My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Wednesday, December 19, 2012

How Not To Move Back In With Your Parents - Winners of Book Giveaway

Thank you to everyone who entered the How Not To Move Back In With Your Parents book giveaway. I was very impressed with many of the financial tips provided by both the parents and the younger adults. Initially I was going to pick my favourite tips as the winners, however, since there were so many excellent comments, I just put all the names in a hat and had my assistant Lynda, draw the names.

The winning parent is: Theresa

The winning young adult is: PerryK

Please email your full name and address to lynda@cunninghamca.com by December 31st and we will mail out your book immediately.

I had a couple of people email me that Blogger is not user friendly for making comments and I agree, it is a bit confusing. Should you ever wish to comment in the future, this is the easiest way:

1. Type in your comment
2. Then under select profile, choose name/URL
3. Type in your name and hit continue (or use Anonymous).
4. You can then preview or publish directly
5. Type in the word to prove you're human
6. Then hit publish

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Monday, December 17, 2012

Newspaper Paywalls - The Future or the Last News Stand?

This is my last official blog post of 2012, (I will announce the winners of the book giveaway on Wednesday) so I would like to wish my readers a Merry Christmas and /or Happy Holidays and a Happy New Year. See you in January.

Newspaper Paywalls


Over the last few years, there has been a growing trend amongst newspapers to implement paywalls. Papers moving forward with paywall initiatives include such prestigious papers as the New York Times and Wall Street Journal. As described in this Wikipedia link, a paywall is a system that prevents Internet users from accessing webpage content, most notably news content, without a paid subscription.

I find this transition fascinating. The change falls somewhere in the middle of being a sustaining technology and a disruptive technology – if one could apply technological jargon to this situation. There are alarming similarities between the transformations the newspaper industry and music industry have been forced to undergo in the last 5 years or so. While the revolution in the music industry may have been more radical and accelerated, it is still similar in many ways to the changes newspapers have had to make in order to survive.

I see the following similarities between these two industries:

Music in many forms became freely accessible to the public (whether legal or not is another discussion). Many newspapers and other Internet sources have been providing free access to news, sports, and entertainment etc. for several years now.

The music industry could not stop/or unwillingly let the genie out of the bottle and Apple, via iTunes, capitalized by providing a low cost music option in the legal download world. Newspapers are now trying to shove their genie back into its bottle by creating paywalls and charging for access to online news. 

The entire newspaper industry seemingly overnight is battling a societal shift, in which consumers expect free online content and are very hesitant to pay for such information. It is interesting to note that in Toronto, two popular free newspapers, The Metro and 24 Hours, are owned at least in part, by the owners of the Toronto Star and Toronto Sun respectively.

The Globe and Mail (“G&M”) recently went to a paywall when it launched its Globe Unlimited digital subscription service for its Globeandmail.com website and apps. The other three Toronto papers have also announced paywall intentions for 2013

While paywalls result in extra revenue for newspaper companies (charging for online content or creating demand for hard copy subscriptions), that revenue is often negated at least in part, by a decrease in advertising revenue. According to this article in the International Business Times , the New York Times increased subscription revenue by 8% in its second quarter of 2012 including paywall revenue, but had offsetting advertising revenue losses of 7%.

This July, 2011 article reflects how the implementation of a paywall can radically decrease online traffic once it goes up (it is my personal uneducated opinion that these numbers are understated as many papers offer some free online content or allow for a certain level of free visits that distort the true loss of readership). I would have liked to have been a fly on the wall when the NY Times held their initial meetings discussing the business case of implementing a paywall. You can imagine a boardroom filled with marketing, accounting and newspaper people, all with different agendas and ideas, sitting around a table trying to figure out if they will lose 10% or 40% of their online readers and how many readers the paper will require to become paid online or newspaper subscribers to compensate for the immense loss they will incur in online and hard copy advertising revenue. The revenue discussion does not even account for the issue of whether the people who stop visiting your site once the paywall is established, will ever return to your site for any free online content.

As noted above, the G&M recently implemented a paywall. They used the following pay structure: G&M newspaper subscribers were granted free online access. Casual online visitors are allowed up to 10 pieces of G&M content per month for free, after which they need to subscribe to Globe Unlimited or they will not be able to access anymore articles for that month. A Globe Unlimited trial is available for 99¢ for the first month, after which the cost is $19.99 per month.

As a G&M newspaper subscriber, I have free online access. If I decided to stop my newspaper subscription, I would pay the $19.99 per month. However, I am an avid newspaper reader for both personal enjoyment and because I need to stay abreast of what is happening financially because of my blog and profession. However, I am not sure in this day and age of free content that everyone feels the same. It will be interesting to see how the various Toronto papers’ paywall implementations are accepted or rejected by their readers. Their reaction will shape those newspapers and the Canadian newspaper industry for a long-time to come; or possibly a short-time to come, for those with less than compelling online content.

P.S. For those visually inclined, check out this interesting infographic on paywall trends.

Paywall Trends
Image source: www.bestcollegesonline.org

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Monday, December 10, 2012

How Not To Move Back In With Your Parents - Book Review and Giveaway

Rob Carrick of the Globe and Mail is one of my favourite finance writers. Back in March, he had the audacity to release his latest book, How Not To Move Back In With Your Parents, during income tax season. As such, I wasn’t able to read the book until recently, but, as they say, better late than never. Rob has been kind enough to provide me with two copies to give away to readers (see the details at the end of this post).

The book is promoted on Rob's website as a book that speaks not only to late teens and 20/30-somethings, but also to their parents. Rob states “There’s a lot parents can do to help their kids develop good financial habits, and to strategically assist them as they graduate, move into the workforce and start a family”.

As a father of a 22 and 20 year old, I was intrigued by the book’s premise.
I just finished reading the book and quite enjoyed it. Rob is blunt (a trait I certainly admire) and I really appreciate his no-nonsense, give it to them straight-up approach in providing advice to both parents and their children. While his approach would seem to resonate with parents of my generation, Rob also seems to have a finger on the pulse of the younger generation, which is reflected in his humorous and informative case studies.

Personally, I think Rob may be slightly ambitious with his dual objective of speaking to parents and young adults. It is not that I don’t think he does an excellent job in reaching both audiences; I am just dubious that the younger audience will take heed until they have made many of the mistakes he tries to save them from. I know that when I try to give my son financial advice, it is like talking to a wall, a wall that has eyes that roll up and down and I know a little bit about finances. Hopefully, I am wrong and young people have/ will embrace this book, because it is definitely an excellent guide for them.

Chapter Outline


Below is a chapter summary. I have noted my favourite comment Rob makes in each chapter. I just find them insightful, practical and several caused me to chuckle.

Chapter 1: Affording College or University – “Unless your parents are okay with you being loaded down like a mule with student debt, they should be paying as much attention to RESPs as to TFSAs and RRSPs”.

Chapter 2: How to Handle Debt, Both in School and Afterward – “Shrewd handling of credit is one of the things that defines a financially successful person”.

Chapter 3: You and Your Bank – “Banks are basically stores that offer financial products for sale. They are in business to sell you stuff, not to be your adviser, your partner or your friend”.

Chapter 4: Saving, Budgeting and What to Do if You Have to Move Back Home – “A little parental support at a key moment can help position you for a lifetime of success”.

Chapter 5: Looking to the Future: RRSPs and TFSAs – “A moderate, steady approach to retirement saving is the best present you can give your future self”.

Chapter 6: Mobility: Or, Cars and You – “Stay car-free as long as possible after you graduate”.

Chapter 7: Buying a Home – “Renting can be the shrewder move than buying if you cannot properly afford the full cost of buying and owning a home”.

Chapter 8: Weddings and Kids – “Arrange the best wedding you can afford”. Also, I could not resist this nugget on engagement rings that probably alienated half the females reading the book: “Men, don’t buy that crap about spending 3 months’ salary – spend what you can afford and remember that you can always buy a nicer ring later on as an anniversary present”.

Chapter 9: Insurance and Wills – “Young adults starting a family have a lot of expenses and term life is the most economical way to provide for a family in case of disaster”.

I am going to give away one free copy of Rob’s book to both a young adult and a parent. To enter the book giveaway, in the comment section below, please provide your first name and the first initial of your last name and identify yourself as a parent or young adult. Then, either provide a comment on the blog post, or give me your best financial tip for a young adult from a parents perspective; or if you are a young adult, the best tip you would give to another young adult. For my more social savvy readers, you can tweet your comments to me, including the hashtag #BluntBC. I will announce the two winners next Wednesday on my blog and twitter account.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Monday, December 3, 2012

Are RRSPs the Holy Grail of Retirement Savings or the Holey Grail?

In March 2011, I wrote a blog post disputing Jamie Golombek’s assertion that RRSPs are not the Holy Grail of retirement to Canadians. In May 2011, I followed up the above noted blog with another post in which I attempted to reflect that RRSPs are only accessed under financial duress.

Based on the above two blog posts, clearly my opinion has been that RRSPs are the Holy Grail of retirement planning for Canadians. However, I am beginning to wonder if my personal experience in dealing with higher net worth people who tend not to "touch" their RRSPs, has distorted my view of the situation and RRSPs are really a "Holey Grail".

The catalyst that has led me to second guess myself as to whether RRSPs are really sacrosanct is a recent poll (of 2,013 people) undertaken by the Scotiabank on Canadians' mindset regarding RRSPs.

The poll states that “one-third of RRSP holders (36 per cent) reporting taking money out of their RRSP this year, up from 23 per cent back in 2005”. The poll also reported “the average amount Canadians withdrew from their RRSP was $24,531. In 2005, the average amount Canadians withdrew from their RRSP was $10,716". 

What I personally found shocking about the poll was that “Canadians aged 55+ (41 per cent) are more likely than 18-34 year olds (32 per cent) and 45-54 year olds (30 per cent) to have taken money out of their RRSPs”. Although one must take into account people greater than 55 years old will have larger RRSPs from which to withdraw, one would think that of anyone, those closest to retirement would consider their RRSPs as Holy Grails. However, as noted by the Canadian Investor in the comments area, some +55 year olds may be accessing their RRSPs as part of their retirement plan, in essence lowering and/or smoothing their income tax liability and funding retirement expenses.

I summarize the poll numbers below (Note: I have used the numbers in the Scotiabank press release and from an article in the Financial Post by Garry Marr on “What not to buy with your RRSP”, to pull these numbers together, as I could not directly access the survey).

Reasons People Withdraw from Their RRSPs


Buy a first home - 40%

Pay down debt - 16%

Convert to a RRIF - 15%

Cover day-to-day expenses - 14%

Home renovations - 8%

Vacations - 6%

Education - 4%

Medical - 3%

Holy Cow - Did you really use your RRSP for a Suntan?


So, let’s step back for a moment to review the reasons provided by Canadians for withdrawing money from their RRSPs and examine whether my postulation that RRSPs are the retirement Holy Grail is flawed.

In total, 14% of RRSP withdrawals are used for home renovations and vacations; two fairly self-indulgent and discretionary expenses, that most would suggest should not be funded by a RRSP. What is scary is that number would be much higher if we added the percentage of day-to-day expense withdrawals that were for discretionary expenses such as tablets and TV's. Ouch, not much of a holy grail.

Holy or Holey?


The Scotiabank poll still reflects that 64% of the population do not access their RRSPs and that percentage would move closer to 70% if we exclude the legislated conversion of RRSPs to RRIFs, which are not true withdrawals.

If you believe that first time home purchases are technically just loans from your RRSP and not true withdrawals, the percentage increases to almost 85%. Finally, if you believe paying back debt is just a result of financial duress and not because RRSPs are holey, it could be argued the percentage of people accessing their RRSPs is a relatively small narcissistic percentage.

So let's look at the top two reasons for RRSP withdrawals in greater detail.

Buying a First Home


As noted above, the largest single reason for withdrawing money from a RRSP is the purchase of a first home. This is an extremely complex issue to analyze, because the CRA has condoned the use of RRSP funds for first-time home buyers. Many people make RRSP contributions they would never have made in the first place, knowing they will get an immediate income tax deduction and tax refund, while keenly aware that they will utilize these RRSP funds to assist in purchasing a home in the short-term.
 
In the Scotiabank press release, Bev Moir, a ScotiaMcLeod Wealth Advisor, said the following: "Investing in a home and investing in retirement are both important parts of life and finding a way to balance both is key. If Canadians are going to take money out of their RRSP for a major purchase like a house, they need to have a plan in place to return that money as soon as they can so they don't limit their options in the future. “  

The problem I have with Ms. Moir's statement is that it ignores the reality of the situation. People buying their first home typically struggle to just repay the yearly minimum Home Buyers Plan (HBP), which is re-payable over 15 years. In my CA practice, it is my experience that many people do not make the required yearly HBP repayment. The consequence of non-payment is that the required payment amount becomes taxable income in that year; which results in additional income tax and a further deterioration of potential retirement funds. Even where people have a plan and make the yearly repayments, years of tax-free compounding are forgone and their future retirement options may be limited to some extent.

Here is what Rob Carrick of the Globe and Mail has to say on this topic. In his book How Not To Move Back In With Your Parents Rob says that when people ask him should they contribute to their RRSP so they can withdraw money under the HBP his answer is "Uh no. You contribute to an RRSP to save for retirement. If you need some of your RRSP to afford a house, fine. But there's too much of a tendency for people to see RRSPs as a savings account from which money can, if necessary, be withdrawn."

Personally, I don't think using a RRSP to purchase your first home negates my Holy Grail argument. The intention of the HBP program is in essence to provide a 15 year or shorter term "self" mortgage, while keeping your RRSP whole; however, like any legislation that has more than one objective, both objectives cannot be fully satisfied.

Repayment of Debt


I discussed the issue of excessive Canadian debt in my blog, Debt – An Ugly Four Letter Word. Accessing RRSP funds to pay down debt is a blog on its own, so for now, I will only say, often RRSP withdrawals related to debt repayment are accessed under financial duress. Now whether this duress is self-inflicted due to excessive discretionary spending is another question entirely.

Rob Carrick in his book states that "there are better ways to accomplish this very worthwhile objective" than using your RRSP to repay debt. I discuss some of these ways in my above noted Debt blog post. Rob also makes a great point in noting that the statutory withholding tax rate attributable to RRSP withdrawals is often less than the person's marginal income tax rate, which can result in an income tax shortfall, which creates yet another new debt. In that regard, if a RRSP is accessed by a taxpayer in the 31% marginal tax bracket (the tax bracket the average Canadian would be in) to pay down debt, they will only be applying approximately $69 of each withdrawal to pay down their debt after the CRA takes its tax bite.

My Final Comment


At this point, I can only suggest that RRSPs are the Holy Grail for at least 70% of Canadians. However, for a disturbingly large segment of the population, RRSPs are the Holey Grail. For this percentage of the population, instant self-gratification, whether in the form of a nicer house, vacation or the latest electronic gadget, is of greater importance, than a distant concept called retirement. As for the high percentage of 55+ year olds making RRSP withdrawals, I am very concerned for their retirement if the withdrawals are not being made as part of their retirement plan.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.