Ismo Heikkila, CFP
National Director,
Financial Education & Employer Services
T.E. WEALTH
26 Wellington Street East | Suite 710
Toronto | Ontario | M5E 1S2
Direct: 416 640 8572
T: 416.366.1451 | Fax: 416.368.9801
Website: http://www.tewealth.com/
listen mp3
http://www.radio-shalom.ca/mp3/Programs/1042/1441.mp3
Radio Shalom – Feb. 29, 2012 – Ismo Heikkila
The age old saying, "Ignorance is bliss", may apply to many things in life. However, when it comes to your finances, ignorance can be absolutely devastating. Even the government is calling the startling low rate of financial literacy among Canadians an epidemic that can have catastrophic consequences for the nation's economic future. There are many issues vying for our attention these days , Complex matters like healthcare, Old Age pension ,social security,rising taxes and the European debt crisis — that inspire endless opinions but have no easy solutions. One issue that we should all agree on without any debate: the need for financial education in schools and in the workforce. As a country we are failing in financial literacy.
It is reported that over 50% of all Baby Boomers are financially ill-prepared for retirement and there are many canadian Families left destitute because of inadequate life insurance on primary income earners.
Most of these people didn't plan to fail; the problem is that they simply failed to plan adequately. While 30 years ago it may have been enough to just save religiously, the economy and the financial markets have since become much more complex, volatile and uncertain. And, when you consider all of the moving parts of a family's personal financial situation, each effected differently by various economic currents, you can no longer just set it and forget when it comes to your finances.
The majority of North Americans do not plan for predictable events such as retirement or children’s education. Most importantly, people do not make provisions for unexpected events and emergencies, leaving themselves and the economy exposed to shocks. To understand financial capability, it is important to look not only at assets but also at debt and debt management, as an increasingly large portion of the population carry debt. In managing debt, North Americans engage in behaviors that can generate large expenses, such as sizable interest payments and fees. In a survey done in America in 2011 , on the average, people where able to correctly answer just three of five questions about fundamental financial concepts, according to a FINRA capability study , and yes less than 25 percent of students graduating from University say they are prepared to deal with the financial challenges that await them in the real world, imagine the other 75%, lets not go there thats another show entirely.
If we want to succeed financialy in the real world , First, financial education starts at the home. But parents are often uncomfortable talking to their kids about money, in part because many of them lack confidence in their own financial situation. For many parents, it’s easier to talk to their kids about sex, drugs, and alcohol then financial education .Secondly , schools and corporations need to start making financial education a top priority and the true fact it seems individuals who have more financial knowledge, have a greater likelihood of planning for retirement, according to a new National Bureau of Economic Research study.
So If I were to be 100% honest, probably the most valuable skill I learned in college was how to talk to girls (certainly a vital skill for happiness and success, but not what I was there to learn).
The economics classes? Nope, mostly academic mumbo-jumbo that is entirely useless to all but a handful of policy makers. The computer science classes? Hmm, maybe about 10% of that I’ve used, but it’s nothing I couldn’t have picked up with a couple good books, which I routinely do now. The history, English, philosophy, and physics? Aside from giving me a general understanding of the world and making me sound smart at cocktail parties, I can’t think of anything in there that I really use on a day to day basis. So who is to blame? “It’s hard to point a finger,” . But it’s certainly true that this economy in the past 10 years has made it very difficult for people to make decisions. We’ve shifted the responsibility to individuals and they don’t have the capability to make those kind of financial decisions Today live from the world business headquarters of radio shalom in Montreal Our guest speaker to talk about the importance and long term impact of Finacial education is Mr Ismo Heikkila a Financial Planner, and is now the National Director for Financial Education & Employer Services for T.E.WEALTH in Toronto and in Quebec is T.E.MIRADOR.
OUR TOPIC TODAY IS DE-MYSTIFYING FINANCIAL EDUCATION
http://www.tewealth.com/experts/samuel-ezerzer-b-sc/
My name is Samuel Ezerzer, your host to the Money & Business show on Radio Shalom, CJRS 1650 AM. Thank you for tuning in live with our Business studios headquarters in Montreal, the financial capital and the home to the greatest hockey team, the Montreal Canadians. We have another great show for you today and as always, you can call if you have any questions, comments, or criticisms on today's topic. Please call us direct at 514 738 4100 ext 200 or email me at moneyandbusinessshow@gmail.com if you have any inquiries. You can also visit our website at http://www.radio-shalom.ca/ – all our shows are archived there . I work as Consultant for T.E MIRADOR or TE WEALTH , TE MIRADOR has been providing Corporate Executives , CEO 'S , families ,employers and employee with independent wealth management and Financial education services since 1972. You can visit our website for my contact information at http://www.temirador.com/
De-Mystifying Financial Education
BIO
Ismo Heikkila Born in Finland, raised in Rochester, New York, majored in English and Literature,
Started management consulting career in Finland , continued in Training and Development back in Rochester,
Ismo was in the insurance business working with small businesses –Left insurance field and joined a start up personal financial planning firm providing personal financial planning counseling to senior management at Eastman Kodak, Xerox, Bausch & Lomb – the financial planning industry wave had started and Ismo was the President of the planning division – the firm was sold a few years later to a major Savings & Loan institution and he started an investment management firm with a partner managing equity portfolios for high net worth clients – a career and lifestyle decision brought Ismo and his family to move to Toronto in 1990 where he was a consultant at an executive compensation firm- he was then recruited by an international human resources and benefits/actuarial firm to launch a personal financial education practice in Canada and the US. where he was a senior consultant and practice leader for 10 years.
He joined T.E. Wealth in 2004 and is a Certified Financial Planner, and is now the National Director for Financial Education & Employer Services. His clientele is comprised of both Canadian corporate clients and First Nations communities.
MAURICE COUSINEAU
Mr Ismo Heikkila, is a Certified Financial Planner for T.E. Wealth , and is now the National Director for Financial Education & Employer Services. His clientele is comprised of both Canadian corporate clients and First Nations communities.todays topic De-Mystifying Financial Education.
SMALL TALK
welcome to the Money and Business show Ismo
Aside for the financial planning aspect , I see that you took a personel interest in literature?
I’ve been fortunate that a major theme in my life has been “assisting others achieve their goals “…playing sports throughout high school and university allowed me to recognize how important interpersonal skills were in working with team mates….my choice to pursue a literature major was fortuitous in that I have always read a lot of varied literature which continually offers insight into the human condition – keeping in mind that my career has essentially been as a “financial social worker”. Service to others has also manifested in being on the Boards of The March of Dimes, The Rotary Club of Toronto, The Toronto Finnish Credit Union, The Finnish Lutheran Church Council, and currently with the Canadian Friends of Finland. Personal spiritual development continues to occupy much of my thoughts on this journey we call “life “
INTERVIEW QUESTIONS
Today’s topic is titled “De-Mystifying Financial Education” – how would you describe financial education and why does there seem to be some mystery around it? Is the mystery about information compared to education is that what it is?
Answer – let’s begin with a basic view of adult learning which will provide a base for today’s discussion – simply put, I find adult learning has at least these 5 components. Awareness – Understanding – Emotional Engagement – Intent – Action….to illustrate, let me use as an example the individual who has an opportunity to make a financial contribution here in Canada to what is known as a Registered Retirement Savings Plan aka an RRSP…they’re aware that they exist as a retirement savings vehicle; they understand the features and benefits of how it works: unless they are emotionally engaged and willing to take action, nothing happens – and the reason emotional engagement is complicated is that anxiety increases because they don’t know if it’s worth the rewards or risks of doing or not doing; which means in order to get to intent and commitment they need skills, tools, and motivation; so that when they do make a decision-take action- they are comfortable with that decision….which by the way, today is the last day to make that contribution and receive a tax deduction benefit on last year’s income tax return!
2. Financial Literacy is an obvious skill that is needed in making financial decisions, –what does financial literacy really mean today?
Answer – Back in 1995 the first IALS study was released. IALS is the International Adult Literacy Survey and they have released subsequent studies during the past 15 years…essentially the study identified literacy not as the basic ability to read and write, but as domains of behavior by categories – Prose, Documents, Quantitative…and recent studies now include a 4th element - Problem Solving. They ranked competency into 5 levels, 5 being the highest. As an example, a Level 4 Quantitative question asked the participant to calculate how much money there would be if $100 earned 6% interest annually for 10 years, and the participant had a years and % chart to access the information…80% of adults ages 16-64 got the question wrong! So consider the average person trying to decipher their investment statement or retirement projections from a variety of scenarios.
You mean ….
Next bus stop?
3.So why is so important that companies offer financial education programs to their employees?
Answer – There are essentially 2 primary reasons, one being good governance – this means that when an employer has a fiduciary responsibility regarding an employee benefits program, such as a pension plan, then there’s a governance and an implicit regulatory compliance aspect to providing employees with information and education about the features and benefits of the plan and the risks and rewards along with other criteria for making decisions when there are options available….and two, a company culture includes a philosophical position in determining how much of a role and obligation they have in providing financial education resources to the employees.4.A company wants to know THE BOTTOM LINE , what corporations want to know if it will be worth it for them to have to pay for the financial education of there employees; and Is there a way to measure or quantify the value of a financial education program for a coprporation to actually say ok lets invest in our employees so they can be more productive and less stress?
Answer – there are a number of ways depending upon the learning objectives. For example, let’s look at employee productivity…Tom Garmann at Virginia Tech has done studies where every $1 invested in an employee personal financial education program returns $3 - $4 dollars in increased productivity. Essentially it comes down to lessening the personal financial distractions and stress from reducing mis-management of one’s financial affairs and putting them in order and having less confusion and more control.
In addition, an employer may be spending an additional 25-30% on top of salary for benefits – if the employees do not understand and utilize the benefits appropriately they do not value them accordingly – therefore increasing employee appreciation and using benefit programs as an enhancement to total compensation improves new hire attraction and increases the retention rate of current employees.
5.Surely there is a difference in the financial planning needs of a young new hire compared to someone with many years of service approaching retirement – so how does an employer address that?
Answer – One approach that is commonly applied is Life Cycle planning, that is, early career, mid career, late career, and at retirement – and while all phases require a review of the basic principles, each subsequent stage delves deeper into specific areas including addressing more complexity. The most fascinating and fun stage of counseling is at the point of retirement where the discussion includes the disengagement from work and a replacement of needs satisfaction in retirement, i.e. what are you retiring from and retiring to.
6. Let’s move the conversation away from the employer sponsored financial education programs into the more individual realm of personal financial planning;
What do you see as the most important elements of someone successfully managing their personal finances and please identify the issues and challenges that people are typically facing?
Studies show that people who have a written plan are more successful in achieving their financial goals. The typical challenge is that most do not actually have an accurate assessment of their current financial situation, i.e. personal financial statements meaning a Net Worth Statement of the current value of their assets and liabilities, and a Cash Flow or Income Statement with the sources of income and a detailed listing of all expenses – down to the morning coffee purchase!
7. Really – that detailed?
Answer – well, if you really don’t know where that $60 you pulled out of the wall a couple days ago actually went, then how would you know if you have or how much you have every month of after tax cash flow after all expenses? A business knows how much profit it makes every month, so should everyone - and that’s because surplus cash flow ends up either as an asset in the bank , or pays down debt - meaning building net worth. The greater the net worth the greater the income that it generates and the longer period of time it will last on an inflation adjusted basis.If there is no surplus, that there’s a shortfall, and since the money had to come from someplace -either from a bank withdrawal or an increase in debt, then running a deficit for the long term ends in financial disaster.
8.That seems reasonable as a concept – why are people having difficulty with the concept of planning and if they dont plan properly it ends in disaster?
So what’s going through the cheque book is actually a reflection of that person’s or family’s value system. Values are hard to develop, keep, or change – since people don’t throw money away, they’ve made a cognizant decision to spend a certain way. In order for financial behavior modification to occur one needs to know what and why the current behavior exists, so what new rewards can be gained or unpleasant losses be avoided by changing the financial behavior.
9.That’s really interesting, can you share an example of how such a change actually took place?
Answer – of course, I had a University professor, age 66, come in for a retirement plan …we both knew during the initial consultation that his financial situation was very tight and prospects looked dim for a comfortable retirement.
The financial analysis using a retirement projection modeling calculator showed that he would run out of his personal financial assets within 4-5 years and would still be in debt with an annual cash flow shortfall of about $28,000 a year even after a good university pension and government benefits. The financial solution was that he needed to teach 3 more years, his wife would have to go from part-time to full time employment, the girls would not get the expensive weddings, and some real belt tightening was needed.
I received an email from him many months later telling me what his situation was and he said he was on track and thanked me for my help – of course I appreciated that but he and his family made the changes happen and he closed his message by saying that the best thing was that there was no longer any tension at home about money – everyone discussed the situation and agreed to share information about the family finances- no more “undiscussables”.
10.That’s a nice happy ending story Ismo , yet how does someone go about finding and
selecting a financial advisor?
Answer - I wrote an article many years ago titled “Abdicate, Delegate, or Go It Alone? “ What I meant was that a person shouldn’t Abdicate their financial decision making to someone else because “ I don’t like or understand money; I hate numbers; I have no interest in it” and “you seem like a good person who knows what they’re doing so here- you handle my finances”.
I also think Going It Alone is not for everyone…talking daily with an investment broker, learning and keeping up with the Income Tax Act and other regulation changes, drafting their own estate plan, etc. even Warren Buffet makes mistakes ( a well known billionaire investor / philanthropist)…and very time consuming.
So Delegate was the way to go for most people, where you hire a financial advisor who supports, administrates, and coordinates your financial plan with other advisors and acts as the Vice President of Finance and Administration and you are the CEO, Partner, or Managing Director who then has options and alternatives to analyze and make decisions with a group of people.
And if I was to write the article today I would add one more component called “The Wisdom of Crowds – or Not”
11.We have time for one more question so tell us about the Wisdom of Crowds ?–
Answer - I came across the idea from James Surowiecki’s book The Wisdom of Crowds…essentially the premise is that individuals can no longer independently learn all they need to know. In a globally connected world, there is tremendous value in using technology to collaboratively connect and learn with others. He proposes that that the wisdom of crowds comes not from the consensus decision of the group, but from the aggregation of the ideas/thoughts/decisions of each individual in the group. I certainly believe in that premise, yet I also have a healthy skepticism about who’s actually in the crowd where I’m getting information. Technology has raced ahead in the financial services industry over the past 30 years, yet I’m convinced that human behavior and specifically financial behavior has not progressed nearly as rapidly and is unlikely to do so.FOLLOW UP QUESTIONS
Ismo, can you recommend any resources relating to our topic today that our listeners might find useful?
Answer – of course Sam, if anyone is interested in Adult Literacy, the website http://www.nald.ca/ which is the National Adult Literacy Database – this is maintained by the Canadian government and is exceptional.
As for financial planning websites, the US financial services industry is more advanced as they also have many non-profit financial planning organizations that support the general public, so simply typing in personal financial planning or employee financial education will generate a number of sites from the US and Canada.
And what about finding a personal financial planner ?
Answer – In Canada, there would be a couple organizations, the main one being the Financial Planners Standards Council http://www.fpsc.ca/ and the sister organization in Quebec http://www.iqpf.org/
I recommend that besides having professional credentials and licenses, ensure that the counselor communicates well and understands you and your value system and they should have a few years of scar tissue handling people’s finances. J
Fee Only planners have no biases and are objective, yet there are good professionals who are also compensated by product commissions which is fine as long as all fees and commissions and costs are fully disclosed, and they meet all your other criteria.
Sam – it’s truly been a pleasure – thank you for having me here today and I wish your listeners a successful financial future!
notes
Financial Literacy Begins with You
Understanding the financial world begins right at home with your own personal financial situation. Most of the people who fail out of ignorance probably did not have clearly defined financial goals. Without a vision for the future, there's little to motivate a person to learn and achieve. Establishing goals and then mapping out a plan to achieve them will force you to learn about your options and understand the possible obstacles. Many people have found it useful to have a qualified financial advisor guide them through this very important process.
Most people are unaware of many of the financial realities they face. For instance, while most people may realize that we are all living longer these days, they don't really know what that means in terms of their financial needs. A 35 year old male today, could expect to live until age 87. That translates into as many as 25 years in retirement on income sources that he must create.
Ignorance is Costly
The road to financial success is full of roadblocks, the biggest of which is poor budgeting habits. A shocking number of people don't budget, and, as a result most of them are swimming in debt, have little or no savings, and are just a pay cheque away from financial disaster. While this can be attributed to laziness, or lack of discipline, the fact is that most people don't understand the true cost of debt and the time value of money. If a young couple could budget to save just $500 a month for 35 years with an average return of 5%, they would accumulate nearly $600,000. When you have control of your finances, and have your priorities straight, saving $500 each month isn't very difficult.
Time is a very valuable, but diminishing resource that should not be wasted. The more quickly you can put your money to work for you, the longer it will have the magic of compounding interest working for it.
samuel ezerzer
No comments:
Post a Comment