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Bestselling author, personal finance expert, business journalist, TV and podcast host, and CEO of Credit Canada Debt Solutions are just a few of the titles Bruce Sellery goes by. In his roles, Sellery provides services that help Canadians manage their finances and plan for the future. As we start a new year, the financial “guru” explains how the pandemic should change the way we approach managing our finances in 2022.
One tip is to open a separate account and “hide” away money for an unpredictable emergency, he said.
In the latest episode of the Perspectives podcast, Sellery talks about how important it is to have accessible cash for unforeseen events, such as a broken household appliance.
“I would love for every single Canadian to know in their bones the importance of having access to cash, in either emergency savings or access to it in a different way.” Sellery said.
Based on Maslow’s hierarchy of needs, Sellery created a “priority pyramid” based on finances with cash flow at the bottom and optimizing returns on investment at the top. “My single biggest tip is for people to find out where on the pyramid you are,” he suggests. “You need to focus on which layer you’re at and how to move up to the next layer.”
For more financial advice visit Scotiabank’s Advice+ Centre.
“I would love for every single Canadian to know in their bones the importance of having access to cash in either emergency savings or access to it in a different way. I wish people had that sense. They don't, and many of them have been able to accumulate an emergency fund over the last 21 months or so, but not by design. It just sort of happened, like they no longer did anything, so there was money sitting in their account. What I want them to do is to take that amount, whatever that amount could be and take it out of their primary savings account, open up a separate account and basically hide it there for the day that they may well need it.”
— Bruce Sellery
Stephen Meurice:
Welcome back to Perspectives. I’m your host, Stephen Meurice.
Chances are you’re familiar with my guest today, whose voice you just heard. Bruce Sellery is a well-known personal finance expert, business journalist and TV host. He’s a best-selling author of two books. He’s a money columnist for CBC Radio. And he hosts a personal finance podcast called Moolala that you really should check out, and he runs a company by the same name that provides financial education. And in case all of that isn’t enough to keep him busy, Bruce is also the CEO of Credit Canada, a not-for-profit credit counselling service that helps Canadians manage their debt problems. Bruce, thanks so much for being here. I’m a little shocked that you can spare the time.
Bruce Sellery:
It is my pleasure. It’s a pandemic. What the hell else do I have to do? Come on.
SM: Well, that’s a perfect segue into the first question that I’m gonna ask you, which is about the pandemic, ‘cause we’re starting a new year and God help us all closing in on the 2nd anniversary of this pandemic. So I wanted to start by asking you what you’ve seen in your role as the CEO of Credit Canada. I think you’ve been in that job for around a year and so are there discernible trends in terms of the challenges people are facing? Or have faced during the pandemic and I guess more broadly, what are the different ways that the pandemic has changed the way people approach managing their finances?
BS: So I think the single most important thing we need to say as we answer that question is that this is the tale of two pandemics. There are two completely different things happening for the haves and for the have nots. So the haves, I mean, listen, it has not been an easy ride. People are working from home. There’s a ton of mental health stuff. There’s a lot of stuff. But the haves have increased their savings dramatically. Their house price has risen dramatically. The portfolio value for the retirement savings has risen dramatically. So, in so many ways when it comes to personal finance this has been a pretty good period for the haves. For the have nots, it is a completely different story and that is the type of client that we serve at at Credit Canada. They’ve had job loss. They’ve had an income decline. They’re dealing with the impact of inflation, their savings have fallen, not increased, but fallen because of income disruption and their ability to afford housing has declined significantly. So what I would say in terms of data points is that the overall insolvency rate has declined pretty significantly over the course of the pandemic, and that kind of makes sense given how many different government supports were out there. That is false hope, because if you just look at that number, you think, oh my gosh so good people have found a way to get a better handle on their money, they’re not entering into debt consolidation programs or consumer proposals with the with the speed and volume that they would have a couple of years ago. But it is not a hopeful sign in that those government programs will wind down and people will be back in these very, very difficult circumstances that they find themselves and so very, very tough for people at the lower end of the income spectrum. And people who, even if they’re higher income who are carrying a significant amount of consumer debt, it’s a brutal time.
SM: So, have you actually seen a decline in the need or the demand for the services of Credit Canada over the over the course of the pandemic because of the government supports for people who might otherwise be in very difficult straits?
BS: Simple answer is yes. So we do a number of things. Our counselors do a number of things. First they counsel people who are dealing with a level of debt that they can’t manage that on their own. So that’s budget coaching and those kinds of things. Second is that we offer them a debt consolidation program, and for consumers who choose to take that path, all their debts get folded into one payment. The interest rates are reduced and they’re on that program for a couple of years. Our volume of what’s called a DCP has declined during the pandemic. And then the third thing our counselors do is basically help people think through the basics of a consumer proposal or a bankruptcy and then make a referral to a licensed insolvency trustee. And again those numbers are down. So from a numerical standpoint there has been a decline. But we predict that in short order those numbers will increase and our phones are going to ring off the hook.
SM: In spite of the fact that even the most recent, employment numbers are really good. It seems like the economic bounce back from the pandemic sort of continues apace, including at the employment level, but you’re concerned about it still.
BS: Yeah, our clients are employed. Our clients are very often employed. They’re dealing with lots of other issues sometimes, but they’re quite often employed. It’s that they’re carrying the level of consumer debt that they can’t manage, so our counselors look at their cash flow. And even if they’ve got income, there’s just no, for many of them, there’s no way in which they can eliminate that level of consumer debt with the cash flow that they have.
SM: Right, and just to go back to the to the haves as you were describing them at a minute ago. So wearing maybe not your "Credit Canada hat", but your "personal finance guru hat", what advice would you refer to those people around, suddenly they have more money. Are you getting those questions about, well, what do I do with this? And are they changing or some of these changes? Do you think going to be permanent? People are figuring out, there is a smarter way to live with my money.
BS: Yeah, I don’t know that there’s a smarter way. There may be a different way once our ability to spend comes back in full force. I think people will spend. They’ll go to restaurants and they’ll go to the theater and they’ll hop on a plane. And, well they should. Life is meant to be lived. I think my my thought would be don’t squander the enormous advantage that the pandemic has offered so many people. So we know in aggregate Canadians or sitting on hundreds of billions of dollars in cash. So put that to good use. Eliminate your consumer debt to zero, save for the things that are going to make a difference for you over the course of time. Retirement, kids’ education. You know the next car you’re going to buy, a second property, a full-on head-to-toe plastic surgeon intervention. For the people who have that money, make sure that you don’t squander it. Don’t let it kind of float away. Make good use of it.
SM: Can I just go through a couple of the economic issues that are going on right now that might affect, or certainly will affect how people manage their money and get some of your takes or tips about them? So one that everyone is talking about is inflation, another report recently about the cost, food basket’s gonna cost $1,000 more a year next year, or this year in 2022. So inflation? Uh, what is your advice? How should people deal with it when their salaries are not rising in the same way?
BS: It’s a great question. What should you do about inflation is analogous to the question of what should you do about winter? You can’t control… we’re Canadian, winter is a thing. It snows. It’s cold, it’s wet, it’s gross. And so I think there is some currency, pardon the pun, for people to rail against the evils of inflation, much like we rail against the evils of winter and we can complain to the sky and you know what difference that makes in terms of the amount of snow that we have? None, no difference. For us as Canadians complaining about inflation, it makes no difference. Even talking about inflation makes no difference. It’s like talking about the weather, right? Just go shovel your driveway already. How do we accommodate winter? We dress for it. How do we accommodate inflation? We spend consistent with the shifting tides on that front, to mix my metaphors. So I think there are two things. Number one is to really be clear on your cash flow, because inflation for sure is going to affect you on the expenses side. So as you look at that basket of goods, what are the changes that you can make to account for the fact that some things are much more expensive? So change the way that you spend. The other dynamic is that it is such a hot labour market that now is the time to go to your boss and say give me a raise already, but I think it’s true. Listen, a lot of people don’t advocate for themselves in a work context. And now may be the time and you may get a big fat no. But now is the time. So as we have seen prices rise, there are organizations in which a commensurate increase in income is available to you. You just might need to ask for it.
SM: OK ask for plastic surgery and ask for a raise…
BS: Uh-huh, these are going to be the headlines from our conversation and it’ll go viral and I will be fired from every single thing that I do. But here’s the thing, let me put another sort of framework on inflation. There are things in life that are in your circle of control. There are things that are in your circle of influence and there are so many things that are outside of your circle of influence or your circle of control. Inflation is one of them. As individuals we can do nothing to influence or control inflation, not one single thing, but what we can influence and what we can control is our expenses, so we can influence income and we can control our expenses. And some people actually can control their income because they work in a world in which people want overtime hours or they’ve got a side hustle that they just have to turn on the taps and take advantage of that. So I find that to be really helpful because in life there is so much to worry about and so much to manage and so much to futz about, let’s focus on futzing about the things in which we can control that will make the biggest difference.
SM: OK, one more thing to futz about, but I’ll also that most of us have very, very little control over and that is interest rates. Interest rates, historically low for several years, are almost certainly going to go up in 2022. What risks, and I guess maybe opportunities as well, does this pose for the management of household finances? And what should people be doing to prepare for these increases, possibly several of them that could come in the course the next 12 months?
BS: The simple risk for homeowners is that the price you pay to carry that mortgage is going to go up and it this was this is not a surprise. Interest rates have been ridiculously low for forever, and my biggest concern is for the younger folks who have no context for the historical norms on interest rates. They’re oblivious to it. Whereas people of a certain age — you and I are of a certain age — we would have held mortgages in which rates were, you know, 6, 7, 8 per cent, perhaps, maybe not quite that high. But in that game. My parents are like, ‘Oh yeah, mortgages were 19 per cent,’ because that’s what it was in the in the early ‘80s. So how do you prepare for that? You need to have, again coming back to cash flow, you need to have a structure in terms of what’s coming in and what’s going out that will accommodate that sort of thing. Now I have a personal preference in terms of how I handle my mortgage, which not everybody does, and that is, I have always gone variable, always. And I always go variable because overall the stats are on my side in terms of that playing out 70 per cent of the time, it works better, but I can do that because I have built my cash flow to provide me with that flexibility. So I don’t need the insurance that having a fixed rate will provide for some people that mathematically doesn’t work, they just can’t make that happen. And psychologically it doesn’t work. They really, really need certainty. But I think for people who are buying a home today, in 2022, they need to be thinking five years out so when they renew, what will that rate, even if they’re fixed, what will that rate potentially be and how is that going to work in the cash flow that they see themselves having five years from now?
SM: OK, and so one more question then I’m going to ask you just for your tips for 2022, but this fits in maybe to some of the stuff that you’ve already talked about. Have people become more attuned to the need for some kind of emergency fund, for savings to deal with the unexpected? Whether it’s you know some spike in inflation or they need a new roof or a deadly pandemic happens and shuts everything down for two years, are people talking about that or addressing that more now?
BS: No. And is that a problem? Yes. So, I would love for every single Canadian to know in their bones the importance of having access to cash in either emergency savings or access to it in a different way. And I say that because every family is different and for some families a line of credit that they can resource will do the job. Other families with highly volatile income they need more of an emergency savings fund than someone who’s a household with, you know, two people drawing government salaries. The risk of being laid off is less for them than it would be if they were running a restaurant, for example. So I wish people had that sense. They don’t, and many of them have been able to accumulate an emergency fund over the last 21 months or so, but not by design. It just sort of happened, like they no longer did anything, so there was money sitting in their account. What I want them to do is to take that amount, whatever that amount could be and take it out of their primary savings account, open up a separate account and basically hide it there for the day that they may well need it, and sometimes that is putting it at a separate lender. Sometimes it’s putting in an account in which you can’t see it, because I don’t want you to know that you have that money there so that the month that you’re a little bit short on something you tap into that reserve. That’s not the purpose, it’s for an emergency. You know fixing your furnace may well be an emergency. Maintaining your furnace is not an emergency. It’s predictable. You knew that that was going to happen.
SM: So, just one specific question about that about putting the money away somewhere separately, so you have some stash of cash. It think it bothers people to some extent when they see, you know a possibly significant amount of money sitting in a very low interest rate, basic savings account? Well, how do you balance both like the need for the accessibility of the cash with wanting to at least get, you know, a little bit of return on it?
BS: Yeah, it bothers some people and it provides a great degree of comfort to other people. There’s a real difference in temperament, so some people look at that, you know, let’s say it’s 10 grand or 20 grand or five grand. Some people look at that and think, ‘OK, at least I know if I lose my job or you know something big happens, I’ve got that insurance in that fund,’ and other people as you say, are annoyed that that money isn’t working for them. So I think you need to sort of really think through your own practical circumstances and that’s, do you own a restaurant, or do you have two incomes in a government job and then your temperament and find your own way. Because really there are a number of different ways that you can protect for risk, and an emergency fund is one. It’s not the only way, you could have a line of credit that serves that purpose. The most important thing about that is that you need to think of that as your emergency savings, versus you know, ‘Oh my God, there was a deal on a Club Med package and I need some sun.’ That is not what that is for, but that is very individual to the person.
SM: I think we will just about leave it there but I am going to ask you, you know, the desperate person comes up to you and says ‘my finances are a mess, Bruce, please help me.’ What are the three most common general, either general pieces of advice that you give people or specific to things that are likely to happen in 2022?
BS: Here is my number one piece of advice when people come up to me and say my finances are a mess, what do I do? The number one thing I say is Google my name and the phrase priority pyramid. Not just so they can see how handsome I am in my headshot, but the priority pyramid is something that I came up with based on Maslow’s hierarchy of needs. So you remember from Psych 101, at the low level it’s like food and shelter, and at the tippy top it’s you gotta watch Oprah and self-actualize. So the priority pyramid when it comes to finances, it’s a triangle. The base layer is cash flow. Then you move to debt, then it’s savings, then it’s tax vehicles, then it's investments, and then at the tippy top is optimizing returns. My single biggest tip for people is to find out where on the pyramid you are, because there is so much coming at you on personal finance and on money and the news all the time! You don’t need to focus on all those things. You need to focus on which layer you’re at and move up to the next layer. And there’s certain actions that you would take in order to do that. So look at the priority pyramid and if it’s about debt, slam that debt down, call Credit Canada, whatever you need to do, and then you move up to the next layer of the pyramid because the work to be done at that layer is very specific to that layer. We should not be, you know, talking to someone who doesn’t have enough money coming in to pay their rent about crypto. That is not a conversation they need to have. They need to figure out how to increase income and cut expenses, right? So that would be my number one thing for 2022. Let’s stop talking and start doing. Really, the number one thing is taking action on the insight that you have had looking at the priority pyramid and having 2022 be the year in which you set yourself on the most powerful course for the life you want to have.
SM: Bruce, I want to thank you so much for coming on. It’s been lots of fun and very informative and useful and I really appreciate you spending a little time with us.
BS: My total pleasure.
SM: You’ve been listening to Perspectives podcast. I was speaking with Bruce Sellery, personal finance guru among many other things, and I hope you enjoyed the podcast. For lots more information on personal finance, please go to the Advice+ page on Scotiabank.com. Please subscribe and on any of the platforms where you listen to podcasts. Thanks so much for coming.