FOUR
Important Financial Conversations
The quickest way to double your money is to fold it in half and put it in your back pocket.
— WILL ROGERS
TALKING OPENLY ABOUT money and financial issues can be more delicate than discussing politics, sex or religion. We don’t always know what we don’t know and can feel embarrassed or ashamed that we don’t understand more about money or have more of it.
Here are a few thoughts that might make these conversations a bit easier. There’s no specific script that works in all situations, but it helps to know how to start the conversation and what you might say.
Talking with Your Spouse or Partner
I’m sure you had several talks with your spouse or partner before deciding to live together or get married. Unfortunately, I know the reality is that many couples don’t have “the talk” about money while they’re dating and many don’t really even know each other’s financial situation years into their marriage (how much debt each has, assets, each other’s credit scores, and more).
Having this conversation can be tricky for some couples. When I’ve covered this subject on TV, some reporters have accused me (half-jokingly) of starting a fight as opposed to a conversation. True, this subject can be a point of contention in one’s relationship, but understanding each other’s thoughts, feelings and goals can’t be neglected. In the long term, getting on the same page financially, or at least understanding each other better, is necessary in any partnership.
Add to the delicacy of the subject the possibility that one partner may be in a second or third marriage. Perhaps one spouse has children from another relationship and the other doesn’t. One may have been “burned” financially by another spouse and be very closed about the entire subject. If that is the case, and you know bringing up finances with your significant other will be uncomfortable or too difficult to handle, consider consulting a professional. If you have an accountant, banker or financial planner whom you trust, having that third party bring up the challenging details might be the best way to start and the most comfortable approach for both of you.
However, most couples would like to get on the same page with their partner, but just don’t know where to start. I’ve devised six steps to ease you into talking about your life goals and explain how to get there with your partner. If you’re flying solo, try the exercises anyway as they’re still worthwhile even without the dialogue part. But remember, it’s not a task you should do and then shelve and never think about again; this should be a process that is fun and revealing. Take your time and enjoy the financial clarity you’ll create.
The Six-Step Conversation
Things that are this important cannot be settled in one date night. You will need several conversations to get everything onto the table and discussed. Both of you need to do a lot of soul-searching to be completely honest with yourselves and each other about what your goals and expectations are in both the short and long term. Even with the best of intentions, realizing and putting words to your dreams can be very difficult and require a great deal of patience from each of you.
Step 1: What Are Our Goals?
Ease into your first financial conversation. You might say to your significant other:
I’ve been reading this book on financial basics and it got me wondering about what’s important in your life. We haven’t really spoken about that before. And the author suggested we book a date night, even if it’s just 30 minutes, and brainstorm our short-, medium- and long-term goals. Let’s book a night when we can find some time together.
The purpose of this Step is to get a clear idea of each other’s goals for the next one to ten years. If either of you doesn’t have a clear idea, here are some conversation starters:
Housing
• save up for a home
• upgrade our home and/or appliances
• renovate our home
• buy a cottage
• be mortgage free
• build a secondary suite
Children
• start having children and when
• have more children and when
• start saving for the kids’ education
• assist the kids with buying their first home, car, etc.
• maternity/paternity leave
Education/Sabbaticals
• upgrading education and when
• part-time education and when
• sabbatical, when, length of time
Travel
• where/when
Obviously the list could go on. Don’t feel you need to address everything in one sitting. This should be a living document that you and your spouse or family add to over the coming months and review twice a year. Don’t be concerned with very short-term goals as we address them in Step 2.
Step 2: Needs and Wants List
This step can be a great deal of fun. Again, you may wish to try this exercise over a date night or at least in a relaxing setting, possibly over a glass of wine. Get a blank sheet of paper and each of you should complete your “wants” and “needs” list for the next 3, 6 and 12 months. Compare each list and agree on one pick from each category (one want, one need) that you’ll both tackle first together. You might be surprised what each of you thought was a want and what truly was a need.
Step 3: Where Are We Now?
Next, start with where you are as a team. Gather all your debts, assets in as much detail as possible. This step might take a few days to several weeks for you both to complete. You’ll also want to find out as much about your assets as possible, such as the approximate value of your home if you own one, how much each of you has in an RRSP or TFSA (we’ll cover tax shelters in Chapter 9), what any non-registered accounts are valued at, what were your rates of return last year, etc.
Step 4: How Are We Going to Get to Our Goals?
This is where you as a couple need to do a little number crunching. A good place to start is on the website of your financial institution. Once you’ve both determined your top goals and chosen a need you want to work toward, you’ll need to figure out how to get there. Here are some ideas:
• emergency savings
• saving up for a home
• affording your home
• pay down the mortgage vs. investing in an RRSP or TFSA
• vacations vs. renovations
• kids’ education vs. your own advanced education
• sabbaticals vs. maternity or paternity leave
Step 5: Make Changes
If you’re going to achieve something different from what you both have now, what changes need to be made? Giving up something to fast-track saving for the down payment of your first house? Giving up buying your lunch at work in exchange for a beach holiday next year? Perhaps one spouse is willing to work overtime while the other goes back for a master’s degree. Again, this Step may take weeks or even months. Revisit this area often, even if it’s just a short conversation about your progress thus far or to reset time frames and priorities.
Step 6: Take Action and Get Help
Make a list of what needs to be done next: for example, get a mortgage, prepare your wills, etc.
For help in finding a financial professional to help you reach your goals, see Talking with the Professionals later in the chapter.
The Six-Step Conversation
Step 1: What Are Our Goals?
Step 2: Needs and Wants List
Step 3: Where Are We Now?
Step 4: How Are We Going to Get to Our Goals?
Step 5: Make Changes
Step 6: Take Action and Get Help
Talking with Your Kids
People often ask me how soon they should start talking about money and finance with their kids. I’ll bring it back to matters of health. It should be a daily priority to make enlightened decisions about our health and talk about those decisions in our daily conversations with our children of any age. But when it comes to matters of money, many people have funny feelings and past histories concerning a lack of money and/or education. On a subject that embarrasses us to even think about, we probably have no idea where to begin teaching our kids. In fact, we probably have no idea where to begin solving the problem for ourselves. But I assure you that you’re not alone and you only need a healthy curiosity to work these issues out successfully. Plus, if you’re lacking in financial knowledge, think how wonderful it will be for your child not to grow up with the same lack of understanding about something so fundamentally important to the day-to-day dealings of our lives — money.
Learn While You Teach
A great beginning is simply to be interested in the topic yourself. Put on your student hat. Give yourself permission to learn as you teach your children. Keep in mind that even at a young age, kids hear what we say and keenly tune into our body language. You’ll want to be cautious not to use emotional adjectives when describing money such as filthy, dirty, good or bad. Money should never be used as a reward or punishment for good or bad behaviour, just as experts tell us not to use food in that way. Of course a convenient source of information exists right at your fingertips in your computer. Consider a field trip with your child to the library or bookstore. Get a money book such as CPA Canada’s A Parent’s Guide to Raising Money-Smart Kids (to order a print copy or download an ebook, go to cpacanada.ca/financialliteracypublications) or other books written especially for educating kids — they tend to have a surreptitious way of educating parents at the same time.
Talking with Your Parents
If you’re blessed enough to still have one or both parents in your life, this can be the most difficult conversation of all. I realize that for some families it’s simply not possible as they are very “closed” about money. My husband came from one such family. In my own family, we’ve always been extremely open about matters of money, debt and specific wishes at death. Because I come from an extremely large family with many older members, I’ve attended at least one funeral each year since I was a small child, I’ve also had to plan a number of them. I know one thing for sure; the death of a family member is one of the most difficult times in your life. Dealing with our own emotions as well as trying to carry out the wishes of our parents at the time of their passing is very stressful. This is a time when you want important information to be easily accessible. Knowing where everything is and being able to carry out their wishes takes a huge amount of pressure off the family and the person planning the funeral.
For families such as my husband’s, “the talk” might never happen. For my family, it happens far too often for my liking. But for most, there’s a healthy in-between. It’s not a conversation you need to have often; a brief exchange once in a while can save so much future grief and needless worry.
CPA Canada has published an excellent book which covers all the aspects of financial decisions for end of life planning. It includes practical information and checklists to guide you. To download a free ebook or PDF copy of A Guide to Financial Decisions: Planning for the end of life, please go to cpacanada.ca/financialliteracypublications.
Talking with the Professionals
At some time you are going to want to or need to talk with a financial planner, a lawyer and an insurance agent. But what should you ask them in order to get the service you need? The following are taken from conversations I have had with professionals in these fields.
Important Issues to Discuss with Your Financial Planner
With Keith Costello, President and CEO of the Canadian Institute of Financial Planners
Q: How do I find a financial planner?
A: One of the best ways to start is by asking for referrals from a trusted friend or family member coupled with some independent research about the recommended advisor. You can also find a planner in good standing on the Financial Planning Standards Council (FPSC) website (see www.fpcanada.ca and the Resources section in Chapter 10).
Q: What should I ask myself before going to a financial planner?
A: Am I ready to truly commit to an engagement with a financial planner and meet my obligations as part of that relationship (e.g., disclosing personal information, providing up-to-date information, meeting regularly, etc.)? What objective am I trying to achieve by dealing with a planner (e.g., tax strategies, investment advice, etc.)?
Q: What are the top four questions I should ask a financial planner?
A: 1. What are your qualifications? Do you have any professional designations? What are they, and how do they apply to my particular situation?
2. Do you follow the six-step financial planning process? (See the Resources section in Chapter 10 for a link to the six steps you should expect).
3. What are the areas in which you specialize?
4. How are you compensated? (I would add, “If I left you tomorrow and hired another advisor, what would that cost me?”).
Q: What should I look out for?
A: Relevant qualifications (e.g., experience, professional designations, etc.). Does the planner practise full financial planning or do they focus on just selling products? How often has the planner committed to meet me each year? Will the planner enter into a client-planner engagement? Will the planner be able to address all my needs or will I have to work with other people as well (e.g., insurance agents, estate planners, tax planners, investment specialists, etc.)? I would also ask them what products they are licensed to sell.
Important Issues to Discuss with Your Lawyer
With Yolanda Van Wachem of McLennan Ross LLP
Q: What are the top three things in my financial life that I should seek from a lawyer?
A: The major documents to consider are wills, powers of attorney and prenuptial agreements.
With wills, ensure that you review them often. This is not a document to get done and never look at again. If a will is drafted when their children are young, most couples aren’t concerned as much about assets as they are about guardianship of the children. Fast forward 10 or 20 years, and the situation is likely dramatically different.
A will should be reviewed after significant life events, such as a separation or divorce.
You’ll want to ensure you also have a living will (often also called a personal care directive) in place.
Powers of attorney are one of the most important documents your legal professional can draft. They’re not expensive and everyone should have them in place. A power of attorney lists who can and will make financial decisions on your behalf if needed (i.e., if you were on an extended vacation) and also, if there was a temporary or permanent mental incapacity. If these documents are not in existence in a time of need, the cost can be enormous.If you are getting married, consider a prenuptial agreement. A cohabitation agreement should be considered if you are planning to live together but not marry.
Q: What should I ask myself before seeking legal services concerning my finances? What should I look out for?
A: Be cautious about adding a spouse, child or someone else as a joint owner of any asset. Doing so could mean losing not only control, but could create tax and other consequences. If you are transferring property or funds, carefully think through all tax, legal and other considerations and seek legal advice.
Keep in mind situations where you don’t want to act without legal counsel: buying and selling a home, opening a small business, allowing someone to live in your home (therefore possibly becoming a dependent) and more.
Important Issues to Discuss with Your Life Insurance Agent
With Greg Pollock, President and CEO of Advocis, The Financial Advisors Association of Canada
Q: What are the top three things the average person should know about life insurance?
A: The first thing people need to understand about individual life insurance is that its purpose is to ensure family members and loved ones are financially protected in the event of one’s death. Life insurance can provide funds for things such as funeral expenses, paying down debt or providing an income for dependents.
The second thing is that a life insurance policy is a contractual agreement between you and a life insurance company that guarantees payment of the face value of the policy upon death. There are many options when it comes to choosing a policy that makes the most sense for you and your family. A financial advisor who is licensed to sell life insurance can help you select the product that best suits your needs. He or she will conduct a needs analysis that addresses your financial situation, and will then document current and future goals to develop an individualized financial plan to achieve those goals.
As part of the financial planning process, a good financial advisor will explain products and options to help you arrive at an informed decision. He or she will help answer questions to determine the type of coverage needed (i.e., short-term, permanent or a mix of the two), how much insurance is needed and whether other types of insurance, such as disability or critical illness, are also required. If you’re self-employed, for example, and become disabled and are unable to work, disability insurance can provide you with the funds needed to pay expenses. Critical illness insurance helps pay costs associated with life-altering illnesses.
The third thing to know is that as your circumstances change, your level of life insurance coverage may also need to change. Therefore your policies should be reviewed with your advisor regularly, or as your situation changes. Life insurance is an essential part of a comprehensive financial plan that helps consumers prepare for every eventuality.
Q: What should I ask myself before buying life insurance?
A: One of the first questions is, “Am I dealing with an advisor who is a member of a professional association?” Members of Advocis must abide by a strict code of ethics, but they are also required to uphold standards of best practice, participate in ongoing continuing education programs, and maintain appropriate levels of professional liability insurance. Belonging to a professional association and adhering to its membership requirements demonstrates a commitment by the advisor to always work within the best interests of the client. (See www.myadvocis.ca and the Resources section in Chapter 10.)
Q: What should I look out for when shopping for life insurance?
A: An insurance-licensed financial advisor will help you sort through the maze of options available. Whether it’s a whole life, universal life, term to 100 or a term policy, each type of insurance has its own set of features. It’s important that your compare these features to ensure you understand the pros and cons of each.
Some features to consider include: whether the policy is renewable (meaning you can renew your policy at the end of its term, in the case of term insurance, for a higher premium without submitting to a medical examination), or if it’s convertible (meaning you have the option of exchanging your term policy for a permanent insurance policy without submitting to a medical examination); death benefits; premiums; cash values and other significant features.
Q: What should I look for when dealing with a life insurance agent?
A: The most important thing is to ensure that the advisor is a licensed professional. In addition to asking the advisor if they belong to a professional association such as Advocis or another association, ask about the advisor’s professional qualifications and training. Look for someone who holds the CLU (Chartered Life Underwriter) designation or the CHS (Certified Health Specialist) designation, which demonstrates a commitment to their professional development. Finally, work with someone you trust. It’s important that you feel comfortable with your financial advisor or life insurance agent as this is the person who will help you navigate your financial future.
Q: What are three trouble signs I should watch for?
A: With the exception of Quebec, currently the use of the words “financial planner” and “financial advisor” are not regulated in Canada. Be sure you are dealing with a qualified professional who has the credentials and education necessary to assist you with your insurance needs. Don’t be afraid to interview several advisors and ask for references from other clients. Avoid anyone who tries to sell you a particular plan or product and won’t suggest alternatives — there is likely more than one solution to your life insurance needs.
In addition, the Canadian Life and Health Insurance Association (CLHIA) also recommends you ask for proposals in writing (policy illustrations), and that you watch out for any suggestion that you surrender your present policies. Certainly, there are some occasions when a replacement policy is in a client’s best interest; but there are also occasions when it is not. If you already have a policy in place, weigh the pros and cons of both your current and proposed policies. It may be possible to alter your existing policy to meet your current needs. Again, if you are working with an advisor who belongs to a professional association, that person is subject to a strict code of professional conduct and therefore should always be putting the client’s needs first.
In addition, once you’ve decided to purchase a policy, be sure to read the application form carefully and thoroughly before signing. Your signature authorizes the insurance company to confirm your medical history on a confidential basis. Once the policy is delivered, your advisor should review it with you to ensure this is the policy you bought. Working with a professional insurance or financial advisor will help you avoid costly mistakes and ensure the decision you make with respect to your policy is an informed one.
Please note: when it comes to matters of your finances, never be afraid to ask how, and how much, a financial advisor or insurance sales person is being paid for the products and/or services they’re recommending.
Negotiating Outside the Family
So few of us in Canada take pleasure or even try to negotiate a better price unless we’re travelling in a country where it’s part of the culture. Negotiating doesn’t need to be laborious or require the skills of a master sales person. It’s simply asking to get a little more or to pay a bit less. Why leave money on the table? Why not get a free upgrade or gift of appreciation for shopping at the same place you always do? What about a discount if your family frequents the same establishments? Simply asking, “What’s your best offer?” or “What else can you throw in or do for me?” and then remaining quiet can work wonders. You won’t succeed every time and you may have to be prepared to walk away and try again. But negotiating could save you countless thousands of dollars over a lifetime or get you more than you ever imagined. Plus, it can be contagious and fun if you make it seem like a game. Be sure to explain the process and what you’re trying to achieve when your children are with you as well.
Here are some areas in your life to ask for a deal:
• your cell, phone, Internet and cable company: call every three to six months just to see what new offers they have
• a restaurant that you and your family frequent
• furniture and appliance stores: ask if the store honours future sale prices for, say, 30 days; if you’re purchasing a big-ticket item such as a TV, a future sale could save you a lot of money later
• car and home insurance for better rates
• credit card companies for a better rate on the interest you pay if you carry a balance each month
• banks to waive some fees if you have three or more products or give you a better rate on your mortgage or GICs
• independent stores for gifts with purchases — especially if the store is competing with the big box stores; an owner is much more likely to want to keep you as a return customer; it can be as simple as asking, “What else can you throw in with my purchase, for a good customer?”
• trades people doing renovations or service work of any kind
• student’s or senior’s discount or even the GST or HST off
• volume discount for anything
I’m not suggesting that you go overboard looking for deals and clipping coupons (unless you like to do that), and be careful that you don’t buy a product or service just because you have a coupon for it. You also need to factor in what your time is worth and ensure you’re not running around town for a better deal when you could have been paid much more for overtime at work, for example.
Disputes
Equally as difficult, if not more so, is dispute resolution. Whether it’s an error on your utility bill or you were promised a better rate on your cell phone plan and never received it, it’s your right as a consumer to get what is fair or what you were promised. However, dealing with some companies can feel hopeless and far too many consumers just give up.
If you are calling a company to complain or resolve an issue, ask for a supervisor or manager immediately. Also, try to call during regular business hours (usually Monday to Friday, 9 a.m.–5 p.m.) even if they’re open evenings and weekends. Generally, senior staff (such as managers) get the best shifts and usually have the most power. Someone working at a call centre at 9 p.m. on a Saturday night is likely to be an employee with little authority to get things done.
If none of your methods resolves the matter, try the following when escalating your complaint:
• your local Better Business Bureau
• if it’s a dispute with a bank, trust company, or investment firm, try the institution’s internal dispute resolution process, and if that’s unsuccessful contact the Ombudsmen for Banking Services and Investments (OBSI)
• if it’s a dispute with someone in the financial industry such as a financial advisor, try their regulatory body or the Office of Consumer Affairs
(See the Resources section in Chapter 10 at the end of the book for contact information.)
The Government of Canada also has an excellent website detailing where to direct your complaints, and also the rights you have as a consumer in the area of banking, mortgages, credit and much more. Visit http://www.consumerhandbook.ca/en/
Easy Action Steps
1. Set a date night with your spouse or yourself and list your short, medium and long-term financial goals and dreams.
2. Have the financial “talk” with your kids, parents and siblings.
3. Pick one opportunity this week to negotiate a deal or ask for more.