Straight Talk on Your Money

There are many writers offering financial advice to the typical Canadian, but Doug Hoyes, author of the book Straight Talk on Your Money, is a licensed insolvency trustee. He’s seen enough to have good insights into the kinds of financial mistakes we make. Unlike many writers who offer black-and-white opinions, Hoyes sees the shades of gray.

The book promises to dispel 22 financial myths that are holding us back and that “Everything you know about money is wrong.” But the contents are actually more thoughtful and nuanced than advertised. Even the section titles are somewhat out of sync with the book’s contents. One section title declares “pay yourself first” to be a myth. The rest of the section then goes on to explain that paying yourself first is a good idea unless your finances are so dire that you can’t afford to start saving immediately.

The contrast between section titles and the contents gives the book somewhat of a newspaper feel where reporters write articles and the marketing department writes headlines. But don’t be put off by this contrast. Hoyes makes many great points getting to the core of why people have financial trouble.

The book begins with an explanation that rather than being rational, we rationalize. “Your gut makes a decision, for purely emotional reasons, and then you consciously find reasons to rationalize your decision.” Admitting this is true is a good starting point for making better decisions.

Unlike much “tough love” advice, Hoyes says that your financial troubles aren’t entirely your fault. Lost jobs, illness, divorce, and other bad luck plays a role. Aggressive and deceptive lenders deserve some blame, too. “But, blame doesn’t matter.” It’s better to work on solutions.

“Starting now, refer to your credit card only as a debt card.” Debt cards don’t deserve the positive connotations of the word “credit.” When it comes to credit scores (debt scores?), “focus on your goals, not your credit score.”

Hoyes recommends diversification in a different sense than the usual investing definition. Bank accounts sometimes get frozen for various reasons, so “have a second bank account, at a different bank ... where you don’t owe any money.”

“Collection agencies almost never sue anyone.” Under most circumstances “you should never pay a collection agency.” I learned quite a bit from the section on how collections agencies operate, and how you should deal with them.

The author doesn’t like the labels “good debt” and “bad debt.” “Instead of asking yourself, ‘Is this good debt or bad debt?’ ask, ‘What’s the risk that I won’t be able to repay this debt?’”

It’s not a good idea to think of your house as an investment. “By viewing your house as a consumer good, not as an investment, you can free yourself from the need to buy the most expensive house and instead focus on what’s truly important to you.” On the subject of whether a house provides stability, Hoyes says it does, but there are also ways that a house anchors you down and keeps you from following new opportunities.

In another example of the contrast between the book’s section titles and its contents, one section title is “Budgeting is a Waste of Time.” However, the proposed alternative to budgeting seems a lot like budgeting. There is an important difference, but it’s somewhat subtle. By “budgeting” the book means the process of tracking every single expenditure, analyzing them, and making necessary changes. The suggested alternative is to identify necessary spending along with big things that are important to you and to set aside money immediately from each pay cheque into bank accounts to cover these items. Whatever is left after these important things doesn’t need to be tracked. I guess the idea is that if you run out of money for the less important things that you don’t track, you can do without them for a while. Of course, this assumes that you’d actually do without instead of just running up your credit (I mean, debt) card.

On the subject of helping your kids with a house down payment, the author has a warning: “I can tell you many stories of parents who provided the money for a down payment, and as a result the kid bought a house much bigger than he or she could reasonably afford, which caused severe financial pressure for the kid, because the cost of a house is more than just the cost of the mortgage.”

Overall, I found this to be a thoughtful book with useful insights into why we get into financial trouble. It’s potentially directly useful to readers for their own finances and useful to those who try to help others with their finances.