What Should Be Taxed More — Current or Future Income?

Governments getting their fiscal houses in order are asking taxpayers to depend less on government services and take more responsibility for the future. But those same taxpayers are wrestling with two layers of taxes: taxes on income, which erodes current income, and taxes on capital appreciation, which erodes future income.

This seems counter-productive to the concept of self-reliance.

That begs questions about our tax system. Should current income be taxed more than the future income that capital appreciation provides, as happens now? Should they be taxed equally? Or should capital appreciation — often seen as the purview of the wealthy — be taxed more than current income? These are very important considerations, especially in these volatile times, and there are arguments to be made on both sides.

On the side of lower taxes on current income is the time value of money.Thanks to high taxes on current income, taxpayers have fewer after-tax dollars to put into the tax-advantaged savings vehicles at their disposal: Tax-Free Savings Accounts, which create tax-exempt income from after-tax dollars, and tax-deferred registered accounts such as Registered Retirement Savings Plans or employer-sponsored pension plans.

When governments take tax dollars off the top of taxpayers’ employment income, they remove important wealth-compounding opportunities. At the outset, savings balances are lower, and the advantage of whole dollars compounding over time is lost. The most important defence a responsible taxpayer can have is the ability to keep more of the first dollar he or she earns and invest it promptly in a tax-protected account. Then, he or she is in a position to create the self-reliant income desired by cash-strapped governments. (After all, governments still have an opportunity to tax future income.)

Unfortunately, millions of Canadians are using their after-tax dollars to fund non-discretionary needs and do not have enough “redundant income” to save, so they cannot be self-reliant (see “Contribute to your RRSP,” Knowledge Bureau Report, Feb. 1).

But if you are saving and accumulating wealth, you come up against a second erosion of wealth — the tax on accumulated capital.

Many think the asset-rich should pay more and government taxes at the time of actual sale or “deemed disposition” (death or emigration, for example) should be higher. We want to be very careful here. If governments are encouraging self-reliance, they don’t want to rob future generations of the ability to earn income on that inherited capital — or future governments to tax it.

As the large, baby-boom generation moves into retirement, boomers will pay less personal income taxes — the largest line of revenue for governments in recent years — and their contribution to federal coffers will decline accordingly. That presents a challenge for overcommitted governments. If future government revenues are to be maintained, that capital, intact, must be available for both future generations and governments.

Yet another factor affects capital accumulation: because the adjusted cost base of a capital asset is not indexed to inflation, any increase in inflation subjects the value of capital to a powerful and hidden tax, one that’s based on inflated values rather than real values. Government coffers win in times of high inflation; investors lose on a net basis.

Together, inflation and taxes quickly erode the real value of wealth — that is, purchasing power — and that risk is inherent in capital appreciation.

So, which should be taxed more — current or future income? There is no easy answer. Both the performance of the investments you choose and their ability to grow your capital, and the time value of money are important. And you can’t discount current market risks or the risk future taxation and inflation pose to your capital and income. All affect the sustainability of family net worth. Your best strategy is knowledge.

It’s Your Money. Your Life. Do you understand how your current income and future income from accumulated assets are taxed? If you are not sure, ask your tax and financial advisors. Given that we are in the midst of a long period of volatility and low returns, you should protect your capital from the eroding effects of tax and inflation and manage it — on an individual, family and community basis.

Evelyn Jacks, President of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. Mrs. Jacks will be launching her books and addressing today’s financial and tax issues in Winnipeg on Feb. 9. To register, click here.

In a Fragile World, Tax and Pension Entitlements are Linked

This week, a friend in business lamented the shocking loss of a key employee. The unanticipated death closed down the firm for several days as fellow employees absorbed this traumatic loss. It was the tenth death within this circle of employees, suppliers and clients and their respective families. When it rains, it often pours.

Although very difficult emotionally, conceptually we understand the consequences of human frailty and demise. As humans, we do our best in times of great change: we rally around those who are vulnerable. Again and again, we cope with the stages of grieving — moving from shock and denial to pain and guilt to anger and bargaining and, finally, to the beginnings of acceptance: reflection, re-organization and re-construction.

People around the world are reacting to the disruptive and sometimes devastating effects of the extended global financial crisis with this same shock, denial and anger. And the challenge for governments is to manage these global economic threats to our fiscal health while keeping cherished social benefits in place.

In Canada, there are big issues ahead for the large, baby-boom generation and the government that counts on boomers’ continued contribution to its tax coffers. For their part, boomers are at the front door of retirement and are facing significant changes to Canada Pension Plan benefits and, possibly, access to Old Age Security. This comes after a decade of zero returns on their savings or, worse, the reduction or demise of their employer-sponsored or private pension plans.

For its part, the federal government is already seeing interest charges on our public debt and support to the elderly eat up 11¢ and 13¢, respectively, of a dollar of government revenue. On the revenue side, the federal government counts on personal income taxes to provide 48¢ of every dollar of revenue collected. This source of revenue will be difficult to grow as this significant group of taxpayers heads into retirement.

Fortunately, Canada is in a good position to balance global economic threats and preserve social benefits. According to the federal Department of Finance’s Fiscal Monitor, released last month, the budgetary deficit for the first eight months of the government’s 2011-12 fiscal year was $17.3 billion, vs. $26 billion a year earlier, a 35% improvement. Net tax revenues were up; program expenses were down. Public debt charges, however, increased and that is a threat for retirees. Higher deficits cost more money to service and, should interest rates rise, the ability to maintain or increase existing social benefits will be squeezed. It’s important to anticipate that now so you can chart an alternate course if required.

And so it goes: the burden of the healthy is to manage the consequences of decline and loss with grace and strength and to take the very best possible care of those who are vulnerable.

It’s Your Money. Your life. Things change. This tax season, take the time to find ways to save more of your income, so you can build and grow family wealth. Challenge your tax advisors to dig for every tax deduction and credit to which you are entitled, so you can reduce non-deductible debt and invest more tax-efficiently. This is one of the best ways to build your pensions and investments so you’ll be ready for unexpected personal and/or economic shocks.

Evelyn Jacks, President of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. Mrs. Jacks will be launching her books and addressing today’s financial and tax issues in Toronto on Feb. 7 and Winnipeg on Feb. 9. To register, click here.

Following Investment Advice In Volatile Times

Do you believe that, in times of volatility, investors follow the financial advice that they are given?  You might be surprised at the answers.  It appears that investors want to do exactly the wrong things at the most volatile times.

Three things I’ve learned in researching the subject with my co-authors for our book Financial Recovery in a Fragile World:

  1. Investors are influenced less by economic forecasts that predict the future; rather,  they become agitated by what they have experienced in the past.  In other words, they remember the pain of the losses they have experienced.
  2. Investors to lose money in times of great volatility because this is the precise time they want to change their path and trade against their advisor’s advice. The result is significant damage to their accounts.
  3. A study done in 2009 based on data from 1995 to 1999 in Taiwan, reinforces this even though the period was a particularly good one, by today’s volatile standards. In the world’s 12th largest financial market, total losses to individual investors from trading aggressively were approximately 2% of the country’s entire GDP!

One can certainly conclude from this that they would have been better off if their money had been in their mattresses!  The Knowledge Bureau poll is about this very subject this month.  Already, reader Mark Morgan has posted an interesting comment:

“It depends who is dispensing the advice, of course, but usually people seem to follow advice when times are good and indulge in irrational behaviour when times turn bad.”

Bob Kelley, on the other hand, thinks that many investors do follow advice, and if they don’t, they should:  “Financial advisors are professionals and are in touch with financial institutions on a regular basis. Most individuals do not have the resources that their financial advisor has to make rational decisions.”

I hope you’ll participate with your opinion too. In the meantime, it’s good to focus on what you can control:  (a) debt management (b) tax efficiency (c) the cost of your investments (d)  how to work smarter with your professional advisors.

It’s Your Money.  Your Life. The key role of a great financial advisor in volatile times is to stop investors from inappropriate trading reactions that will significantly erode their wealth.  This is a highly prized service by clients—but often only in retrospect.  Listening to your advisors now, and following your wealth management plan, will pay off.

Evelyn Jacks is President of Knowledge Bureau.  She is currently writing a book with Al Emid and Robert Ironside entitled Financial Recovery in a Fragile World.   For more information, visit the bookstore at www.knowledgebureau.com

Disaster Management: A Great Plan with Great Advice

In the middle of a hot summer, the markets are volatile; investors are nervous. This is the time for great advisors and great advice to shine. They know that it’s what happens when the boat rocks that differentiates a great advisory team from a poor one; good results from bad ones. In fact, when opportunity meets preparedness, even the perfect storm cannot topple a well-planned execution through disaster and swiftly, into recovery.

Given our recent economic history, we all should be ready for the after-shocks of financial crises, with both strategy and process as events unfold. Great advisors are on that page, and their clients are ready. They have helped their clients manage debt, save more money, and make more immediate decisions to guarantee their needs are covered in difficult times. They have done this with strategy, process and communication, and now are positioned for a swift recovery from the current malaise.

Doug Nelson, Knowledge Bureau Faculty Member, and co-author of the Real Wealth Management and Tax Efficient Retirement Income Planning Courses, puts it this way:

“Proactive, custom, tax-efficient portfolio management really works using the Real Wealth Management approach. But in addition, it focuses on income. Advisors need to think about creating new sources of income, which would include tapping into government benefits, and strategies to increase the amount of tax efficient income their clients currently have from both work and investments. As well, they need to think about protecting the income sources clients have in case of the uncontrollable events, in the future.”

Besides personal disability or death, financial vulnerabilities for Canadian households include rising interest rates in the not-to-distant future; of more immediate concern as a result of the recent debt crisis in the US. At the end of July, the Finance Minister of Canada warned Canadians to batten down the hatches and get ready for the storm in light of the potential for higher interest rates. Job one: manage debt loads, especially as it relates to mortgages.

His theme was echoed by Glen Hodson, chief economist and senior vice-president at the Conference Board of Canada, who predicted that a downgrading of the U.S. government’s credit rating would lead to a rise in interest rates as well. A downgrade by Standard and Poor to AA+, of course, has now happened.

Many Canadian households have the same problem. High levels of household indebtedness in Canada is worrisome in a world of rising interest rates and economic turmoil. Rock Lefebvre, CGA-Canada VP of research and standards, provided an indepth analysis on the implications of consumer debt for the Canadian economy at the Senate Committee on Banking, Trade and Commerce at the end of June, delivering results from the study entitled, A Driving Force No More: Have Canadian Consumers Reached Their Limits? He noted in an interview with The Hill Times, “People need to be taught to save and to amass wealth,” he said, “and to make responsible decisions that are in their best interests. . . ”

That’s where working with a great financial advisor really pays off. The inter-advisory discipline of Real Wealth Management™ involves the accumulation, growth, preservation and transition of wealth, with purchasing power: after tax, inflation and fees, including interest. We have found that advisors who follow the discipline have clients who are prepared for the perfect storm, positioned for quicker recovery in case of disaster, and ready for the opportunities that come when the winds subside.

It’s Your Money. Your Life. The great advisors of the day are shining this week as they lead their clients through the financial storm of the day. Take note. They are likely people you want to work with in the future.

Evelyn Jacks is President of Knowledge Bureau, a national educational institute that has pioneered the inter-advisory discipline of the Real Wealth Management. For more information on certificate, diploma and designation programs, see www.knowledgebureau.com

August Could be a Hot Month—For Taxpayers in Particular

It may be the middle of a hot sleepy summer in some parts, but this year’s relatively cool summer in BC may soon heat up politically, as residents get ready to vote in the HST Referendum on August 5. That very contentious issue, which caused the resignation of long time Premier Gordon Campbell, will result in a shift in the way the province had planned to raise tax revenues. But over time, it could also significantly impact unemployment, as it erodes competitiveness for the province’s business community, in a volatile time.

Today, the harmonized HST is 12% — 5% for the federal portion and 7% for the provincial portion. BC residents have received some relief from the regressive nature of this tax with point of sale rebates, new housing rebates, energy credits, partial rebates for public service bodies, and for individual taxpayers, HST credits on the personal tax return and an increased basic personal amount. In addition, corporate taxes were scheduled to go down.

BC corporations have two tax rates levied on their net income. The lower tax rate, used to compute tax on corporate income under the Small Business Limit, which currently is $500,000, was scheduled to drop from 2.5% to 0% on April 1, 2012.

The higher rate of British Columbia income tax, which applies to all corporate income not eligible for the lower tax rate, has also dropped over the past several years, as follows:

  • 10% effective January 1, 2011.
  • 10.5% effective January 1, 2010; and
  • 11% effective July 1, 2008;

Depending on the outcome of the HST referendum, the province is planning to increase the higher rate of income tax from 10% to 12%, effective January 1, 2012, if voters elect to maintain the HST, but at a rate that will be reduced from 12% to 10%.

Should the August 5 referendum result in a rejection of the HST, the old PST regime will return, at a rate of 12% (5% GST + 7% PST). This will be accompanied by the above scheduled reductions in corporate tax, which should help with competitiveness in a global economy, something BC business will count on to offset the negative effects of the old sales tax structure. This is particularly important as it continues to increase exports to the Chinese market.

Should the voters say no — don’t eliminate the HST — but rather reduce it by 2% in the future, corporations will also lose their tax breaks. The scheduled reduction to the small business rate (0% by 2012) will not go ahead for now and the higher corporate rate will go up by 2% to 12%. . .1% higher than in 2008! However, in this case, businesses will be able to claim input tax credits on HST they have paid to produce goods and services for sale.What’s really at stake in the referendum is the billions the HST is expected to bring in down the line. This is much needed cash for government trying to pay down its deficit and manage costs. Reporting this past July 18 that BC’s deficit was close to a Billion dollars less than forecasted a year ago, Finance Minister Kevin Falcon noted growth in BC’s economy as a key reason for increased revenues, together with savings in health care and of course the new HST revenues, which included money received from Ottawa for implementing the hated tax.

But going forward, things aren’t quite that rosy, according to recent private sector forecasts for the province. According to the Royal Bank’s economic outlook for BC, published in June 2011, “economic activity has lost much of its momentum since the fall. . .British Columbia’s unemployment rate remains above its average of 7.6% in 2010, a clear indication that job prospects have not become any brighter this year.” In fact the same report anticipates unemployment rates of 7.9% in 2011. Further, the rate of population growth weakened in BC, taking it from the second fastest growing city in 2009 to the slowest amongst the provinces west of Ontario. New income tax bases, at least for the time being, are not moving to BC.

Either way, the changes anticipated to the HST in the referendum will negatively affect retained earnings for some business owners in the short term. And, with tax reductions off the table should the HST survives at a lower rate, it’s quite possible, there may be higher prices at the checkout or worse, higher unemployment, too, as part of the fall out.

The department has released its own measure of the outcomes in this presentation: http://www.hstinbc.ca/media/Minister_Presentation.pdf

In a complicated global economic environment, a fragile recovery from the worst financial crisis in modern history is taking place. The net effect of the introduction of the HST in BC is perhaps not completely understood. The Fraser Institute explains this tax is in fact revenue neutral in 2010 to 2012; however, it also points out perhaps the more significant issue: that there is no guarantee it will remain revenue neutral after 2012 under current legislation.

 It’s Your Money. Your Life. Jobs are important at all times—but particularly in fragile economic times. They produce tax revenues for governments and financial independence for families. Will a combination of higher taxes, higher interest rates and higher inflation, which may be on the horizon, increase unemployment? Taxpayers in BC may wish to use the referendum as an opportunity to ask this important question of their politicians, together with accountability for tax increases in the future.

Evelyn Jacks is President of the national financial education institute, Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Essential Tax Facts. Take a free trial of the Real Wealth Management course to think with focus on how to take better control.

Retirement Planning Starts with Dollar One

When is the best time to do retirement planning? My word to my adult children:  with the first dollar you invest in retirement savings plan. Fortunately there are such good tax efficient vehicles to choose from today. Really there is no excuse for not taking control of your future.

Make no mistake, failing to launch financially while you are young has lifetime repercussions.  If you are wondering why you should care about retirement—so far away from now—consider this:  you are not entitled to any guarantees on public pension benefit levels many years from now.  However, you are in a position today to guarantee your own future lifestyle, by being financially astute.

Here are the issues:

First, compounding time.  The later you start to save the more you will have to save.   Use any compounding calculator to prove it to yourself.   Let’s say you invest $100 a week each and every week for 40 years at a 3% interest rate. You’ll save over $335,000 on an after tax basis*.  But if you cut your savings time in half—starting at age 45 for example instead of age 25—you’ll accumulate only $131,000.  That’s 61% or $204,000 less.  That difference can buy a lot of lifestyle in your retirement.     

Second:  Rate of Return.  It makes a big difference whether you earn 3% or 6% on your invested dollars, so make sure you have the right investment products with the least costly fees attached to them.  Doubling your interest rate from 3% to 6% in the example above produces $569,000 in savings after tax,  in the same 40 year period; yes that’s $234,000 more.    

 Third:  Tax Efficiency is Most Important.   Tax efficiency and deferral can add many points to your rate of return.  You need to pay attention to this.   When you invest a hundred dollars into a TFSA, for example, instead of a non-registered account, your $100 per week (at the 3% interest rate for 40 years)  turns into $398,000; that’s $62,000 more just be putting the money into a tax sheltered account.   However, with double the interest rate, you’ll have over $829,000 in your TFSA account over 40 years; that’s $260,000 more than if you saved your money in a non-registered account.

 So remember, if you are at least 18 years of age, you can invest $5000 each year (that’s $96 15 each week) in a TFSA each and every year.  You should do so to take advantage of the powerful compounding time, and try to get the best rate of return you can every year.

 Where does the RRSP come in?  To contribute to a Registered Retirement Savings Plan, you must have earned income from employment or self-employment last year, and you must be under age 72.  If this fits, you can invest 18% of that earned income in an RRSP.  Remember, the RRSP investment differs from the TFSA in that you will receive a tax deduction for your RRSP contribution; (this is not so with the TFSA, which uses after-tax money).  However, upon withdrawal of your RRSP later, you will pay tax on both principal and earnings, unless you use the money to buy a home or go back to school.   

 With the RRSP, however, you do get the power of a pre-tax deposit, compounding on a tax deferred basis over time, and often the allowed deposit is higher.  Used in combination with the TFSA, these two tax-preferred investment vehicles could make you a millionaire.

 If this is all Greek to you, consider taking a basic tax efficient investing course. We have an excellent computer-based one available 24/7 by e-learning at the Knowledge Bureau.  That knowledge will really pay off for you handsomely.

It’s Your Money, Your Life.  If you are 20 or 30-something, still living at home, and not saving a penny for retirement, you are making a choice in the quality of your lifestyle later in life.  If you feel you are entitled to a comfortable retirement, make a commitment to learning, earning and saving now.  You’re entitled to your choices, after all. Learning more about your retirement savings and withdrawal options, with the first dollar you invest, will make you rich later in life.   

Evelyn Jacks is President of the national financial education institute, Knowledge Bureau  and best-selling author of 46 books on tax preparation, planning and wealth management, including Essential Tax Facts.    Take a free trial of the Real Wealth Management course to think with focus on how to take better control.

*Assumes a combined federal and provincial marginal tax rate of 25%.   All calculations performed using The Knowledge Bureau’s Retirement Savings Calculator.

Inflation Rates Triple

It’s not just your imagination.  Retail prices are up significantly, according to the latest measure of CPI inflation (total CPI) produced by Statistics Canada.  In fact, the rate has tripled according to the latest data reported by the Bank of Canada.  As at the end of April 2011, total CPI was a whopping 3.3%!

The Consumer Price Index (CPI) is used to estimate how the purchasing power of money changes over time. The CPI measures inflation  by comparing the retail prices of a representative “shopping basket” of goods and services at two different points in time. 

Here’s how this year’s figures compare to prior years:  at the end of the second quarter of 2009, total CPI was 1.2 %.  At the end of the same period in 2010, it was 1.4%. 

How is that affecting Canadians?  The many respondents of the Knowledge Bureau Poll in June concur that they are spending more, citing food and gas prices as main culprits. 

Respondent Pat Harris says “We are seeing a huge decrease in discretionary spending as people struggle to pay for basic necessities such as food, electricity, heating fuel and gasoline. As people who live in rural Ontario with NO access to public transit, many are finding it difficult just to get to work.”

Over on the West Cost, Peter McG states: “Gasoline, fresh fruits & vegetables, meat and grains all significantly up in price. Government reaching into our pockets for ever more money. House prices are ridiculous (Vancouver)! Been to Dairy Queen lately? They want $5.00 for a Sundae and $3.00 for a simple Ice Cream Cone. Ridiculous. Really feel for young families who would like to buy a home to raise their family. Not even a dream for most!”

This bears out when you look at core inflation, the year-over-year growth in a variant of the CPI that excludes the eight most volatile components —which account for 19 per cent of the CPI basket—(fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation, and tobacco products).  That figure rates core inflation at only 1.6% at the end of April, while core inflation excluding food, energy and the effect of change in indirect taxes was only 1%. 

It’s Your Money. Your Life.  Now is the time to take a hard look at Real Wealth Management  as a process to kill wealth eroders like taxes, inflation and investment fees.  It’s not that difficult.  You need to know some basic terms and work with a professional advisory team who knows your objectives and concerns to help you make decisions about your spending and savings.

Evelyn Jacks is President of the national financial education institute, Knowledge Bureau  and best-selling author of 46 books on tax preparation, planning and wealth management, including Essential Tax Facts.    Take a free trial of the Real Wealth Management course to think with focus on how to take better control.

Tax Refunds and Postal Strikes

Are you anxiously awaiting your tax refund during the postal strike? You are not alone. To be effective, strikes are timed to pressure management for a speedy resolution by disrupting the masses. The current postal strike is no exception, occurring in the midst of one of the most significant financial transactions of the year for millions of individual Canadians, and at a time of fragile recovery for many businesses.

According to the CRA website, the Canadian Union of Postal Workers agreed that during the current lock-out, they would deliver certain Government of Canada cheques on the 20th of the month. This includes the Canada Child Tax Benefit, Old Age Security, Canada Pension Plan and Guaranteed Income Supplement. However, those cheques may be late.

Tax refunds for neither individuals nor businesses, Universal Child Care Benefits for parents of young children, Goods and Services/HST tax credit cheques, and Employment Insurance cheques for families struggling with unemployment did not make the “go” list at all.

The average tax refund has been hovering around $1500 over the past several years; more than many people add to their TFSAs or RRSPs annually. That lump sum—often resulting from an over-deduction of tax on wages–will pay off expensive credit cards, pay down mortgage balances, and pay for the costs of annual family camping trips; inflated this year because of the cost of gas. For some, it will help to pay for summer or fall tuition, or, on a more basic level, non-discretionary items like rent or food. For others it is the only significant savings opportunity of the year.

If this concerns you, you may wish to consider changing the way you file your returns and apply for social benefits. You might consider electronic tax filing and electronic deposits for everything from tax refunds to GST Credits, Child Tax Benefits, Employment Insurance Benefits and Old Age Security payments in the future.

Unfortunately, that alternative won’t help those who count on tax refunds, or social benefits like the UCCB, GST or EI, if they don’t qualify to open bank accounts to which electronic payments can be made.

It’s Your Money. Your Life. It’s important that you are in control of your money so that you can make wise choices. File earlier next year, and consider using tax software, electronic filing and deposit, or the services of a qualified tax professional to get your tax refund faster. That professional can also help you with audit problems, late filed returns and the recovery a taxes and social benefits because of errors or omissions. And please do respond to the Knowledge Bureau Report Poll on issues like these. It’s important to have a voice.

Evelyn Jacks is President of the national financial education institute, Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Master Your Taxes. She was a member of the Federal Task Force on Financial Literacy.

The Value of Great Professional Advice

If you were the coach of the Vancouver Canucks today, what would you be telling your team?  Professional advisors get paid to give the right advice, when it counts.  Whether coaching a hockey team in an all-important final game, or a family whose retirement planning has gone awry, the principle is the same:  to get the results needed, there is great value in superb coaching.

 It’s probable that the coach of any championship team will have covered many aspects of plan execution in anticipation of such an important end result.   In fact, he or she will have done so all along the way.  Winning teams evolve.  The right team members are chosen, inspired with vision, values and a disciplined process, and motivated with performance goals that are not only achievable, but have the potential to be exceeded.  External experts will have been engaged, as required, to cover unusual or one-time events, all as part of the overall winning strategy.  Individuals will have been coached on sharpening their skills and mastering their mental resolve.  Winning coaches, in short, are superb at managing each component to the end game.  They will have instilled the confidence their team needs to face the fiercest of challengers, by helping them consistently stick to the strategy, process and execution plan. 

 How true this is of a financial environment as well:  the landscape is constantly changing; as a result, there can be gaps and failures in performance of a financial plan, further skewed by changes in lifecycles and lifestyles, and unexpected catastrophes that require both readiness and immediate management.  Disasters happen; recoveries are about getting back on your feet and resuming the journey.    Investors who need to achieve specific results, can’t quit.   Rather, they need to forget about the past and focus on the future. They need to come back strongly and seize new opportunities.  And, they need to rely on experienced professional advisors to help them execute, especially when they are in a deep rut.  

 It’s Your Money. Your Life.  It’s impossible to win the Stanley Cup alone.  Investors and hockey players who win big, have both:  great teams and great professional advisors.   Do you?  Go Canucks Go

Evelyn Jacks is President of the national financial education institute, Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Master Your Taxes. She was a member of the Federal Task Force on Financial Literacy.

Financial Education Builds Self Esteem

Have you ever met a successful person with poor self esteem? They are on such a difficult road. We all need to feel safe, secure and part of a family, yet that’s not a reality for many. Self-esteem matters. When you know yourself, you know your values and your principles. You stand for something, and that’s something those around you can count on. This is especially true when you have developed disciplined values and principles about family wealth.

It’s incumbent upon parents to raise strong, resilient children to pass the torch to, particularly if there is much responsibility in their futures. That great responsibility can include the care of significant wealth. From a financial point of view, strong families expose their children to scenarios in which knowledge and skills about money management result in confident, responsible decision-making for life.

That’s all very important when it comes to family wealth management. It all happens so quickly: children grow up and leave home, parents and siblings die, and for so many boomers—so busy caring for the young and the old alike—the time to counsel their heirs about future responsibilities regarding personal and financial stewardship has somehow slipped away.

Failure to find time for teachable moments is rooted in procrastination for some. That’s because it takes courage to talk about money, particularly if its accumulation has affected relationships. But it’s important to get those conversations on track.

When are you going to talk to your children about the insurance policies, residences and financial assets they will inherit? Do your children view money as a resource tool to help them maximize their potential? Do they have any skills to manage it? For example, do your adult children know:

  1. How to read their tax return
  2. How to construct a personal net worth statement
  3. Principles to save by (should that be 10%, 18% or 25% of income?)
  4. Principles to borrow by (paying off the credit card minimum every month is not such a sound financial plan!)
  5. How to preserve income and capital from taxes, inflation and fees

Have you introduced those adult children to your professional advisory team for help with taxes, financial and wealth planning? They could very well be on the road to exceeding the income you have made in your lifetime—especially if they are better educated than you are. They could also be quite shocked to know that they will inherit a lot of money from you.

It’s Your Money. Your Life. Financial education is a life skill that builds self esteem. Are you talking to your adult children about their money and the wealth you will pass down to them? Would your child consider it a devastating breach of trust if this were a surprise later? That’s risky, if your goal is a strong family with strong self-esteem. Taking the time to guide young people pays off in building and sustaining strong financial dynasties. Are you reaching out to help them? Would your child consider it a devastating breach of trust if this were a surprise later? That’s risky, if your goal is a strong family with strong self-esteem.

Evelyn Jacks is President of the national financial education institute, Knowledge Bureau and best-selling author of 46 books on tax preparation, planning and wealth management, including Master Your Taxes. She was a member of the Federal Task Force on Financial Literacy.