Debt: Why is No One Listening?

Household debt to income levels in Canada continue to rise. We now owe $1.71 for every dollar earned. But, with no shortage of experts discussing the risks of high debt and how to repay it, why is it that we continue to spend? Why do we find it so hard to say ‘no’? Are we just comfortable with debt now, as a society?

To discuss these questions I’m joined today by a panel of experts: Gail Vaz-Oxlade, Kerry K. Taylor, and Robert Brown. Using their years of experience and insight, we dig into why it seems no one is listening to debt warning signs.

To begin, should we even worry about debt? Let’s say I’m someone who owns a home in Toronto. It’s worth a million dollars today. My mortgage on the house is $500,000 and I make $250,000 because I’m a lawyer. My personal debt ratio is 2:1. But, that’s not a big deal because the debt to income ratio includes mortgage debt.

So, does it even matter if I owe so much? According to Gail Vaz-Oxlade, yes, it still does:

When you are in debt, what you have done is eliminated your options.

Gail says that in everyone’s life, rain falls. So, if you have no savings, and are over-extended on your mortgage, you won’t have choices to make other than to service your debt.

For Kerry Taylor, debt not only reduces your options, but it reduces your ability to stay healthy because of the added mental stress. So, yes, having debt matters.

If having debt matters, why do we keep owing so much?

Robert Brown argues the reason for high debt could be that people tend to make money decisions based on their “now situation,” but don’t consider what could happen in their future, like a job loss, or a rise in interest rates:

What if they tighten up mortgage regulation rules? Well they have…and all of a sudden, a situation that was barely, barely manageable not by a reasonable standard but at least somewhat manageable becomes unmanageable because they had absolutely no room to move.

What Robert is referring to is called “present bias.” Kerry explains:

We look at our present self and we live in the present. We don’t really have the ability to look into the future and see how those present decisions such as spending money, eating poorly, not exercising will play out in the future.

What do our experts recommend to overcome present bias?

  1. Gail suggests embracing anticipation. For example, when you save money for a vacation, you might enjoy it more than the vacation itself. It’s psychological. All the time spent on anticipating the vacation and preparing for it is actually like you’re already on your trip. By making this a regular occurrence for all big purchases, you can avoid rushing and getting into debt to fund them.
  2. Robert is a frequent speaker at colleges and universities and he often makes the point of putting a little money aside as early in life as you can to save, even as small as 10 to 15% of it. Down the road, your savings will pay off.
  3. Kerry recognizes the power of social media and how the fear of missing out (FOMO) can impact spending decisions. So, she strongly suggests acknowledging that online media is just a filter and to turn it off. People will often only showcase their best side, but no one shares how much debt they may be in as a result of fancy vacations and new clothing.

In addition to present bias, our panel of experts believes high debt is also caused by banks and so-called personal finance influencers, who are sponsored by financial firms. What’s more troubling is influencers don’t always make it clear that they’ve been sponsored. So, while readers get some tips from blogs, they’re simultaneously being sold a product, like a new credit card.

How can you protect yourself?

In order to ensure you’re making the best decision, all three experts recommend the following: Ask questions. Don’t be afraid to ask your lender if you really need to add insurance to a mortgage. Ask if products can be added on later. If you don’t understand something, ask for terms to be explained to you. There’s no shame in not knowing. In fact, lenders benefit when you don’t question what’s being presented to you.

For even more insight from Gail, Kerry, and Robert on controlling debt and to learn how it’s possible for Gail Vaz-Oxlade to have a low credit score, tune into today’s podcast, or read the complete transcript below.

Resources Mentioned in the Show

FULL TRANSCRIPT – SHOW 184 Debt: Why Is No One Listening?

Debt: Why is No One Listening

Doug Hoyes:          Back at the end of 2016, Robert Brown, author of “Wealthing like Rabbits, An Original Introduction to Personal Finance,” decided that he wanted to learn a new skill, and the skill he decided to master was making butter tarts. Makes sense because butter tarts taste great and they’re a Canadian invention with the first known published recipe appearing in 1900 in the Women’s Auxiliary of the Royal Victoria Hospital cookbook. But the butter tart probably goes back to sometime between 1663 and 1673 when young women from France who settled in Quebec modified their traditional European recipes to make use of the ingredients available in Canada –at least that’s what I read on the Internet.

But I digress. So when Robert Brown started making butter tarts, a bunch of people said they wanted to taste them, including me. So on May 1st, 2017 we convened at my office in Toronto and Robert Brown provided the butter tarts and we recorded the first ever Debt-Free in 30 butter tarts podcast which had nothing to do with butter tarts. That was an epic podcast where Robert Brown and I went on recording saying that the Toronto real estate market had peaked and so far we are correct, so good for us on that one.

Now, flash forward to today. Today is Saturday, March 3rd, 2018 and we’re recording this in my Oshawa office at about, I don’t know, 3 o’clock in the afternoon. Why? Because earlier today we attended the first ever Butter Tarts Festival in Bowmanville. Yes, we’re amped up on butter tarts, so what better time to talk about money than when you have a sugar rush.

So let’s meet the roundtable. First, the butter tart man himself, Robert Brown. Thanks for being the butter tart man. How are you doing today?

Robert Brown:        Doug, I’m doing fine. Thanks for having me back.

Doug Hoyes:          And is that true what I said about 2016 and you wanted to improve your life and learn to make butter tarts?

Robert Brown:        Yeah but the background of that story is sometime around New Year’s Day last year I was hanging out on Twitter doing some banality and someone was talking about budgets and I tweeted out in a sarcastic way that I ate enough butter tarts that I needed a column just for butter tarts alone. And that person suggested that if I ate that many butter tarts I should learn how to make my own. Of course I said, “Well how hard could it be?” And it took me 15 batches of butter tarts before I got some that I considered edible. So I did, I kind of took it on as a personal challenge after that.

Doug Hoyes:          And do you remember who was egging you on?

Robert Brown:        She was from Brighton, Ontario. She occasionally appears on television in a personal finance show, the one, the only, Gail Vaz-Oxlade.

Doug Hoyes:          Oh, she goaded you into it. Okay well that’s very interesting.

Gail:                        I had no idea that I was at the root of the butter tart creation.

Doug Hoyes:          You were at the root, wow. So goading him into it. It would be interesting to see what you goad him into next year.

Now, guest number two was also on that first epic butter tarts podcast and she is the person who first noticed that the butter tart festival was today, at least that’s how I found out about it. I could be wrong. So this is all her doing. She is of course Kerry K. Taylor, author of “397 Ways to Save Money, Spend Smarter & Live Well on Less.” Now available on Amazon, Kindle or paperback if you’re wondering. She runs the Squawkfox website and she is a frequent guest on shows like “On the Money” on CBC News World and lots of other shows. Kerry, welcome back.

Gail:                        I can’t believe you’re taking credit for discovering the Bowmanville Butter Tart Festival.

Kerry:                     I just re-tweeted it.

Doug Hoyes:          Oh it was a re-tweet.

Kerry:                     It was just a re-tweet. He attributed it to me.

Doug Hoyes:          Yeah, always take credit if someone does. So apparently all roads are leading back to guest number three who of course is, you know, more famous than the three of us combined. She loves butter tarts and of course as Robert has just described, was the one who egged him on to perfect his technique. She was the host of a bunch of popular television shows, “Til Debt do us Part,” “Princess,” and “Money Moron.” She’s also the author of, I don’t know-

Gail:                        I wrote a bazillion books.

Doug Hoyes:          A bazillion books. You know, of course my favourite is “Debt-Free Forever.” “Money Rules” was her last one. The most recent one was “CEO of Everything, Flying Solo and Soaring” that she co-wrote with Victoria Rice who has been a guest twice on this show. I’m also a big fan of Victoria’s. So of course, Gail Vaz-Oxlade. That’s who I’m referring to. Welcome to the show. How are you doing?

Gail:                        I’m great. I am hyped up on sugar and ready to blast forth.

Doug Hoyes:          Excellent. Well if this was a video, you could see the butter tarts that we have in front of us that we’ve brought back from the Bowmanville Butter Tart Festival.

Gail:                        There’s an array.

Doug Hoyes:          An array.

Gail:                        Some have bacon.

Doug Hoyes:          Yeah, bacon.

Gail:                        Holy, there’s bacon in butter tart.

Doug Hoyes:          And Gail liked the bacon.

Gail:                        I did.

Doug Hoyes:          Robert not so much though.

Robert Brown:        Not so much, bit more of a. . .

Doug Hoyes:          Didn’t believe that was an appropriate combination.

Robert Brown:        I have no problem with butter tarts for breakfast but you got to keep the bacon and the butter tarts separate.

Doug Hoyes:          I see, but in your stomach they’re all together so I think that makes no sense.

Gail:                        You need to be more adventurous.

Robert Brown:        Oh I can be adventurous, just not with my butter tarts.

Doug Hoyes:          Exactly, live a little. Live a little.

Kerry:                     Raisins, people. Enough, raisins.

Doug Hoyes:          Here we go. We’re not getting into the raisins or no raisins because we all know what the answer is, it’s no raisins. So now Kerry and Robert were guests on the show before. We recorded those shows in person. Gail was a guest way back on show number three as a matter of fact but we recorded that show over Skype. And the amazing fact is even though I was a guest expert on all three of those TV shows and on the radio shows, I had before today never actually been in the same room as Gail.

Gail:                        It’s true. In fact, when we got to the butter tart festival, I hugged him and then I said, “Have we actually ever met?”

Doug Hoyes:          Nope.

Gail:                        And he said, “Nope,” and I hugged him again.

Doug Hoyes:          Never met. Now of course when I think about it I think appeared on like the second last episode of the first show and the second last episode of the second show, and the second last episode of the third show. And I was on your radio show like I don’t know, two weeks before there was no radio show anymore.

Gail:                        You might be the end of my career. Is that what you’re taking credit for?

Doug Hoyes:          Exactly, exactly. This may be the last podcast you ever show up on. But you want to go back and listen to that podcast number three where Gail talks about reality TV and why she doesn’t do it anymore. So you can listen to that.

There you go. With that background as we continue to eat butter tarts, let’s talk about debt. We all know that consumer debt is at record levels. The average Canadian household now owes about $1.72 for every dollar of disposable income they earn. And each person in this room –we’ve written about it, we’ve tweeted about it and had many comments on it and yet of course doesn’t matter, debt keeps going up and up.

So my first question is, does that even matter? Because of course statistics can be made to say whatever you want them to say. Let’s just assume I own the typical Toronto house worth a million bucks because that’s what a typical house is right? And let’s say I have a $500,000 mortgage because I’ve owned it for a few years and let’s say I’m a lawyer or something, I make 250,000 bucks a year. Okay, so then my ratio is two to one: my debt 500, my income 250. That’s even higher than the average Canadian but that’s not a big deal. I mean I got a massive equity in my house because that debt to income ratio includes all forms of debt including mortgages. Well that’s not a big deal.

So should we even be worried about this?

Gail:                        Of course we should be worried about it.

Doug Hoyes:          Why?

Gail:                        It’s a disaster. I have beaten my head against this wall for such a long time now that my brains are actually rattling inside my skull, okay? It’s a disaster because when you are in debt and I speak mostly about consumer debt, I believe that there is bad mortgage debt. I mean if you are overextended on a mortgage then that’s bad mortgage debt. But mostly I have focused on consumer debt which is all bad debt and when you are in debt what you have done is eliminated your options because when the kaka hits the fan and in everybody’s life rain falls, okay? When the kaka hits the fan, if you only have debt and you have no savings, you don’t have choices to make. You’re just behind the eight-ball which is what we are seeing driving the payday loan people, okay? All the people that are barely hanging on by their nails are now heading to the payday loan stores because that’s their only option. And they’re using that money to make minimum payments on everything else just to keep their good credit.

Doug Hoyes:          So Gail’s voting “no” for debt. Kerry, what do you think? I mean doing a bit of a distinction you’re talking about consumer debt. Okay, that’s what we’re talking about but again, if I loaded up on a mortgage five years ago, I’m sitting pretty now. Well maybe not quite as pretty as I was. . .

Gail:                        At the beginning of the year.

Doug Hoyes:          Yeah, a year ago. So she’s saying we should worry about debt because it eliminates your choices.

Kerry:                     Oh I was here. I heard her. I’m sitting right next to her.

Doug Hoyes:          But you also. . .

Kerry:                     It does though and I mean the other thing is the mental stress. I mean you’re constantly having to catch up or wonder if you’re going to make your payments or if you’re going to keep your house. Like what happens if you can’t make your rent, you know? You need shelter, you need food, you need to eat, you need to take care of your kids, you need to pay for daycare. All these things weigh on you and keep you awake at night. So if you don’t have a slush fund, if you don’t have the ability to make these payments, you’re not living a healthy life. So yes it reduces your options but it also reduces your ability to stay healthy.

Doug Hoyes:          So stress is a huge issue.

Robert Brown:        And people tend to make debt decisions based on their now situation and I’m not even convinced they’re making good decisions on their now situations. But they don’t consider what could happen in their future. Could they lose their job? Could interest rates go up? We went for five years and everybody said, “Oh interest rates are going to stay record lows forever.” Well they’ve started to creep up finally and I don’t think they’re done yet. What happens if they tighten up mortgage regulation rules? Well they have. What happens if? What happens if? What happens if? And all of a sudden a situation that was barely, barely manageable not by a reasonable standard but at least somewhat manageable becomes unmanageable because they had absolutely no room to move.

Doug Hoyes:          Okay, so those things all make sense. And why then are we in the situation we’re in?

Gail:                        Because we cannot help ourselves. We are dumber than a sack of hammers and we believe that as long as we can make the minimum payment on whatever it is we’re using in terms of credit that we’re doing okay. All our family is doing it. All our friends are doing it. “Everybody I know is in debt, so what’s the big deal? And by the way, look at how great the return is on the stock market. Shouldn’t we just go into debt and use that in the stock market?”

I mean when people say this stuff to me I just want to throw up in my mouth, okay? I cannot understand how a reasonable human being can look at a negative cash flow situation and all the money that’s going towards paying off debt for crap that they bought that they never actually needed and think that that’s a life. I mean we have substituted stuff for real important, good living. Now it’s just about going shopping.

Doug Hoyes:          Well and if I don’t notice the negative cash flow, if I put it on my credit card, put it on my credit card, put it on my credit card and so perhaps I don’t see that I’m digging myself deeper and deeper and deeper.

Gail:                        I know you’re not a fan of budgets. This is one of the areas where you and I sort of part ways because I’m a big believer in budgets. I’ve lived on a budget my whole life. When I was making crap loads of money I still lived on a budget, primarily because I knew I wasn’t going to make crap loads of money forever and so I needed to sock away huge amounts of that money for when my game ended, which I did, which is why I am okay. But if you are living on a budget and you’re paying attention to those credit card purchases –because you have to if you’re on a budget. You have to file it somewhere –then you’re more likely to be aware of where all the money’s going. When you don’t live on a budget, when it’s just a matter of, “Can I cover everything?” That’s when you fall into that trap.

Doug Hoyes:          And we can talk about budgets but over to Kerry and Robert. So why is it then we aren’t listening?

Kerry:                     Well I mean if you look at this incredible field called “behavioural finance,” they’re really untapping a lot of interesting stuff as to why all of the logic and math seems to be lost because the emotions and the feelings get in the way. And we’re really wired to make bad decisions. Humans have something called a “present bias.” So we look at our present self and we live in the present. We don’t have really have the ability to look into the future and see how those present decisions such as spending money, eating poorly, not exercising, we don’t see how those decisions today will play out in the future.

Doug Hoyes:          Sorry, while you’re talking I’m going to eat a butter tart.

Kerry:                     Please do.

Doug Hoyes:          Because that’s a present thing there right?

Kerry:                     Well and that’s the thing right?

Robert Brown:        Present decision that you regret in your later. . .

Kerry:                     We know we should put the third or fourth butter tart down and go for a walk but we don’t want to because the butter tart is so tasty and going for a walk is work. That’s the same problem as putting money aside for retirement. We don’t see ourselves in the retirement years.

Gail:                        Absolutely.

Kerry:                     So it’s this present bias that takes over and we make dumb decisions.

Gail:                        So one of the things that I have tried to encourage people to do is to imagine themselves in the future. So I want you to as a 26-year-old woman to think about what your life is going to be like when you’re 60. So the income that you have right now you have to take only 70% of it and live on it. Can you do that? And when people do that if they consciously buy into it then they tend to change behaviour a little bit.

Robert Brown:        It’s a great point. I do a lot of speaking at colleges and universities and one of the points I make when I’m trying to convince people at the college/university age to start saving as soon in life as possible is saying, “I’m not asking you to save all of your money. I’m saying save 15% of it which means you get to live on the other 85%.”

Kerry:                     Well the government takes a chunk too there Robert.

Robert Brown:        Yeah, after tax.

Gail:                        But we’re only talking about net dollars.

Robert Brown:        Yeah.

Kerry:                     Net dollars, okay.

Robert Brown:        For sure and listen, every situation’s different but we’re not asking you to sacrifice your life now. By saving a little bit for your future, a decision that’s going to pay off huge dividends 30 or 40 years down the road.

Kerry:                     But there’s something else that kicks in when it comes to behavioural finance. It’s the whole idea of FOMO, fear of missing out and loss aversion. I mean you can tell people, “Don’t go into the stock market when it’s at a high. Dollar cost average,” or, “Why are you selling when everything’s crashing?” Right? We have this feeling that if we lose that little bit of money, even if it’s 85%, we’re going to miss out. So we have to deal with fear of missing out and loss aversion and the present bias and all these things come together. And with the way that our brains are built, we’ve got this thing in our head called the amygdala and it’s been around since prehistoric times. It was really good at survival. It kept us alive. It kept us fed. We were able to run from the wild cats in the forest but it’s really bad at understanding how to invest in the stock market.

Gail:                        Yeah.

Kerry:                     It trips us up a lot of the times and I think if we sit down as financial educators, financial writers and say, “Yeah, there’s a logical end of this money situation. There’s the math side, but there’s also the emotion and how our brain is wired side.”

Gail:                        Absolutely. System one versus system two.

Kerry:                     System two. And you’ve got to marry them together and show people, “You are going to want to sell all your money when the stock market crashes.” But me because I have knowledge of this I’m like, “Oh my gosh, that’s when the stock market’s on sale. That’s when I should buy.”

Gail:                        I saw you tweet that when we were having that little dip just recently.

Kerry:                     Yeah.

Gail:                        I saw you tweet that, “Look, everything’s on sale. Let’s go shopping.”

Kerry:                     Yeah, I know. “This is when you buy people.”

Gail:                        Yeah.

Kerry:                     It’s a small sale but it’s-

Doug Hoyes:          Yeah but our brains don’t work that way.

Kerry:                     Exactly.

Doug Hoyes:          Because we see today. We don’t see yesterday, we don’t see tomorrow and you’re right, if I was willing to buy that stock for 50 bucks and it’s now trading for 40. . .

Gail:                        Why wouldn’t I buy it at more?

Doug Hoyes:          Exactly.

Gail:                        Yes. So the other thing is that we don’t like saying “no” to ourselves, okay? We don’t like saying “no” to anybody else but we really don’t like saying “no” to ourselves. In my house when my children were little, when I said “no,” the response was, “No say ‘no’ ammi.” Okay and so we still use that term in our house, “NO say ‘no’ ammi” because as human beings we’re hugely resistant to the word “no” and “don’t shop” is a “no.” “Don’t use credit” is a “no.” “Don’t go out on a vacation you haven’t saved for yet” is a “no.”

So one of the things I try to do when I wrote “Money Rules” was to bring in some of that psychological stuff like embracing anticipation and the research that shows the time you take to save the money for the vacation is actually more beneficial to you. You enjoy it more than the actual vacation. You go on the vacation, you come home, it’s gone. But all the time you spend anticipating the vacation is actually like you’re on vacation.

Robert Brown:        I actually touch on that in my book a little bit that for some reason people who typically aren’t savers are able to save for vacations because that’s part of the process for them. They find out how much something will cost when they get there and they make sure they set aside that money. Where they would never do the same thing for a car or a thing but they’ll save for their vacation. So good to them for that and hopefully they’ll start saving for some other things too.

Gail:                        Some other things too, yeah.

Kerry:                     I’m going to save up for a vacation now.

Robert Brown:        I’m going on vacation next week we saved for.

Doug Hoyes:          There you go and so what you’re doing is kind of tricking your mind then? I mean you used the phrase

Kerry:                     I think you play into your mind.

Doug Hoyes:          Yeah, I mean. . .

Kerry:                     You’re getting the vacation.

Doug Hoyes:          If you’re 24 today, think of what it would be like when you’re 60.

Gail:                        Yes, put yourself in your 60-year-old shoes. Just look at your mother, look at your grandmother. See what their life is like and how are you going to have as good or better a life than that if what you’re doing is spending every red cent you make right now?

Doug Hoyes:          Which is the same with a vacation, it’s taking myself out of the present and looking forward to vacation. And you’re right, the studies are pretty conclusive on that, that the anticipation gets the neurons firing even more than the actual thing.

Gail:                        It’s one of the reasons why debt repayment is so hard for people because they pay a little bit towards their debt and it still feels like a humungous amount. One of the things I have suggested to people, particularly for things like student loans which tend to be quite large is make a tree, glue it to the back of your door. Every leaf is $100. Every time you pay off $100, you pull it off the tree.

Doug Hoyes:          That’s a great idea.

Gail:                        Because denuding the tree visually is like the jars, okay? Visually it’s a reinforcement that you’re making progress.

Doug Hoyes:          Yeah because it’s kind of hard to see money in the bank account or on a statement. Whereas you plaster it on a wall, it becomes very visual.

Gail:                        Yes.

Doug Hoyes:          So is the world different today than it was, I don’t know, 30 years ago?

Kerry:                     Yes.

Gail:                        Totally.

Kerry:                     Completely different. Social media.

Doug Hoyes:          What’s different?

Kerry:                     So basically with all the knowledge that we’ve come across with behavioural science –my background is computer science and part of my job as a human computer interaction specialist was to get people to click buttons. So we learned all this science to learn how to get people to click the right button, to do the right task. We learned about defaults and systems that get people to make the decisions we want to have them make. Sometimes for their betterment so they don’t lose their computer files.

But all this knowledge has played out in the banking system now. It’s played out on social media and all these systems are rigged to get our brains all fired up and addicted or excited or programmed to do something perhaps that’s not the best financial decision for us. So we see the way ads are created. We see how they’ve placed things. We’ve seen how they’ve propped up a decision that’s more profitable for say a financial institution and we see how selling has changed as well.

You know I remember as a kid I would go to a bank. I’d have my savings passbook and the teller would be all excited that I just saved 5 bucks. Nowadays I go in there and it’s not so much how to service the customer’s best needs.

Gail:                        “Can I sell you some overdraft protection?”

Doug:                      Exactly. It’s a sales pitch.

Kerry:                     I’m constantly being sold something. They have a whole sales platform with a whole list. “Would you like a line of credit today? Would you like a mortgage? Would you like your credit card limit increased?” and all these things. At first it felt kind of good because it’s like, “Oh I’ve done something good. I should get a credit increase.” Right? And so it’s kind of played out that it’s a positive thing but they’re selling me debt is what they’re doing.

Gail:                        That’s what they’re doing.

Kerry:                     So we’re seeing a lot of this and out in social media we’re seeing the other system that drives me bonkers is we’re seeing a lot of financial information and it’s thinly veiled as beneficial financial information. What it really is, is a pitch for a financial product, so at the end it’ll be like, “Sign up for this credit card.”

So why aren’t we good at money? Well even the people who are trying to get the best information for their buck, they’re being sold a line and they’re being sold it through website or bank referrals. I mean it’s so hard to get to the good stuff now. It’s hard.

Gail:                        So 30 years ago you couldn’t just get a credit card. If you weren’t credit worthy, you couldn’t get a credit card. You had to have assets accumulated, you had to show you had a strong work history before anybody was going to give you a credit card. You had to show capacity to repay.

Kerry:                     My mom couldn’t get a credit card.

Gail:                        I couldn’t get a credit card.

Kerry:                     Yeah.

Gail:                        In my 20’s I couldn’t get a credit card. I didn’t qualify and I did a lot of work for financial institutions back then. Now back then I wasn’t working in personal finance, I was working as a curriculum designer for training materials. And so for example I worked with financial institution when they were building their credit application processing system. They had their own credit scoring system that used the five C’s. And so I knew everything that they were looking for. I knew you couldn’t get credit if you didn’t have a telephone, if you didn’t have a landline. Back then there weren’t any cells. If you didn’t have a landline, you couldn’t get credit because there was no way to collect. Simple things, okay, little things.

So this all changed when we decided to embrace wholeheartedly the credit score which I consider to be the single worst thing that ever happened to us. I think the credit score is perhaps the most detrimental thing that has happened and it’s a perfect example of people making bags of money when the people they say they’re serving are encouraged to do the wrong thing.

Doug Hoyes:          Yeah because a credit score is not for your benefit, it’s for the benefit of the lender.

Gail:                        So did you know that the credit score was originally created as a marketing tool? What happened was they created this credit score so they could measure how profitable people were. Well the same criteria are still in place which is why if you only make your minimum payment you have a higher credit score. If you have lots and lots of different kinds of credit, you have a higher credit score. All the things that will give you the best possible credit score are actually terrible for you.

Kerry:                     If you cancel your credit card, you get a lower credit score.

Gail:                        Absolutely.

Kerry:                     It’s crazy.

Robert Brown:        And now we have credit score companies who will email you your credit score on a monthly basis if you want to without people understanding that if your credit score goes up, in some cases not necessarily, it’s because of bad behaviour. And those same companies that are giving you a credit score and information about it are the ones sending you offers to lend you money or to lend you credit cards. So they’re not making the right decisions based on the information they’re receiving.

Gail:                        So I got into a big fight with someone on social media about this, okay? Because she was plugging an organization that was offering a free credit score and all you had to do was go and fill out their stuff and they would give you a loan. And they turned me down because I didn’t have a credit score that qualified me.

Doug Hoyes:          They turned you down?

Gail:                        Yes.

Doug Hoyes:          This is an actual story you’re telling us.

Gail:                        Yes.

Doug Hoyes:          Okay.

Gail:                        They turned me down and then I started being inundated with offers. So I’m not good enough to lend to but you’re going to sell my name to a whole bunch of other people. And so I got in touch with this person on social media and said, “You can’t be doing this. You can’t be repping this because these people are evil people. They’re bad people.”

Doug Hoyes:          I always wonder what Gail thinks. I can never read between the lines with what she’s saying.

Kerry:                     She’s not very clear.

Doug Hoyes:          No, I don’t understand. But okay, you got some kind of negative feelings towards these people is what you’re saying.

Gail:                        I do.

Robert Brown:        There’s just so many shades of subtle.

Kerry:                     Gail, she has all the feels.

Doug Hoyes:          I see. Yeah, I can see. Yeah, there you go.

Gail:                        So the thing is that I blasted her and she sort of defended herself by saying, “Well I went to their offices and I saw what they have.” Really? Because you’re that naïve?

Kerry:                     Did you ask her how much she got paid? Because this is the whole influencer thing.

Gail:                        And that’s the thing. That’s the thing. When we talk about influencers, there are a whole bunch of personal financial bloggers out there that are not talking about personal finance, they’re selling somebody else’s product.

Doug Hoyes:          So how do I know then when I’m reading a blog, I’m looking at something on the Internet, whether the person’s reputable or not?

Kerry:                     It’s hard. It’s really, really, really, really, really hard.

Doug Hoyes:          Are you saying it’s hard?

Kerry:                     It’s really hard. I go after some of them because they don’t write the word “sponsor” or “spon” or “ad” after a tweet. It’s hard when you see these people given credibility by the media organizations that have them come on and interview them and they don’t disclose the conflict of interest that they’re a spokesperson for a bank.

Gail:                        “I’m taking money from XYZ bank. Oh let me talk about their products.”

Kerry:                     Yeah, or maybe they don’t talk about their products at all. Maybe they talk about a system like the credit score so these people will go and talk about the credit score, tell you how to game the credit score because don’t you want to just level up to be in a higher level? Our brains wants us to do that because, “Let’s get 800” because then you get a better rate. Yeah.

Gail:                        Yes and so I say to people all the time, “I don’t have the best credit score,” and they go, “What? You Gail Vaz-Oxlade? You don’t have the best credit score?” Yeah because I’m not an idiot.

Kerry:                     You’re not gaming it Gail. Come on, get with the program.

Doug Hoyes:          So what am I supposed to do then?

Kerry:                     Okay. I think the media organizations need to do a much better job of vetting these people that come on and say they’re repping this. They need to go through their social media feeds. This is hard.

Doug Hoyes:          I agree but you’re putting the responsibility on the media organization.

Kerry:                     Well if they’re going to bring in a person as. . .

Doug Hoyes:          What can I do?

Kerry:                     As a person you need to look at who’s giving you the information and you need to see where you’ve received the information from. Are you getting the information on Twitter, Instagram, Facebook? Has this person got a history of repping different companies, this company? Is there a post on their blog that says “sponsored”? A lot of these people are in the mindset that they’re freelancing to a bank. They don’t see that they’re promoting product for a bank. But you’ve got to get that into your frame of reference that influencing is selling and they are selling to you.

Gail:                        So I very often give recommendations on social media. I mean I’m a Twitter girl. I love Twitter. And just the other day there was something about savings rates being so low and I said, “Well that’s because people are just too frikkin’ lazy to go online and shop around.” And then I listed four companies that give better interest rates than bricks and mortars traditional banks.

Kerry:                     Oh for savings or GICs. I saw that.

Gail:                        For savings, yeah. And so the thing is that when I say that nobody’s paying me for that. I’m saying that because it’s true okay? And so that’s what people have to do. People have to decide. They can’t just take what someone says, not even what I say. You can’t just take what I say and walk away and say, “Okay now I know” because you don’t. You have to take what I say and then go do your own research and if you’re too lazy to do your own research then you deserve to get scammed.

Kerry:                     It’s not just what you say, it’s what the banks say too. You need to do your research when a bank says, “Hey, do you want this home equity insurance?”

Gail:                        Mortgage life insurance? No, no, no, I want to talk about mortgage life insurance. Whenever somebody says to me, “Well the banks really give good customer service,” or, “Banks stand up and say, ‘We’re really interested in our customers,’” and I go, “Any bank that sells mortgage life insurance is stealing from its clients because it will not pay out until you make a claim and that’s when you find out you don’t qualify. It’s an absolute shell game. I can’t believe that product still exists.

Doug Hoyes:          And there’s a good example, so what you’re saying is you got to think, you got to kind of crunch some numbers, do some analysis. So in the example you’re giving, so I’m buying a house, I’m getting a mortgage and the bank person says, “Hey, would you like mortgage life insurance? So if you die it pays out.” It seems to me the obvious thing I would do there then would be go and talk to my life insurance agent.

Gail:                        Assuming you have one.

Doug Hoyes:          Assuming I have one.

Gail:                        Loads of people don’t have life insurance agents.

Doug Hoyes:          But I guess at the very least I should be looking around and find one.

Gail:                        Find one.

Doug Hoyes:          And go, “Okay so my mortgage is going to be $400,000. How much is. . .”

Gail:                       But that’s not what happens. See what happens is I’m in the room and you’re giving me a mortgage and I’m shaking because one, I can’t believe you’re giving me the mortgage and two, this is more debt that I’ve ever had in my whole life. So I’m shaking.

Robert Brown:        And three, it’s a huge decision. You got so much going on in your mind, so much other things to do.

Gail:                        So much in your head.

Kerry:                     And they slip it in your head. They slip it in.

Gail:                        Yeah. So when you say to me, “No.” “If you were to become ill or you were to die, would you want to be able to protect your partner?” Natural answer.

Doug Hoyes:          Of course I would, sure.

Robert Brown:        Of course I would.

Gail:                        “Sign here.”

Robert Brown:        And it’s that simple.

Gail:                        Done.

Doug Hoyes:          So I don’t have time to think.

Gail:                        Okay and part of that is because people don’t spend enough time thinking. This is just an observation of life, okay? We’re so busy doing stuff, going to butter tart festivals that we don’t actually spend the time we need to just thinking. You know, so this is something that I have said recently on Twitter, so I think a fair amount of people know this now. I am a depressive by nature and one of the things about depressives is that we are prone to what we call “rumination.”

Kerry:                     Rumination. Rumination.

Gail:                        All that is, is thinking that won’t stop okay? That’s all rumination is and so by my very nature I am a thinker. And if I don’t have enough space to think, like when I was making television there was very little space to think because it was just go, go, go, go, go, I don’t make as good decisions because I haven’t had a chance to weigh one against the other. That’s really what we need to be doing. We need to be spending more time on the decision so that we don’t have to spend so much time fixing it.

Doug Hoyes:          Yeah and you just hit the key point there as to what thinking is and of course I’m an accountant and so to me thinking is, “Well do the mortgage amortization schedule to see what it’s going to cost you.” Okay no, that’s math. That’s not the same as thinking. Thinking is kind of what you described. In my brain I have two different people, two different avatars, whatever you want to call it and they’re arguing each side of the issue.

Gail:                        Exactly right.

Doug Hoyes:          So should I get this or should I not get that? And that’s very hard to do. I mean you Kerry had talked about normalcy bias, recency bias where I’m in the present. It’s very hard to separate out and see two opposite things.

Kerry:                     There’s the money sense which is the math and logic and then there’s the common sense which is the intellectual, emotional, “ugh” feeling right?

Doug Hoyes:          Mm-hmm.

Kerry:                     Money sense is not common sense and this was a mistake I grew up with because I’m a math person. So of course I’m going to run the amortization table. I’m going to look at compound interest. I’m going to be excited about that because that’s more of the way my mind works. But yes, those two things and especially if you’re in a high pressure situation in a bank and they just slip it across the table, banks are great for that.

Gail:                        Yes they are.

Kerry:                     And everyone’s good at that now. I mean when you’re buying something online you get a pop up, “Hey, do you want to add this? You’ll get free shipping. Spend $20 more.” It’s these little add ins and slip ins. It erodes your wealth so incredibly quickly. I mean impulse spending is the misfortune of the saver because all these little mistakes you make –well big mistake with mortgage insurance.

Doug Hoyes:          Impulse spending. . .

Kerry:                     Is the misfortune of the saver.

Doug Hoyes:          Did you make that up?

Kerry:                     I think so.

Doug Hoyes:          Okay. You did now because it’s on record.

Kerry:                     Probably.

Doug Hoyes:          Impulse spending is the misfortune of the saver.

Kerry:                     That’s where it goes.

Gail:                        You have to ask yourself what’s driving your desire to go shopping all the time? I mean are you lonely? Are you bored? What the hell’s going on? Get a friend. Go walking.

Kerry:                     What are you filling? What need are you filling?

Gail:                        Yes, what’s the hole that you are filling? And I say to people. . .one of the things I find frustrating about FOMO, fear of missing out, is that people with good self-esteem don’t give two rat’s butts about what everybody else is doing. They’re perfectly fine with them. So I see it as a huge reflection on our lack of self-esteem as a society.

Doug Hoyes:          Okay. Let’s get into the practical advice portion here since I see by the clock that our 30-minute show was over 3 minutes ago.

Kerry:                     We’ll be “Debt-free in 45.”

Doug Hoyes:          That’s right, yeah it’ll be Debt-free in whatever we make it. So what is the answer? So I’ll start with you Robert because obviously Gail and Kerry have already touched on a few things. How should I be approaching this? How should I be thinking about this? What should be going through my mind?

Robert Brown:        I’m a big fan of delayed gratification and if you’re looking at making a big spending decision, very, very, very rarely do you need to make it quickly. Take the time to think it through. Take the time to see if there’s other options. See if it’s really that important to you. Don’t make decisions on spending very quickly, especially on the big ones like cars and home renovations. You’d be amazed how many people spend tens of thousands of dollars on their home without thinking about it for any more than a week or two with the first contractor that comes in the door. I’m the guy that walks around my house with a tape measure trying to decide where things are going to go and buying the little mini cans of paint at Home Hardware to get the right colour. By the time I get around to renovating a room I’ve thought about it for a year or so before I do it. I overdo it sometimes.

But really take the time to make sure you’re making the right decision, not just financially but making the right decision and doing the right thing which means you won’t be doing it over again which is the right decision financially.

Doug Hoyes:          Yeah. So push yourself away from the table. I mean we’re thinking about it. We probably spent more time which butter tarts to buy today than some people would spend on “what car I’m going to buy.” Some of those big decisions. Okay.

Gail:                        Because part of it is there are so many choices that we get overwhelmed and we just want to make a decision. As soon as we make the decision, we want to implement it.

Doug Hoyes:          And we feel better having made the decision I guess.

Gail:                        Yes.

Doug Hoyes:          There’s the uncertainty.

Robert Brown:        And often the people selling are better trained at selling than we are at saying “no.”

Gail:                        Absolutely.

Robert Brown:        Well Gail mentioned the mortgage life insurance. That bank manager or that bank salesperson has been very carefully trained in how to present that in such a way to buy it and that poor 26-year-old who doesn’t live in the personal finance world is buying his or her first home and has all those pressures on him. What chance do they have?

Doug Hoyes:          Yeah, they’re kind of toast.

Kerry:                     If someone slides something across the table in that way, sit back and ask questions about it. Ask if that can be added on later. We’re so polite. We don’t want to speak up and raise our hand when we don’t understand something because we feel stupid. It’s okay. It’s okay to not understand everything. You know, sit back and say, “No, I’m not interested in this now. I don’t understand it. Can you explain it to me? Is it something I need now?” We see this with telecom companies calling us up, selling us bundled packages. We see it with banking. We see it online. I’m a big fan of going on a social media hiatus, holiday because a lot of the buying decisions we’re saying millennials make are made through social media. So they’re on Instagram, they’re seeing their friends have these fancy vacations.

Robert Brown:        Do they post their credit card bills on Instagram as well Kerry?

Doug Hoyes:          I’ve never seen that.

Kerry:                     They don’t.

Gail:                        Listen, way back when I was the first guy who said, “If we walked around with little LED displays running across our forehead that showed how much we owed, our fancy cars and our granite countertops would not be as impressive.”

Robert Brown:        And I do it all the time. I’ll be in a coffee shop or I’ll see somebody drive in, in a fancy car with fancy clothes and I just always ask, “I wonder if that person can truly afford it?” Maybe they can. I don’t know.

Doug Hoyes:          Maybe they can’t.

Gail:                        So I’ll tell you a quick story. Take my daughter in to have her wisdom teeth out and as I’m paying the dentist who I already have a relationship with because he’s already yanked my teeth out, I say to him, “Can I write you a cheque?” He says, “Yes, I know you’re good for it.” He said, “You would not believe the number of people that come in here. They live in Forest Hill, they drive foreign SUVs, they have a cottage and they travel three times a year and they bounce their payments to me.”

Doug Hoyes:          Yeah it’s crazy. Yeah, you can’t tell by looking at the outside.

Kerry:                     It’s all a filter, you know? Social media is a filter. Instagram is a filter. Facebook is a huge filter.

Doug Hoyes:          Well it’s fake.

Kerry:                     We like to put the filter on our life and show people the positive. Meanwhile you don’t realize what’s happening underneath. So I say turn it off. Realize that everyone has a filter. Don’t let the FOMO hit you up when you see fancy vacations, new clothing, all this fancy makeup I see people wearing including the guys.

Gail:                        Look at that t-shirt you’re wearing today. It’s adorable. I think I want one just like it.

Kerry:                     I think I might have yellow armpit stains on it. Sorry guys.

Doug Hoyes:          That’s okay, Robert and I had the makeup going so we’re all feeling good about it.

Robert Brown:        I shaved today just for you.

Doug Hoyes:          There you go. Shaving on a Saturday, that’s pretty good. Okay so Robert’s advice: take time, step away from the table, think about it. Kerry is saying ask questions, don’t be sucked into the whole social media thing, ignoring the FOMO. Gail, what say you?

Gail:                        Add it all up. If you don’t believe that you’re in a mess it’s because you probably haven’t added it all up. People like to keep all their debt in little piles. So, “I have $2500 on my credit card and I have a little bit of a student loan left over and I have some line of credit stuff and oh by the way there’s my overdraft. And yes I did a home buyer’s plan and I did a buy now, pay later,” and they won’t add it up. Add it up and when you’re done puking your brains out then go and buy a copy of “Debt-Free Forever” or borrow it from the library and figure out a plan.

Doug Hoyes:          Make a plan. Excellent. Well I think that’s a great way to end it. All three of you are on Twitter. We’ve mentioned it so Gail what’s your Twitter name?

Gail:                        At gailvazoxlade.

Doug Hoyes:          So g-a-i-l-v-a-z-o-x-l-a-d-e. There you go and everybody follows her anyways. And Kerry K. Taylor is actually on Twitter.

Kerry:                     As Squawkfox. S-q-u-a-w-k-f-o-x.

Doug Hoyes:          There you go. And Robert Brown you are?

Robert Brown:        At wealthingrabbit.

Doug Hoyes:          At wealthingrabbit. Where’d you get that from, the book?

Robert Brown:        From the book.

Doug Hoyes:          From the book, that’s pretty good.

Kerry:                     Just one rabbit?

Robert Brown:        Well there’s more than one rabbit when they’re done compounding but just one in the Twitter handle.

Doug Hoyes:          Excellent.

Gail:                        Just look at Australia.

Robert Brown:        Just one in the Twitter handle.

Doug Hoyes:          Excellent. So the easiest way to follow everyone here is on Twitter. I’m at Doughoyes because I couldn’t think of anything fancy like everyone else did here. So thank you all for being here today. That was excellent as were the butter tarts.

Gail:                        Thanks for the butter tarts.

Doug Hoyes:          Hey, absolutely.

Kerry:                     Thank you Doug.

Doug Hoyes:          It’s an excellent excuse to get together. That’s our show for today. As always, links to everything we talked about including how to find each of the books written by my guests can be found at That’s h-o-y-e-s dot com. I will also post a full transcript of today’s discussion in the show notes. I’ll have links to each of my guests’ Twitter accounts and websites. So we’re going to eat a few more butter tarts. Until next week, thanks for listening I’m Doug Hoyes. That was “Debt-Free” in well 40 minutes today.

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