Entries from September 2014 ↓

It’s not working

VETTE modified

Every year the feds spend $13 million on financial literacy. We have a Financial Literacy Leader (bureaucrat Jane Rooney). We’ve got a federal Task Force on Financial Literacy. Last week Joe Owe gave a speech pushing the now-in-development National Strategy for Financial Literacy. There’s a national financial literacy department, called the Financial Consumer Agency of Canada. It has 75 staff. The salaries cost $7.5 million.

And yet 51% of Canadians say they’d be screwed if their paycheque was a week late. Seven in ten own houses carrying $1 .2 trillion in mortgages. Half of near-retirees have saved peanuts. The bulk of TFSAs are in cash. Most people think RRSPs are products you buy. Four in ten have trouble paying the monthly. And the savings rate – which was 20% a generation ago – is a piteous 3%.

Obviously something’s broken. The bulk of Canadians appear to be financial dolts. Household debt is off the charts. The average house down payment is just 7%. Half of Boomers figure they’ll run out of money. And Ottawa’s solution is videos on how to finance a flat-screen TV or earn interest in a tax-free savings account. Sheesh.

Of course, indebted, budget-challenged, investment-poor, house-fat, stressed-out consumers mean the economy’s kinda screwed, too. That’s what central banker Stevie Poloz worries about – because when the credit bubble pops and our lines of credit are maxed, it’s bad news in a country where 65% of the GDP comes out of your wallet.

JANE modified  So what’s Jane Rooney doing about it? Well, she has 263 LinedIn connections. She’s a member of the OECD’s International Financial Education Network. She sits on the Advisory Board on Financial Education, and she chairs the Canadian Interdepartmental Committee on Financial Literacy. So there. If you’re still a financial heathen, suck it up. Jane’s busy.

Meanwhile there is another approach, which is one reason his pathetic blog exists. Yes, I admit I started this site just to flog books and impress women, but that got tired fast. So now it’s here to yak about stuff that affects all our lives, impart some of the things I’ve learned and, especially, to irritate realtors, mutual funds salesguys, bank employees and bullion-lickers.

Rabi gets it. If you can believe this, he’s just read all of the 1,808 posts published here. That’s about 1.3 million words, or the equivalent of 23 full-length books. And that doesn’t include the comments, as no human alive could actually get through them (304,584 at the moment), at least without surgery.

“I have now completed your blog from its start in March 2008 to the present,” the poor boy writes me, “and feel I have obtained a superb education in real estate and personal finance. However it is easy to get all the numbers confused.”

Of course it is, Rabi. Numbers are hard. Ask Jane. But he has an idea for us all.

“I was wondering if it is possible to ask your dogs to submit one multiple choice question at random with the (correct) answer. I would attempt it all myself, but It would be a lot of work for one person. Kind of like when the dogs submitted their financial profiles and the CRA used your office as a campground. This idea might only attract the CBC who would diss you for trying to steal their thunder with their new quiz show.

“The new CBC show “The Smartest Canadian” kicks off Sunday nights — there may be a bit of room left over for “The Smartest Financial/Real Estate Blog Dog.” —where answers could be found somewhere in your blog.”

Well, let’s go one better. Let’s chip in and design a financial literacy multiple-choice, fun-filled quiz that Jane and Joe can use to school the teeming masses of GIC and granite-swilling, house-horny grunts. Gratis. Our little contribution to saving the nation.

Rabi has an example:

“I would submit a question such as:

1. In Canada, the national savings rate has dropped from about 13% a decade ago to about 3% today, with the exception of one province, where the savings rate is actually negative. That province is:

a. Ontario
b. Quebec
c. BC
d. PEI.

Correct answer is:

c. BC – the savings rate is actually around minus 7%. That means they have to borrow just to make ends meet!  BC really does stand for please “Bring Cash”.

I like it. So over to you for some Q&As. Ms. Rooney needs you. Bad.

Big D


For years it’s been one of the hottest markets in the country. There was a time when a word ad would appear in the morning, “NICE house, three beds, two baths”, and by dusk there were several offers, all above asking, no conditions.

But a lot’s changed in Fort McMurray, not the least of which is the price of crude oil, now crashed through a resistance line and sitting at ninety-four bucks. And it appears more hurt’s coming – for the economy, commodity prices, oil and a northern Alberta town where people have often shelled out the better part of half a million for a mobile home.

This week the influential Geneva Report warned of a “poisonous combination” of slow growth, low inflation and massive debts around the globe with the potential for “a vicious loop, putting the world at risk.” Some believe it’s already happening. Europe’s struggling, China’s production is down, Canada is a swamp, Russian finances are in reverse and Argentina defaulted. It’s what this pathetic blog has been yammering about for the last two years. The Big D.

Yeah, deflation. It’s what you need to worry about, now that we’ve all pickled ourselves in debt.

Here is how the Geneva eggheads put it: “Indeed, the ongoing vicious circle of leverage and policy attempts to deleverage, on the one hand, and slower nominal growth on the other, set the basis for either a slow, painful process of deleveraging or for another crisis, possibly this time originating in emerging economies (with China posing the highest risk). In our view, this makes the world still vulnerable to a further round in the sequence of financial crises that have occurred over the past two decades.”

These guys understand that debt’s okay (whether it’s a national deficit, or your brother buying a condo) so long as there’s growth (giving a country more tax revenues, and your sibling a higher income). The trouble is that six years of ridiculous interest rates have encouraged elephantine debt everywhere, and yet growth is fizzling in all but a few economies (we’re not one of them). This is very bad news for the indebted.

Deflation – even the simple lack of inflation – means stuff (like real estate or a barrel of oil) stops rising in value because demand wanes. So the capital value of an asset (like a house) stagnates, and often declines. When deflation picks up a little speed, not only do asset values erode, but also incomes – creating that vicious loop economists fear (because they can’t fix it). People who have less to spend, or figure they soon will, spend less. Demand falls. Assets values plop more.

Worst, lower incomes make debt harder to pay – so it’s the people with big mortgages and the countries with fat national debts – who take it in the gut.

But I digress. We were talking about Fort Mac. Boom town. The oil and truck nuts capital of Canada, and these days a fine little microcosm of global economics. Let’s have a few words from Leonard, who has a fresh dispatch for us from the tailing ponds:

“So for all those people that think that housing is still crazy in Fort McMurray, think again. I (as a completely ignorant 1st time home buyer) bought a house up there in 2008 just as the market started to soften. My very average home cost $660K. Tack on CMHC fees and I owed the bank $684k

“Gone are the days of house values climbing daily by thousands (if not tens of thousands of dollars). My house has been a rental property for 4 yrs now, and I just listed it for $649,900. 6 years later, and a net negative value (If I’m lucky and it sells for $649k. I have my doubts). I can barely believe it myself.

“Has it been worth all the stress? NOT A CHANCE! When I originally bought the place, my magic # on the house was when it was worth $ 1 million, I’d sell it, and buy a house outright whereever I lived (currently Edmonton). It was a nice dream, but a dream was all it’s going to be. I’m just happy almost all of the money paid to my mortgage company was paid for by my tenants, because If I had been shelling out upwards of $200k in interest in the first 5 year mortgage term (remember, I obviously did a $0 down, 40 year mortgage like all the other virgins back then), i’d probably be looking to jump off the high level bridge.

“Feel free to use me as a warning sign to my fellow Canadians.”

I will. But you’re also a symbol, Lenny. How many other people have borrowed massive amounts of money to buy real estate because (a) mortgages were cheap, (b) houses always go up and (c) it’s different here? These are the folks who’ve never experienced negative growth, think deflation means iPhones will cost less (and is therefore good) and believe property values will keep bloating so long as rates stay low. They sure have a surprise coming.

Oil could drop to eighty bucks in weeks or months and Len’s house might end up selling in the fives. Wouldn’t be a big shock. Most booms turn to busts because most people think with their pants. Especially in Alberta.

But the wider risk is out there. If the Big D arrives, even modestly, assets like real estate will be hit first, and hardest – since that’s where the debt lives. In contrast, money becomes more valuable, as its purchasing power rises. This is why you want the bulk of your net worth in financial assets. It’s also why renters will win.