Toronto Book Signing – June 9, 2009
May 26, 2009
I’ll be hosting a book signing and talk on personal financial management for teenagers and young adults on June 9, 2009 at the Don Mills and Lawrence Centre bookstore, McNally Robinson. Come check it out! Event details are available here.
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Tags: Understanding Credit Card Use
Last week I gave a talk on what parents can do to help young people become financially savvy, and a few really good questions came up.
I’m going to split these up over a few posts, so today’s question is: What can you do as a young person to avoid falling into the trap of buying into the brands and lifestyles of credit card use when you arrive on
campus?
It’s true, when you first arrive on campus, there are a ton of ads hitting young people about getting a credit card, and there is a certain amount of peer pressure from friends as well – it might just be that feeling of wanting to belong to a group of people who uses credit cards. Unfortunately, these credit cards don’t come with in-depth manuals explaining the full risks and rewards of credit card use, and while they do come with a set of terms, these usually are not in a format that is easily understood by young people. So what can you do? You need to understand how credit cards work, and decide whether you are responsible enough to use them.
The truth of the matter is that credit cards aren’t evil, they aren’t bad, and credit card companies are not out to get you, rather they are a tool, which if used incorrectly can have serious penalties (such as paying up to 28.8 percent in interest fees). And like any tool in life, if you use it correctly it can be really useful, but if used incorrectly and mismanaged, it can be extremely costly.
Now I’m sure you’re wonde
ring, how do I use this tool correctly? Well you have to understand how credit cards work to understand how to use them. Credit card companies make money by allowing people to borrow money under a set of terms (you don’t pay interest on the money borrowed until you receive a bill, and then you can have anywhere between a few to 26 days which are interest free, this is known as the grace period – note: recent laws being discussed would see this grace period changed to a minimum of 21, and also require credit card companies to disclose what your interest rates are, what your minimum payments are, and what annual fees you have to pay on each statement). If you break the terms, meaning you don’t pay the credit card company back within the grace period, the credit card company will automatically start charging you interest.
As an example, let’s say I spend $100 buying books on my credit card on May 12, and I receive my credit card statement on May 31. From May 12 to May 31, I don’t have to pay any interest fees, but depending on what the terms of my credit card are, I could have up to 26 days to repay the credit card company without having to pay any interest – it’s important to know what this grace period is though, because if you don’t know what it is, you could end up paying large interest fees.
Just remember, credit cards are a tool, and it’s up to you to use them responsibly. If you can be responsible and make sure that you are paying off your credit cards without having to pay those large interest payments, credit card use is for you.
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Are Credit Card Rates Changing?
- Image via Wikipedia
I’ve recently been reading that credit card companies are changing the rates for some of their cards. MarketWatch cites one case where someone in the US who claims to keep in good standing on his card recently had his interest rate almost tripled from 5.5% to 14.99%.
He asked why the bank jacked up his rate for what he believes was no apparent reason and was told it was necessary to offset losses from the growing numbers of low-performing or default accounts.
“It was just incredible to me that they would do that like that,” he said. “I said it sounds like they’re spreading the wealth and the rep said, ‘Yep, that’s what’s happening.’”
Welcome to today’s credit-card world, where interest rates and fees can go up, and credit limits and rewards benefits can go down, seemingly at the drop of a hat and with little notice to borrowers — a situation that has consumers fuming and politicians taking notice.
While I haven’t heard of any Canadians experiencing this, it should serve as a good example of why you need to pay off your debts – things can change without any notice. In the end, your budget can be significantly impacted by these changes, and if you aren’t staying on top of things, no one else will.
Drop me a note if you’ve had your interest rates increased.
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Personal Financial Management is Simple!
I came across this video a little while ago and wanted to post it – it’s a little old, but the message is simple, if you can’t afford it, don’t buy it!
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Why you need to pay off your student loan
Have you ever wondered what would happen if you didn’t pay off your debt? Well wonder no further! There was an article in the Globe & Mail where a lawyer who had been carrying $67,000 in student loans since 1998 recently lost his law license due to failure to pay his loan.
The appeals panel in Austin found that because Mr. Santulli, a Houston solo practitioner, did not adhere to a previous orders requiring him to pay his debts, he lacked the “trustworthiness” necessary for a lawyer to represent clients.
The panel’s decision affirmed an earlier board of law examiners’ decision that his heavy debts might tempt the lawyer to “short-shrift” his clients or “convert money” from clients to pay his loans.
The panel concluded that “there is a clear and rational connection between Santulli’s lack of trustworthiness or reliability in carrying out responsibilities and the likelihood that he will harm a client, obstruct administration of justice or violate the disciplinary rules.”
Just a reminder that not paying off your debt can cause problems which you might not be able to see at first.
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Why not knowing what your career will be in grade 11 is OK
I was recently asked to be the keynote speaker at a local high school career day. The theme of my speech was why it’s OK to not know what you want to do in grade 11.
You can view the presentation slides below.
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No TV and No Beer Make Homer Something Something…
One of the more important activities in effectively managing your finances is creating financial goals. From here, you need to create budgets to meet your goals, but sometimes this can be challenging, especially with all of the other stresses in your life. How can you follow your budget and meet your goals if you are burned out, unhappy, or just plain feeling the blahs?
The answer is you can’t! Now I know some of you might say to suck it up, and deprive yourself for the short term in order to reap long term payoffs. The problem is that humans can’t do this forever, and even a short-term deprivation can be challenging – you need to enjoy life and be happy in order to find the energy to make it through the rough patches. The saying all work and no play makes Jack a dull boy definitely comes to mind here.
So what are you to do if you find yourself in this situation? Well, I was recently in this exact situation and had to make a tough decision. I was feeling pretty burned out and unhappy, and it was negatively affecting my relationships at work and at home. I quickly realized that I needed to take a break. The problem was that I was having problems rationalizing spending money on a vacation when I should be spending money on my debt. Luckily I spoke to a friend who made a simple point – in the grand scheme of things, how much time will a few hundred dollars set you back? The answer of course is very little!
Over the course of your life, will $200 make a difference? Will $500 make a difference? Chances are that it won’t, but sometimes in the heat of the moment it will feel like it will. I thought if I didn’t go on vacation and put that $500 towards my debt, I would be better off than if I went on vacation. Luckily I listened to my friend and realized that $500 will not significantly affect my life – at worst, it would delay my debt repayment by two weeks.
So I booked a trip to San Francisco and came back feeling re-energized! It was the best investment I could have made with that $500. My message to you is, regardless of what your situation is, never forget that an occasional small investment in yourself will provide long lasting returns that your budget can’t anticipate or plan for.
And just to brighten your day, this clip from the Simpsons should help you remember this very point.
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Free Book Contest at pffirewall.com
Jesse Michelsen over at pffirewall.com recently reviewed my book and is running a contest to give away two free copies of Following The Goods: Financial Management for the Young and Ambitious. Go read the review and check out the contest!
The Conclusion
I think the book is great. The author writes with a breezy sense of humor about his past, his experiences and his mistakes. The book is a great window into the intricacies of personal finance. The book is easy to read and and will leave you with a good foundation to build on when dealing with your own finances. There are definitely some people that I know that I would recommend reading this book.
Have you bought your copy of Following The Goods? Buy it today!
Following The Goods on Sympatico MSN Finance – Everydaymoney.ca
I was recently featured on the Sympatico MSN Finance website, everydaymoney.ca. Go check it out!
Have you bought your copy of Following The Goods? Buy it today!
Why Don’t Young People Care About Finances?
I wrote the following post for Five Cent Nickel a month ago, but thought I would post it here as well.
It’s unfortunate, but my story isn’t original. I’m 29, educated, and up until 4 years ago, I never saw the need to understand how to manage my finances; for some reason, I always assumed my finances would magically manage itself. That’s how I ended up owing the bank a huge student loan, having no savings, and living in my mom’s basement, wishing I had done things differently when I was younger.
Many young people aren’t interested in financial management, and who can blame them – the name alone must scare people away – it sounds intimidating, but it’s an important topic that needs to be taught at an early age. And herein lies the problem, it needs to be taught, but often it gets left at the sidelines until it’s much too late. Many parents don’t include this topic at the dinner table, and most K-12 education systems don’t mandate learning how to manage your finances – which is somewhat ironic, because people use financial management every day, whether they know it or not (remember, bad financial management is still financial management, it’s just ineffective). I should point out that there are some great programs out there to help teach young people about finances.
Without a burning platform, people aren’t motivated to learn. If your parents are always helping you out financially, you’ll never know why compound interest is important. If your spouse is always paying the bills, you’ll never know why you need to pay off high-interest debt first. If you’re always living pay check to pay check, you’ll never know why a budget is important. If you don’t understand how budgeting works, you’ll never know why you need to start saving for retirement as soon as possible.
It’s never too late to learn and change your habits, but imagine if you could start following sound financial management advice when you were 15, as opposed to 30. That’s 15 years of doing things right, and no matter how much money you make, the earlier you start budgeting and saving, the better off you’ll be. As a side note, if you don’t know what compound interest is, now would be an excellent time to look it up.
So what does a person need to do? We’ll there is a ton of great information out there, but you have to look for it, and more importantly, you have to want to learn about it. I’m sure you’re asking yourself, “Where do I start?” At a minimum, you need to understand the basics of financial management, including (in no specific order):
- Understanding what the equation Income – Expenses = Savings means.
- Knowing where you spend your money (what is an expense?)
- The difference between things you want and things you need, and knowing how to prioritize these
- The future cost of living – how much will that 4 bedroom house really cost you?
- Setting financial goals and making budgets to meet them
- How compound interest works both for and against you
- When is credit good, and when is it bad?
- The basics of investing
- Why you need to start saving for retirement today
- How to maintain your education (and don’t forget to share what you learn with others)
Remember, personal financial management might sound scary and complex, but it’s really not that hard, and definitely not as scary as meeting your in-laws for the first time. Financial management is not something that you’ll learn overnight, it takes time, but the payoff is worth it. Take ownership of your finances and start your education today.
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A Wedding Built on Debt
When it comes to managing expenses, you have to be able to understand both your current and future expenses – if you don’t understand what your future expenses will look like, how can you ever create a budget to meet them? If you dream of moving out of your mom’s basement, but have no idea how much living on your own costs, how will you afford it? You need to understand what your future costs will look like so you can start saving today.
One of the areas that people tend to overlook is dating – no, I don’t mean the actual act of dating, but what dating someone with debt looks like. There’s a good article over at MarketWatch which looks at just this – what happens when two people with debt decide to get married?
Being in love and in hock is no way to go through a marriage, because being in hock might just put the kibosh on the love, particularly in the early years. Debt, it turns out, is a leading cause of family strife during the first few years of marriage, according to Creighton University’s Center for Marriage and Family.That doesn’t mean debt will necessarily send you to divorce court, but it does mean the accumulation of debt can undermine your marriage and cause the type of discord that can dissolve a marriage.
The article is a little long but makes a good point when it says that couples need to discuss and agree on these two things:
- Debt philosophy – what is each person’s view on debt, and how do they handle debt?
- How debt will be used – when you will and will not use debt
Managing your own debt can be challenging enough, so you shouldn’t have to manage someone elses. Before you decide to make a serious committment to your partner, make sure that you both understand what debt is, and when you should and should not use it.
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Talking Money at Dinner Time
CNN has a story where they profile two multi-generation families. The story contrasts the different views each generation has about money and makes two good points about budgets and financial education.
The recession has “made everyone realize you have to live on a budget all the time, even when times are good,”
…children should be involved in financial planning from an early age. At about age 8, they should be able to understand if the family is under financial stress, so it’s best to see what they can contribute.
The artile also mentions frugality, but remember, Frugality is not Budgeting.
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Adam Goodman is the author of Following The Goods Financial Management for the Young and Ambitious. Throughout his life, Adam never took ownership of his financial knowledge and no one ever sat down with him to explain what it meant to plan for his financial future. Luckily, while at business school, Adam finally learned how to be smart about financial management and he is here to share what he has learned along his journey with you.
Adam's past experience includes owning and operating his own consulting firm, as well as working as a Consultant with Deloitte & Touche. Adam is currently in a sales and marketing role in the telecom industry.
