Should grads save in a TFSA and what are the basics?

 In Toronto last week, City TV asked me to join their evening news to explain the basics of the oft misunderstood Tax Free Savings Account.

You can view the segment here:

http://www.citynews.ca/2014/09/22/benefits-of-a-tax-free-savings-account/

I'm honoured to be named as one of the members of the National Steering Committee on Financial Literacy.

Government of Canada announces members of Canada’s National Steering Committee on Financial Literacy

Steering Committee to assist in implementing a national strategy on financial literacy

July 30, 2014 – Ottawa, Ontario – Financial Consumer Agency of Canada

Canada’s Minister of State (Finance) Kevin Sorenson and Canada’s first Financial Literacy Leader Jane Rooney today announced the members of the newly formed National Steering Committee on Financial Literacy. The 15 committee members were announced at an event held at the Central YMCA in Toronto.

Committee members were selected from over 100 applicants, representing a broad range of organizations from the public, private and non-profit sectors across Canada. They will provide leadership and promote participation in financial literacy initiatives within the sectors they represent, and help to ensure an effective and collaborative approach is used in implementing a national strategy for financial literacy.

Quick facts

• Committee members were selected from an open, online application process, with applications received from individuals, as well as from public, private and non-profit organizations across Canada.
• More than 100 applications were received.
• Members of the Committee were selected considering their roles, experience and achievements.
• Preference was given to candidates who had financial education experience in working with important groups such as seniors, Aboriginal Canadians, newcomers, youth and low-income Canadians.
• Members are given a two year term at which point a new committee will be selected with the opportunity for reappointment of former members.
• Members’ responsibilities will include:
  • providing advice and insight on issues related to financial literacy to the Financial Literacy Leader
  • acting as champions by promoting a national strategy to stakeholders and encouraging participation in its development
  • facilitating coordination and collaboration to initiate financial literacy programs and activities that align with the national strategy’s goals and priorities, and securing commitments from organizations within their sectors
  • participating actively by implementing projects or activities within their organizations that contribute to the goals of the national strategy, and
  • monitoring progress and reporting to the Leader on the progress of their respective sectors in moving the national strategy forward.

Members of Canada’s National Steering Committee on Financial Literacy

• Camille Beaudoin, Autorité des marchés financiers
• Leslie Byrnes, Canadian Life & Health Insurance Association
• Laurie Campbell, Credit Canada Debt Solutions
• Terry Campbell, Canadian Bankers Association
• Shelley Clayton, University of New Brunswick Financial Aid Office
• Mary Condon, Ontario Securities Commission
• Pat Foran, CTV News
• Suzanne Gendron, Mouvement Desjardins
• Terry Goodtrack, Aboriginal Financial Officers Association of Canada
• Kelley Keehn, Financial author
• Cary List, Financial Planning Standards Council
• Elizabeth Mulholland, Prosper Canada
• Andrew Nicholson, Financial and Consumer Services Commission of New Brunswick
• Gary Rabbior, Canadian Foundation for Economic Education
• Cairine Wilson, Chartered Professional Accountants of Canada

For more information on the Committee members, read their biographies.

Quotes
“We know that when Canadians have the right financial knowledge, they can make wise financial decisions, strengthening our entire economy. That’s why the Harper Government is committed to strengthening the financial literacy of Canadians and the members selected for the National Steering Committee on Financial Literacy reflect the wide spectrum of experience and expertise needed to accomplish that goal.”
—Kevin Sorenson, Minister of State (Finance)

“I look forward to working closely with the committee members to develop and implement the national strategy for financial literacy. My role to collaborate and coordinate financial literacy initiatives is greatly enhanced by the leadership and dedication to financial education demonstrated by the committee members.”
—Jane Rooney, Financial Literacy Leader

Associated Links

• News release: Canada’s first National Steering Committee on Financial Literacy to be created
• Final Report of the Task Force on Financial Literacy
• Biography: Financial Literacy Leader Jane Rooney

Contacts
Office of the Minister of State (Finance)
Meagan Murdoch
Communications
613-996-7861
Follow @financecanada on Twitter

Financial Consumer Agency of Canada
Media Relations
1-866-461-3222
media@fcac-acfc.gc.ca
Follow @FCACan on Twitter
Like Financial Consumer Agency of Canada (FCAC) on Facebook
Subscribe to FCACan on YouTube
Follow Financial Consumer Agency of Canada on LinkedIn

Financial Literacy Leader
leader-chef@fcac-acfc.gc.ca
#FinLitLeader on Twitter
Like Financial Literacy Month in Canada on Facebook
Join the Financial Literacy in Canada group on LinkedIn

Students get failing grades in finance

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School may be out, but students still have a lot to learn.

We’re not talking physics, philosophy or anatomy. When it comes to money, most university and college students and grads are clueless about basic financial literacy.

Kelley Keehn says students need to spend “five minutes a day” learning about their finances, whether it’s examining a credit card bill or making a list of goals. (Sun Media News Services)

Post-secondary students are drowning in record student loan debts and don’t know the first thing about personal finances, experts say. According to a recent Money Matters on Campus survey, most respondents couldn’t answer six basic financial knowledge questions.

Financial illiteracy in Canada is high, says personal financial adviser Kelley Keehn.

“Students are looking to their parents to teach them financial basics, but their parents don’t know where to start — they’re not financially literate either!”

According to Keehn, “it’s insane that grads are entering the workforce or wrapping up their schooling without financial basics.” But it’s like health — “too often we don’t address this area of our life until there’s a glaring problem.”

Student financial stresses abound: 27 per cent worry about money, more than finding a job or their grades.

“Furthermore, 32 per cent of students have significant trouble paying their bills while at school and thousands of students each year are withdrawing from their program before graduation,” according to a 2013 BMO student survey.

“With the added anxiety of having to start paying their student loans only six months after graduating, it’s no mystery that students have to make hard financial choices, and many of them because of a lack of financial education and planning that could devastate their personal monetary future,” says Keehn, speaker and author at kelleykeehn.com.

She strongly advises spending five minutes a day learning about something in your financial life.
“Open up your credit card statements and examine every detail. Make financial goals and want lists — make it a priority in your life.”

Be sure to hit the books — money books, that is.

“After graduating is not an optimal time to do a crash course on budgets and living within your means,” financial expert Nathan Dungan says. “Suffice it to say it can be a harsh transition for grads when the First Bank of Mom and Dad is no longer open for business.”

With our society moving towards a cashless world, it’s even more dangerous for young people.

“Students don’t understand the tangibility of money,” Keehn says. “They’ve rarely held money in their hands or computed, ‘If I want to buy these shoes or go out with my friends to the movies, here’s the amount of cash I need and here’s how long it took me to earn it.’ They don’t understand negotiating skills and basics like shopping around for a better rate on their student loans.”

Keehn stresses that students need to examine needs vs. wants, and learn how to prioritize and how to save up for wants. They also need to realize the importance of a good credit score and how quickly it can be ruined.

Get educated on the cost of debt because it costs — lots! And learn the magic of compound interest, Keehn says.

“Einstein said it should have been the eighth wonder of the world…‘Those that understand it, have it and those that don’t, pay it.’”

— JOANNE RICHARD, Sun Media News Services

FP summer school: Making compounding interest your friend

Melissa Leong | July 19, 2014 7:30 AM ET

Illustration by Mike Faille, National Post

Summer school isn’t punishment. Think of it as a second chance or bonus education. So whether you’re trying to repair your finances, make more cash or make smarter money decisions, we’re here to help. FP’s back to basics series continues with a lesson in compound interest.


It’s been called magical. A miracle. The eighth wonder of the world. You’d think it was a supernatural aura or a spectacular monument, but nope, it’s compounding interest.

Saving money can be hard. It involves discipline, sacrifice and planning. It involves putting aside today’s wants for future needs.

For motivation, think of the big picture, think about your goals, whether you’re saving for a home, education, retirement or a vacation. Continue reading

What exactly is that? Think of it as interest on interest. It’s interest on your initial principal and then on the accumulated interest. And think of its power like the Force. Depending on how it is used, the power can be good or evil. It can be your friend or your enemy depending on whether you earn it or you pay it.

How to make compounding interest your friend:

Time can turn compounding interest into your BFF. This friendship just grows and grows over the years and before you know it, it’s this huge, valuable asset that supports you.

“It’s like a snowball. You start with a little thing and it rolls down the hill and one day, you think, ‘Wow, I have a little nest-egg!’” says Kelley Keehn, author of A Canadian’s Guide to Money Smart Living. “We as Canadians, we hate to crunch numbers but numbers are our friends.”

Let’s say you invested $1,000 and it earned 5% in interest last year. Today, you’d be earning interest on $1,050.

Now, let’s say you left $1,000 in the bank to grow for 30 years with a 5% rate of return, compounded annually; even if you never added any more money, you’d have more than $4,300.

In other words, compounding interest can only be your best bud if you are patient.

“When you put something away compounding for a number of years, make sure you can stand that,” says Adrian Mastracci, a portfolio manager and president of KCM Wealth Management in Vancouver. “Or the chances of getting out of it with something in your pocket is not very good in terms of interest.”

Our low interest rates have dulled the potency of compounding interest with traditionally safe savings vehicles such as GICs and bonds. “Fourteen years ago, you got 5, 6, 7% on your GICs. You’d be excited to get 2% or 3% these days. On the plus side, inflation used to be higher so the net to you today is not bad.”

Whether you’ve invested your money in GICs, term deposits, mutual funds, stocks, bonds, exchange-traded funds, etc., where should you put your compounding interest? How about somewhere it can grow tax-free? “Because interest is taxed at the highest rate, that’s a good reason to put it in an RRSP or a TFSA or an RESP,” he says. “With a TFSA, you might be better with dividends and capital gains by buying stocks.”

Read the full article here

How to introduce your kids to invisible money

By Josephine Lim at www.creditcards.ca

View the full article here

All the signs are pointing toward a cashless -- or mostly cashless -- future. As more and more companies embrace mobile payment systems and online currencies gain notoriety, people have adapted to cashless payments.

But if you have kids, don't switch to all plastic, all the time just yet. It's best to first expose kids to cash in order to teach them its value before letting them handle invisible money. Then, gradually introduce them to plastic.
 
Cash first
Robin Taub, a CPA, chartered accountant and author of A Parent's Guide to Raising Money-Smart Kids, says teaching your children to pay with physical cash will feel more "real" to them than swiping a card. In other words, it'll make more of an impact if they have to physically part with their hard-earned money at the checkout.

Having children using cash first helps them equate a value to the number they see on a bank machine screen, adds Brian Betz, a counsellor with Money Mentors.

Expose your children to counting cash, calculating change and saving money in a piggy bank. This will build good habits for when they graduate to a real bank.

Next step, debit cards
Once your child sets up a bank account, a debit card is a good first step toward "invisible money." Unlike credit, a debit card draws funds directly from your child's account, says Taub. Introducing your children to debit comes with many teachable moments. Children can learn how their money is stored in the bank, how ATMs work, and how to check and understand their balance.

While there's no set age to give your child a debit card -- it all depends on your kids' maturity levels -- Taub says you may want to consider debit for your kids once they are 9 or 10 years old. They should be able to comprehend that they can only spend what is in their account, and that using a bank account is similar to the piggy bank -- once you empty it, there's no money to use until you fill it up again, says Betz.

It's also a good idea to have them earn their money -- give them a weekly list of chores they must complete before collecting their allowance, or whatever works for your family. The sooner your children understand that they can't get something for nothing, the better.
"Talk with [your kids] about it, make sure they understand and know what they're doing," says Taub. "You need to maintain some oversight as well, you can't just let them loose -- you do need to keep an eye on things."

When you set up the account, make sure your child understands their debit card's daily and monthly transaction limits. Teach your child about the consequences of overdrafting (and explain what overdrafting is). You may also want to impose your own rules and limits -- perhaps you want them to put at least $10 a month into a savings account, or you don't want them to spend more than $20 a month on entertainment.

While you should monitor your child's account and spending, you don't want to do so secretly. Be open about how often you will look at the account and what you'll be looking for. You don't want to encourage your child to be secretive about money.

BMO, RBC, CIBC and TD Canada all offer bank accounts for children.

Finally, introduce credit
After your child has gotten a handle on debit card use, along with good saving and budgeting habits, you can introduce them to credit.

"Unfortunately, so many young adults get thrown into [credit]," says Kelley Keehn, a personal finance expert and author of The Prosperity Factor for Canadian Kids. "They don't have any idea that a $1,500 limit is not $1,500 bonus money. Get them to understand that it's a tool to be respected and paid back and it's not found money."

Taub agrees that it's a good idea to introduce credit at a younger age, rather than waiting until your child is headed off to university. If your kids are young, Taub says, you can take away their card and go back to a cash system until you feel they're ready to try again. You don't have that option with an older teen.

A good first step is creating a mock credit card system where Mom and Dad act as bankers. Your mock system should follow rules similar to using a credit card, says Keehn.
 
For example, if your child has his eye on the new video game that just came out, but doesn't quite have the money for it, offer to buy it for him. Explain that he has a certain amount of time -- say, a month -- to earn the money to pay you back for the game. If he doesn't pay you back on time, increase the amount he owes you (very slightly, so as not to overwhelm him) each day until he can pay you back in full. Also, explain that the longer it takes him to pay you back, the less likely you are to offer him a loan again. Thus, you teach him how credit and interest work, and how not paying back in time not only costs him more, but hurts his image.

It's important to structure the system for an item that's beyond your child's financial means, as lessons of credit and borrowing help them understand the process of repayment, the trade-off of purchasing one item over another, and its effect on future purchases.

Share your money mistakes and the consequences you experienced, adds Betz. You'll show them that no one is perfect when it comes to money management, and your child can learn from your mistakes.
When you decide it's time for your kid to get a credit card, explain how minimum payments work and how payment history determines credit score (and why a good credit score is important). When your child begins to use the card, go over the bill line by line, discussing each transaction. Teach them to look for erroneous or fraudulent purchases.

Be prepared before you dive in
There are risks involved with letting children use invisible money, but it's important parents don't bail them out. Kids can't learn from the consequences of their actions if they expect mom and dad to help them, says Betz.

It takes time and practice to instill good money habits in your children, and for parents to do it right, they need to be aware of their own financial habits.

"You're the role model, they're going to mirror your attitudes and values and don't think you're going to be able to pull one over them," he says. "Be prepared for those conversations."

Five Ways to Save Big - Kelley Keehn on The Marilyn Denis Show

 

5 Ways to Save More Money

see the full article here

Personal finance expert, Kelley Keehn has a few basic tips that will save you money long-term.

Begin a Payment Plan
By sending in half your monthly mortgage payment every two weeks, you make the equivalent of one extra payment a year. Following this schedule on a $300,000, 30-year mortgage would save you $77,000 in interest over the life of the loan.

Choose Refurbished
When consumers return products after opening the box, computer, electronics, and appliance manufacturers make any necessary repairs and resell returned goods as "factory refurbished." If you buy direct from the manufacturer's website, this lightly used gear often comes with a warranty.

Ask For a Break
I'm good about paying bills on time, but this year I got slapped with a late fee for missing a credit card payment. When I called to explain the circumstances (a snafu with my online checking account), the customer service rep immediately dropped the late fee—and asked if there was anything else she could help with.

Think about When You’re Spending Money
The cheapest day to fly is Wednesday for domestic travel (the others are Tuesday and Saturday) – alternatively, Friday and Sunday are the most expensive days to travel. The cheapest time to fly is typically the first flight out in the morning. Next best times are flights during or after lunch and flights at the dinner house. The best time to buy airline tickets is Tuesday at 3pm Eastern.

The best time to buy groceries is first thing in the morning – that is when perishable foods are most fresh. Financially, the best day of the week to go shopping is likely Wednesday – that’s the day grocery stores start their weekly discount and coupon programs.

The best time to buy a car is at the end of the month or quarter, since dealers usually operate on a monthly cycle and use that time interval to measure sales. The best season to buy a new car is late summer or early fall, when new-model-year vehicles are available, so buyers can get a better deal on the year-older models.

Try to 24 Hour Rule
For 30 days, promise yourself that you won’t make a single big-ticket purchase without waiting a full day. Next time you see something you like, ask the store to hold it for you until the next day. If you still want it 24 hours later, then it’s yours to buy. Whether your weakness is shoes, gadgets or candy bars at noon, this rule can save you big bucks.

Summer on a budget with 92.5 Fresh FM

Summer is just about here.  Is it possible to enjoy this time of year on, *gasp*, a budget?

It's a little late for the ideal "saving-up" lecture, but there are a plethora of ideas to get you and your family some fun-time in the city, around Alberta or to more exotic destinations.

I had the opportunity to chat with Dani Rohs and Pat Staron from 92.5 Fresh FM.  If you'd like to add to the list of low cost ideas, be sure to tweet us your thoughts (see the end of the post) and check out Dani and Pat at www.925freshfm.com.

• Get a kitchenette:  After flights and hotel costs, dining out can be a real drag on your summer time pocket book.  Consider renting large facilities where you can share with friends & family by cooking meals to save big bucks!  If you have a large family, a hotel with a kitchen will likely off-set the expense of eating out.
• Couch surf: not for those where privacy & space is a must, but if you enjoy adventure with hosts that will show you the local scene, you can inhabit the home of stranger and crash on their couch in cities all over the world - check out www.couchsurfing.org
• Rent an apartment for the night: an equally growing trend, but with enough room for the family (maybe - at least you and your spouse), you can rent out an apartment for the night or even list yours if you're looking for some extra cash - check out www.airbnb.ca.
• Try local: Why not be an Albertan tourist on the cheap?  I was just in Calgary for business and the downtown hotels during the week averaged $350-$550 per night.  Plus parking!  But during the weekend, those hotels see steep price declines (not during Stampede unfortunately).  Check out www.travelzoo.ca for hotel, dining spa deals and more.  I've seen that same $400+ a night hotel during the week drop to just $149 with free parking on Saturday night.  
• Stay-cation:  It's always an option.  Pick up a Where Magazine, take in the plethora of free events and festivals and spend some time in YEG as a tourist!  Remember, there's people from all over the world that think E-town is cool enough to travel here.  Why not get out in the city and see what all the hype is about! Check out www.travelalberta.com.
• Best time to fly? The cheapest time to fly is Wednesday morning and the best time to book your flight is Tuesday at 3pm ET.  Check out my Marilyn Denis segment for more info and tips www.marilyn.ca/Finance/segments/Daily/April2014/4_28_2014/SaveMoneyTips

A few things to remember before you head out this summer:

• Check your coverage: call your insurance agent and your credit card company.  You may be insured for extras like car rentals or trip cancellations.  But then again, you may not. Spend a few minutes with a call to be sure.
• Get insured.  BMO Financial Group estimated in 2013 that 83% of Canadians would be taking a vacation between May and September and on average, were planning to spend $3,073.  But only half took out travel insurance before heading away from home. Shockingly, a broken leg in the US can cost a whopping $20,000 or more.  Consider that holidays are a time of carefree adventure that comes with the chance of accidents.  Don't skimp on this low cost insurance coverage. 
• Can you pay it off soon?  Don't slap your dream vacay on your credit card if you can't pay it off in a month or two.  I promise you that the sting of those high interest rates will take the wind out of your sails when you're paying interest for years.  Consider that if you put a vacation bill of $2,000 on a credit card with 18% interest and only paid the minimum payment, it would take you over 11 years (with no new purchases) to pay that holiday off.  Sounds a little too stressful to me.  Do your own calculations here - www.csgnetwork.com/creditcardmincalc.htm

With a little pre-planning and creativity, you and your family can enjoy a stress-free, enjoyable and dare I ask you to consider, affordable summer!

Tweet us your ideas - we'd love to hear from you!  @kelleykeehn, @danirohs, @PatStaron & @925FreshFM