In my quest to better understand how to help people manage their money better, I followed a reader’s recommendation to try a psychology book by Chip Heath and Dan Heath called Switch: How to Change Things When Change is Hard . They explain how human nature makes change difficult, and they offer techniques for overcoming these difficulties. The book begins with the observation that “Your brain isn’t of one mind.” Kahneman called the two parts of our minds System 1 and System 2 , but the Heaths prefer a different analogy: “our emotional side is an Elephant and our rational side is the Rider.” Making changes requires getting the Elephant and Rider in agreement. We can see the tension with a personal matter such as getting out of debt. The Rider might want spend less, but the Elephant would rather go out to eat than cook. You might think that we’d only have to deal with people’s rational sides to make changes at an organizational level, but you have to appeal to people’s Elephants...

Here are my posts for the past two weeks: Should CPP Exist? Credit Card Hopelessness Living Debt-Free Here are some short takes and some weekend reading: Andrew Coyne explains the active vs. passive management issue for the Canada Pension Plan. He also digs into discrepancies in the claimed recent outperformance. Canadian Couch Potato explains why it’s not necessary or desirable to rebalance your portfolio more than once per year. This advice is for those who rebalance based on time. I prefer threshold rebalancing, which is rebalancing whenever my portfolio is sufficiently far from its target percentage allocations. This is really only recommended if you can automate the process. It doesn’t make sense to do all the necessary calculations every day just in case you hit a threshold. I have my portfolio spreadsheet set up to send me an email when it’s time to rebalance, so I never have to look at it. Tom Bradley at Steadyhand reminds us to focus on what really count...

Through a combination of good luck and good habits, I’ve never had a problem staying out of debt. I’ve had to work at understanding what causes others to have debt problems. This is where Shannon Lee Simmons’ book Living Debt-Free has helped me. She lays out a wide range of debt management plans that take into account human nature and the underlying reasons why people have trouble with debt. The book contains a great many stories of people Simmons helped out of debt. These stories illustrate her points well and made the book an entertaining read. Without thinking too deeply, we might believe that making someone feel shame about being in debt would drive them to cut their spending and pay off their debts. Simmons says the opposite is true. People need to feel good about some of the choices they’ve made to generate the sustained enthusiasm necessary to spend a few years digging out of debt. “The stronger the negative emotions connected to your debt, the more likely you are t...

We’ve all seen the block of text on our credit cards that says how long it will take to pay off the debt if we just make minimum payments. I suspect this disclosure doesn’t make a positive difference. Here’s the text that appears on my latest credit card statement: “At your current rates of interest, if you only make your Minimum Payment by its due date each month, it will take approximately 35 year(s) and 10 month(s) to repay the account balance shown on this statement.” 35 years is a depressingly long time for it to take to get out of debt. And this is for a balance of only a little over $4200. It gets longer for larger balances. I calculate that my minimum payment should be a little over $70, but it’s only $10, which doesn’t even cover interest. Perhaps as long as I keep paying my bill in full every month, my minimum payment stays at $10 so I won’t realize that the interest is actually about $70 per month. Superficially, the mandated disclosure with the depressing mess...

When Canada Pension Plan (CPP) expansion was first being discussed, businesses didn’t like the prospect of making larger CPP contributions on behalf of their employees. Money managers and financial advisors weren’t happy either because of the likelihood of it reducing their assets under management. This led to many negative articles about CPP. Here I look at some criticisms of CPP. CPP is a Ponzi scheme. No, it isn’t. Detractors only call it a Ponzi scheme to try to make it seem fraudulent and likely to collapse. CPP did begin as a scheme where worker contributions were used to pay retired workers, but it is moving away from that model as it builds assets from new contributions. CPP is on very solid footing now and is set to make its promised payments for decades to come. We should have more individual responsibility. That sounds good in theory, but let’s look at how that would play out in practice. Suppose we eliminated CPP, OAS, GIS, and other programs that direct mone...

Here are my posts for the past two weeks: The Next Millionaire Next Door Thinking in Bets Here are some short takes and some weekend reading: Preet Banerjee gives an introduction to mutual fund costs. If you’re thinking you don’t need to worry about this because your mutual funds don’t have any fees, you need to watch the video because you’re wrong. John Robertson looks at potential future costs with all-in-one ETFs if you want to change your asset allocation in taxable accounts as you age. This isn’t much to worry about if your RRSPs hold as much as your taxable accounts, because you can make low-cost changes just within your RRSP to change the asset allocation of your entire portfolio. Justin Bender explains that any tax inefficiency in holding Vanguard’s asset allocation ETFs in a taxable account comes from the bond holdings rather than equities.

The world is an uncertain place, and according to Annie Duke, author of Thinking in Bets , we’re better off accepting that we don’t know for certain what will happen than to keep trying to guess the future. It’s better to assign probabilities to different outcomes and adjust them as necessary rather than pick an outcome and doggedly defend that choice. Individually her ideas are familiar, but taken collectively, they amount to a rational truthseeking lifestyle. Duke is best known as a highly successful poker player, and although this isn’t a poker book, she uses a number of vivid poker stories (and many non-poker stories) to illustrate her points. She says that “all decisions are bets” because your choices lead to gains or losses of money, time, and other things that matter. One of Duke’s early points is that we need to avoid “resulting,” which is a poker term for judging a decision by how things worked out. Walking across a highway blindfolded isn’t a good idea, even if you do...