Dec 202012

“Dear parents, I am fully aware that money doesn’t grow on trees.
Sincerely, that is why I’m asking you for it.” ~ Anonymous

Richard Ziemski

Richard Ziemski

With regularity our media rings alarm bells about student debt. The lament, often sensationalizing in nature, leaves us with discomfort and guilt over these graduates who apparently struggle hopelessly under the burden. Phrases like “spiraling costs” and “mountainous debts” create visions of a generation of Canadian students in unprecedented financial hardship. Add to this the pictures of protesting Quebec students, and we are surely in a crisis. Or are we?

Recent reporting with a more contrarian view has addressed the issue of misleading media references to student debt. Analysis of government and other studies serves to dispel the myth that most students are in debt, showing that nearly half of graduates had no debt at all. As well, approximately one quarter of those graduating with debt hold most of the debt; on average $27,000. It seems that the perceived crisis may be narrower than often presented and also might be the result of factors other than the alleged unprecedented “spiraling costs”.

It is 1969 and a young man (unnamed to not embarrass the writer) graduates from McMaster University with a $4,500 student loan. Other than free room and board at home in the summers, he has paid for his education with summer and part time work. An average annual starting salary after graduation at the time is $7,000. His debt amounts to 64 percent of gross wage. This ratio taken today assuming a debt of $27,000 and average starting wage of $40,000 is 67 percent and is relatively comparable.

Years later, a postmortem of the circumstances and factors behind this debt revealed no unprecedented “spiraling costs” even though media alarms were common then just like today. There were however a couple of uncomfortable personal truths behind the creation of this debt; namely a failure to budget/ manage money properly plus a sense of entitlement:

  • Purchase of an used red MGB sports car $1,400
  • Speculative stock buy on advice of a professor (an asbestos mine!) $1,000
  • Ski trip to Mt. St. Ann, Quebec $500
  • Steady girlfriends and pubs (guys paid in those days) $1,600

Human nature is often not unique and I would venture a bet that dissection of today’s student loans in that “one quarter group” would reveal many cases of self inflicted excessive borrowing related to our two culprits: poor money management and a sense of entitlement.

Good parenting means preparing our kids to stickhandle their own way in life. To ensure university is the right direction, a parent needs to ask some hard questions:

  • How badly do you really want a university/college education?
  • Are you sure you’re not just in need of leaving home?
  • Are you ready to make the sacrifices necessary for this investment in yourself?
  • Are you willing to learn money management and to stay within budgets?
  • Are you ready to put “some skin in the game” by paying your own tuition?
  • If necessary can you accept a lower living standard than at home? (No iPhone 5?)
  • Does cheap beer make you throw up?

W. R. Ziemski, C.A.
Management Consultant

Aug 312012

“We can evade reality, but we cannot evade the consequences of evading reality.”

~ Ayn Rand

Richard Ziemski

Richard Ziemski

As I lounged with a coffee on a fine July morning, in a hammock over-looking the turquoise green waters of Georgian Bay, I realized that I hadn’t yet picked a topic for the Fall article theme “reality”. I was late. With my trusty Blackberry Playbook at my side frantically feeding me news of the world (yes I am a die-hard RIM booster), I found my topic quite easily as I read the headline “Libor Scandal.” This one involves alleged Libor interest rate fixing by a number of international banks. I know many of you, like most nice Canadians, would prefer to look away at this point except that this one may be the most insidious of financial scandals, even when compared to the unethical and criminal behaviors that led to the crash of 2008. Effectively, the Libor rate influences interest rates for all kinds of commercial relationships throughout the globe and hence has long tentacles into all corners of people’s lives.

I am convinced of one reality. “Banksterism” is alive and well in the global community and not much has improved since the misbehaviors of financial institutions leading to the crash of 2008. I also suspect that misbehavior by the world’s financial institutions is not only a reality in itself  but it is also the consequence of another reality; one that is much deeper and rooted in fundamentals underlying the development of business and political leaders since the Second War. Why do Canadian MBA universities today, in cooperation with MBA graduate groups, request students to sign pledges of honorable and ethical behavior in business? Why are our regulatory and policing institutions proving to be inadequate with a need for expansion and more teeth? The simple answer is that the level of unethical and often criminal behavior in financial and commercial activity in the world has continued to grow.

Is it possible that in the race to improve our children’s lives we inadvertently deprived post war generations of the opportunity to develop the right thinking in terms of ethics and morality? Did we stop telling our kids what is right and wrong and did we give up saying “no” to them when “no” was necessary? Did we also handcuff our educators in this role? Did we replace human spiritualism with materialism to the degree that it is ok to “win” at the game of accumulating “stuff” and power even if it is at a detriment to society as a whole? Did we raise a crop of “unethicals’ who are now in leadership roles with only the gods of Armani and Mercedes as their sources of guidance and conscience?

The consequences of evading this deeper reality stare us in the face each morning as we open the newspaper to read about the next financial scandal. For a better understanding of the depth of this reality for Canada I highly recommend an excellent book written by Bruce Livesey, titled “Thieves of Bay Street”.

In terms of what you and I can do, other than pressing for more accountability and tougher sentences for white collar crime, I think that Crosby, Stills and Nash had it right in the 60’s;

“Teach Your Children Well”

W. R. Ziemski, C.A.
Management Consultant

Jun 072012

“We didn’t actually overspend our budget. The allocation simply fell short of our expenditure.”

~ Keith Davis

Most of us would agree that adding some “spice” to warm up a marriage is good, but if you want a sure way to overheat it the wrong way, just ignore the issue of sound money management and watch what happens. Couples that know this lesson first hand and also those avoiding it are turning to financial experts for advice.

Overheat your Marriage FastMuch financial advice is sound. However, beware of both the weak and the self-appointed breed of financial experts who lack adequate experience or skill and may not be subject to any uniform professional standard. Backgrounds can be varied and often riddled with conflict of interest, so pre-caution is mandatory. For those seeking advice, my advice is to look hard at the individuals behind the advice.

Some of the more useful advice on money and marriage from both personal experience and that of others rolls up into one hand:

  1. Early Dialogue

Frequently, the same courting couples that intimately discuss personal interests, family, religion, sex, child rearing, blood types etc., will not mutter one word about personal finance. It’s almost like talking about money and marriage is the ultimate insult or deal breaker. Well, you need to get over it. Family finance is highly integral to the success of all marriages and unfortunately is today a leading source of marital breakup. So put the conversation at the front end of your screening process and if it kills the romance then consider yourself lucky. It probably saved you from some longer term grief.

  1. Financial Literacy

The overall level of financial literacy in Canada has proven inadequate and a key contributor to poor personal financial hygiene. It’s also true that financial matters have become much more complex and it is very difficult for the average person to go it alone without financial advice. Nonetheless, like learning to brush teeth, it’s incumbent on us to establish a base understanding of financial matters. Couples must commit to this learning.

  1. Long Term Goals

In the romantic pursuit years people often share life dreams with prospective partners. These dreams make excellent seeds for developing goals which, in turn, are fundamental to financial planning; both long-term strategies and short term budgets. It’s a very naturally flowing process. Whether you want to be an Olympic equestrian medalist or raise a family of six, there is always a financial impact. If you translate your dreams into a good financial map, they can be realized and shared comfortably within your marital partnership.

  1. Sense of Discipline

Maybe you’ve noticed that “nature” is all about balance, including the way we humans live our lives. Unfortunately, achieving life balance is not possible without discipline. If we eat too much of the wrong food we will get fat and put our health out of balance and at risk. Likewise, excesses in spending money will imbalance and ruin financial health. Typically money is always a scarce resource, so both partners must exercise financial discipline. Remember that you can only spend or save what you earn. Those of us who ignore discipline and don’t leave our personal sense of entitlement at the marital doorstep will risk becoming irresponsible partners and will contribute to an unhappy marriage.

  1. Proper Financial Structure

For the best financial structure many advisors follow the “whatever works for you” thinking. My view is why grope around re-inventing wheels. Take a page from business structures:

    1. Combined simple structure with all financial activity transparent
    2. Proven software: Quicken recommended
    3. Simple joint banking with one of each; chequing, saving, credit card, credit line
    4. Proven process; annual balanced budget, monthly reports and review meetings
Richard Ziemski

Richard Ziemski

Ok, now let’s go out for dinner————————-spicy of course!

W. R. Ziemski, C.A.
Management Consultant