On Fitbits & Fees

If you are like me and frequently trying to battle the temptation to eat delicious fattening foods in large quantities, you may have ended up purchasing some of the latest wearable tech designed to “nudge” you into better behavior. Such fitness trackers, like the fitbit Charge or Jawbone UP, have become extremely common place. Thousands and thousands of Canadians are currently tracking their steps, exercise and caloric intake through their phones and wristbands.

There’s only one little problem. Many people don’t ultimately stick with their new healthy lifestyle.

The age of the internet has brought with it the age of big numbers, and the belief that human activity can be simply discerned with the right amount of information. Figure out the correct code and human behavior can be reduced to a matter of basic inputs. Such ideas have appealed in particular to economists, who for a long time have argued that humans are rational machines that pursue self interest. Despite overwhelming evidence that humans do lots of stupid and irrational things, much of it leaving them miserable, economists have argued that it really just means we don’t adequately understand the real motivating self interest at play. Big data promises to change all that.

Wearable technology, particularly around fitness, has aimed to make managing your health easy, and frequently fun. But most people abandon their trackers once the novelty has worn off. The people who continue to use them were the ones already inclined towards regular fitness and managing their health. In other words changing behaviour is considerably harder than just giving people a nudge.

17373-men-and-women-performing-aerobic-exercises-pv — If this is your idea of fun, you probably don’t need, but will regularly use a fitness tracker.

The same is true for investing. The current focus in the investing world is on fees. Fees, it is argued, should always be lower and the primary concern of investors should be around those same fees. But focusing on fees as a solution to investing woes is like a fitness tracker managing your diet, it’s most useful when you already look after all the other aspects of your life. It’s not that fees aren’t important, but as a measure of your financial health it is really last on the list.

An anecdotal example of how little fees matter comes when I meet people who frequently have TFSAs at a bank. How did they get their TFSAs? One day a teller recommended they open one, and having heard that a TFSA was some kind of good idea they did it. What do they hold in that TFSA? When was the last time it was topped up? When did the person last hear about it’s performance? Who is encouraging them to continue saving? Has anyone reached out to discuss rebalancing or other investment strategies?

shoulder-shrug

The answer to these questions frequently is a shoulder shrug. Yes, fees are important but they can’t make sensible planning happen, nor can cheap financial management encourage people to take a more active interest in investing. Worrying about fees in a world where many people either aren’t saving, aren’t saving enough, don’t know what they are saving in, and are unsure what their savings options are seems to be putting the cart before the horse, assuming incorrectly that one leads naturally to the other. In truth you can only be mindful of fees once all the other investing options have been taken care of.

In many respects the internet is increasingly giving us the impression of knowledge and control, but often times that only seems to be an illusion. As we increasingly migrate to low cost solutions provided through our phones and tablets we may not always realize that our best solutions are not always the lowest cost ones, but the ones that best suit our needs.

Within my business we have always strived to keep our costs down, and I have the comfort of knowing that our costs are competitive. But the reason that investors have chosen to work with us has little to do with cost. For my clients that we have helped steward into retirement, the young and new investors who have a chance to sit down and discuss their investment needs and learn about all their investing options our real value is not in cost, but in being accessible, providing clear advice and peace of mind. There is no fitbit for that.

December 3, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

A Few Things Worse Than Dying

Have you ever thought about how you might die? If you have you’ve probably hoped that it would be quick, painless and happen in your sleep. Though this might be the death we hope for, the reality is almost certainly going to be the opposite. Death typically provides great forewarning, can be lingering and cause great pain. Most all of us will die of non infectious diseases, starting with heart disease, including high blood pressure, heart attacks and general circulatory failure. After that comes cancer, and then a host of other diseases in various other likelihoods.

These are unpleasant truths, and not typically something we would like to dwell on. But as a clever pirate once said, “life is pain, and anyone who says otherwise is selling something.” Wise words, and a useful reminder that while we may be the heroes of our own life, it does not shield us from the most unfortunate outcomes the universe can through at us.But dying is perhaps not even the worst of what can befall us. While only 4.3% of people will die from dementia, it is currently estimated that 1/3 people who die of some other ailment will also have dementia at the same time. That’s a disturbing reality, suggesting that while we may still live a long life, we may not be in charge of all our faculties and could be left in an incapacitated state for an extended period of time.

I’m not going to delve into the morality of euthanasia and whether you should be allowed to choose assisted suicide. Instead I would like to shine a light on some common scenarios about what is likely to happen before we die, and why it’s important to have a Power of Attorney. A few months ago I wrote about the importance of young people having wills, to protect children, their assets and see to it that their families are cared for properly. But wills aren’t just for ensuring your wishes are carried out after you die, but before it as well.

A living will and a Power of Attorney as part of your estate planning could be counted as one of the most important aspects of sensible planning. Without it your wishes can not be carried out. If you get seriously sick, are in a terrible accident or lose your mental capacity due to illness, it is too late for “do not resuscitate” requests or to appoint someone you trust to manage your affairs. In fact, in Ontario, being rendered “mentally incapable” means that solely owned assets cannot be accessed by any other person, including your spouse. Instead you would be forcing your family to appeal to the Courts to appoint them a guardian. Outstanding bills, education funds and bank accounts may not be paid or accessed even if it’s your children’s future in the balance, and contrary to what you might think, the government does not make quick or speedy exceptions because you didn’t share bank accounts but have a joint credit card that needs payment.

Long lives are wonderful things, allowing us the privilege to see multiple generations grow-up and participate in so much more than any generation behind us. But a long life also opens us to the possibility of something bad happening to us, with greater potential for life threatening accidents and illness that maim but do not kill. Like insurance and long term financial planning, a living will and a power of attorney represents worse case scenario planning that we hope never to need. But while we may hope never to be left in a vegetative state, suffering from Alzheimer’s, or incapable of running our own lives, we should not be burdening our families and stretching financial resources due to poor planning.

Please don’t wait, if you would like to get your will in order please give us a call today!

November 5, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

Pay No Attention to the Bubble Behind the Curtain

From The Financial Post Magazine, Sept 15, 2015: “Canada’s Ever Growing Housing Bubble”

In the Wizard of Oz we were told that to enter the Emerald City, everyone had to wear green tinted glasses to “protect their eyes” from the “brightness and glory” when in fact it was the method by which the city itself was made to appear green. The first great illusion of the Wizard in the book. Canadian housing feels much like this. The worse the situation gets the more we are assured that the “brightness and glory” of the housing market is unassailable or simply not an issue, and we are invited to don our own emerald glasses.

The latest installment challenging that gilded view of housing and mortgages come from the November Toronto Life. Titled “Mortgage Slaves” it is a depressing look into the world of shadow banking and sub-prime mortgages here in Toronto, which far from popular belief is a lively and growing business. Private lenders and shadow lending can turn the reasonable prospect of paying a mortgage into a spiralling mess of debt. The family they interview took a moderate second mortgage for renovations, and promptly found themselves in financial trouble. Seeking help they refinanced several times with private lenders, moving their borrowing rate up from a reasonable rate of interest to 12%. Ten years on and they owed more money than they had paid for their house and were poised to have their home sold from under them.

Possibly the most frightening thing is that Canadians borrow $10 billion a year for their down payments, meaning that the whole point of down payments is undone. And it is here that we see how problems arise. Housing has gone from being one of the most conservative practices to one of the most aggressive. Down payments are small, you still only need 5% to get a mortgage. The secondary banking business is growing, precisely in the area we don’t want with less credit worthy families. Housing prices are ballooning at rates far in excess of what would be deemed sustainable. The CMHC, the people insuring many of the mortgages and who will be on the hook for significant defaults, also believes that the housing market is vulnerable to a correction.

The response from political parties during the last election isn’t just underwhelming to these problems, it was counter productive. Harper had promised to raise the maximum you could borrow from your RRSP for the First Time Home Buyers Plan. Trudeau’s plan was arguably worse, allowing you to dip more than once into your RRSP. The best plan was from the NDP to cut taxes to build more rental units.

The IMF, the Bank of Canada, the CMHC and The Economist all believe that our housing market is over valued. The response from banks, private lenders and politicians is to shrug and tell us not to worry. There is complicity from home owners and realtors, who are enjoying seeing the rising home valuations and the flurry of activity that it brings. Economists don’t worry because despite the high level of debt, Canadians don’t owe all that debt at once but over decades. So what’s the concern?

But it should not take a MENSA level intellect to determine that nothing good can come from growth in the continued drop in quality of the banking system or in the quality of debt on issue. Politicians and citizens have to face a reality that high house prices are only good too a point, and that taming the housing market will pay greater dividends than the eventual fall disinterested parties are predicting. But most importantly, young Canadians should know that buying a house at any cost does not define financial success. But it could spell financial failure.

October 29, 2015October 29, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

Trudeau’s Millionaires & Everyone’s Tax Hike

As a rule I dislike large majority governments. Far from believing that minority or coalition governments are unworkable, we have a good history of weak governments focusing on practical solutions that usually avoid the trappings of their respective ideological ends. Because the thing that worries me most about governments is not the promises they won’t keep, but the promises they will.

The resounding victory for the Liberal Party and Justin Trudeau means that the big worry for Canadians should be exactly this. Trudeau has promised rollback TFSA contributions, decreases in the planned rise of OAS, and add a new tax on people earning more than $200,000. Tax hikes haven’t been a popular part of political platforms over the past few decades, yet Trudeau’s platform was successful for precisely that, tackling perceived inequalities benefiting “millionaires” and a promised difference in governing style from the more insular and autocratic Harper.

While I may personally quibble over defining (and vilifying) “millionaires” as people earning more than $200,000, we must acknowledge that an upper tax rate of 33% on income over $200,000 isn’t so cumbersome that we should start panicking and freaking out. That is until you add in the provincial taxes.

Assuming that everything goes to plan, the top tax bracket in Ontario will be 54% sometime next year. That won’t even make Ontario unique. More than half of the provinces will have a top tax bracket in excess of 50%, with the highest being New Brunswick, clocking in at an impressive 59%. And what of the tax cut for earnings between $45,000 to $90,000? While it is estimated to put around $670 back into your pocket, it’s relief may be short lived in Ontario.

Hot on the heels of that cut will be the new ORPP, or Ontario Retirement Pension Plan, which will take about 1.9% of your salary by 2017, easily eating up whatever tax savings you were just given and then some.

It’s easy to lose perspective on taxes and become an annoyance at family dinners, complaining about your money being stolen by evil government officials. But that shouldn’t mean that we aren’t vigilante about how much we pay in taxes either. On the docket across the country tax hikes are poised in every corner. In Alberta the NDP has raised taxes on corporations, even as the economy weakens. In Ontario the Liberals have decided to allow each municipality to set their own land transfer tax, representing a likely hike for many cities. And of course federally, the ending of income splitting, the rolling back of TFSA contribution room and the aforementioned new tax bracket all represent new costs for citizens.

I have an open dislike of Trudeau’s use of the term “millionaires” and “the wealthy” to talk about people earning $200k, it seems like a semantic trick. Few of us, after all, can muster the courage to defend an income that many will never see. But as unsympathetic as we may be to the “1%”, we should be mindful that taxes go up to cover costs, and if the economy slows or debt balloons, we may find that the “millionaires” encompasses an increasing number of us.

October 28, 2015October 28, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

The OHIP Gambit

Is this your retirement? Commercials for retirement planning frequently feature retirement as one of endless vacation. In fact, I can't think of a retirement ad that features the protagonist with a walker and in need of long term care and a new hip. — Is this your retirement? Commercials for retirement planning frequently feature retirement as one of endless vacation. In fact, I can’t think of a retirement ad that features the protagonist with a walker and in need of long term care and a new hip. But as we know, all retirement planning should involve a Walker! Get it? See what I did there?!

A few weeks ago I wrote about the demographic deformation, how our aging population changes many factors about our society in everything from government services to investing. One of the government services that is likely to be affected is our health care, and that should have a profound impact on your investing and retirement plans.

It isn’t surprising that health care costs would rise as a population ages. Living longer doesn’t just mean a longer life, but one in which treatment costs rise in accordance with the number of treatable ailments. Typically this has meant that the older you get the more you cost the system. The picture is more complicated though. Costs rise as you get older because you get closer to death, and the most expensive and costly treatments correspond to end of life care. High cost users (HCU) account for only 5% of people treated by OHIP, but use 61% of hospital and home costs.

Being old though doesn’t automatically make you a HCU, but it does make it more likely. The most expensive HCUs are actually infants, but as a percentage only account for 3% of all infants that see doctors. By comparison of the people over the age of 80, 20% will be HCUs.

These costs come from a study done in 2013, but reflect 2009 numbers.

From the standpoint of the government, HCUs represent a serious challenge to managing the long term sustainability of public health care. If you are over the age of 65 and seeking medical treatment there is a good chance you will be costing the system a great deal, which is not a problem when the number of people over the age of 65 is small relative to the rest of the population. But look at the projected population for Ontario.

Our population is aging, and the costs to the system are expected to be enormous. Which is a problem, because the costs of the system are already enormous. Healthcare in Ontario is already 38.5% of the budget ($50.8B), the single greatest expense within the province, and is expected to grow at a rate of 1.2%. That’s not because that’s the natural rate of growth (nationally hospital spending averaged 6.7% annually between 1998-2008), but because the province is frantically looking to contain costs and reign in the ballooning debt we already face. Ontario today is now the world’s most indebted sub-sovereign borrower, double the size of California.

From the Government of Ontario 2015 budget.

If you are in your 50s and planning your retirement and taking an honest look at these three factors: rising costs, aging population and ballooning debt, would it still be reasonable to expect that OHIP will cover all your costs when you are in your 70s? That you could simply dismiss the costs of your future healthcare as not being solely your responsibility?

From the BMO report - "Living to 100: 4 Keys to Longevity" published in July 2014 — From the BMO report – “Living to 100: 4 Keys to Longevity” published in July 2014

Canadians today already expect that they will have out of pocket medical expenses in retirement, to the tune of about $5400 a year. That number doesn’t include the cost of either nursing homes or retirement homes which can vary wildly based on your needs. But according to Statistics Canada there is a 30% chance you will need long term care by the age of 65, and a 50% chance of needing it by 75. Imagine the costs of health care when there are more people in the country over the age of 65 than under the age of 14 (hint, that’s in the next 6 years).

I don’t like to fear monger, but retirement plans should include the need of long term medical costs and younger people today looking to retire in the next two to three decades should not assume that the healthcare system we have now will be in place in the way we have come to understand over the next twenty years. Even today it was announced that Ontario doctors are planning a charter challenge after having their fees were cut by 6.9% in the past year, an attempt by the government to cap doctor’s costs at $11.6 billion. Our health care costs are rising, and our health care service will be changing to match. Your retirement plans should be changing too.

October 23, 2015October 23, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

Can Your Kids Be Made Money-Smart?

By the time your kids get to university, do you think they will have the financial wherewithal to resist the siren song of credit card debt and wasteful money habits?

It’s a good question; when kids go off to school we expect them to finish growing into adulthood but from the standpoint of financial institutions they are already adults, ready to take on all the burdens of credit and predatory loan rates. This is regardless of how experienced they are when it comes to accepting financial responsibility and no doubt contributes to the average indebtedness of students leaving Canadian universities.

Companies are busy grooming kids to be little economic engines, buying on impulse and spending when they should be saving. Whether you agree that it is right or not, children today either directly or influence economic activity to the tune of $1.2 trillion, so don’t assume that we’re likely to see a change in how we advertise to kids. The most effective counter to the tidal wave of advertising and commercial temptation is to make your children money-smart as soon as possible.

What is money-smart? Well, think of all the financial decisions you make on behalf of your kids, and then consider how many times you don’t include your children in those decisions. RESPs, RRSPs, credit cards and bank accounts all represent opportunities to not simply teach about money, but create habits and routines around money and how it is used.

For instance, did you know that so long as a fifteen year old has a social insurance number and files a tax return they can have an RRSP? Crazy right! And yet given that most 15 and 16 year olds work in the summer there is no reason that they can not be introduced into the basics of long term savings, even if it is merely an early step.

The spending habits of teenagers. From Business Insider: http://www.businessinsider.com/how-teens-are-spending-money-2014-2014-10

Allowances too can serve as a useful tool, not simply in terms of introducing basic money management but also in budgeting and even early credit. Parents shouldn’t simply hand over the money and walk away, instead be part of every step of the financial story, from planning big purchases to paying bills. Family budgets can be a useful addition to the allowance as well. Most parents buy clothes for their kids well into early adulthood. But given how much importance kids put on clothes, both as a fashion choice and as an expression of individuality why not set up a clothing budget, giving children the opportunity to choose what they want and find the outer limits of how far money will go?

Some guidance around allowances

Gail Vaz-Oxlade, the prominent and popular Canadian money guru, has a book about this exact subject, and it is a short and useful read for adults looking for ideas on how to introduce the concept of money to children in practical and fun ways. I can’t recommend it enough as a clever way to get your kids ready for good fiscal health.

But we can all chip in. I leave my clients and readers with this open invitation: If we manage your children’s RESPs then invite them to the table! On average we see clients between 3 and 4 times a year in person, and over the course of reviewing their financial picture not once has anyone invited their teenager to join a regular review of the savings they will be employing for their higher education. We view this as an easy learning opportunity for soon-to-be students to get a better understanding of the RESP tax credit, the reasons behind investing decisions and how their RESP will be applied to covering their university costs and what will happen to the money if they don’t use it. We are your resource for educating your children and you shouldn’t be afraid to use us!

Is it time for your children to be part of your RESP decisions? Give us a call and set up a meeting to help get your kids money-smart! 416-960-5995 or at awalker@alignedcp.com

October 20, 2015October 20, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

A Financial Advisor’s Thoughts on the Election

Politics is personal and we are not in the game of telling you who to vote for, nor are we endorsing one party over another. These are our thoughts about three issues we find relevant to what we do on your behalf and how we look at the market.

Despite however sophisticated we may think we are, elections are still a confusing mess of promises, accusations and distractions. And making sense of what has been promised is quite difficult. Take for example the Liberals promise for an additional $20 billion in transit infrastructure spending over the next decade. That sounds great and will no doubt be welcome, but that works out to $2 billion a year nation wide (it is not being proposed to be allocated that way, but for simplicity purposes this will do). The cost of the controversial Toronto subway expansion is likely to exceed the $3.56 billion currently budgeted. Given the huge cost of transit infrastructure I’m at a loss to know how much difference $2 billion a year make across the country. Its a big sum, but I don’t know what it’s worth and I’d wager neither do you.

For this reason elections regularly fall victim to the desire of political parties and the media for an easier story to tell. And disappointingly this election spent far too much time talking about the niqab, an issue that, despite how you may feel, has only affected two people since the 2011 ban was first introduced.

There are a lot of issues in this election, but some that could have a meaningful impact on your investments and retirement savings, and I thought I’d share some thoughts on them.

TFSAs

Tax Free Savings Accounts have been a popular new tool for investing since they were introduced in 2009. Originally allowing for a $5000 per year contribution, then raised to $5500 and finally to $10,000 per year in 2015, the Liberals and the NDP have both vowed to roll back the increased contribution room to the more modest $5500 arguing that the room only benefits the wealthy. I have previously written that I think this is a bad argument and that TFSAs are a valuable tool for saving regardless of income. Obviously the Conservatives have promised to keep the contribution levels where they currently are, and notably there has been no discussion yet as to how a roll back would affect existing contributions and future contribution room, nor how the CRA would track this year.

Pension & Income Splitting

Pension splitting has been reaffirmed as a necessary and vital tool for retirees by all the parties. Conservatives, Liberals and the NDP have sought to reassure Canada’s ~~most reliable voting block~~ seniors that pension splitting will remain a part of their income options. In a telling move that illustrates how cynical perhaps our politics are and who will reliably turn up to vote, pension splitting will stay, but the NDP and Liberals would like to see income splitting go.

Income splitting, if I’m being honest, makes a lot of sense to me. Designed to help families with a large income earner and where one parent stays at home to raise children, it balances taxes paid where a two income family would pay less even though their combined incomes are equal to one large earner. The tax benefit is only open to families with children under 18 and capped at $2000, so it isn’t a necessarily huge tax write-off.

Interestingly, the argument against income splitting isn’t a great one. According to the Liberals (and backed up by independent think tanks) the tax credit is really only available to about 15% of Canadian households, and so by that logic alone has been described as a $2 billion tax break for the rich. My math suggests otherwise.

According to the 2011 census, there are just over 13 million private households in Canada. Couples with children account for more than 3 million of those households (3,524,915) or around 28%. That means (and I’ll admit I may have this wrong) eligible families for income splitting account for more than half of all households with children. So the idea that it isn’t a useful or widely available tax credit may not be as accurate as portrayed given who it is targeting.

Housing

As you know, I hate Canadian housing, (but love talking about it). It’s a known disaster waiting to happen that consistently defies odds and makes everybody nervous. But while it’s where Canadians have accumulated the greatest amount of debt it hasn’t really been an election issue. The importance of reducing the cost of housing hasn’t really been recognized either. There are efforts from all parties to create more affordable housing, but that isn’t the same thing.

https://twitter.com/Walker_Report/status/655065283007225856

To this end both the Conservatives and the Liberals have brought some terrible ideas to the forefront. Conservatives have made their once temporary home renovation tax credit permanent, although they’ve cut it’s value in half to $5000 from the original $10,000 and have pledged to increase the maximum you can borrow from the Home Buyers Plan. The Liberals are offering to allow you to dip into the First Time Home Buyers plan more than once. Neither of these plans are great. The housing market is too hot and encouraging the use of RRSPs (you know, your private retirement savings) to encourage more homeownership highlights the complicity of Canada’s government in the soaring debt levels of Canadian families.

In the end we may long for a political party that advised caution against further home ownership in a country where it is already at record highs, and one of the highest in the developed world. Just a reminder, the view of the government is that while high debt is a natural byproduct of low rates, too much debt will still be your fault.

https://twitter.com/Walker_Report/status/654734014243205124

We aren’t trying to influence your vote, but we think it is important to understand that underneath the bluster and mudslinging are policies which can directly impact the financial well-being of Canada, and Canadians like you. So please remember, on October 19th, vote!

October 16, 2015October 16, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

The Educational Industrial Complex

It is hardly an original thought to lament higher education in this country. It has been a regular pastime of every cultural critic and an open invitation to people of all political stripes. Students complain that they leave school too indebt with little hope for a job. Liberal critics fear that schools have become too focused on making money, Conservatives complain that schools are too PC, professors worry about their jobs, TAs complain about not having enough money and social activists have a host of complaints, ranging from institutionalized racism to accusations of disinterest in campus rape (itself a dispiriting hotbed of controversy).

Undoubtedly, the growth of universities and the number of people seeking higher education has been one of the great success stories of our society. Parents begin saving to help their children at a young age to attend a university. Schools are geared largely to getting students into university and in general our society has created an environment that fosters a belief that education is the key to doing whatever you want in life, though statistically whatever you want is more likely to come true if you want to work in a cubicle.

Universities serve many masters, so it should be no surprise that few are happy with it as an institution. But even looking past the general complaints that are directed at post-secondary education, it might be worth at least stopping and asking why we still look to universities as the preferred direction for young Canadians after finishing high school.

Asking why we do something can be fraught with peril. Sometimes the mere examination of a closely held belief can be perceived as aggressive and asking why something is done can expose the uncomfortable reality that sometimes we don’t know why we do what we do. Nevertheless, the price of a university education and the effort and time that go into receiveing a degree should make us stop and pause: Do universities still serve the public interest?

Consider first the cost. Ryerson estimates that the cost of a single year of tuition for someone living on-campus (the ideal university experience) is between $21000 – $25000 per year, including books and other fees. That seems right, and means that a four year degree could easily cost $100,000 – an exorbitantly high cost given that it is roughly the same whether you study Aerospace Engineering or Philosophy.

We should also consider the job prospects. A study from statistics Canada shows that a full one third of graduates with a humanities degree are over qualified for their jobs. And while the evidence is strong that a university degree will improve your earnings, without a vocational degree like engineering, those earnings will be lower than comparable graduates. Worse, having a degree from a university doesn’t dramatically improve your chances of employment over a somebody with a high school education. On top of all that a study done by CIBC showed that there is a negative return on a humanities or fine arts degree. Some have even argued that having no degree is better than a liberal arts degree!

But perhaps the best way to understand the conundrum of universities is by this fact from the CIBC report. Canada has the greatest proportion of adults with a post secondary degree among the OECD, but those degrees cost double the OECD average and the number of university graduates making less than half the national median income is the largest among the group of countries.

Canadian university enrollment in various subjects - 2005/2006 - Statistics Canada Education Data — Canadian university enrollment in various subjects – 2005/2006 – Statistics Canada Education Data

Some of this can be explained by what degrees are chosen, and also not chosen. But given that a current estimate for a four year degree for a Canadian born in 2015 will be in excess of $120,000 in 2033 (when they attend university) shouldn’t we be asking whether this is the wisest use of resources? Canadian parents of all stripes are busy trying to balance their need to save for retirement and for their children’s education, and judging by some estimates we’re doing a poor job of both.

The most recent statistics on universities from Statscan

I feel confident in saying that one of the reasons we strive for a university education is that it is connected to ideas we have about both social mobility and social status. Universities were once closed off to general population. Only the wealthiest went on to higher education and the best jobs. White collar work in the city afforded the highest pay and was exclusively the result of a university education. And while I encourage all new parents to start a RESP, I believe that more should be done to shape how we perceive the point of our educational system. Given the financial challenges that all Canadians face, funding an education should not become a pyrrhic victory in a life of financial battles. If the purpose of post secondary education is to improve our economic prospects then we are doing a poor job of it.

Hey, Guess What? Trying to Plan Saving For Retirement & Your Children’s Education? We Can Help! Give us a Call or Send Us a Message!

October 13, 2015October 15, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

The Demographic Deformation

This week the IMF concluded that we were entering a prolonged period of slow growth for the globe. Inflation had failed to materialise in Europe and the United States. China’s economy is “transitioning” from one of infrastructure building to internal consumption, easily said but in practice hugely complicated and fraught with peril. A failing China and a rising US dollar have also put the squeeze on the Emerging Markets, and added to that is the low price of oil that has put many oil dependent economies on their heel. Throw in a refugee crisis and an escalating situation with Russia and there just may not be enough rose tint in the world for your glasses.

I am encouraged though by the idea that much of this is temporary. These are the challenges we face right now and they will pass. So I try to keep some perspective about the problems of “now”. Because there are some real challenges that are facing us that we haven’t even begun to address.

Like old people.

B97489188Z.120150812190729000G75AI3NT.11 — This man is 104 years young. Which is another way of saying he is very old. Which is why he is sitting in a Tim Hortons.

Old people. I’m sure you’ve seen them out on the street, hanging out in Tim Hortons and frustrating you in traffic by driving 5km under the speed limit. But it may surprise you to learn that we are all getting old, and at such a regular pace you could time it by the Earth’s rotation around the sun. And somewhat surprisingly we are about to have a lot of old people, a historically large amount.

The baby boomers are obviously not babies anymore. The name was coined to account for the post war boom in children, but the most interesting fact about them may be how few children they had. Wealthy populations with low infant mortality and high education rates simply have less kids. Globally this is a positive trend, as every country has seen a slowing rate of population growth. But in the day to day management of an economy a large number of elderly people can create significant challenges.

Japan_sex_by_age_2010 — This is Japan’s current demographic make-up. The population is inverted, with the largest segments being the oldest, and the smallest being the youngest, a reversal of a typical population chart. This means that there are fewer workers to pay the taxes to support the benefits of the oldest segments of the population, a problem that will only get worse with each passing year.

There are the usual problems, like benefits and entitlements which grow exponentially as a population ages. Those programs that the elderly depend on become highly burdensome when there isn’t a workforce to create enough economic activity to tax. This has been the long understood problem of Japan, whose debt to GDP ration now tops 240% and is thought to be the source of much of Japans economic malaise. But there are also less well understood issues, like how a large aging population affects behavior.

China’s Self Created Demographic Disaster Is Coming

As a group, the elderly tend to seek similar things from their investments: less risk, less volatility, and consistency in income. But when put into practice it has the effect of warping the investment world if done on mass. Dividend stocks, a popular source for lower risk equity that pay consistent income, have been driven up in price through demand, making them both more expensive and reducing the relative yield. The same is true for fixed income, as investor demand has compounded the effect of quantitative easing and kept interest rates low and pushed conservative investors into more risky bonds.

Liquidity is something most investors value, and this is especially true for retirees. The fear of being locked into an investment as its value plummets keeps many up at night and it is reasonable that people depending on their investments to fund their lifestyle have the option . The attraction of liquidity though also magnifies the volatility we seek to avoid. The ease with which investors can opt out of a market on short notice makes bad market days terrible market days as mass selling can take hold.

Lastly, the sheer number of people that are retiring and leaving the workforce depresses economies. In case you’ve missed it, countries everywhere have low, or lowered their interest rates. The purpose of that is to encourage investors to seek out riskier investments for better returns, thus stimulating the economy. But retirees aren’t crazy and have largely resisted this trend. Instead they have held on to lower risk investments even as the returns have dropped, meaning that the richest segment of the economy isn’t putting money to work in a way that undermines government monetary policy.

This is from the "Value of Advice" report from 2011. You can read it HERE, but it's primary purpose was to show the difference in household values when people work with an advisor. This chart on the other hand gives some indication of where most investable assets lie. It should be no surprise that an older population seeking conservative investments means less money pumping into growth sectors of the economy. — This is from the “Value of Advice” report from 2011. You can read it HERE, but it’s primary purpose was to show the difference in household values when people work with an advisor. This chart on the other hand gives some indication of where most investable assets lie. It should be no surprise that an older population seeking conservative investments means less money pumping into growth sectors of the economy.

We are beginning to see a demographic deformation, one that will challenge many of the ways we mange the finances of a nation. Everything from healthcare to education to interest rates will be affected. And this is all uncharted territory. When we talk about challenges we face we tend to focus on near term issues, but big challenges are glacial, slowly altering the world around us and exposing weaknesses in our assumptions and institutions. Dealing with these challenges could require some significant sacrifice, asking much of a wealthy generation to part with their entitlements at the moment they would most like to use them. But even then these are challenges to which we have no good answers yet.

October 9, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

Cereal Killing Our Money

This week one of the most absurd events of recent memory came to pass in London. An anarchist group (collective?) called Class War staged a protest outside a cereal bar in London’s East End called Cereal Killer Café to protest gentrification. Paint was thrown, threats were made and in the end riot police were called.

I’m completely serious.

Businesses like the Cereal Killer Café raise some interesting questions about what we do with our newly gentrified neighborhoods, and what we consider to be worthwhile economic activities for our money. It is curious, for instance, that there could ever be such a thing as a “cereal bar“, literally a place to go and buy a single bowl of cereal and milk for just over $6 CDN. The number of hamburger joints offering up organically raised beef and artisanal fries may reflect an increasing focus on authentic slow food, but more realistically suggests that we are bad at assessing value and have a disheartening economic focus on frivolity.

Novelty is nothing new (cough, cough) and our desire to spend money on novelty shouldn’t surprise us. Cities too have always been home to novel and frivolous ways to spend money. But given the abundance of economic frivolity it is worth considering whether we have our priorities straight. Consider that a major complaint is that people simply don’t have enough money to live at an accepted standard. Home ownership is being discounted by a whole generation that feel that home prices are simply too high. But given the abundance of commercial activity revolving around food, drink, and events, it is worthwhile raising at least a question of fiscal prudence.

I’m not of the opinion that by avoiding lattes you can have a decent retirement, but there are enough businesses with questionable reasons to exist that it is at least worth considering whether we are spending our money wisely. The surprising existence of juice bars, cupcake boutiques, frozen yogurt stores and designer cookie brasseries can be described as nothing short of head scratching. Joined by the numerous residents of the city who regularly go to the café dedicated to board games, throw axes, jump on trampolines, drink at Harry Potter themed bars, partake in juice cleanses, play Ping Pong or just seek ways to leave a room, it might not be unfair to think that we are in some ways the authors of our own financial short comings.

The first step to financial stability is being able to make sense of where your money is going and gaining perspective on the total range of your spending. The benefits of city living is the endless amount of fun available to you, but that is also it’s chief drawback. Having a clear eyed picture of your financial needs, realistic financial goals and a roadmap to get there will be worth far more in the long run, provide comfort that you aren’t undermining your financial future and make your luxuries exactly that. Luxuries.

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October 6, 2015October 6, 2015 by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc