Mixed Messages
One thing that has always driven me crazy is the number of mixed messages the financial world sends out. On the one hand you have companies fighting to give you credit, and on the other you have experts telling you how bad it is.
Then there are the messages about saving for retirement: “Make the maximum contribution every year or you’ll have to eat cat food” versus “You shouldn’t even put money in a retirement plan because the government will give you all you need.” Really?
The insurance world screams: “Term insurance is the best.” “Permanent insurance is the best.” So which is it?
Is it any wonder that the people I meet are confused?
So I’m wondering the wonderful web when I come upon the Canadian Banker’s Association’s quiz, “How financially fit are you?” You answer all the questions and they give you a score.
The problem is all the questions in the CBA’s financial fitness test relate to debt management, which is only a small part of being financially fit.
Hey, I’m the Debtinator, right, so it’s not like I don’t think having too much debt is a bad thing. What I’m objecting to is the fact that the very people who should know how important all the other components of a sound financial map are, are leading the public to believe that it’s all about debt.
It’s not all about debt. Credit isn’t the monster. Ignorance is.
Let’s say you have no debt and answer all the questions on the CBA’s Financial Fitness Test in the negative. Your score is fantastic. In fact, according to them, “You’re the picture of financial health.” Good for you.
So when your roof starts to leak on Tuesday, you’ll be fine because you have set aside money for home maintenance and you’re prepared, right? No. You mean you don’t have a home maintenance account?
How about an emergency fund? Nope?
Or disability insurance? Not that either, eh?
Well, I guess you’re not the picture of financial health.
You see, being out of debt does not mean you’re financially healthy. Having all your financial bases covered does. And you’d think the smart people at the CBA would know that, wouldn’t you? After all, if you don’t have a home maintenance account, if you don’t have an emergency fund, if you don’t have disability insurance, then it is only a matter of time until something you haven’t planned for pops up and pushes you to use your credit.
Over and over I’ve worked with families who had no financial road map and ended up lost. And it’s no wonder, since the people they are counting on for good advice are just as vacant as they are. Too bad. I guess counting on the pillars of our financial community to get it right is expecting too much.
November 25th, 2007 at 1:43 am
Mixed Messages! Tell me about it! I’m supposed to pay myself first, so I get my wages garnished for the 4% my company RRSP will match me for. But I’m in debt to my teeth so I try to pay that off as much as possible, but yet it always seems to be one step forward two back. The taxman apparently thinks I make to much money and tries to take more taxes off me in March. So I fight him off by paying in more on my personal RRSP so my whole contribution for the year is 10% annual pay. But that just equals me out so I don’t have to pay taxes but I don’t get a refund to put towards my debt. Oh ya this is all money I could have put on my debt so may be I’m actually three steps back?
Hmm so my question is it better to just say screw RRSP’s and pay the taxman so I can focus on paying my debts? Or am I on the right track thinking that paying interest on debt now is ok cause I’m making more in compounded interest on my RRSPs? To RRSP or not to RRSP that is the question.
November 25th, 2007 at 9:22 am
It really isn’t a question of interest. You save because if you don’t save you’re going to step in elephant-sized goop — it’s only a matter of time. And an RRSP is the single best savings vehicle going, particularly if you’re under the age of 55 and have gobs of time to let compounding do some of the work for you.
If you’re frustrated with your debt, there are two things you can do…
1) Find a way to cut what you’re spending on other stuff so you can put more money toward your debt repayment. You should aim to have your debt paid off in under three years. See my article Face Up and Fess Up and the Own Up to Your Debt Worksheet for help.
2) Find a way to make more money: get a second job, a third job, a better job. Work smarter or work harder. And put all the extra income toward you debt.
Before you go off saying that will mean the tax man will be after you for even more taxes, I’ll head you off at the pass. You’re right. Which will make using an RRSP even more important.
Or you could just keep on keeping on, never getting further ahead, frustrated out of your mind. Hey, you decide.
December 10th, 2007 at 6:51 pm
Gail, I am not sure if I am posting in the right spot, but I have a very important question that I need answered. How much is too much for a consolodation loan? My husband and I are very much in debt and I believe the only way to get on the right track would be to consolidate our credit cards but they are high balances. Very much needed help! Thank You!
February 3rd, 2008 at 1:11 pm
Finding your site was an accident thanks to google, but I like it