goods over a period of time. Better known as the consumer price index, this measure helps determine how much inflation is eating away at the value of the money we have earned. Because shrinkflation doesn’t actually increase the cost of a good (it only lowers the amount), it is skipped as a measure of eroding purchasing power.

With wages and incomes having stagnated for decades when adjusted for inflation, average consumers are now seeing their purchasing power erode even further, but without proper quantification. This means that middle class consumers – the backbone of all modern economies – are being further pressured to do more with less income.

Shrinkflation is also a great barometer of our times. Just like GDP as a mainstream economic indicator fails to capture positive social value and negative externalities, shrinkflation fails to capture the reduction in purchasing power for the average consumer. Policy-wise, until this term is quantified and measured economically, the average consumer will suffer.

So, what is the average person to do? Especially with the consumerism of the holidays upon us?

Try to take a stand by using your dollars more wisely. See a shrinkflated good? Look for a competing equivalent that is not shrinkflated. Often time, no name branded products offer the same (if not more) quantity, and at a lower price. Elect to purchase those products and send a message to those companies profiting off of you and I from Shrinkflation. Send a message to those corporate ‘Merican overlords and buy goods from those who do not engage in this predatory economic tactic. Last, tell all your family and friends of this idea, so they too can become savvier consumers.

Michael Silicz helps people separate the signal from the noise. He has experience in finance, law and public policy. If you have any column ideas or would like to see Michael write about a specific topic, email him at

Escape your debt by facing the facts

Financial Literacy-Janice Desautels
Financial Literacy-Janice Desautels

One of the keys to paying off debt, growing your savings, and staying on track with your goals for the future is to review your budget and finances when you’re thinking logically, not emotionally. When you find yourself in a state of anxiety or feeling overwhelmed by high-pressure obligations, it might be challenging to make decisions clearly that are in your best financial interest. It’s best to make money decisions and create financial strategies when you’re free of fear, stress, and frustration.

Here are 3 tips to help you make emotion-free money decisions:
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