The Value Of An Actual $20 Bill

A few weeks ago I ran a bunch of errands, but only had about $30 in cash. After the second store, I ran out of cash and started using my debit card the next three transactions. They were all smaller purchases and not something that should go on my debit card. No, I’m not a dinosaur, I just don’t want my bank tracking every transaction. So I detoured to an ATM to get more cash for the rest of my shopping stops.

The increasing amount of people using only digital purchases by phone, debit or credit card can do their thing. There’s no chance they’re going to listen to me or any other experts. Yes, they’re overpaying 12 to 18%. There are studies to show that and we’ve talked about everything from why and how to casinos to Disney and cruise lines using your room key for all purchases so you’re not really feeling the pain of overspending until you check out. Yada yada yada…as few people will take that to heart.

For some of us (just not enough) we really want to use our $20 bills – real money. My cash isn’t ever going to get hacked. If I lose a $20 bill, I’m out $20 and not my entire bank account balance. It still works if it gets into water and doesn’t need a battery or ever get out of range or lose its reception. If computer systems go down, my $20 still works. (No, gold won’t and doesn’t – stop believing the end-of-world stories that you should have gold…). I can also use it to help a homeless person or make a donation in a charity box.

Of course I use my debit card for larger purchases. And my credit card for anything online to have the safety of being able to cancel the transaction if need be – and anything ordered within 60 days so I can also cancel it if the item isn’t delivered or the service provided, and for gas stations. For everything small and daily – leave me my cash, please.

The Plastic Ban That Makes Things Worse…

There’s something called the law of unintended consequences and for every action there’s a reaction. The so-called ‘single use’ plastic ban is a perfect example of this.

Far left city councils in many places, including my jurisdiction, have banned plastic bags. I may be in the minority, but I’m not alone, based on my informal surveys of neighbours, friends and family. The single use was actually a first use to get my groceries home. Then I used them for storing stuff, for liquids, to wrap paint stuff for a few days, and finally for my kitchen garbage. Last week, when I ran out, I had to purchase kitchen bags. Yes, I had to PAY to buy more, to buy STRONGER and BIGGER…all for no reason.

The smallest (Costco) bags I could find are almost twice as big as the flimsy grocery store bags. They’re also a lot thicker plastic. Sure, I can still use them for other stuff, but the day they end up in my kitchen, I use less than half of one with my small kitchen garbage.

Over a decade ago I helped a friend dig up her garden and we found a bunch of black garbage bags that had been used as liners for years. They were dirty, but otherwise in fine shape. That was my wakeup call to be really diligent in recycling plastic. Today, I’ve given up trying.

The new laws are forcing me to use at least 2 1/2 times the amount of plastic as I did before the bans. Sad but true.

This is environmental theatre. In my case, it’s a law that’s easy to implement and makes things worse and not better. The “real” single use plastics are the wrap on ham, the ketchup bottles, and the liners and wrappers in a half dozen things I bought my last grocery trip. Eight things that are REAL single-use plastics. But politicians wanted to seem to do something and the path of least resistance is banning shopping bags.

There are now companies who have developed bio-degradable plastic bags. But don’t bet on any of them ever being allowed for use. It would defeat the politicians’ environmental theatre.

As of today, pizza boxes can’t be recycled. Sure, they’re cardboard, but the grease from the pizza won’t allow it. And all those containers from margarine to yogurt that have a number on the bottom making to “recyclable” aren’t recycled anywhere. Soft plastics never are. Why can you put these items into your blue bag in most cities? Because politicians don’t want to advertise that fact.

About Those True But Wrong Inflation Stats:

While the one-sentence so-called top line inflation numbers the media reports are accurate, they’re also totally false. Here’s one of the best recent examples:

The Council of Economic Advisers issued a statement in November that this years’ average family turkey thanksgiving dinner was down by 5%! A great reinforcement to politicians stating that inflation is back under control. Nothing to see here – move on.

Not so fast: That same calculation of the cost of thanksgiving dinner in 2023 was UP 15% from two years prior and UP 20% from three years before.

Inflation stats are released for the prior month and is used as a 12-month floating average. The biggest wave of inflation was in the time period of August 2022 to July 2023. That’s all baked in and will never go away. But since then, inflation has slowed down. But that’s “new” or “further” inflation and now doesn’t include calculations of what happened more than a year ago.

Politicians, especially in the US, can’t understand why people aren’t feeling great about the economy. After all, inflation is under 3% and everything is great again. It’s a total disconnect between reading stats and going to the grocery store to buy stuff that’s a whole lot more expensive. But a story that it’s really expensive now but not getting worse just isn’t ever sexy.

If something was priced at $10 in 2022 and went up 20%, the price became $12. To now tell people that inflation is “only” 3% is telling you that the new $12 price is now $12.36. That’s not a decrease – it’s a slower increase. There’s an old saying: Statistics don’t lie, but liars sure can use statistics. It doesn’t help that reporters that parrot the monthly stats are either lazy or overworked. That’s why we get the one-sentence newscast line that: Inflation is now under 3% without the context or reminder that the other 20% (average) or upwards of 50% (food) is still in there.

Financially Supporting Your Adult Kids? Maybe…

According to a CIBC survey last week, one in five parents are helping their adult kids with money to the tune of $500 a month. 71% said it was through free room and board, almost half by paying for groceries and household expenses, and almost 40% by paying cell phone bills.

If experts say it is the generation of helicopter parents, it only stands to reason that becomes enabling them as adults. But we do have to exclude parents helping kids going to college or university! The’ going to school deal’ with be different for every family, and seems reasonable for me as an outsider. This survey also doesn’t account for families who certainly have the wealth to help. If kids have a parent who’s a PHD (Pappa Has Dough), why wouldn’t they make the call for money?

But another survey some months ago found that 80% of parents don’t talk to their teenage kids about money – and this is the result. If they don’t know, they can’t manage their money, learn priorities, or boundaries as adults.

If your adult kid is not going to school and you’re not wealthy, there’s a big problem here. Your love for your kids is unconditional, but you only have a finite amount of money and little time to save for retirement in comparison to your kids. Broke people cannot help others – family or not. I know that’s easy to say when your kid calls – but it’s the truth.

The time to lay the groundwork for this starts at age 14 or so. But here you are now needing to learn to say no in a loving way, and to set financial boundaries if you cannot honestly afford it!

The old Ronald Regan saying of: Trust but verify applies here: If it were me, and that’s how I always discuss things, my kid would need to email me their last two credit card and bank statements. I want to see what money goes in and where it gets spent. Think about it: Priorities 101 say: Food, rent, utilities, transportation. If they cannot even afford food, there’s something WAY bigger here than a few dollars. I would tell my kid that I love them and that’s exactly why I won’t send money. But I’ll have them hooked up with a couple of part-time job interviews by the end of the day.

See, the problem is that many kids won’t take a job they think is “beneath” them. They’re holding out for the BIG job and BIG title. Sorry, eating and shelter trump the cool job in favour of any job to bring in money. A part time job with limited income will immediately re-arrange the financial realities and priorities they didn’t learn at home or at school.

If you do help AFTER you’re comfortable knowing it’s not a lazy, budgeting, blowing through money issue, you need to be smart about it: Make the check for part of the rent payable to the landlord. That way you know where the money goes. Get them a gift card for groceries. It has to be a grocery-only store, so not Wal-Mart (they sell too much other stuff that isn’t from the food family). Make it clear this is an exception and not a monthly support payment. It gives them a 30-day heads up to get that part time job or change their priorities.

At TD, A 45 Cent Short NSF Is $96 In Fees

Yesterday brought a tiny victory to consumers on something that’s mostly ended in the U.S. for some years. The Ontario Superior Court approved a settlement with TD Bank for not fully disclosing that an NSF for one item triggers two NSF charges.

The lead plaintiff in the class-action lawsuit, Tyler Dufault, was 45 cents short on an auto payment from his account. As a result, the item bounced (NSF). But creditors have the ability to re-try/re-process it a second time. Thus, the TD charged two NSF fees of $48 each. Bottom line: 45 cents short in his account triggered $96 in NSF charges.

The class-action lawsuit related to improper (or no) full disclosure to customers that two NSF fees can be triggered. Of course (surprise!) the TD did not admit to anything but settled the class-action suit for $15.9 million. That’s like you and me paying a nickel as TD had annual revenues of $75 billion last year! Lawsuits against all other major banks are ongoing.

If you are one of the 105,000 people caught in this by the TD between February 2, 2019 and November 27, 2023 the settlement will be $88. If it’s happened at one of the other banks, stay tuned for their likely settlements.

According to the Consumer Financial Protection Bureau in the U.S. the average cost of processing an NSF cheque is less than one-half of a penny ($0.005), since it’s entirely automated. Yes, this is one of the predatory charges of banks in general until the Federal Government steps in as they did in the U.S. No – getting an overdraft is a very bad idea with the staggering rates and fees.

Ironically, both the TD and BMO in the U.S. do not charge NSF fees to their southern customers. But here…well…if they can – they will. Will any of the banks change their policies? Not hard to guess that that’s a firm NO. They’ll add two lines to their five to 10 page account disclosure and carry on double charging. Sick, sad but true.

Have Some Mattress Money?

While GIC rates are still pretty high, but dropping, it might be a good idea to consider what to do if you have any money under your mattress, too much in your checking account, or sitting in a bank savings account.

No, that wouldn’t and shouldn’t be investment money. That’s your retirement investment. But that definition is for any money you will not need or touch for over five years. The money you’re saving for a down-payment, a newer vehicle, home renovations, or other things is money you should not be investing as you’ll want access to it in less than five years.

The most effective way to have this money earn some returns is to ladder five GICs. Let’s use $10,000 as an example: Get five GICs for $2,000 each. A one year, two year, three year, four year and a five year one. That way you have access to a fifth of it every year. Right now, a five year GIC is still about 3.75% and a one year (if you look around) still gets you around 5%. Just make absolutely sure that you have it in writing that the maturing GIC does NOT automatically get renewed. No, them telling you doesn’t count. No, their comment that they “never auto renew” is a lie and doesn’t count. You need it in writing that the maturing GIC will be deposited into your checking or savings account. If it’s not in writing it does not count. On two previous occasions I’ve had to get a lawyer involved when GICs for a relative and acting as an executor were auto renewed and the bank attempted to tell me that I was out of luck. And that was WITH written instructions, dated and noted as to who it was given to!

Oh, and none of this matters or applies if you have a credit card balance! Hunting for an extra quarter percent return when you have a 20% credit card rate is crazy! See the Money Tools book chapter on credit cards: How to get a guaranteed 50% return (by paying off your cards).

Two Updates:

Ford F150 Lightning: Last year we talked about the new electric vehicle (EV) that had a massive amount of pre-orders. Well, fast forward to the fall and it appears the novelty and excitement have worn off. I have to admit, EVs still aren’t ready for prime time or trustworthy use – and probably won’t be for at least five years or so.

One of the stories on the all electric F150 is on youtube from CBC TV. It’s a short three minute nightmare story of a family from Winnipeg wanting to just drive to Chicago: No charging stations, no range, needing a hotel and eventually renting (yes renting) another vehicle to finish their trip.

That was followed last week by a Marketplace segment (S51 Ep9) testing a Tesla on a simple 400km trip. With a range of 425km that should have been possible. Not even close due to cold weather which, experts say, reduces battery life by around 50%. No, the range advertised isn’t even close to reality in cold weather. But manufacturers aren’t required to do testing and supply range in anything but ‘ideal’ weather. Plus very few charging places and 7 of the 12 they tried didn’t work. Oh, and a huge range of prices to charge an EV. But there’s no chance to shop around when it’s the only one even working and available…

There’s no chance I can afford or justify an EV. That’s a money and spending issue that others may not share. But as EV stocks are tanking and one manufacturer after another is announcing they won’t make targets, it’s clear people are voting with their (not) buying decisions: Range anxiety, no place to recharge, and a good chance you’ll be getting a hotel room to make your daytrip. No thanks…

Three-year cruise: Also last year there was a company marketing a three-year cruise that we talked about. It made for a lot of dreaming and wishing but it was cancelled.

No reports on their pre-sales but the company announced that they were unable to lease a cruise ship. So they did all this without getting a ship booked or optioned first? Gees…But not a surprise as cruising took a big hit during Covid and people were still not willing to get back on the seas in early 2023. This year will be pretty big for the industry. Sadly that’ll translate to very few deals…

Once You’re Debt Free…

I was super excited for a couple that someone met and asked to contact me. He told them to get in touch with me for some feedback on whether to use investment money to pay off their mortgage, or keep investing. That wasn’t the exciting part, though. Debt free, except the home, is something most people haven’t ever experienced in their life. If your home is also paid off, you’ve reached the pinnacle of financial success. But the critical hurdle is to have all the consumer debt cleared first.

This couple, at $780,000 actually is now around part of the richest one percent in the world. That includes your toys, cars, and equity of your home. Net worth is the total of what you OWN less the total of what you OWE. If you’re someone in that position, there are a few general things you should consider:

Close any line of credit you have. That’s especially true if it’s secured against your home. Once you have some net worth – stop borrowing forever. Don’t be tempted to just keep that line of credit in case…close it today.

Have one normal second credit card, but get an American Express card right from them with no monthly payments. A real charge card forces you to pay the balance in full every month. Close every other card but these two.

What’s you big reward for having won with money now? Maybe it’s a new vehicle every five years, perhaps it’s travelling, or now doing a ton of charitable giving. Set up a separate savings account and have money transferred into it automatically every month. $500, $800, or whatever accumulates automatically and pretty quickly to fund your well-earned big rewards.

Make sure your investments are conservative if you’re into your 50s or older. But do make sure they grow, and aren’t parked at a bank with really bad returns. Whether it’s $200,000 or $2 million – conservative investments should still yield around five percent a year before taxes! That will double what you have in the coming eight to 10 years!

If your investments do, or will, include rental property, make sure it’s with 50% down. Pay it down if you have one or have the 50% down if you buy one. Do not make a rental property the reason your finances crash. The risk isn’t worth the income. 50% down lets you sell it in a week no matter what the economy does.

Set up a full emergency account. Most people struggle with the first step of one week’s pay to get started. If you’re financially successful, set up a savings account with three to six months of all your expenses. That way you’re not breaking investments, cashing RRSPs, or using a line of credit in an emergency. If you need big car repairs or a new roof, it’s no longer an emergency, but only an inconvenience.

If you still have a mortgage, it’s time to get serious about paying it down or paying it off. You may just want to write a cheque for the balance and then re-direct what you were paying a month back into your investments. Plan B would be to pay 10% extra each year, cut the leftover term down, and change to weekly payments to cut another four to five years off the time left. You have the money – now just increase what goes on the mortgage.

Lastly, pay it forward. Make sure the kids of friends, your nieces, nephews, grandkids, or families in your church or elsewhere get to learn the lessons you know AND that you live: Put some money into savings each month, live on less than you earn, and learn the difference between needs and wants. Oh and if you care enough to share: Got to Mosaic and get someone a copy of the Money Tools book. They may not listen to you but maybe they’ll read a chapter or two…

Do You Have a 50% Credit Card Rate?

If that sounds insane, it really isn’t. Millions of Canadians have it – they just don’t know it!

Numerous surveys over the past few years show that one quarter of Canadians are cashing in some of their RRSPs before retirement. That’s more than 1.8 million people. Say it ain’t so as the old expression goes.

Two of the most common reasons for you to consider cashing in all or part of a retirement plan are to purchase a home or to pay off debts. Let’s assume you want to cash in $5,000 to pay off a credit card. The first thing you pay is a 10% penalty right off the top. So you’re actually getting $4,500. Then this amount is taxed, as if you made that money as income. In a 30% tax bracket, that’s another $1,350. So the bottom line is that the $5,000 you cashed in is really only $3,150 of net money going on your credit card. Sure, it’ll save you 20% interest on the card, but that’s not the whole story.

That money is no longer growing in your RRSP (or your Tax Free Savings Account). At a 10% return, that $5,000 would have doubled every seven years. If you’re in your 30s, you’re now missing around $160,000 at retirement. If you’re in your 50s, that $5,000 still would have doubled three more times, which is $40,000 now gone.

While you’ve now been able to pay just over $3,000 on your credit card, it likely didn’t pay off the balance. That’s bad enough with what it’s cost you in foregone investment income. Now to make things worse, the majority of people keep using that credit card again! Odds are, you’re in the majority where you’ll be back to an average $7,000 balance within two years.

That puts you back to paying 20% on your card while you’re out at least $40,000 in savings for the next 20 years. The bottom line: Your credit card is then costing you more than 48% interest. While you were hoping to make things better – they got worse – a lot worse.

On the plus side, how would you like a zero risk 28% return on your money? It’s easy: Just pay off your credit card. The 20% interest rate you pay is with after-tax money. So the real rate is over 28% if you carry a balance. That’s the biggest reason trying to save at the same time you’re trying to become debt free doesn’t work!

Paid Off Your Car Or Credit Card? Keep Paying!

Twice in the last month someone shared with me that they had paid off their credit card or car loan. Both times, I had given them some feedback a year or two earlier and now they were sharing their victory!

Great…but: Here was my next challenge to them. It’s explained in the Money Tools book, but it’s not hard to understand the logic.

When you’re done paying something off, you now have a freed-up $300, $400 or whatever you had been paying each month. But what will happen with that “extra” money? It’ll be gone! Take your had out of a bucket of water and then measure the hole that’s left. Exactly…the “free” money will go to something, everything or whatever the next month if you don’t have a plan.

And the plan is super easy: Keep making the same exact payment for another year! You were disciplined enough to pay off the credit card, car or whatever – so stick with it another year. Nothing to re-budget, nothing to force yourself to do – just carry on!

But now you’re paying yourself. Transfer the money to a savings account the same day your bill was due, the same amount, the same routine. If it was for a car, a year from now you’ll have four five or six thousand saved for a newer (never new…please!) one. If it was a credit card, you’ve got two three or four thousand towards retirement savings or another card or bill.

It’s magic and it’s super easy. But it takes knowing this trick and something few people still have: The will to take delayed gratification!