Just as Americans are obsessed with guns, Canadians have an equally unhealthy relationship with real estate. And by real estate I mean our crazy expectations of home prices.

Don’t believe me? Just try telling people on your street their homes are worth a lot less than a year ago. All I can say is, don’t expect an invite to the neighborhood barbecue this summer. It seems Canadians believe there’s a clause in the Constitution guaranteeing home prices will always go up…. and up and up.

As a homeowner who thinks house values have dropped (and will likely go down some more), I’m fascinated by the conflicting studies out there on this topic, as reported in the National Post.

One the one side we have the Canadian Real Estate Association. CREA says average home prices shot up 16.7% from January to May, to a record $320,000. In effect, the housing market is back to pre-recession levels. (And we didn’t even have to invoke the notwithstanding clause to do it. How great is that?)

On the other side, Statistics Canada says new-home prices are down 3.2% since last September, while the Teranet-National Bank House Price Index says home values are down 8.9% from last summer. The Organization for Economic Co-operation and Development goes even further. It calculated an 11% drop in the first quarter of 2009.

I’m with the pessimists on this one. In fact, I’d say the CREA numbers are downright loopy. How do you explain an almost 17% hike in real estate prices in the same month that the national unemployment rate reached its highest level in more than a decade? If the CREA numbers are true, we’re stuck in a Bizarro World recession–one where people are afraid of losing their jobs, and have all but stopped buying clothes and cars, yet are confident enough to slap a down payment on a four bedroom, two-bath Colonial.

Feel free to disagree with me, of course. But let me make this suggestion: Unless you plan to sell your home in the next little while, forget about what it’s worth.

Instead, think of your home for what it is: a place to live. The biggest mistake many Canadians made these last few years was to assume that because home prices were going up, they were getting wealthier. So they raided their line of credit to renovate, or go shopping, or just pay the bills. Hopefully we won’t make that mistake again, even if home prices do start to rise.

If you want to feel rich these days, start putting your money in the bank. And stop thinking you can take it out of your home.

 

 

Okay, let’s see how you did. Zero for three, eh? I’m not surprised. If you had the time (and who does) you could find most of this information by reading the fund’s simplified prospectus. Unfortunately, a prospectus is about as enjoyable to read as the phone book. Which explains why you just failed my quiz. You never read the prospectus.

The good news is the mutual fund industry may soon have to provide more useful information to small investors. The Canadian Securities Administrators, which represents provincial securities regulators, wants to make it easier for people to understand what they are investing in. The CSA wants mutual fund companies to give investors a two-page document called Fund Facts that lays out the key details of a fund, like how much you’ll pay in fees a year, how the fund has performed over the last 10 years and whether it’s considered risky or not.

You can see a copy of what a typical Fund Facts document would look like here. I recommend checking it out. Though it could be a long time before mutual fund companies actually have to provide you with this type of document, you can use it right now as a template to compare funds. If nothing else, it provides a guide to the types of questions you should ask the salesperson.

I especially encourage you to read page 2. It’ll give you a rough idea of all the fees you might pay to own a fund. The most important fees to keep in mind are MERs, short for management expense ratios. These are the annual fees you’re charged to cover the management, marketing and administration costs of the fund, as well as any fees to the adviser or salesperson.

Though the numbers appear small — MERs often run 2% to 3% — they can take a big bite out of your investment. Plus, you pay even if the fund loses money. Ouch! There can be other fees as well. Some funds have initial sales charges, which you pay upfront to buy the fund. Then there are deferred sales charges, which you pay if you want to exit the fund early.

Mutual fund salespeople won’t necessarily tell you about these charges in their sales pitch. So it’s up to you to ask.

Six years later, Mike, 66, has fallen in love with his new home town. He and Heather live in a house that backs onto water, and Mike, who used to put in 12-hour days at a demanding job at a bank, enjoys the leisurely pace of Peterborough, a 90-minute drive northeast of Toronto.

If you’re a city dweller who is close to retirement, it’s tempting to follow the Evanses’ lead. Toronto, Vancouver, Montreal or Calgary are wonderful places to earn a big salary, but once retirement comes, the charms of the metropolis begin to wane. Why not ditch the traffic and move to your own Green Acres? Especially if doing so can put a couple of hundred thousand dollars in your pocket?

Consider the numbers if you live in Toronto and decide to retire to Tillsonburg, Ont. This farming town two hours west of Toronto is becoming a magnet for big-city retirees, but still has small-town real estate prices. While the average house in Toronto sells for a hefty $385,000, the typical home in Tillsonburg costs a mere $170,000. Even after moving costs, you should be able to sell your Toronto home, buy in Tillsonburg and pocket $180,000.

Few of us can afford to ignore a six-figure payday, but experts say moving to a small town can be a shock. Crime is often higher than in big cities and winter driving on rural roads can be treacherous. Then there’s the challenge of finding a doctor. “We’ve had people tell us, ‘I’ve moved and can’t get a family doctor. I can’t even get on a waiting list to get a doctor,’ ” says Susan Eng, vice-president of advocacy at CARP, the association for people over 45.

Another problem is isolation. “Frankly, some people in small towns have a negative opinion of people who move there from the big city,” says Lynn Biscott, a certified financial planner in Toronto and author of The Boomers Retire. It’s not easy to break that wall down.

Biscott suggests you test drive a small town before committing yourself. Rent a place in the town you’re considering — in November. Spending a month there in winter will provide you with a realistic picture of what life there islike, Biscott says.

If you do end up falling in love with the place, Evans has his own piece of advice: join a couple of clubs to make friends. When he and his wife moved to Peterborough they knew no one. “But our new neighbor told us to join the Rotary Club, which we did. Suddenly we knew 100 people,” Mike recalls. Then he became a member of the local United Church and the curling club. Heather joined a choir and together they signed up for a seniors group that teaches people to play instruments. Heather took up the trumpet and Mike, the tenor sax. “I like to keep busy,” says Mike. “Honestly I don’t think I have a spare moment most days.”

I hate to admit it, but I’m not much of a deal shopper. You’d figure someone who works at a magazine called MoneySense would watch every penny he spends. Not me. I have a pretty simple philosophy about shopping: If I need it, I buy it. If I don’t need it, I don’t waste the money.

Of course, my preference is to pay as little as possible for what I do buy. That’s why I’m hooked on online flyers. If you’re a bargain hunter, and you only peruse the flyers dumped in your mailbox, you’re missing out. These sites (and there are quite a few in Canada) offer one-stop shopping on deals.

Two of my favorites are RedFlagDeals and Flyerland. Both take store flyers, coupons, freebie offers and contests and post them online. The best part: you can compare flyers in your city by product category. So, for instance, if you’re looking for a deal on a GPS navigation system for your car (or your husband’s car, since Father’s Day is coming up. Hint, hint), you can compare GPS sale prices of various retailers all on one website. These sites are free, as are the email alerts you can sign up to receive. I’ve subscribed to the weekly RedFlagDeals newsletter for over a year and found it’s worth it.

Then again, if you can’t stand the thought of paying retail prices for anything, I recommend you check out Kijiji.ca. It’s a classified site similar to EBay, except it’s local. That means if you live in London, Ont., you only see items other people in London have for sale. Same goes for Toronto, or Moncton or Edmonton. Once you decide to buy something, you and the seller agree on the price by email, then you go to their home and pick it up. It seems cumbersome but there are advantages. First, you can see the merchandise up close before handing over the cash. Second, you save a lot of money on bulkier items, since there are no shipping costs. 

Kijiji is a lifesaver for parents with young children. My wife and I have saved hundreds of dollars on stuff. We have two-year-old twin girls and when we needed to buy them toddler beds we simply went on Kijiji and found two matching ones. We paid $30 for one from a couple down the road and $40 for the other from another couple a few towns over. To buy these beds new would have cost $120 each, plus tax. Best of all, once we’re done with the beds, we can sell them again on Kijiji. In fact, we’ve made money selling kids clothes and shoes our twins have grown out of.

“Hi, how are you?” I get asked that question a few times a day from friends and co-workers. You too? If you’re like me, you automatically shoot back with “good” or “just fine, thanks,” even if your dog just died that morning.

But let’s do away with politeness for a second. How are you? Really?

If you take Canadians as a whole, it’s hard to answer. The economy is in the tank, of course. Unemployment is still rising. Strangely, however, consumer confidence is improving. It’s at its highest level since February 2008. Seems people think the recession is almost over.

The hard numbers don’t bear that out. Which leads to a good question: Should we only rely on economic data like gross domestic product and the unemployment rate to judge how well Canadians are doing?

There’s a new organization out there that says no. The Institute of Wellbeing is calling for a new yardstick to measure how well off we are. Led by former Saskatchewan premier Roy Romanow and affiliated with the University of Waterloo, it’s putting together something called the Canadian Index of Wellbeing. The index is calculated by measuring eight factors including living standards, how involved we are in the community, education, health, and what we do with our time.

Romanow and company say they’ll be able to measure whether our well-being is improving or declining by examining these factors. The usual benchmark, GDP, only measures a country’s income, not how well off its citizens are.

I’m not sure I agree with that assessment (more about that later), but in its first report the Institute of Wellbeing has come out with some insights worth noting.

The most important is that Canadians didn’t benefit much from surges in the economy over the last quarter century. Simply put, wages didn’t keep pace with economic growth. Between 1981 and 2008 real GDP per capita grew by 53%. Personal income grew 36% and personal disposable income 29%.

It’s worth pointing out that some of those wage gains were the result of people working longer hours, not from generous raises. Plus, cuts to government health-care programs mean we’re paying way more ourselves for medical care, not to mention more in taxes. You can read more about these issues here.

Another good point in the report: Good-paying jobs for teens and young adults have been disappearing. In 1980, 31% of people 14 to 24 worked in low-paying jobs. By 2000 that number was 45%. That’s bad news for university grads racking up debt to get an education. If all that awaits them is minimum wage, what’s the point of getting a degree?

Some other findings from this report: We’re living longer and overall we’re wealthier. That’s good. But we’re also getting fatter and, frankly, most of don’t feel as healthy as we used to. We also have fewer close friends.

The Institute of Wellbeing hasn’t issued its index yet, so we’ll have to wait and see whether Canadians’ quality of life has improved since 1994, which is the base year the index will be calculated back to. Still, it will be interesting to see how this new measurement moves up and down as we wind our way through the rest of this recession and into recovery.

My guess: It will probably closely follow GDP. Money may not buy happiness but it does buy security. And Canadians always feel more secure when they have a job, the economy is growing and they have money to buy a house, a car and all the things that go with a nice middle-class lifestyle.

You can’t even count on your health without money these days. Studies show that the higher your household income, the longer you’ll live and the better your health.

So here’s to your well-being. And your bank account.

 

Savers are those people who are religious about putting a portion of their paycheque into a retirement or savings account. Savers are surprisingly upbeat these days. The recession has barely fazed them.

According to the survey, which was done in the U.S. for HSBC bank, most savers haven’t chopped their spending. They eat out just as often now as when the Dow hit 14,000. As for holding back on large purchases, forget it. If they need a new car, or a new fridge, or TV set, they buy it. Less than a third think cutting back spending would improve their financial situation.

The truth is that people who regularly set aside money have little reason to panic. First, they have gotten used to living on less already. (Most bank 10% or more of each paycheque.) Second, with all that money saved, they’re able to deal with a host of emergencies, everything from a leaky roof to losing their job better than most.

The interesting thing about savers is they’re not saving for anything in particular. You can’t say the same about non-savers. For instance, 30% of non-savers set aside money for their vacation. Only 18% of savers do that. In other words, savers save because it’s a good idea. Non-savers do it to blow the money later.

You’d think this recession has taught us all to become savers. Unfortunately, that may be asking too much. As the HSBC study found, the majority of people polled (85%) are now trying to save more and spend less. But almost three-quarters of them have no qualms returning to their spendthrift ways once the economy improves.

If you’ve got kids at home, you’re probably wondering how to teach them to be smart with money. You’re not alone. Governments, schools and even corporations seem hell-bent on making sure the next generation knows more about personal finance than their debt-riddled parents.

The sense of urgency stems from the economic meltdown. If there’s one thing we’ve learned (besides bankers aren’t as smart as we thought) it’s that average folk don’t know as much about how the economy works as they should—or how to balance a chequebook for that matter.

As the recession revealed, a nation of financial illiterates is a dangerous thing. That’s why high schools across North America are now loading up on personal finance courses. Some are even mandatory. In Virginia, students must pass a one-credit course in personal finance and economics before they can graduate.

Teens aren’t the only ones being targeted. A new exhibit at Walt Disney World in Florida, called The Great Piggy Bank Adventure, teaches the kindergarten set to save and invest. During the game, an evil wolf tries to devalue their money with his diabolical inflation machine.

I don’t want to come across as skeptical about these efforts, but frankly, I’m skeptical. Recently, I pored over a teacher’s aid that Visa Canada put together on financial literacy. It was pretty dry stuff, filled with the usual quizzes (List five warning signs of financial trouble.) and bland advice about the perils of shopping. (Be realistic about what you can afford.) I’m not against teaching economics and personal finance in school. But I can’t imagine the average 16-year-old responding to this type of stuff.

Really, personal finance 101 is too important to be left to schools. Or Mickey Mouse. It needs to start in the home.

I’m not talking about lecturing your kids about buying $90 jeans, either. Just from watching my own kids I’ve realized that children don’t learn by listening to parents’ speeches; they learn by watching what they do. If you want your kids to be smart with money, the first step is to be smart with it yourself. Clip coupons, go grocery shopping with the sale flyer in hand, wash your car in the driveway instead of a car wash, and brown-bag your lunch. These are little things, granted. But just think back to when you were young. Parents who were frugal didn’t announce it. They led by example.

Another good idea: Put away your debit card and start using cash again. Debit cards give the illusion that money is infinite and not quite real. When your kids see cold hard tens and twenties coming out of your wallet, they’ll get a sense that money is indeed real—and how quickly it disappears.

Got your own ideas how to teach kids about money? I’d love to hear them. You can let me know your best tips by writing in the comment section below. Or e-mail me at rob.gerlsbeck@moneysense.rogers.com. I’ll share some of the best ideas we get in a future post on this blog.

Fast forward to today. James is 65; I’m 62. He retired at 61; I quit full-time work at 58. We’re not rich by any means, but we have a condo, live well, and spend three months every winter in Florida.

How did we go from no-hopers at 50 to comfortably retired just a few years later? The key was realizing how much we could accomplish in just a few years if we put our minds to it.

At 50, our biggest asset wasn’t money in the bank, but our ability to save. We’re not penny pinchers but we’ve always known the value of a dollar. James and I were married in 1966. He was 22 and a printing press operator. I was 20 and a secretary with Ontario Hydro. We lived in a small apartment in London and in just two years saved up enough for a small down payment on a farm house near Cheltenham, Ont.

It seemed like a dream come true. We had both grown up on farms and thought we would love to return to the country. Wrong! We were shocked to find we were miserable. Friends and family were too far away. The commute to our jobs was a daily chore. We didn’t last even two years in the country, before the For Sale sign was planted on the front lawn and we were moving to the suburbs around London.

That was when we learned a fundamental lesson: life will surprise you. Our next surprise came when our son Peter was born in 1971. I had always loved my job at Ontario Hydro and we certainly needed the money I earned, but I thought I would be a bad mom if I went back to work only a few months after Peter was born. So I quit my job. I guess I had images of being June Cleaver.

Oh, boy, did those fantasies dissolve fast! I soon realized that I wasn’t cut out to stay at home with only a small baby to keep me company. Within another few months, I was climbing the walls with boredom and pining for the chatter and buzz of an office. I tried to go back to Ontario Hydro, but there was nothing available, so I settled for a new job as an administrative assistant with a restaurant supply company. When our daughter Amanda was born in 1973, I took a few months off and that was it.

In those early years, James and I felt that we had to squeeze the most out of every dollar. We concentrated on paying down our mortgage, saving for our kids’ university education and setting aside a bit of money each year for a family vacation. We visited Florida for a couple of weeks every winter with the kids, staying at campgrounds to keep costs down. We loved those trips. They were our reward.

When the kids started university, we had saved enough to cover about two years’ worth of studies for each of them. They both had summer jobs, but it wasn’t nearly enough to cover all their school expenses. So we also pitched in to help each of them pay for their final two years of study. Peter is now a mechanical engineer and Amanda is a kinesiologist. It cost a small fortune to educate them, but it was worth every penny. We’re as proud as can be of them.

By the time James turned 50, our house was paid off and both of our kids were on their own. So when we decided to get serious about our finances, we could focus on putting away money in a way that we never could before. Our first step was to educate ourselves. We bought basic books on personal finance and signed up for free seminars at our local library. We began to study personal finance magazines and the investment sections of newspapers. We discovered that investing and retirement really isn’t all that complicated.

The key to it all is living on less than you make. Given our empty nest situation, that was actually pretty easy for us. We took every penny that used to go to paying the mortgage and kids’ tuition and we poured that money into our RRSPs.

We learned early that the easiest way to save is to never see the money. So we set up automatic withdrawals of about $1,800 a month that went directly into retirement savings. Some years were leaner than others but we usually ended up living on James’s salary and saving mine. That meant we were saving $20,000 to $25,000 a year.

To help us save money, we decided to downsize our space. We sold our home in the suburbs and we moved to a condo in downtown London that was about half the size of our previous home. To our surprise, the move didn’t save us a lot of money, but it did improve our lives in ways we never expected. We found that we loved living in a place where we could walk to stores and restaurants. We didn’t miss cutting grass or shovelling snow one bit. We made lots of new friends. I can honestly say it was the best decision we ever made.

When it came to investing, we realized from Day 1 that we weren’t risk takers. We learned all we could about mutual funds, especially the fee structure. We avoided funds that charged front loads and back loads. We paid special attention to how much each fund charged in management expense ratios and we kept our fees as low as possible. At the time, we were both working and we felt comfortable with an asset allocation of 65% stocks and35% bonds.

Then the unexpected happened yet again. I began to experience horrible stomach pains. At 58, I had to have major surgery for an autoimmune disease. I was exhausted and had to quit my job at the restaurant supply company. Suddenly we were a one-income family. When I recovered, I started working as an usher at a local theatre. I could work only a day or two a week and I made only about $100 a week — a big cut from what I had been earning.

But even with that financial setback, our eight years of concentrated saving had done wonders. We were pleasantly surprised to see that, by our early 60s, we were in a position to retire with a nest egg of about $340,000. The only change we’ve made since James quit his job is to become even more conservative. Today, our asset allocation is 70% bonds and 30% equities. We also keep $50,000 in GICs and Canada Savings Bonds as an emergency fund to ride out market downturns like the current one. Our strategy may be too conservative for some people but it lets us sleep at night.

We’re busier now than we’ve ever been and money has turned out to be a far smaller issue than we thought. We live primarily on what we receive from government benefits — about $19,000 — plus an additional $8,000 or so from our RRSPs. James has now joined me in working as an usher at the local theatre and between us that generates another $12,000 or so of income every year.

I volunteer a few hours a week at the library and James does the same at the local golf course so we can golf at a reduced rate. We take day trips to Stratford, Ont., and Toronto, and we visit family and friends as often as we can. For the first time in our lives, we have to use a day timer to keep track of our busy schedules.

We’ve been surprised by how cheap it is to live well in retirement. For instance, we’ve been able to go from two cars to one, because our new downtown location allows us to walk more than we used to. Not that we’ve given up driving. In fact, we drive to Florida every year. It’s cheaper than flying and the road trip adds to the adventure. Right now, we’re planning a trip to see family on the East Coast next summer. James’s sister Louise will be celebrating her 50th wedding anniversary and we plan on joining in the celebrations. Our lives are rich in every way. It’s all turned out so much better than we expected back when we were 50.