Category Archives: Investing

Why Isn’t There Universal Personal Financial Education?

It’s occurred to me that despite the idea coming up several times by various people over the years, there never has been a serious attempt to get personal finance as part of the basic high school curriculum in every school in North America. Why is that? Then it hit me. Perhaps the better question is who has an interest it in not happening?

After that question rolled into my head I started to give the matter some serious thought. Then it occurred to me what would happen if everyone knew about personal finance and most of them followed it. There is a huge number of companies that would out billions of dollars in easy money.

No more just signing their mortgage renewal forms from the bank, people would actually negotiate their rate. Then they would insist on free banking and high interest chequing accounts. Before you know it the poor bank wouldn’t be able to keep having record profits year after year. Then think about all those poor mutual fund salesmen, we won’t buy a fund with a MER over 1%. Then the insurance companies couldn’t sell us too much insurance for things we don’t need. Most of us would be living in our means so the big screen TV manufactures and the SUV producers would lose millions in sales. Then worst of all the poor credit card companies would have almost no interest charges and the pay day loan industry would vanish.

To put it bluntly there are a whole lot of people who are making a living off of everyone’s stupidity: including me and you. You don’t believe me? Then please show me which mutual funds that you own that don’t actually have a single bank, insurance or financial service stock as part of their mix. Even if you manage to pass that one, you are telling me you don’t own any energy stocks which benefit from North America’s addiction to oil? So let’s face it. We the smart people that understand just a little bit of personal finance are making a killing off the stupidity of everyone else.

Are you feeling guilty yet? Because I’m not. The reality is there is more than enough tools out there to get educated if you have even the slightest interest. The only reason people are dumb is they have chosen to be that way. If you don’t believe try a few Google searches like “save money” which gives you 2.91 million websites while “personal finance” gives you 13.6 million websites. The fact you’re even reading this post proves you managed to do it, so why can’t your neighbor? Because they chose not to. Whether the choice is conscious or not would be an interesting psychological debate, but in the end we need stupid people to make money off of so you and I are the reason there is no universal financial education.

This post is now part of the 126th edition of the carnival of personal finance.

Dumb Luck Is Also Required

Larry MacDonald recently had a post on his blog about Derek Foster which was questioning weather the math of Derek’s strategy would let other people follow in his foot steps.  The short answer I believe is no.

Each early retirement story I’ve read of very young retirements (ie: under 50) all seem to have a common thread.  Each person will tell you how it is possible for you to do the same as them.  Yet the reality of it all is a bit of dumb luck is also required.

Granted most of the very early retirees do have plans to make some money with real estate or stocks and they do have a strategy.  Yet in every plan there is that wild card of luck.  Where the results of your plan far exceed what you expected to happen.  For example, when I bought my first house I knew it had a good potential for fixing it up and reselling.  Yet the renovations were more expensive than I would have guessed.   About $10,000 more expensive due to a leaking roof.  So I was hoping to just break even and not lose my shirt.  The reality was the local real estate market was hot and I made about $55,000 in profit in two years.  You could try to call it good planning or anything else, but in reality it is just dumb luck.

So you see each early retirement path is unique.  I don’t expect anyone to take the exact same path as me, because they will have different values and different opportunities.  Yet learning from each of these very early retirees teaches you something different such as controlling your spending, dividends are good, or avoid tax is important.  Yet each one echoes a similar lesson: luck favours the bold.  If you want a retirement under 50 you are going to have to take a few risks.

Interview with Derek Foster

In case you haven’t heard Derek Foster, author of Stop Working, has come out with a second book called The Lazy Investor. So out of curiosity I sent Derek an email requesting an interview and he was kind enough to give me a call (I should point out I did the interview before I had read the book, I’ll post a book review tomorrow complete with a contest to win a copy of the book).

Tim: So what can we expect in the new book?

Derek: This book is basically the strategy that I would have done if I could do it all over again. People often think I came up with my investment strategy all in one go. I didn’t. The strategy evolved over time. I started in mutual funds which isn’t something I would do now.

Tim: Ok, how would you start now?

Derek: I would start with as little as $50 and use DRIP’s and SPP’s. Are you familiar with those?

Tim: I know the DRIP is a Dividend Reinvestment Plan, but I’m not familiar with SPP.

Derek: A SPP is a stock purchase plan with isn’t offered by a lot of companies in Canada. You can buy shares directly from the company without having to pay any fees. [Editor’s Note: Also sometimes referred to as DSPP –Direct Stock Purchase Plan]

Tim: Ok, how do you start.

Derek: You have two options on how to can get your first share of a company that offers both a DRIP and SPP. The first is through a discount broker, which is more expensive. First you buy the share and then request the stock certificate. The total cost will run you about $80. The other option is to go to a share exchange board like the Investing Resource Center. There you can request that someone will sell you a single share. The cost of this is a $10 courtesy fee.

Tim: Sound’s great. So where did the idea for this all come from?

Derek: The idea started from my own kids [Editor’s Note: Derek is now up to four kids ages 7, 5, 4, and 1], which is why the second section of the book deals with investing just for kids. I don’t like RESP’s and I wanted to provide something for their future, but still leave them with responsibility for paying for their own education.

Tim: I can totally agree with that. I don’t intend to pay for everything for my own kid either. So you started a similar strategy for each kid?

Derek: Yes, I started with $8500 for each kid and invested in four companies in their names. I believe financial education is sorely lacking in our schools and this will provide some incentive for the kids to learn. After all some of the dividends they earn pays for their allowances when they get older.

Tim: Now that is a great idea. So do you also provide an update on your own situtation from the last book?

Derek: Yes in the appendix I address some of the most common questions I’ve been asked.

Tim: Derek, thank you so much for your time. It’s been great talking with you.

I should point out that this interview actually went on for a lot longer, but I had to paraphrase it down to a reasonable length.