Lesson from my Father

My father was of the old school philosophy, “save money for what you want, never go into debt.” He lived his life the way his Norwegian-born parents had. Trust, and a shake of the hand, represented a promise – a deal.

Even later in life he was suspicious of credit cards. When we introduced him to a cash card to supply his needs while in the care home, he practiced using it. Went to the bank across the street, lined up to the teller’s booth and took out $5 or $10 at a time. And did that daily to be reassured the magical card still worked!

The only time that I remember Dad and I having a serious difference of opinion was when I asked him to sign a loan for me to travel to Europe for the summer. It was after my university graduation and before I would return in the fall for a year of teacher training. I knew after that I would be employed, and not free enough for extended travel. He understood my reasons but they did not sway him. In desperation, I turned to his brother for a loan signature, where I held an account at the local Credit Union. My uncle had done some travel and knew its benefits.

So it is that with the exception of a home mortgage and two credit cards, paid in full monthly, I try to live by my dad’s rule. The happiest day of our early married life was when we ceremoniously ‘burned the mortgage.’

The economists and professional financial advisers I read, and listen to, say we could be entering an uncertain period of decline, not unlike 2008, with even the possibility of a WW#3 on the horizon. Many advisors say this is a time when holding cash is the best approach, certainly until the market shows its direction more clearly.

This brings me to my thoughts as I contemplate promises of the various national leaders, and their local candidates. The benefits some of them propose to give me, with borrowed funds from my taxes, could mean a debt that is impossible to repay. Think Greece. I watch world news too. It will be a drain on the country for many years, especially if interest rates rise. My young kids’ savings accounts benefited from 18% GICs. Maybe our candidates are too young to remember those days.

By now Dad would have been apoplectic!

James Dines 2015 Forecast Newsletter

I subscribe to a monthly newsletter that gave me the idea for this post. It is a way for a householder to understand the “fiscal cliff,” and government debt, more clearly.

Step 1:
Consider these real numbers as reported for a recent year of the US government:
– US Tax revenue: $2,170,000,000,000
– Federal budget:   $3,820,000,000,000
– New debt:            $1,650,000,000,000
– National debt:      14,271,000,000,000
– Recent budget cuts: $38,500,000,000

Step 2:
Now remove 8 zeros and think of it as a household budget:
– Annual family income:                   $21,700
– Money the family spent:                $38,200
– New debt on the credit card (s):    $16,500
– Outstanding credit card balance:$142,710
– Total budget cuts so far:                    $385
Now it begins to make more sense. This household is in serious financial trouble.

Most people we know can’t comprehend numbers that large so they don’t truly understand how bad the finances of our countries are. The Dines Letter family example reduces the numbers to a magnitude where it is possible to grasp the problem.

Were folks to be paid 100% of their salaries in cash bills, then go to the tax table to pay income tax, then to the CPP table to pay CPP, then the EI table to pay EI premiums, then each of the other deductions (all in cash money) there would be a tax revolt. Governments know this.

I remember someone suggesting this same technique be used to teach children about finances. They suggest you bring home your whole paycheque, (what remains after deductions) in cash bills. Then lay it out in separate piles for the rent or mortgage, food, car payments and other essential expenses, so that the children understand the concept of financial obligations.

Their new iPhone must come after the rent is paid, the food is purchased, the dentist is paid for braces, allowances for clothing are set aside, house maintenance costs are met, etc. When children physically see that there is a very limited (or non-existent) pile of dollars remaining, they will begin to understand that money for elective purchases isn’t easy to find.

There are far too many families paying the mortgage with a line of credit and some paying only the minimum balance on their credit cards. Because of the debt at all levels of government PLUS that of an average family, this country is in deep trouble.

Mr. Dines has another way to look at the Debt Ceiling. He writes:
Let’s say, you come home from work and find there has been a sewer backup in your neighbourhood – – – and your home has sewage all the way up to your ceilings.
On a serious financial topic, with his usual twisted sense of humour, Mr. Dines asks:
“What do you think you should do? Raise the ceilings or remove the poop?”