Tag Archives: money

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.

Continue reading Fixing the Financial Business

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 msilicz@shaw.ca

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:
Continue reading Escape your debt by facing the facts

The cost of creating a human

Young Money - Vanessa Kunderman
Young Money – Vanessa Kunderman

At some point in the life of a millennial woman, she may find herself making another human.
Let’s get one thing on the change table before we get all ooey-gooey about babies – kids are friggin’ expensive.
According to babycenter.com, you will spend approximately $10,158 in your child’s first year of life. The average crib costs $230 and an infant car seat – something you’re not allowed to leave the hospital without – averages at $100. The site says the average amount of money you’ll spend before baby even comes out is $2,058. That’s a trip to Mexico.
On the plus side, TD Canada Trust says a child will cost you only an extra $8,000. In reality, after you buy those pricey maternity photos you just have to have, the fancy rocking chair, and the childproofing supplies, you’ll probably be ringing up closer to $12,000.
Whatever you think a baby will cost, I think it’s safe to say you’ll be wrong. Millennials in particular seem to underestimate just how much a little human will cost them.
According to parenting.com, you can count on spending at least $50 per week on diapers, baby formula and baby food alone. Say goodbye to your fancy cannelloni and get used to making some rather creative casseroles.
As if your expenses going up weren’t stressful enough, your income goes down too. If mom or dad takes a maternity or parental leave, you will feel it in your wallet. You’ll lose approximately half of what one parent makes.
Saving for baby
Parenting.com also suggests saving approximately six months’ worth of your living expenses to ease the blow of these changes. I actually guffawed when I read that.
Are you kidding me? A millennial has a hard enough time learning not to buy an expensive new car, let alone disciplining himself to stash away half his paycheque each month.
And, if you’re like me, the first frantic thing on your mind is eliminating the credit card debt of both of baby’s parents and tickling your nesting bone by totally redoing the upstairs of your house.
And while you’re perusing the Top 100 Baby Hipster Names of 2015 while setting up your new baby crib, check out moneysense.ca. In Canada, moneysense.ca declares that raising a child until university will cost a whopping $243,660. That’s $12,825 per child per year. Pray to the sperm gods that you don’t have twins.
One of the hardest transitions for the millennial will be digesting the fact that his or her baby doesn’t need to have the best of the best.
We already think this for ourselves and it’s only natural that the mindset trickles down to our offspring as well. This is a great time to check in with your parents to learn their secrets when you just can’t afford a Jolly Jumper or Diaper Genie.
If it’s any consolation, baby nail clippers are only three bucks.
Vanessa Kunderman writes every month on money issues facing millennials. Email her at hello@vanessakunderman.com.

Millennials know about money – just ask their Facebook friends

Mark Zuckerberg didn't just get lucky - he was business-savvy. Photo by Kris Krug
Facebook CEO Mark Zuckerberg didn’t just get lucky – he was business-savvy. Photo by Kris Krug
Young Money - Vanessa Kunderman
Young Money – Vanessa Kunderman

As a generation, all we Millennials used to hear about was how self-centred, lazy and spoiled we were.
One momentous change came for us when a self-centred, lazy and spoiled Harvard student named Mark Zuckerberg invented Facebook, opening up a slew of jobs which involved managing social networking platforms.
Many Baby Boomers were oddly under-qualified for this new world, and quite frankly, confused.
Another notable Millennial is Sophia Amoruso. She founded Nasty Gal, the fastest growing retailer of 2012. Oh, and her online fashion company has zero debt.
Amoruso and Zuckerberg were both born in 1984 and they’re symbolic of the fact the wealth of the world is changing hands. They’re also proof that this digitally driven generation is hell-bent on working smarter – not harder.
Millennials weren’t hit in the same way as our parents were by the market crash of 2008-09, mostly because many of us hadn’t begun accumulating our wealth. That doesn’t mean we didn’t feel the effects of nervous parents postponing their retirement.
Oddly enough, thanks to our parents’ poor luck with financial markets, we’ve begun investing and saving money much earlier than any generation before us, according to Elliot Weissbluth, of HighTower Advisors, on The Daily Ticker.
We all know we should be putting money away even if we don’t really know why.
For one, we are inundated with information online. If one website advises us to do one thing with our finances, another suggests doing the exact opposite. How are we supposed to know which is the right option for us?
Easy. What do our friends say to do?
Millennials are the most plugged-in generation yet. Whether we are tweeting our experiences at sports games or Instagramming what we’re eating for breakfast, we are sharing information with each other constantly throughout the day.
This includes our experiences when it comes to what’s sitting in our bank accounts, or whether we should start putting money away for a rainy day. More and more, Millennials are turning to their circle of friends for financial advice instead of their families.
Like many young people, I too, went to my family’s long-trusted advisors to get started on the right foot as a young person. But I didn’t understand the advice given to me, and I felt too embarrassed to ask for clarification. I turned to my friends for help instead. They became a safe place to talk about finances.
Facebook feeds with friends are accessible at any time of the day and we usually trust the ideas tossed around there because they come from people we trust.
Times aren’t changing – they’ve changed. Talking about money isn’t a taboo anymore and Millennials are paying more attention and accessing more information than any other generation before.
Zuckerberg and Amoruso didn’t just get lucky.
Vanessa Kunderman is a financial security advisor in Winnipeg. She writes every month on money issues facing Millennials. Email her at: hello@vanessakunderman.com.