It’s been 22 years since David Chilton wrote the personal finance classic The Wealthy Barber, which put basic ideas such as saving and long-term investing into an entertaining and easy-to-read novel.
It’s not easy coming up with new material in the personal finance space. The odd financial product is occasionally unveiled, but in terms of solid advice, the song remains the same. Spend less than you earn. Invest it wisely. And leave it alone.
Two decades later, it’s time for a refresher. Chilton is about to release his follow-up The Wealthy Barber Returns, which will hit bookstores in September. He was good enough to sit down with MoneySense to tell us what to expect.
The format is a little different (it’s not a novel), but Chilton assured us that the same elements of humour, clarity and simplicity that made the original such a success are still there.
In terms of what’s new, Chilton said there’s a fair amount of discussion on index investing and exchange-traded funds, of which he is a fan — to a point. “They were a great idea when they first came out, but in terms of what’s on offer now, it’s gone too far,” he said. The explosion of targeted ETFs into ever-narrowing portions of industries has drawn criticism of late in that it defeats the purpose of index investing. “The bottom line is people should stay diversified in plain vanilla investments.”
Chilton said he’s noticed an increase in retail investor awareness over the past few years. Where he used to get letters from people asking if they should contribute to their “RSVP,” he’s now hearing from everyday folks who are excited about Vanguard’s entry into the Canadian marketplace. “The questions are getting more sophisticated,” he said. “People are wising up.”
However, it’s no secret that Canadians are not being as fiscally responsible as they should. Savings rates are declining, debt levels are reaching new heights and people are living beyond their means. “Interest rates have made people believe that lines of credit are basically free money,” he said. “I know people who have a balance of tens of thousands on their line of credit, and only pay $60 a month in interest. They don’t even think about the principal.”
Chilton also cautioned that while Canadians are generally more investment-savvy than they were 20 years ago, the psychological aspect of investing is still poorly understood. “Many people are learning to invest, but the psychological side is not taught very well,” he said. “Without that, investors don’t see the full picture.”
If his new book is as successful as the original, perhaps that will change.