You must do the math

Hey there, time traveller!
This article was published 14/06/2009 (6282 days ago), so information in it may no longer be current.

CALGARY — Nicole Sherren is a neuroscientist. With a PhD. Highly intelligent.

Until recently, though, Sherren didn’t have a clue about her personal finances.

“If I had to confess, yes, I was a financial illiterate,” she said. “I’m an educated woman but finances seemed like an impenetrable mystery to me. I was intimidated by it — and it was a little embarrassing.”

And lest you think this story is about Sherren and other people’s problems, I have to admit I, too, was a financial illiterate. I didn’t know a management expense ratio from a mutual fund or a hedge fund from my heinie.

Sherren and I met at Moolala, a Calgary workshop designed for smart people who are making dumb choices about their money and realize they need to wise up.

Turns out we, and 10 others in the course, are part of a larger trend.

Like many Canadians, until the stock market crashed, we merely glanced at our financial statements, saw they were generally up and went on our merry way.

Now, we’re sitting up and taking stock of our crushed nest eggs, realizing all is not well.

The bad news is that most of us have lost about 30 per cent from our investments. We don’t really have a plan for our money and, painful as it is to admit, we don’t have much sense about our dollars.

The good news is we’re calling on organizations and courses that teach the financial basics because we need to learn about managing money, fast.

Bruce Sellery recently founded Moolala because he’s watched “smart, capable people do dumb things with their money over and over and over.”

Dumb things like sticking with mutual funds that consistently underperform or not knowing how much they pay their financial adviser and being too embarrassed to ask.

He designed Moolala for capable people who hate to work on their finances, who’d rather have a root canal than go to a money workshop.

Sellery believes it’s time to lay the topic bare so we don’t wind up eating cat food in our old age.

“Right now, we’re so focused on the economic crisis and the latest on the story that we’re missing what’s really going to make a difference: how we as individuals can become more accountable for our money,” said Sellery, a business journalist and professional speaker.

Over two evenings he walked us through numerous squirm-worthy exercises. There was homework, too. We calculated our personal net worth, set financial goals (not just for retirement) and assessed how our mutual funds are doing compared to a benchmark, the S&P/TSX Composite Index. Those who had been hiding their unopened financial statements were told to open and study them. We were given questions to ask our financial advisers and tools to calculate when we could retire (or not, unless we shaped up).

Amazingly, Sellery made the workshop fun, even cathartic, as we explored our attitudes toward filthy lucre, confessed our sins and came up with simple, individual plans for dealing with our dollars.

Tracy Watson, director of communications for Money Mentors, an Alberta-based, non-profit organization that provides unbiased money coaching, seminars and a debt-management program, said inquiries from the public are up 20 per cent over last year.

On its website, Money Mentors offers self-assessment tools and a free self-guided seminar called Debt: A Road Map Out.

Watson believes there is widespread financial illiteracy in Canada.

“Why isn’t this stuff taught in the schools?” she asked. “It’s a basic life skill.”

But unless children have been raised by parents who are financially savvy and show them the ropes in managing their money, kids are left to flounder on their own.

“We’ve had a number of very young adults that have been on our debt-management program because they’ve had cellphone charges or got hold of a credit card right at the beginning of university and don’t understand the consequences.”

In our collective defence, Sherren thinks she knows why we’re financially illiterate, in part. She grew up in the Maritimes, in a family of very modest means, and her parents were thrifty.

“We were taught to save our money and not live beyond our means,” she said. “But in terms of planning, we didn’t do much of that.” She doubts her family is alone.

“There was a time, and it wasn’t all that long ago, that all the financial planning you needed to do was get a job with the company in town, work there your whole life and be a good employee. You’d get a pension at the end and be able to live in relative ease.”

Today, many of us don’t have company pensions and we’re trying to see our way through a maze of terminology in what seems like a shell game.

Tamara Smith, vice-president of The Financial Planners Standards Council, a not-for-profit organization that governs Canada’s 17,000 certified financial planners and educates the public about money, said she’s “definitely” seeing more people paying attention to their finances.

She doesn’t believe financial planning is something Canadians can do on their own and said the stock market crash opened people’s eyes to that.

“Before (the downturn), an investment plan with stocks, bonds and mutual funds served you well. You probably got a decent return and, over the long term, with compound interest, it was going to meet your goals.

“What everybody has since learned is that an investment plan alone is not going to get you to retirement or your financial goals.

“It takes budgeting, debt reduction, tax minimization, estate planning, risk planning, insurance, savings — all of the pieces. There’s no fast and easy road.”

Sherren found Moolala inspiring to start putting the pieces of a financial plan in place.

“I don’t feel that I suddenly know everything about financial planning, but it gave me the confidence to get moving on being more proactive and involved with my own finances.”

She said she feels more confident when to examine what she’s got in her portfolio. She plans to talk to her adviser more about her goals, such as buying a house.

— Canwest News Service