The Big Uh-Oh is Here!
Okay, the news on the recession front is that we’re in one and we better start doing things a little differently. And while the lenders of the world would like us to keep borrowing - more in a minute - the University of Toronto’s Institute for Policy Analysis says that Ontario’s economy contracted .4% in the first quarter of 2008, and is in the midst of shrinking again. Since Ontario makes up almost 40% of Canada’s economy, an Ontario downturn, no matter how mild, is going to be felt everywhere. So maybe it’s time to step cautiously.
The new head of domestic banking at the Royal Bank, Dave McKay, doesn’t agree. He says that the Canadian consumer is very healthy right now, and being in such good shape could probably afford to borrow even more. Really? Course, Mr. McKay is praying that Canadians keep borrowing because the investment banking business - the other big money-maker - sucks. So lenders have to pick up the slack so the banks’ profits don’t drop off.
Bankruptcy professionals have already begun to sound the alarm. All that go-go spending on credit has put many people precariously close to the edge. Hopefully, we’re waking up to the reality that we’ve spent money we won’t earn for the next two, three or even four years - if we’re lucky enough to have a job!
There are pundits who believe this “waking up” doesn’t bode well for the economy as a whole, since when people stop spending money that just makes the whole thing come crashing down. But I’d argue that we haven’t been spending money in our last mad dash to the mall, we’ve been spending credit - money we haven’t made yet - and so all we’ve really done by shopping ourselves silly using our credit cards is delay the inevitable in the cycle of the economy.
Like the seasons, the economy has a cycle. We can’t change that. As much as we try to wish it away with dumb terms like, (said in a deep voice with a very serious face) “the fundamentals have changed,” that’s a load of rot. Fundamentals don’t change. That’s why they’re called “fundamentals.” What changes is our willingness to follow the basic common-sense rules.
Rules like: You don’t spend money you don’t have. Why is that rocket science? If we don’t have the money to pay for the furniture, the new dress, the vacation now, why do we thing this money is going to magically appear in 30 days, 6 months or a year. And why - if we’re having trouble making ends meet now - would we add the extra cost of interest to our outlay? Are we dopes?
I started working with a new couple yesterday - lovely people. I have high hopes. But when I took her credit cards away, she looked like she was going to toss her cookies. “Suppose I need something?” she said, a look of utter panic on her face.
“Need something like what?” I asked.
“Well, suppose I see something that’s a really good deal that I need?” she queried sincerely.
“Need or want?” I asked.
She paused. He laughed. She was stuck.
We can’t even tell the differences between things we NEED and things we WANT. We’ve been so busy satisfying our every whim RIGHT NOW, that we’ve totally lost perspective. Hell, we’ve totally lost our senses.
What did people do before there was a Starbucks on every corner? Do you NEED to have a cup of coffee that costs three bucks? Really?
How often did your parents eat out when they were raising you? Every second day as many of us do? Really?
And they took you on exotic vacations every year too, right? Hmmm.
So when did we begin to think that nice-to-haves are have-to-haves?
I’ll tell you when. We began to spend indiscriminately when we were introduced to the idea that we could have whatever we wanted right now and would only have to pay a fraction of what it would cost - somewhere between 2-3% — in monthly payments. That 2-3% minimum payment feels painless, and so we got in the habit of spending without thinking. We want it, we buy it. No money in the bank, no problem. We can whip out our credit card, or take a cash advance, and we’ve got it. No harm, no foul. Really?
We’ve swapped poker night with friends for a trip to Vegas. We exchanged fixing the car for buying a new car. We’ve substituted borrowing for saving. And with all these changes we have been doing ourselves harm, and we’re about to find out how much.
It’s time to prioritize where our money goes. Video games aren’t a necessity. Nor are new clothes, furniture or eating out. And as much as you think you could never survive without that coffee in the morning or that glass of wine in the evening, I’m here to tell you those aren’t priorities either. They are nice-to-haves. If you’ve got so much as a dollar of debt, you’ve got to put the brakes on the nice-to-haves until you’re out of the hole.
It’s also time to go back to bargain shopping. I don’t want to hear the yada yada on quality versus price. Bargain shopping doesn’t mean buying crap. It means buying quality at the best price going. And it means only buying what you NEED.
And it’s a time to lower our expectations about what life should be like. Since when does a trip to the amusement park beat a day playing baseball, volleyball or soccer at the local (free) park with friends?
While you’re at it, consider what skills you have to offer in exchange for things you need done so you can help someone else save some money too. Consider swapping what you have for what you need. There are people out there who are car mechanics, contractors, home-care providers, sewers, bakers, cabinet-makers. Figure out what you have to swap and do the deal to save some money.
Of course, you can’t say you’ve SAVED anything if you immediately turn around and spend the money. Nope. You’re just deluding yourself. Instead, every time you SAVE a dollar, immediately apply it to your debt. You can keep a simple chart on the wall to keep track of how you’re doing. Get some momentum and you’ll be shocked to see how quickly you can get out of debt.
Hey, you can believe me or you can believe The Banker. You decide.
April 30th, 2008 at 9:18 am
I believe you Gail!
April 30th, 2008 at 9:52 am
Bravo Gail Bravo! This is the smack in the head that most of us need! What banker? I don’t know any banker, I know only Gail, the Financial Guru!! A life size poster of you in my kitchen? with a print of of this blog beside it? - that should scare the pants off my family and friends!! Cheers!
April 30th, 2008 at 9:57 am
I believe you over a banker any day Gail! You have the best advice and I always look forward to hearing your honest thoughts and opinions. I was shopping with my 13 year old daughter on the weekend (she has her own clothing allowance, thanks Gail!) and we were in American Eagle. They have a t-shirt that says: FUN, Flat Broke and FABULOUS! Why would anyone want to label themselves that way? Is it cool now to spend all your money and be in debt?
April 30th, 2008 at 10:46 am
Gail, you are so right about being in a recession already. We’ve tighten our belt, paid off the credit cards and have a healthy size savings account which seems to be growing like crazy. It’s amazing how once you get started towards financial health, your whole outlook on ’stuff’ changes. We buy what we need at the best price and put the wants on a list for future considerations.
Stuff doesn’t make memories, time with those you love does! One of my fondest memories is of a trip home…we got all the aunts, uncles & cousins out for a game of slow pitch…it was a blast!
Thanks Gail!
April 30th, 2008 at 2:28 pm
Hi Gail - Excellent comments. I live in Saskatoon and we are in the midst of a “housing boom” I can not believe how many of our friends (who are in the late 30’s) are justifying a 40 year mortage - especially when they own an “average” home already. I keep hearing - it’s not the price of the house or the length of the mortage - it’s the monthly payment that matters! And this is being encouraged in the media and by the lenders - it’s like people are talking about “renting a house from the bank” - people have also talked about paying only the interest on their home - what a change in perspective in one generation!
April 30th, 2008 at 3:38 pm
Another reality check from Gail! (I was just browing MLS to look at dream homes, then thought “I wonder what wisdom Gail will be sharing today?” Now I feel silly looking at the houses!)
My husband and I were just last night talking about the innevitable recession and how we already don’t do what “normal” families do. We don’t eat out (MAYBE once a month), nor go to movies. We don’t have any memberships, the kids aren’t enrolled in any sports, we eat pretty cheaply and always buy everything used, my husband maintains and repairs anything with moving parts (including the car) and our home is cheap by todays standards.
The internet is the communication tool of my livelyhood, so I had to get high-speed, we are frugal and too cheap to buy with credit — can’t stand paying interest — but other than cutting out a vehicle, we can’t think how to cut corners any more than we already do!
So if life gets more expensive, I guess I will have to work more hours per week….
I love your posts…. keep’m coming!
April 30th, 2008 at 4:07 pm
An innocent-looking double generation gap:
I was told of people who lived for decades owning a single set of bed sheet (per bed in the household) at any given time.
I’ll admit that it saves time. Undo bed, clean sheets, put sheet on bed. NO FOLDING! (No need for linen closet etc.) You don’t need the sheets on the bed for the whole day while they are getting washed.
Makes you think!
Indulgences are relative.
April 30th, 2008 at 4:15 pm
Tracy J - I may have a few suggestions to cut your budget that maybe you have not thought of:
1. Increase insurance deductible to the highest possible on your home and cars.
2. Find a cheaper bank account
3. If you are good with credit, which it sounds like you are get a cash back credit card. You can get one in Canada with a 1% cash back on all purchases and as long as the balance is paid in full it can pay off nicely over a year.
4. Bundle your communication bills with one provider can save 10-20 dollars a month.
April 30th, 2008 at 5:58 pm
to add to dan’s suggestions,
5. grow your veggies and/or shop at farmers markets. cheap meat and produce (at least half the price for in season).
i own 2 sets of sheets for our bed, one flannel fuzzy set for winter, one set of normal sheets for summer. i can only put one on at a time, anyways.
as for the ‘monthly payment’ thing, it’s all well and good that the monthly payments are ‘affordable’, that’s providing nothing else happens, your income never takes a dip due to lay-off, illness or mat leave or any other life curve ball occurs. if you are one month away from not paying your bills….the monthly payment may not be so affordable after all. seek help. read anything written by gail.
May 1st, 2008 at 9:27 am
@ Tracy J
though I applaud your efforts to curb unnecessary costs, I do take issue with your comment that your kids aren’t enrolled in any sports. That is a mistake, I think that may ultimately cost far more than you realize. Though I think some sports are tremendously expensive (I’m looking at you, Hockey) others are much more affordable and require much less equipment to get going - think basketball, soccer, or cross-country running.) In an age when I see so many fat kids (we call them husky now) I can’t help but feel it’s a form of child-abuse. Note: Not saying your kids are fat, there are all sorts of other benefits to being on a team like leadership, teamwork, planning, learning to be dedicated, etc that you may want to consider.
May 1st, 2008 at 9:43 am
To Geoff & Tracy J:
I have a 17 yr old who has never been in organized sports and he is growing up just fine - he is healthy, and definately very active and in good body shape. We don’t believe in throwing tons of money in organized sports when it is just as good as rounding up the kids in the neighbourhood and heading down to the park with their basket balls, roller blades, bikes and other equipment. They do this every single day after school, except in the winter, when they go toboganning and ice skating.
All the skills that come with sports are still being learned in school and out of school in the park. One parent is always there to supervise.
As for the ‘fat’ part Geoff - it the food one feeds the kids - I cook every day from scratch and make extra so if there is a day, I cannot cook, out come the left overs. Vegetables, legumes, beans, lean meats and all. I’m a little offended by the comment, that not putting your child in organized sports is a form of child abuse. My parents or my in laws, never had us in organized sports, and we grew up just fine.
I must add, I don’t have any computer games or such crap in my house and the computer is off limits unless it’s for homework. The TV only comes on for news and documentaries. Other than that, out go the kids where they belong, in the yard, in the park. Thanks.
May 1st, 2008 at 9:53 am
to Geoff:
PS: Just wanted to add - my son is an excellent student and reads every single day before he goes to sleep, reads on the bus when he commutes to school, etc etc. No TV, no phone, no electronics, nothing in his room. Oh yes, and no cell phone either, he carries quaters, needs to call home, uses the pay phone at school or where ever he is. So I don’t understand, what you mean by ‘I think that {not being in organized sports} may ultimately cost far more than you realize’ Geoff. He is growing up to be a fine young man, and I am very proud of him. Thanks.
May 1st, 2008 at 10:17 am
can we all agree that kids need to be active, eat healthy and be involved in ANYTHING that makes them feel good about themselves? whether that’s hanging at the park, swimming in the lake or playing a $5000 a year sport.
just playing a little switzerland to keep geoff’s head firmly attached to his shoulders today.
let’s not attack parenting skills, perhaps we could share some ideas on alternatives to the crazy costs of organized sports.
what can our kids do for free? mine’s little and we will be coming up to those years soon enough.
May 1st, 2008 at 10:44 am
My child abuse comment was that kid’s being allowed/encouraged by default to become dangerously overweight is child’s abuse, not that it’s a form of child abuse to not put kids in organized sports. In fact, as a coach, I sometimes thought that putting the wrong kid in the wrong sport and then yelling at them constantly IS a form a child abuse itself . My head is firmly on my shoulders
Exercise is exercise; however, to say that laissez-faire exercise and organized sports are identical in terms of the lessons they teach is not supported by any research that I know of, nor by my experience. If you have better research available, I’d love to read it.
May 1st, 2008 at 11:53 am
Why does everything have to be backed by research? Why can’t we just look at our children and do what we know is right for them? In this age of information - many of us are doing things based on research and yet as individuals, it could be wrong for our children and for us.
All I’m saying is - get together in your neighbourhood - take turns, taking the younger kids down to the park or fields and let them loose - they organize themselves into teams and trust me, they work out their issues, kids are very smart and very resourseful if we give them a chance. Eventually, this will become a habit - getting out of the house.
I do beleive that if the kid is going to make a career in sports - ok, enroll him/her in organized sports - but otherwise there is no need for that.
To me, organized sports has become a way to make money and it’s for the parents mostly, not for the kid. Just so the parent can say - oh look, I am such a good parent, I have my kid in an organized sport, what organized sport does your child play?
Feed them properly, monitor the eletronics and be there when they need you and the kids will grow up just fine. I have an example right here in my house.
So my question is - what about kids who are not into sports - which would be my best friend’s son - super fantastic kid, great student, great person - where did he learn his lessons from? To me - you, the parent, are the best teacher of all! Thanks.
May 1st, 2008 at 12:38 pm
Geoff and NKM. I want you to stop fighting. Kids need to be active, but they don’t need to be active in organized sports. Lots of kids find ways of staying happy and healthy by doing things that they love that don’t involve sports, never mind organized sports. Our children are individuals, as we are, and what’s right for one person isn’t right for another. We make choices. We pass our values on to our children. We do the best job we can. There is no one right way. And organized sports aren’t evil; neither are electronics, computers, or any other activities our children choose to participate in because that’s where THEIR interest lie. Balance is the key. So is, “be and let be.”
May 1st, 2008 at 12:55 pm
Sorry, did’nt mean for it to come out like that. Thanks.
May 1st, 2008 at 2:46 pm
Marie - I am 25 yrs old and only use one set of bed sheets on my bed! I do just that - use them, wash them, put them back on. I’ve had a queen sized bed since I was 5yrs old and this is only the 3rd set of sheets I have ever used!
May 1st, 2008 at 8:42 pm
When my parents were growing up they had one set of sheets, one or two outfits to wear to school and some play clothes for the weekend. Eating out was rare, let alone junk food in the house.
Today we get so focused on fashion and looking good. Heaven forbid you wear the same thing to work twice in a 2 week period. We put pressure on ourselves to drive new cars, have bigger houses, the flat screen tvs and best of electronics.
Who cares right?
I have to remind myself all the time when I get a little envious that I already have lots of nice clothes. My tv is just fine. I am enjoying my 2 yr old car, but I’ll sure be glad when it’s paid for. I intend to drive it to the ground because car payments suck.
I don’t need video games to entertain me etc.
I find I’m doing okay setting limits for myself and really trying to think about my purchases.
What I find challenging is setting limits on what to buy for my son. He’s 2 1/2. I don’t want him to be materialistic. I want him to appreciate his things and understand the value of a dollar as he grows. I will take Gail’s advice seriously on teaching our children about money management. I love the idea of a chart for savings when they want to make a special purchase. Sure, I’d love to buy him all the Thomas the Tank Engine wooden toys and lots of cute outfits etc, but I have to step back and think is he happy with what he has now? YES he is. Does he really need a ton of clothing? No he doesn’t. Trying to keep up with the Jones isn’t worth going in debt for.
Gail, thank you for your blog. Reading it daily helps me keep my spending realistic. I’m now planning my purchases and thinking about what I need vrs want. And for the things I want I’m planning for those purchases.
Though I must say, as a “Banker” I take a little offense. Not everyone in the financial business is looking to get you in over your head and make you spend your money. We want you to be better of financially. We want you to save and invest your money. We don’t want you in a position where you can’t pay your bills - then we don’t get paid and no one is better off.
You can’t blame your bank for your fees, rates etc if you don’t take the time to talk about your needs and review your products. There are so many different types of credit cards and bank accounts and other products available. What’s good for me might not be good for you, so we need to discuss your needs and decide together what’s going to be a benefit.
May 6th, 2008 at 4:44 pm
Kids love any attention that their loved ones give them. It’s the time and attention, NOT the new stuff!!! Really!
Get out the ratty old books and read them on the couch. Find forgotten sheets of stickers and lay them out with fresh sheets of paper OR cut up cereal boxes! Wash some grubby old toys in the kitchen sink — all of a sudden your tot will find them highly desirable. Repair a button or hem by hand with your kid looking on or ‘helping’ snip the thread. Iron something and hang it in the sunshine — when you ‘merchandise’ your own things this way you see them in a new light. This feeds three birds with one bread — time with your kid, a lesson about taking care of what you have, and rediscovering why you liked an item enough to buy it in the first place. I call this ’shopping in your own home’ — make the bed, lay out your clothes, iron stuff, try on different combinations, etc. I swear half of shopping is done out of not wanting to do the cleaning and ironing ourselves — go into a shop and voila! Everything’s clean and ironed! So you buy it and take it home, where it gets dirty and wrinkled, so you go out again, etc. DUMB.
Oh, and bake. Stop making excuses, just do it. Make a mess, go ahead. It’s cheap, it’s fun, and at the end you have food you didn’t have before. It’s really important for kids to learn that they have the ability to feed themselves. For that matter, start a garden. It’s really not hard! Just bung something in the ground or in a pot and see what happens. I did that and ended up giving away 8000 tomatoes and huge bundles of sage, lavender and oregano to passing neighbours by the end of the same summer! And I swear I know less about gardening than anyone I know!
PS I’m working on my posh coffee habit. Yesterday I was ON MY WAY IN to Starbucks and I turned around and walked away!!! I guess only I know how amazing that is. Funny — I got home and my husband said “Hi Honey, there’s fresh coffee made” HA HA! Jenny 1, Starbucks zero!!!
May 6th, 2008 at 7:08 pm
To Jenny: Hear! Hear! Love all you had to say! And it works. I come from a family where generations of women all sew, knit, bake, cook, entertain at home and garden. So I know it works.
Their ‘Starbucks’ was coffee at 10 in the morning and at 4 in the afternoon in each other’s homes. They all took turns hosting each day, coming away with many new crafts, recipies and practical ideas in the end. Thanks.