A Money Coach in Canada

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photo credit: Margaret Anne Clarke Creative Commons License

OK, Question for you: Under what conditions do you start to worry about your portfolio?

Sometimes I think reading the financial pages is like reading about which food causes cancer. When I was a kid, anything fake-red, like raspberry jello, was out. Then it was OK after all. Then this, then that … it’s crazy making! So now I just try to eat as “clean” of food as I can (organic, free range, and increasingly less packaged stuff) and don’t worry about what the latest findings are.

As much as I encourage us average Joe/ette Canadians to read the financial papers, I’ve read so many prognostications that shift every few weeks, I’m coming to a similar conclusion about high finance as well.

In today’s Financial Post, for example, I read this:

The swagger in equity markets over the past month evaporated Wednesday as investors in stocks finally succumbed to mounting worries about the economic recovery…
In Toronto, the S&P/TSX composite index fell 256.08 points, or 2.2%, to 11,582.21, its lowest level this month. In the United States, the S&P 500 tumbled 31.59 points, or 2.8%, to close at 1,089.47.

If my entire portfolio drops 2% I do indeed take note. But I don’t make any conclusions about a sea-change in market sentiment. And I don’t feel particularly anxious. I do get anxious if any given company I own has bad news or declining sales. I would get somewhat anxious if there was … maybe about a 5 or 6% overall drop. And I’d freak at about 10-12%. But 2%? I’ll sleep, I guess!

Am I naive? What conditions cause you to stress?

teetering on the edge
Photo Credit: Dr. H (Creative Commons license)

Most of us have heard of the Seven Deadly Sins. (Pop quiz: see if you can list them!). But the seven virtues? Not so much. I guess a plotline about seven virtues isn’t quite as gripping as the other.

I’ll get to those sins eventually, but today wanted to reflect on an unsung virtue as it relates to money: Temperance.

What place does the word temperance have in our cultural lexicon? Does it have any place at all? And what place does it have in connection to how we handle our money?

I don’t know about you, but it’s not a word I’ve ever used in conversation. It calls to mind bans on alcohol or the name of a Puritans’ daughter (who probably sewed really well).

But I wonder if we wouldn’t be better off – both as a society but more specifically, our bank personal bank accounts! – with reclaiming the word, and more importantly, the notion, in our collective consciousness.

Here’s perhaps a fresh look at the word and what it has to say about our financial life.

Plato looked at it this way: Temperance is used to control the desire to go against one’s free-will. (The Republic 430e) I’m guessing that most readers know, as I have in my bad-old-days, that slightly sick feeling of having over spent despite our better judgment. Not only do we have to deal with the financial consequences, but we also experience a sense of failure at a deeper level.

The Greek/Stoics word for temperance, sophrosyne, includes Soundness of Mind in its meaning. In other words, part of maturing as a human is being not driven (by, say, marketing) but to be guided by our reason in our choices. Many Greeks considered temperance to be integral to wisdom and to a good society.

Likewise, Romans such as Cicero and later Machiavelli understood tempermentia as the antidote to tyranny. A just ruler was a reasonable one, not a capricious one ruled by their mood. Julius Caesar probably practiced temperance; you can bet Nero didn’t.

For both the Greeks and Romans it was not some emasculated character trait to roll our eyes at, but a strength that led to freedom.

The million-dollar question for each of us is: what are the tyrannical forces that exert themselves on our spending? They can be external (society’s expectations, for example) or internal (eg. need to feel good).

And, how can temperance, a higher and stronger force, create freedom for us?

Maslow Theory

An axiom of sound money management is distinguishing between our wants and our needs. Periodically I ask folks to share their best tips, and invariably this comes up. I’ve always nodded in agreement, yet as I think about it, it’s not nearly so simple.

What defines a want?

What defines a need?

Food is an obvious response as a Need – but even there, what do we mean? Simply ensuring our blood has the right mix of salt, sugar and water? Do we need precisely the optimal mix of nutrients so that we can operate at our peak? Or would less than our peak suffice? And what defines peak for that matter?

Shelter is another obvious response. Again: Do we need to be warm, dry and safe, in which case a good cave might suffice, or do we need a thick carpet, and big windows to let in natural light?

And what about our need for esteem? Do we even agree that it is a need? If so, does that legitimize top-quality, perhaps even designer clothing? A watch or jewelry that signifies we have good taste and invest in ourselves?
This is a personal area of interest for me – I was often conflicted as a money coach: Did I need to sport a great haircut, have well manicured nails and in general be “well heeled” to be taken seriously as someone with a measure of authority on the topic of money?

You see where I’m going with this?

So readers, I’m curious: what criteria do you use to distinguish your wants from your needs?

McDonald's advertisement
This is fun.  The Economist has found a way to explain Foreign Exchange in plain English.  We can make sense of it by Burgernomics, or, The Relative Cost of a Big Mac.

The idea is that “in the long run exchange rates should move to equalise the price of an identical basket of goods between two countries”.

So, if we consider the Big Mac, it should cost your average Londoner as much as it costs a Canadian to buy a Big Mac in their respective countries’ currencies.  But it doesn’t.   In Canada, it costs $4 to buy a Big Mac whereas Europeans pay (the Euro equivalent of) $4.33.   This means the Euro is overvalued.  In contrast, my Chinese friends in Hong Kong are paying only (the yuan equivalent of) $1.90 for their burger.

And what meaning does all this have for you, gentle readers?  Well consider this.  When planning your next holiday, do you want to pay $1.90 for a basic burger, or join me on my 2012 holiday in paying $13 for the same meal?

Photo Credit: Roffe used under Creative Commons License.

Photo Credit:  Vipez

You know those enticing balance-transfer offers credit card companies were making us every other day? The ones where we could transfer our $1000, $5000 or whatever balances over to the new card and pay only 2% interest for 6 months? Here’s the very, very nasty little hidden catch: our subsequent payments would first be applied to this newly-transferred low-interest balance portion and meantime, if we made new purchases (usually at 19% or so interest), we had no way of applying our payments to the high interest portion until we’d paid off the transferred amount in full.

So, let’s say Joe Canadian transferred over $5000, then bought an airline ticket for $1000. Until he paid off the $5000, he was stuck paying $190/year in interest for the airline ticket. And my hunch is that most folks who transferred their balances did so because they couldn’t manage to pay it off. So Joe Canadian would be stuck at the high interest rate on the airline ticket for years and years.

Like I said, nasty.

I just got a New Cardholder Agreement in my mail. Nerd that I am, I read it and interestingly, Payments will now be applied first to those amounts bearing the highest interest rate. This is much fairer to the consumer.

Visa is also playing cleaner by giving 21 days interest free on new purchases even if there is an outstanding balance from the previous month, effective Sept. 1, 2010. Currently, unless Joette Canadian pays off her card in full, she accrues interest on all new purchases immediately.

I notice that the author of Reality Check is cynical about his bank’s new Agreement in this regard. This puzzles me — I’m assuming Visa changed their policy for everybody, not just my bank. Can anyone shed any light on this? Have you received a New Agreement? If so, does your Visa now offer 21 days interest-free on new purchases?