Archive for category Personal Finance

The New Frugality - 3 reasons why

Posted by Bill McCollam in Economics, Marketing/Psychology, Personal Finance on April 26th, 2009

frugalityI often appreciate a blogger’s point of view and manner of communicating - while totally disagreeing with their perspective. A good example is Kevin Press’s recent post on Today’s Economy- The New Frugality: I’m not buying it.

Press cites recent items in the Economist and Time describing the New Frugality, then goes on to point out that - devastating as the downturn is to people that are directly impacted through job loss - most Canadians won’t in fact lose their jobs, and will therefore not significantly alter their consumption, long term.  He’s wrong.   Here’s three reasons why;

  1. The Markets. Whether you lost your job or not - billions of $ have been taken out of the economy.   We all know people whose  pension savings have been creamed.  TSX is about 35% off last summer highs.  Thousands of Canadians have fundamentally reset their retirement plans.  Many are resigned to putting off retirement by many years, others are acknowledging the need to supplement retirement income with part-time jobs, and - you better believe - almost all have rethought their standard of living (pre and post-retirement).   And as far as retirees are concerned - even if their wealth was mostly in investment certificates, savings accounts, bonds and dividend funds - you know they’re tightening their belts when they consider their yields in this new reality.
  2. The environment.  We’re consuming our planet to death.  And despite the naysayers - the awareness of this inconvenient truth is emerging.  The linkages between climate change and consumerism are starting to surface.  For instance, The Story of Stuff exposes the connections between a huge number of environmental and social issues, and calls us together to create a more sustainable and just world.  I think this is sinking in.  I often visit my old school and talk to students at Rotman.  They get this, they understand that it’s just not cool to buy, consume, and dispose.
  3. The Social Internet.  We are becoming a much more connected world.  It’s a lot harder to be ignorant of stuff that happens to other people - whether it’s jobs being lost in Oakville or deforestation in Brazil.   Ideas and opinions can be mobilized much more rapidly in a twittered world.   Look at how quickly an idea spread - like the fundamental wrongness of multi-million dollar payouts to executives of bailouts.   Obama got elected on the back of social media.  Technorati lists 7024 blogs about frugality.  Yes we can.

I believe that the crash of 2008 will indeed signal a fundamental change in social and consumerist behaviour.   Already it isn’t right for the few to consume in a wasteful way without thought on the impact for the many.  And soon, it won’t be fashionable.

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I ain’t got no money, honey

Posted by Bill McCollam in Personal Finance on March 22nd, 2009

money

I’ve decided to stop using money.

On reflection it’s not that difficult.   And there’s many, many reasons to prefer other forms of payment.   Here’s my ranked order of how I prefer to pay for personal expenses;

 

  1. Credit cards
  2. Automated account withdrawals
  3. Debit cards
  4. Cheque
  5. Cash

Having credit as number one is easy.  I can get 1 - 2% of the payment back with a reward program.  In essence, if a merchant supports credit card payment - and you’re not using credit - then essentially you’re subsidizing those that are.  Merchants pay the credit cards companies when customers use their cards (in Canada the average retail merchant discount rate is about 2% of price).  So your first order of business should be to put as many of your regular expenses as you can on your credit card.  Which card?  Here’s a link to an excellent resource comparing and recommending Canadian credit card reward programs.

Besides the obvious (groceries, entertainment, meals, clothing, travel, gas, repairs), look into all your other expenses to see what can be put on the credit card (utilities, subscriptions, drugs, big ticket items - even some insurance premiums).  According to a recent ScotiaBank poll only 24% Canadians are using credit cards for everyday purchases.  This is a lost opportunity.

Besides rewards, another advantage of credit payment is, of course, credit.  Given that you’re paying your balances off in full by the due date, you’ll get a month or two of float.  Most cards will also provide you with extended warranties and purchase security (ie. a way to contest charges when purchases aren’t delivered whole).

Of course, you can’t put everything on a credit card.  Taxes and investments for instance, and some other payments.  Automated account withdrawals, debit cards and cheques are all really ways of paying cash - without the cash.  The advantage of these methods over cash -  include convenience and audit trails (and there some excellent resources available to help you analyse your expenses).  I’ve used - Wasabe, Money and Intuit’s Quicken. Of course, you get these advantage with credit cards as well.

Finally cash.  I started thinking about the instances that I actually use cash.  And they’re almost all gone.  My list of cash expenses is down to;

  • Coffee shop,
  • Cheap lunches at the food court, concession, or outside vendor,
  • kid’s pocket money,
  • Some gifts and gratuities,
  • Very small store purchases,
  • Foreign vacation spending (for a few reasons - cards aren’t always welcome and even if they are - you might be a little wary of identity theft).

As I thought about this - I’m fairly sure I could figure out ways to almost eliminate cash altogether.  Some coffee shops have gift cards or coupons that I can buy on credit - and there are lunch counters that support debit or credit.   My mission is to go 1 month and spend less than $20 cash.   I’ll let you know how I do.

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What’s your financial EQ?

Posted by Bill McCollam in Marketing/Psychology, Personal Finance on March 14th, 2009

quizPeople enjoy self discovery.  They like to develop insights about themselves and compare those insights with others.  This was brought home earlier this week when I took a BBC quiz, Brain Sex.  (It’s a fun test, designed to determine the gender tendencies of your brain… so guys are supposed to do better with the spacial, logical dimensions and girls are better at the emotive, emphasizing aspects).  All good fun.

Anyway, I took the quiz one night and sent it to Lyndsey afterwards.  Sure enough, I did better on estimating angles (masculine) and she did better with the memory (feminine) aspects.  Our teenage daughter asked for the link and did the test as well - saying that she really enjoyed these quizzes.  We all got to compare scores and aptitudes.  (Okay, okay - we’re a bit of a geek family).

It got me thinking about financial personalities and attitudes.  One of the biggest challenges in the financial services industry is getting people past their inertia.  By and large, people don’t really like to think about savings, budgeting, managing risk, investing etc… they know they should - but it just feels like a burden.  I wonder if quizzes and financial personality tests could help people address this important part of their life?

After all, many people are very aware of their IQs, their EQ’s and even their MBTI.  Indeed, many of us use the insights from these tools to help us in our professional and personal lives.  Are there personality dimensions that are analagous to these instruments that would provide people with similarly useful insights into their finance related personality?  And could they be positioned in a way that would make them fun to engage with?  (ie. easy to take, easy to compare, easy to remember etc….).   I took a quick look for finance personality tests.  The ones I found seemed shallow and clunky:

This feels to me like an ownable space.  And imagine the benefits of owning and branding the definitive financial personality test.

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