Thursday, June 30, 2016

Short Takes: Autistic Adults, Criticizing Banks, and more

Have a great Canada Day! With Canada Day landing on Friday, I’m giving my short takes a day early. Here are my posts for the past two weeks:

Visa Response to Walmart Unconvincing

Misbehaving: The Making of Behavioral Economics


A Wealth of Common Sense

Here are some short takes and some weekend reading:

Big Cajun Man looks at solutions to the problem of how to keep making financial decisions for an autistic family member who becomes an adult. Hint: the solution is not a power of attorney.

Tom Bradley at Steadyhand observes that few people in the financial industry are in a position to be critical of our banks, but he would like to see the much lower costs that are surely possible due to their massive scale. I’ve long thought that the best hope for lower costs will be a never-ending stream of banking start-ups (such as ING/Tangerine, PC Bank, EQ Bank, etc.). As the big banks buy each start-up, it just encourages more start-ups to give it a try. If enough enter the market, the big banks won’t be able to keep fees sky high by buying them all.

Canadian Couch Potato looks at the trade-offs between holding cheap U.S. ETFs directly versus the convenience of holding a more expensive Canadian ETF that invests in the U.S. ETFs.

Kerry Taylor has a very interesting take on the cost of getting married. She says the average wedding cost in Canada is about $27,000, but you can get married for as little as $427 in Toronto. “Shelling out an additional $26,573 does nothing to get you hitched.” So, don’t blame high costs on getting married. Getting married is cheap; it’s the party you indulge in that’s expensive.

Preet Banerjee interviews Randy Cass, CEO of robo-advisor Nest Wealth, in his latest podcast. Nest Wealth charges its customers a flat monthly fee instead of a percentage of their savings.

My Own Advisor discusses the crossover point where your savings produce enough income to cover your expenses. I think about this quite a bit and I find it difficult to decide how much safety margin to build into my expected expenses. I’ve built in allocations for infrequent purchases like a new roof, car, furnace, and air conditioner. But it’s hard to give up a steady pay cheque when I know there’s a chance I might need more money than I think.

Boomer and Echo looks at the right way to calculate your net worth. I think it depends on what you plan to do with the information.


  1. MJ, thanks for the inclusion. When you think about what a Power of Attorney is, it makes sense that someone with diminished mental capacity might not be able to legally sign a P.O.A., however, it now means more legal wrangling, and I suppose, more things to write about.

    Enjoy Canada Day!

  2. Bank fees/start-ups: while I like your optimism on the situation, I'm far more pessimistic. I think the barriers to entry in the Canadian banking sector are far too thick to allow any kind of "never-ending stream of banking start-ups". That, coupled with the usual lazy behaviour of the general public won't threaten the Big Five any time soon, not in Canada, anyway.

    There was a story a few days ago about bank runs in the Caribbean when RBC upped their fees from $0 to $12/month. Average minimum wage in the Caribbean is ~$4.25. I'm sure many Canadians are paying $25/month or more in basic account fees...yet do nothing. Fees can make up ~10% of bank revenue, they won't let that go easily.

    Weddings: very long story short, wife and I got married for $75 and change. A man-on-the-street (a woman and her daughter, actually) took our wedding photos. It's also ridiculous to think that your wedding day is the best/happiest day of your life. Bottom line: people are crazy. :)

    B&E net worth: I will never include my primary residence in NW calc for one simple reason: I cannot access the equity.

    If I want to access the equity (or 'asset' as in B&E's definition), two things can happen: 1) I must pay to access my own equity via a HELOC (paying to use my own money doesn't sound like an asset to me), or 2) I can sell the asset but this results in one of two outcomes: a) I lose the utility (and peripheral benefits) of that asset forever; it's not like buying and selling a bar of gold or a share of IBM, and/or b) I am forced to utilize some/most/all/even more of the cash to buy a different asset/house; we all have to live somewhere. A house is a non-financial asset therefore its value is not financial; best to think of your house in the same way you view your vehicle.

    Realizing that any money put into buying a house (or renting) is a sunk cost will help you realize that a primary residence does not belong on a NW sheet (not as a straight up 'asset', at least).

    1. @SST: I think the banking barriers you mention will slow down the process, but won't stop it. In the short term, the big banks will continue to invent new fees and increase old ones. I'm not predicting a drop in their profits any time soon.

      As for including your home in your net worth, it all depends on what use you make of the final number. If you just want a true measure of everything you have in the world, then the house belongs in. If you want a number representing possible future consumption, the house should most likely be out. However, I do know one couple who recently bought a condo with the plan of ultimately selling it when they run out of other money and using the proceeds to rent a similar place. In this case, it makes sense to add the value of the condo to their net worth (as well as planning for higher expenses after the sale).

  3. There are so many variables. The Crossover Point simplifies things to a degree but it's only a guidepost - but that said - I believe once you can largely live off the money your investments make you can consider yourself financially free.

    You know all this :)

    Happy Canada Day.