Jan 31

Just do it

posted 2:42 PM Jan 31, 2011 by Peter Aceto under Retirement


There are not many financial goals in life more important than saving for your retirement. At this time of year, we’re bombarded with messages from banks, financial experts and the media about how much we need to be saving, where we should be saving and how far behind we are in our retirement savings. There are so many questions that need to be answered. Do I save using a TFSA or an RRSP, or both? Is it better to pay down my mortgage or save for my retirement? What about paying down my other debt? There are certainly a lot of priorities competing for a limited amount of the money we make. The whole thing is enough to make some of us want to throw in the towel and avoid it all together.

But we shouldn’t avoid it. In fact we should do the opposite and take it head on. Actually, it’s not really that complicated. Start today by beginning to save something – a little or a lot – on a systematic basis. You know, $50 per week or $100 per month. This advice is not new, or complicated, or sexy, but it is powerful. No matter the amount, the fact that you are saving something, gives you freedom. Saving will give you freedom for your future and give you the potential to take advantage of an opportunity when it comes your way or to bail you out on a rainy day.

However you choose to save and for whatever goal, beware of shortchanging your savings by paying unnecessary fees. Fees come in small bite sizes but they eat away a significant portion in the end. A recent survey we conducted with Angus Reid found that almost half of Canadians are unsure of the fees they pay to buy mutual funds – one of the most popular investments we use to save for retirement. If you add up all the unnecessary fees you pay over several decades of investing, they can make a huge difference in what you’re left with in your golden years.

At the end of the day, no matter where you choose to save your money, we get satisfaction from knowing we are helping Canadians take control of their financial destiny. With a bit of information, more and more Canadians are feeling empowered to take their saving and retirement planning into their own hands.

There is no secret to saving for retirement. It’s the same as saving for any other goal, financial or otherwise. Getting started is just the first step but it is the biggest step. And like many other goals, each step after the first is easier than the last.

This is the solution we advocate at ING DIRECT, and one that I believe in personally. Any amount, be it large or small, does make a difference. It’s easy to set up automatic payments into an RRSP account or into a high-interest savings account as a means of building your retirement savings – set it and forget it. It’s that simple.

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Jan 17

Consumer debt and home equity

posted 4:39 PM Jan 17, 2011 by Peter Aceto under Savings


Last month I wrote about my concerns regarding the level of consumer debt, compared to savings, and talked about goals we could all set for ourselves heading into 2011. One of my personal goals this year is to demonstrate leadership in terms of helping our customers, and all Canadians, understand what it means when our personal debt is growing faster than our income. In particular, I want to focus on how we treat the most valuable asset most of us will own during our lifetimes, our home.

Here are some facts. In this low interest rate environment, Canadians’ debt levels – including credit cards, loans and mortgages – have grown much faster than their incomes. Debt levels are now about one and a half times disposable income, an even higher level than the debt-to-income levels of Americans. Total consumer debt in Canada now exceeds a staggering $1.4 trillion. The Bank of Canada and the Finance Department have expressed concern about personal debt, specifically about what would happen if interest rates were to rise and Canadians discovered they could not afford to be carrying these debt levels.

Where are Canadians getting all that spending cash from? Increasingly, from their homes. In the last decade, money borrowed by Canadians against the value of their homes, using Home Equity Lines of Credit or HELOCs, has grown 170 per cent, or twice the rate of growth of mortgages. Many HELOCs can be accessed via bank credit cards, so consumers can go shopping at the local mall, put down a credit card, and the cash comes right out of the equity in their home. The one most valuable and steady asset that traditionally was set aside as every family’s long-term nest egg is being whittled away. We just can’t keep treating our homes like ATMs. For the typical Canadian, the long term priority should be getting your home paid off, a view shared by most ING DIRECT customers who’ve taken advantage of our unmortgage, designed to help home buyers pay off their mortgages as quickly as they can possibly afford to.

Prime Minister Stephen Harper spoke about this problem last week, and this week Finance Minister Jim Flaherty introduced new mortgage rules to limit the amount Canadians can borrow against their homes. While these moves are prudent, it is unfortunate that the government needs to step in to change the behaviour of both consumers and lenders. Also, this only reduces the ability for Canadians to exacerbate this issue going forward and does little to reduce the debt levels that exist today. So, we still have an issue that requires attention.

We need to go further. We need to help change the way Canadians think about borrowing money and their financial independence. At ING DIRECT our business has been built on a foundation to help Canadians live a healthy financial lifestyle and here is our Canadian Charter of Financial Independence. I believe that banks and bankers do have a responsibility to speak out about this issue. We need to help Canadians understand the risk they’re taking by carrying such high levels of debt and what they can do to save their money and put their families on a much more solid financial footing for the future. As business leaders, I think we all have a responsibility to help Canadians understand what debt means to their financial future which is why I have always been passionate about this issue.

While lines of credit drawn from the hard earned equity in your home can, in some circumstances, afford people with more financial flexibility, often times it does just the opposite. Using the equity in your home to buy things extends the time it takes to pay off your mortgage, forces you to take on significantly larger interest payments over time and potentially threatens your ability to manage your personal and familial finances down the road when interest rates rise – and yes, interest rates are certainly expected to rise in the months ahead. That’s a risk that’s not worth taking for most Canadian families. Savings are the cornerstone of a healthy financial lifestyle and for homeowners, their biggest savings account is their home.

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Jan 1

The Giving Philosophy

posted 4:12 PM Jan 1, 2011 by Peter Aceto under Savings


Philanthropy, as defined in Wikipedia, is the effort or inclination to increase the well-being of humankind. If you search Corporate Social Responsibility, you will most likely find it explained as embracing responsibility for a company’s actions and encouraging a positive impact on the environment, consumers, employees, communities and stakeholders. This all sounds very good, yet it is the “responsibility” part that is of most interest to me. We can all agree that “giving” is powerful and extremely rewarding. And there have been numerous examples of great philanthropists during our lifetime.

Henry Ford once said: “Time and money spent in helping men do more for themselves is far better than mere giving.” So, is corporate giving about increasing the organizations profile? Or is it about taking accountability for our role and responsibility as a member of society with skills, technology, expertise, manpower? Philanthropy can’t be a marketing program. If you’ve read any of my previous blog posts, you would know that I often think about the evolution of business and the separation that has built up over time between big organizations and the consumer. Somehow businesses have lost their way. People are demanding transparency and trust again. The shift that we are going through is pressuring businesses to again be members of our society, and not simply to exist to maximize profit for shareholders at the expense of society. The shareholders are not the only stakeholders.

Let me point out that there are many businesses and individuals who are doing a great job. I think of lawyers who offer pro-bono work or accountants who donate their skills to help communities and small businesses. I particularly like the example set by Zappos.com. Their culture itself is a great force for social good. Their entire business model has been based around the well-being of their employees and customers, which I am certain creates a vast positive social impact. Hey, they do this and make money for shareholders too! Then I think of Bill and Melinda Gates who developed a Foundation of Giving based on a belief that every life has equal value. They continually learn and measure the progress their efforts have on the world. There’s no question their work has made an enormous impact on humankind.

To us at ING DIRECT, in addition to giving money, we believe it’s important to also give our time and energy. In everything we do, accountability is key, and our charitable projects are geared to put accountability first to ensure we are making a real difference. We get our hands dirty. This allows us to personally meet the people who are at the receiving end of our efforts; to speak to them, learn about their needs, and get involved first-hand. I distinctly remember just a few months ago, more than 500 orange-clad ING DIRECT employees gathering to revitalize the outdoor spaces around an east-end Toronto Community Housing high-rise complex. A resident of the building came to greet us; she stood on a giant pile of dirt and mulch we were using to build the playground area for the local children and spoke to all of us from the heart. She shared her story of growing up in this neighborhood and not feeling the pride in their neighborhood, but that her children will now feel that pride. It was a powerful moment that moved each one of us. To contribute to a city where residents are proud of the places where they live, and where people feel connected to each other and their community is a humbling experience.

Jack Welch has said the self-confidence that you can give to people is the most important act of kindness. What you have done has created an environment which empowers a community to act. Again, I have had the privilege to see this in action first hand when I was involved in a project to build a new school and medical centre in one of the poorest provinces in Brazil. Meeting the doctors and teachers who became equipped to teach and save lives was an important experience for me.

We need more businesses to operate like members of society. To de-emphasize the black tie dinners and the fancy granite and mahogany offices to truly take part in their communities and make a difference, in person. To borrow a line from Bono, big brands and celebrities are like currency, so let’s all use it effectively.

As we begin a new year, my hope is that this consumer driven shift towards transparency and accountability of corporations persists – that we see more businesses taking responsibility and stepping up to their role in our society.

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Dec 15

Save your money!

posted 4:15 PM Dec 15, 2010 by Peter Aceto under Savings


It’s that time of year when numerous businesses gear up to meet sales targets. In fact entire businesses’ security depends on our spending during the month of December. We are relentlessly reminded, and encouraged, to spend any savings we may have managed to put aside during the year. No sooner do the pumpkins get removed from our porches before we are subjected to various perfect gift ideas. The Holiday season is the time when we share with our families and friends and reflect on the year past and make our resolutions for the upcoming year.

Many of us commit to ourselves that in the year ahead we will improve our health. Whether it’s giving up a bad habit or starting a good one – such as making more time for exercise – what we’re really doing is taking action for our physical wellbeing. I’ve always viewed personal finances as another aspect of the overall health of a person. Yet it’s something that many of us expect will take care of itself. We sometimes think that it’s like the weather, everyone talks about it but really, what can we do about it?

Over the past several years, we have seen a climb in Canadians’ spending and a significant increase in our use of credit. According to the Bank of Canada, household debt has risen to 145% of disposable income as Canadians have taken advantage of super low interest rates to purchase homes and other items using credit. Canadians are increasingly stretching their finances and as the Bank of Canada warns, will have trouble paying off their debts when interest rates rise again.

With spending underway for the Holiday season, we at ING DIRECT asked Canadians about their expected purchases in the weeks ahead. We found that most people think only about gift-giving expenses. But what about the extra groceries needed to host dinner parties, travel to see relatives, or gift wrapping? When we asked people about their resolutions for the new year we found that over 75% of Canadians have in fact savings goals for 2011. Some plan to save more money while others plan to pay off their credit card debts. That’s an encouraging number. But how many will actually stick to their goals? As advocates for Savers, ING DIRECT believes that people can easily manage their financial health and make wise decisions. This is why we offer easy-to-use tools and products that help Canadians take greater responsibility and ensure their financial wellbeing.

Many Canadians are spending beyond their means, a fact the Bank of Canada says threatens the health of the Canadian economy. We all have a role to play and it starts with each one of us as individuals and parents to take care of our finances and teach others to do the same. As a father of three children, the Holiday season can be a challenge. Advertising messages are frequently flashed before our kids’ eyes and the idea of having yet another toy never seems to be too excessive. We are a society that loves to give, but at what cost? Have we really thought things through or are we simply succumbing to consumerism? What about our freedom and security?

Let me clarify, I am not suggesting we stop giving gifts during the Holidays. I am not sure my kids will like me very much if I do that. But let’s agree to spend wisely, thoughtfully, and be creative. And never accumulate debt you can’t anticipate yourself paying off in January. Consumerism can be dangerous. Instead of providing the happiness and fulfillment many of us look for in our daily lives, and not just around the Holidays, consumerism has in reality taken away our freedom. We consume beyond our means to a point where we feel jailed by our debts. We develop legitimate worries for our future and the future of our families. Consumerism holds us back from living a meaningful and fulfilled life. The next car or bigger TV screen are nothing but momentary flashes of happiness. They are not what will sustain your families over the years and give you the freedom to truly experience life. What about retirement, or the trips that educate your children about the different parts of our great Country and even the world? What about your children’s education expenses or those extra payments on a mortgage?

Holiday expenses can really add up. The wisest course of action is simply to operate like Santa. Make your list, check it twice and stick to it. Managing your hard earned savings is crucial. For best results, it takes will power and dedication and you can be on your way to having a great Holiday season and a financially healthy future. Save your money and enjoy the Holidays.

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Dec 11

The “7 second” rule for buying a home

posted 4:30 PM Dec 11, 2010 by Peter Aceto under Savings


The “7 second” rule is one of those handy tips to help curb impulse buying. Basically, when you are considering a purchase, pause for 7 seconds while asking yourself, “Do I really need to buy this thing?” Hopefully you’ll overcome your impulsive urge to buy and calmly walk away, or consider a less expensive option.

We all like to think that we are rational people who make decisions based on fact, but studies show that we are more often swayed by our emotions and can get caught up in market highs and lows. Take investing in the stock market. We all know the saying “buy low and sell high” but very few people can follow it since it can run counter to what we feel. “I don’t want to buy a stock that is going down in price/value…I’ll lose money.”

The same can be said for Canada’s current ‘hot’ housing market. With historically low rates, many Canadians are keen to refinance or buy a home as soon as possible. This in turn creates irrational behaviour – bidding wars, purchase conditions being waived, houses selling for 10 to 20% over the asking price. Some could call these signs of a bubble, but for me the more troubling aspect is the position many of these new homeowners could find themselves in a few years from now.

When you sit down to find out how much ‘house’ you can afford to buy based on your current income and the expected monthly payment, I recommend you try a different “7 second” rule.

Take that mortgage amount and create 3 other amortization schedules with higher rates. For example, a $300,000 mortgage with a 5 Year Fixed rate of 4.09% amortized over 25 years will have a monthly payment of $1,592. You may think that this is something you can afford. Now raise the rate by 1% to 5.09%, then 6.09% and finally to 7.09% (this should take about 7seconds if you use an online mortgage calculator – give or take a few minutes).

This will give you some perspective of what kind of payment you might be making if the rates go up in the not too distant future.

Think carefully about how affordable the home you buy today will be five years from now. You might want to consider buying less home so that your mortgage is smaller. Stay away from any amortization longer than 25 years so that you can pay down more of the principle and interest. You don’t need to be an expert in how amortizations work because these are so easy to find online but they will really help you understand what you will really be paying while you live in that home.

I know it’s hard to consider all this when that real estate agent finds you the home of your dreams – but those extra 7seconds could help to keep it a dream home and not a nightmare years from now.

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