Talk for Credit Canada’s Credit Education Week

In addition to November being Financial Literacy Month, this week is also Credit Education Week. On Tuesday at the YMCA in Toronto, as part of the launch of Credit Education Week,  I gave the following talk which touched on all of credit, financial literacy, the sandwich generation and of course financial independence. All recipients at the talk received copies of Findependence Day courtesy of Capital One.

Here’s the text of the talk:

Laurie had asked me to talk today about the Sandwich Generation. I’ll do that and also talk about life cycle financial planning and the concepts behind “findependence” or financial independence.

Some of you may remember around the turn of the millennium, the National Post distributed four issues of a glossy magazine I helped create, called The Wealthy Boomer.

Well, it just so happens that the final issue featured a cover story on the Sandwich Generation.

We’d commissioned a nice if predictable cover that depicted a frazzled middle-aged baby boomer tearing out her hair as she attempted to grapple with the conflicting demands of an aging parent and screaming children.

I could relate to that at the time because in 2000, we had a nine-year old daughter, four parents and two busy careers. Today, however, daughter is 20 and away at college, and all four grandparents have passed away.

From Sandwiched to Empty Nester

At some point, you go from being Sandwiched to being an Empty Nester.  It’s all part of the Great Circle of Life depicted in the Lion King.

None of this should surprise any of us. After all, once upon a time, we were the kids and OUR parents were sandwiched between caring for us and for THEIR parents.

As I reported on my blog a few weeks ago, many Canadians are still being sandwiched: fully 39%, according to a poll that Credit Canada conducted with Capital One.

Not surprisingly, the poll zeroed in on the financial aspects of being sandwiched. 40% of the 830 people interviewed are worried they’ll have to borrow money to meet these conflicting demands on their time and energy.

Two thirds (65%) of those caring both for parents and children felt that providing financial support for them  impacted their debt levels.

And more than half (53%) felt this impacted their romantic life.

In the case of eldercare, many couples were spending more than $500 a month. Almost half (48%) weren’t sure they’d be able to afford eldercare and as a result 67% weren’t sure they’d be able to properly take care of their aging parents if they needed still more care.
In fact, 55% expect to retire later than they had once hoped. Among the sacrifices sandwich generation members feel forced to make:

• 37% work more hours

• 36% dip into their savings

• 43% eat out less

• 30% take fewer vacations

• 38% cut back on entertainment or social activities.

Now whether or not you view these as sacrifices will of course vary with the individual. We’re really talking about allocating time, energy and money to the people closest to you: your parents and children.

Generation Boomerang


Comedian Phil Hanley with parents (Credit: CBC)

You may have seen a one-hour documentary on the CBC last week called Generation Boomerang. I wrote a column previewing it and we had a one-hour live chat last Friday which you can view at my Wealthy Boomer blog housed within

The documentary dealt more with adult children staying at home with their baby boomer parents although one British clip did show three generations living in one home: mum, daughter who had left the home, had a relationship and a child, and had now returned home child-in-tow.

For the most part, however, it focused on the adult children part of the equation rather than caring for elderly parents.

It started with a clip of Vancouver comedian Phil Hanley, who’s in his 30s and has honed his comedy act by joking about his still living at home, or what he called his being a “stay at home son.”

It also focused on a Vancouver family – the Lermittes —  whose father, Paul, had decreed that his two sons still at home had to  “make like the birdies” and leave the nest at age 25. One is 23 and the other approaching 25 during the documentary. And sure enough, within weeks of the deadline he was out on his own in an apartment, crediting his parents’ “tough love” approach to speeding his independence.

A different definition of Findependence Day

When I say independence, I mean in part Financial Independence, although the meaning is a bit different than the one I use in my book, Findependence Day. For me, Findependence Day is similar though different from retirement and applies to the baby boomers. But you could give it another meaning in the context of boomer children leaving the nest: then it’s the ability to live on their own, paying the rent on an apartment, feeding themselves and making their cable TV and Internet payments without having to get bridge financing from their parents.

Either way, the principles are similar: get out of debt, live within your means, use the surplus to save and invest and so build wealth, take advantage of company pensions and government tax deferment vehicles like the RRSP and the TFSA.

The CBC documentary made the point that it costs about $200,000 to raise a child to age 18 and that if they linger into their 20s, expect to pay another third on top of that, or $60,000 extra. Often, parents have not budgeted that extra amount, which comes from their retirement savings. The Lermitte family that gave the 25 deadline said exactly that: father Paul is a financial planner and well aware that the more he’s laying out for the kids, the less he and his wife will have in old age. And as the Sandwich Generation survey revealed, many are indeed delaying their retirement in order to meet these twin obligations: kids at the one end, aging parents at the other.

I’m sure some of you who are baby boomers nearing retirement age know of contemporaries who are already retired. If they’re like some of my friends who are, the big difference is they’re childless!

But for you parents, I don’t have to remind you of the title of that book by Barbara Coloroso: Children are worth it! She even has a web site called!

Being sandwiched is a phase that will eventually end

The good news is that as I said earlier, the operative phrase for Sandwich Generation members is “This too will pass.” Parents die and children grow up and suddenly you’re missing the precious time when you WERE sandwiched.

There’s a framed photo in our rec room that shows my now-deceased father holding my daughter around age 4. When the photo was taken, I’m sure it didn’t seem all that special.  But for all intents and purposes, both those loved ones are gone: Dad for sure, and in a sense so is that little girl. She’s been replaced by a big girl with a boy friend but soon enough parents become little more to them than a “chauffeur with a wallet.” And of course, eventually they get their own car and even your chauffeuring services will no longer be required (though you may be invited to chip in on the car insurance!)

So, returning to the topic of delayed retirement that the Capital One survey talks about: the “retirement” that was pushed off into the future as part of the array of sacrifices necessary to care for both parents and children. There are a lot of people these days who think the word retire should be retired. Most of us think of retirement as emancipation from a 9 to 5 corporate job, bosses, commuting and all that.

Indeed, the workplace is the elephant in the room when you’re talking about the time and energy demands of the sandwich generation. Yes, you’re torn in the two directions of parents and children but don’t forget the third major direction is your commitment to your employer, or your business if you’re a business owner or entrepreneur.

From way too busy to way NOT too busy

Clearly, what will happen to most of us is we’ll go from being way too busy to being way NOT too busy.
The moment will arrive, and sooner than you think, when not only are your parents gone and your nest empty, but you won’t even have this distraction we call the 9 to 5 Grind.

Think of it: 30 years of no daily child-raising hassles, no eldercare issues and no demands from the boss. From the ridiculous to the sublime. Computer consultant Art Benjamin used to quip that most jobs are marginally better than daytime television. Admittedly that’s setting the bar pretty low but the point is that for passing the time, jobs aren’t all that bad – at least the symbol-manipulator jobs most professionals work at.

I really doubt most baby boomers will “retire” in the sense of playing golf or bridge all day every day.  One reason is financial: several news items in recent weeks have made the point that the only people in a position to retire in style are going to be public sector workers in cushy Defined benefit pensions negotiated by their unions.

Pension Envy

You may have heard the term Pension Envy, which was the subject of The Agenda on TVO on Monday night, with Steve Paikin. A new book on this subject, Pension Ponzi, describes the system of pension apartheid in this country, which pits the 20% of the population who have union-negotiated, Defined Benefit public sector jobs – and the 80% in the private sector who have much less guaranteed guaranteed pensions but are ultimately on the hook as taxpayers to make up any shortfalls in those public sector pensions.

Depending on how the market does, we – the other 80% – are going to find it a dicey proposition relying on our RRSPs or Defined Contribution pensions. Findependence Day was written for the 80% who don’t have public sector DB pensions and have to take personal responsibility for their own retirement.

Life cycle investing and financial planning go hand in hand

However, I did not use the word Retirement when I wrote a book on this topic. I used the phrase Financial Independence, which I shortened to Findependence Day.
The book is actually a financial love story that takes you through the topic of life-cycle investing: back to the great circle of life and the passing of the torch from one generation to the next.

Fact is most of us aren’t all that unique. We pass through similar life stages and financial events. We’re born, we’re educated, we grow up, we fall in love, marry, have children, find a career, watch the kids grow up and next thing you know, there are grandchildren to replace the now departed parents and grandparents.

This why I chose to make my book a financial love story. The book is set over 22 years, as we watch a young couple who are both 28 at the outset – Jamie and Sheena – go through all the life events most of us go through. This stuff is predictable, which is why it can present financial planning in the same life cycle context. Financial events correspond to the life events: sign up for the company pension plan, sock away money for the kids’ RESPs, put emergency funds inside a TFSA, save in an RRSP, lose your job and pull money from those plans just to survive, etc.

All this happens to Jamie and Sheena, including a stock market crash which was fiction when I wrote it in 2008 but soon became reality.

You can’t ascend the tower of wealth while mired in the basement of debt

One of the points it makes is you don’t have to worry too much about the stock market and investing if you’re still in debt, especially high-interest credit card debt.

There’s no investment on the stock market that will pay the guaranteed high return of 18% or so – after-tax! – of paying down credit card debt. In fact, the book begins when Jamie and Sheena are guests of one of those financial reality TV shows.

The host, Didi, challenges Sheena to tear up her credit cards in front of the TV audience and she breaks into tears because she regards them as her lifeline. Similarly, it’s good to get rid of student debt and ultimately, once you’re a homeowner, eliminate mortgage debt as fast as possible. There’s a chapter that shows how powerful the technique of paying down your mortgage can be.

As Didi reminds Jamie and Sheena, you can’t ascend the tower of wealth while you’re still mired in the basement of depth. So job one is to eliminate debt.

Guerrilla Frugality & TFSAs

How do you do that? Jamie and Sheena use the term guerrilla frugality, which means super frugality. Ultimately, this is like dieting and exercise: it has to be a permanent change to your lifestyle.

The key is to live below your means, to always spend less than you earn, and to save the difference: ideally 10 to 20% of your net income.

A great place to save is the TFSA or Tax Free Savings Account, which lets you save $5,000 a year. This is one of the best tax shelters out there and if you’re 18 or over, probably preferable to an RRSP unless you’re already in a high tax bracket. If you’re still a student, you might ask your parents to fund it for you – call it an advance inheritance.

One tip from tax guru Evelyn Jacks was that once you start working, you’ll put up $2500 in the TFSA and your parents will “match” it with another $2500. Perhaps that arrangement could be maintained until you marry and need a down payment for a house – or until they decide it’s time for them to retire!

These are the kind of tips you’ll find in the book. But again, you don’t necessarily have to worry about complex investing strategies at the beginning. Step one is Get out of Debt; step two is Save; step 3 is Invest.

Since this is Financial Literacy Month, I’d like to make the case that the book is another potentially useful tool for getting the FinLit message out there, perhaps sugar coating it for young people.

For the most part, I see the book as appropriate for the children of the baby boomers: in fact, the same kids depicted in the Generation Boomerang documentary who are contemplating leaving the nest, preparing for careers, starting to get married and create their own families, newlyweds and new parents, etc.

Don’t count on financial industry to make you financially literate

Now some of you may have read my column on Saturday, which suggested that while the financial industry itself is making a lot of noises about literacy, we as financial consumers and investors should regard their statements with the proverbial grain of salt.

The story quoted a controversial piece last week by’s Paul Farrell, who suggested Wall Street really would prefer its customers remained financial illiterates. He listed seven reasons why this is so.

I quoted Tom Hamza of the Investor Education Fund to the effect it was unrealistic to expect an organization selling a financial product they profit from, to also rely exclusively on them to make you financially literate.

Let’s face it, they’d be cutting off their noses to spite their face.

I ended that story with an illustration. I mentioned the fact that a big mutual fund company last week released a survey that found Canadians on average gave themselves a “B” grade in financial literacy. Here’s a good example of a major financial planning company beating the drum for financial literacy. They did a survey on it and issued a press release.

The problem is you can’t expect any mutual fund company to raise their customers’ financial literacy when it comes to the sensitive area of management fees. The higher the Management Expense Ratios or MER, the more it reduces returns of your long-term retirement nest egg. The company that did the survey has among the highest MERs in the industry – yet here it is grading the country’s financial literacy.

Most dividend mutual funds have MERS of 2  to 2.5%:  They all own pretty much the same stocks: the big banks, oil companies, insurance companies etc.

But costs matter and if the average dividend is 4%, then paying a mutual fund company 2% means they’ll be taking half the dividends in this particular case. You want to find a dividend fund with an MER of 1% or less.

Instead of a mutual fund you could buy virtually the same dividend paying Canadian  stocks by buying an ETF or exchange traded fund: the iShares Dividend ETF (XDV/TSX). Its MER is about 50 basis points, or less than a fifth of most dividend mutual funds. Claymore has a similar one that doesn’t own most of the big banks.

All of which backs up what Paul Farrell said: you can’t expect a mutual fund company to cut its own throat and educate consumers so much that they switch out of that company’s products to buy a much cheaper ETF.

The three big concepts behind Findependence Day

I could give many more examples in banking and insurance but we’re almost out of time. Findependence Day mentions most of these but in a nutshell it comes down to three concepts:

1.)    Costs matter so ideally, save commissions and fees by using a discount brokerage.
2.)    Similarly, you can cut costs to the bone by using ETFs or buying stocks and bonds directly.
3.)    However, 99% of us still need a financial advisor or financial planner. You can have the best of all worlds by using a fee-only financial planner.

To circle back to the sandwich generation, the fact that the boomer generation has financial obligations both from the generation above and below it means they’re in a financial squeeze.

Every penny counts, which means you have to get smart about spending and saving, tax efficiency, brokerage commissions and fees, mortgages and interest rates, insurance, and every financial product out there.

In the end, no one cares more about your money than you do. You don’t ask a barber if you need a haircut, even if he IS a wealthy barber – or especially if he’s wealthy!

You can’t expect to get 100% objective financial advice from profit-driven vendors of financial products. Therefore you need to educate yourself, get objective advice from places like the federal government’s Federal Consumer Agency of Canada, or, and find a financial planner who is not compensated with commissions on financial products but is compensated by a fee paid directly by you the consumer at a rate that has been mutually agreed upon.

And, most importantly, each of us must plan to achieve our own Findependence Day.

— 61 —

Jonathan ChevreauAbout Jonathan Chevreau


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