Providing For Disabled Children

Having a disabled child is a both a blessing and a burden and about which most of us have no real idea.  One of the concerns parent share is how to assure enough money for the child beyond their own death.

In Canada, a recent (2007) initiative is the Registered Disability Savings Plan (RDSP)  This is a program that permits capital to accumulated for a disabled person on  a tax preferred basis and with government grants connected to funding.  It is theoretically possible to acquire $70,000 in grants over a lifetime.  Not shabby!

When the RDSP is added to the maze of programs and trusts and other arrangements that are in vogue, it is possible that a disabled person could enjoy an adequate lifestyle despite the passing of their parents.

Ottawa lawyer, Ken Pope, specializes in estate and other planning for people in this situation.  He recently published an article that points out a frailty in the RDSP sytem.  There is no clear way to recover the funds deposited if the child dies before the parents.  You can see more here.

Caring financially for a disabled child is a complex field of study.  There are many approaches and not all are compatible.  A skilled professional practitioner can provide an efficient approach and that efficiency means you child lives a little better or maybe you can get the answer for a smaller capital input.  Do not overlook second-to-die life insurance.

This kind of planning is not a do-it-yourself project, it has to work.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Regulation Feels Good, But

The need for regulation of financial advisors arises from an abdication of responsibility by the people who may suffer the greatest cost.  That cannot end well.

There are two thoughts that matter.

  1. The client is the sole planner, everyone else is a helper.  If the client cannot prepare their own plans, at least in general, they have a duty to learn enough about it to at least make reasonable decisions.  If they do not accept their role, then someone else will “plan them.”  The someone else will not know enough to do a great job of it, and the client who does not understand will fail to follow through.  No one trusts what they do not understand.
  2. The client is the regulator.  There is an old thought in law, “Caveat Emptor” – Let the  buyer beware.  In most jurisdictions it has been replaced with consumer protection legislation.  Which provides better results?  A statute that may not apply because the vendor has found a loophole, or an informed buyer who understands their purchase?  I am going with informed buyer.

If we rely on an advisor to be the planner and rely on politicians to protect us from each other, then we are doomed.  Each of us has a positive responsibility to learn enough to function in somewhat complicated environments.  We cannot safely avoid that responsibility.

In respect to financial planning services, who stands to lose?  It is a two person game and the advisor cannot lose.  Maybe win or  breakeven but not lose.  The client could win, breakeven, or lose.  The one who stands to lose should reduce that risk by investing in knowledge, even wisdom.

A large share of the people hold insufficient knowledge or wisdom to meet their obligations.  What to do?

There is a four step program.  Eight steps shorter than AA and notice that doing nothing is as addictive as alcohol.

  1. Learn about what people are trying to accomplish when they do a financial plan.
  2. Learn about how debt and investments work
  3. Learn to understand risk and its effects on decision making.
  4. Learn that doing nothing is a choice and has a cost

The advisor has a positive duty to help the client meet these requirements.  Some see it as a burden, but the highly successful ones do it instinctively.  John Page had many, as in way more than many, binders that outlined his unique financial planning process.  When a client remarked, “I’ll bet you guard those closely.”  John started piling them on the desk with the admonition, “No, take them all; educated clients are the best clients.”  An advisor can learn to do this as part of the service, and be rewarded by loyalty and a growing asset base.

You can get a little idea of what a comprehensive planning process can be here.

Clients should expect this level of service.  They cannot be confident of success unless they can both understand and measure their achievement against well understood and reasonable targets.

Their is a further risk in consumer protection legislation,  called, in economic theory, “Moral Hazard.”

“Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would.”  -Wikipedia

If clients knew their obligations and worked at getting better, there would be little need for regulation.  Until that day, smart advisors will push their clients onto the path of being active participants in each financial decision.

For an advisor, nothing is riskier than dealing with a clueless client.

 

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Build Wealth On Purpose

Building great wealth is not easy and most people have insufficient motivation and persistence and too few of the skills.   As an alternative though they should learn what they need to become wealthy enough.

Wealthy enough is the amount that gives you the comfort, the security and a margin for error that you wish to have.  There is no standard.  Everyone makes their own rules.

How much is enough?  It has been said that anyone who thinks making $10 million is enough, lacks the requirements to make $100 million or a billion.  Once you have some amount, more is useless unless you can find out how to use it or can find new things to spend it on.  Clearly there is a diminishing marginal utility for money and so other things are needed to go beyond the limit.

Craig McCaw has said, “You can live as well with $4 billion as you can with 12”

We know that building some future amount depends on several factors.

  • Capital.  What you have now and what you can save
  • Yield.  What it will earn less taxes
  • Time.  What is the target date to have it available?

Capital can be in several forms.  Money is obvious, but it also includes skills, and other talents like motivating people, selling, and leadership.  Money capital is what you have now plus what you can save.

What you can save is a function of two things.  What you spend and how much you earn.  You can influence savings by changing either or ideally both.  Make more, spend less.

Spending money to improve your skills and thus your income is a kind of capital formation.  Usually it is more valuable than money because it is renewable and in most cases you cannot lose it. A person can lose money investing, but it is hard to forget how to be a doctor.

You cannot save what you spend on lifestyle.  A more expensive bottle of wine with dinner is lifestyle.  It has no future value.

Yield after tax matters.  Most great wealth is built on capital gains with no tax until liquidated, so the raw yield is usually the one to focus on.  You can determine the third amount In the time capital yield triad if you know two of them.  Knowing capital and knowing time, you can determine yield.  It can be done roughly using the rule of 72.  72 divided by yield gives the time to double.

For example.  I have $50,000 and want $10 million in 30 years.  200 times my money.  8 doubles is 256 and 7 is 128, so about 7.5 doubles.  One every four years.  72 divided by the time to double is roughly the rate required.  In this case 18%.

That is lower than many people would guess.  Using leverage and skill and diligence and discipline and luck, you could likely do it.

If you had 40 years to do it, then you would need to double once every 5 years or about 14%.  Still not trivial.

The morals of the story is this:

Time matters, so start early.

Capital matters, so form as much as you can as quickly as you can.  Do it by spending less, or much less, than you earn and invest some in developing skills that cause earnings to go up.  Savings equals income minus taxes minus lifestyle.  You can manage all three of the pieces.  Do so.

Yield matters and it is a function of many things.  Learn what matters.  If you have great skill and a tolerance for risk and the ability to commit for long times and a creative idea a way to manage your taxes and some capital to begin with and are willing to share with others as more money and skill is needed, then you have a chance.  A small one but definitely non-zero.

Discover what tools are available to help you with your plan.  Use them or find someone who can help you with them.

Work first on what you can control.  Invest in yourself and save some capital.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Managing The Cap

Cowboys owner Jerry Jones: “Free-agency busts hindered Super Bowl chances”

Jerry’s problem is just like yours. Previous commitments limit your ability to accomplish what you would like in the future.

The headline was atop a recent Sports Illustrated story. NFL teams, like the Dallas Cowboys, are subject to a salary cap. If a high salary player does not perform up to expectations their salary still counts and there is less money for other players that might contribute. It limits flexibility and the chance to improve. Poorly managed salary cap issues have doomed the success of more than one team.

The effect is exactly the same in your household. Everyone has a budget cap. If you exceed it, you will be punished. Maybe not immediately, but soon. You reduce your flexibility and your ability to control your future when your cap space is used up by previous commitments that no longer contribute value.

Things like credit card payments for clothes or vacations or furniture. There is also the extra amount you pay to lease a high-end car instead of something more modest. Same with bigger mortgage payments on a bigger house.

When you commit to make payments in the future, you have committed part of your budget cap and that amount is no longer available for anything else. If people made explicit statements about how that worked there would be fewer problems. Something like, “If I spend this extra $400 a month for this car that I like instead of the one that would serve well, I will need to give up golf club fees to make it work.”

The more likely response is to borrow more to make the payments or to save less. Either way you are paying for the present with future dollars. Someday the future will appear and there will be too little money to pay for things that matter.

It is the old story. You can only spend a given dollar once. If you commit future dollars to payments, they are spent today even though they may not come out of your bank account for a while.

jerry-jones-1024x856Financial planning is about balancing the present with the future. Part of the present is paying for the past. Balancing is not an easy task and it is one that requires great discipline.

Just like Jerry Jones, though, you cannot have control of your future if you commit to things that should not have been part of your life. Flexibility is an important asset. Do not give it up easily.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Why Be Disciplined?

Yaman Saleh, founded a LinkedIn group called The Trader and while still small, I have found it to be among the more worthwhile.  You should consider joining here. 

Yaman is a polymath and has good instincts as a group manager.  One of his good instincts is that he comments on articles I publish.

Recently I published one on knowing what you mean by profit, so you can focus more effectively.  I used a farmer as an example of someone who described profit in ways not connected to money.

Yaman was kind enough to extend the thought into ways of being successful.

“The law of the farm” is a phrase Stephen Covey used. We can’t speedup or slowdown natural principles. We must adhere to them, or break ourselves against them.

The more I know about technology, the more I appreciate that principle. Seeking instant gratification, on any dimension, embeds a snowball effect.

The idea is that some things work at their own pace and they do it without regard to what you want. Farmers seem to know this and they also have non-money ways to think about profit.  The two may be connected.

Success is a goal most people have, but some try to do it while working against the natural order of things.  They fail.  As Yaman points out, break themselves against the immutable facts.

You cannot make many things happen more quickly, cheaper or easier.  Things have their own time scale and requirements.  Financial planning is a methodology that is that way.  Time and its engine, “compound interest” are crucial.

Catching up is much more difficult than starting sooner.  Cramming doesn’t work.  Like farming, you cannot make corn grow faster by yelling at it, wanting it more, or promising it some reward.

Trying to accomplish a 30 year plan in 5 years denies reality.  If you try it, you will find that you take huge risks that you would never take in a more extended period.  Penny stocks for instance.  I need a 40x my money deal, so there must be one there somewhere.  You will probably lose both the money and a significant share of the time remaining.

The thought is not a new one.  For those old enough to remember Earl Nightingale, you will recognize the similarity.

 “The only person who succeeds is the person who is progressively realizing a worthy ideal. It’s the person who says, “I’m going to become this and then progressively works toward that goal.”

Progressively is the key.  Instant success is an illusion.

According to Earl, the “day” is the building block of success.  What am I to do today to reach my thoughtful goal?  What have a learned today that will cause me to adjust that goal or its method of achievement?  What should I do tomorrow to more perfectly achieve my ultimate goal?  What mistake did I make today and what did it teach me?  Every day matters.

Seen this way, the long run is just the sum of thousands of short runs.  Each one managed and studied.

It need not be a form of martyrdom.  Earl addresses the day in another way.

“Learn to enjoy every minute of your life. Be happy now. Don’t wait for something outside of yourself to make you happy in the future.

Like the discussion on profit, discover what you value and seek more of it.  Balance.  You will do more of what you enjoy.

Eventually, and often too late, we discover that we could have done more or we could have done it differently.

“We are all self-made, but only the successful will admit it.”

“Hurry up” probably works in football because it confuses the defense.  There is no advantage to confusing yourself, so using time effectively is crucial to success.

None of this is difficult or complex.

As John Snobelin said last year, “Success is merely the ability to follow simple rules.”

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Instant Success Takes a Long Time

The Beatles came to America February 7, 1964 and played the Ed Sullivan Show two nights later.  73 million people watched.  45% of all American households with a television tuned in.  Just slightly lower than the rating for the 2014 Superbowl.  For those who saw it, it is a marker on their life line.  Where were you that day?

Recent specials have given the impression that the Beatles arrived in America, were met by large crowds, sold out wherever they went, made records and movies and sold posters and toys in vast quantities.  They were suddenly famous and successful.beatles aldershot poster

The result may be true, but as with so many success stories, it hides other important things.

Few success stories start with.  “First I became famous” and theirs is not different.

I came upon this site recently.  Retronaut The Photographic Time Machine.  The link will take you to photographs taken on 9 December 1961 in Aldershot, UK.  Barely more than two years prior to the Sullivan show.

It looks like a pretty interesting event.  Price is not bad.  Bar and Buffet.  “Liverpool’s No. 1 Rock Outfit”.

Quick quiz.  How many people attended?

Would you believe 18.

Admittedly the event was not well advertised and their manager was replaced shortly afterwards.  But 18!  To see the Beatles live and up close!

beatles aldershot crowdGreat success often disguises the work involved to acquire the skill and presence that seems to have arisen by fate or an act of God.

Talent helps.  Pleasing looks, winning personality, warmth and ease with people matter and add value.  But they are not enough.

The work is what drives the other factors.  Unfulfilled potential is common.

In Germany in the early days, the Beatles often played four shows a day.  It was difficult and financially unrewarding, but they learned their craft.  In England they did gigs like Aldershot.  No limousines, no roadies, no fans even.  But they carried on.  By late 1963 they were recognizable in Europe and a few in the United States knew of them.  Then the explosion.

Every business and every career follows this path.  Doctors take nearly a decade to train.  Financial advisers are of little value early on, but if they pay attention, they become useful.  My friend Paul Racine claims that an insurance adviser needs to do 50 applications a year just for practice so that when he does the ones that matter, he is and looks competent.

Malcolm Gladwell claims that it takes 10,000 hours of focused practice to become professionally skilled at anything.  I think he might be right, but true professionalism may take even more.

In 1944, music professor, Percy C. Buck wrote “Psychology for Musicians.”  In it, he summarized the nature of the path for anyone who wants to become exceptional.  “An amateur practices until he can get it right.  A professional practices until he can’t get it wrong.”

Percy Buck made another point on the same subject.  “An amateur can be satisfied with knowing a fact; a professional must know the reason why.”  The reason is that depth of knowledge demonstrates how a thing came to be.  Depth discovers patterns and tendencies.  It fuels creativity.

There is a similar idea in mathematics.  An elegant proof is one that proves the theorem efficiently and also gives clues as to why the proof is true.

When looking to become a financial adviser, seek depth of knowledge. With depth of knowledge comes the ability to notice nuance and exceptional circumstances.  Curiosity is the engine.  An adviser should pay attention to little things and learn how they combine into big things.

If you go deep enough you will hear the sound of discovery.  Discovery always sounds the same.  You hear someone saying, “Hmm.  That’s odd.”

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Volatility Can Hurt You

You cannot ignore rate of return volatility if you are projecting over long periods.  I recently saw a piece that put forward the idea that volatility costs yield if there are withdrawals during the period. 

It seems reasonable that over the long haul, volatility could not possibly help you if you were taking money out of your account.  Sort of negative dollar cost averaging.  So a test.

I have not tested all possible time scales, nor have I looked at all possible markets.  The period I tested was very long.  From 1 January 1924 to 31 December 1993.  The market is the Toronto Stock exchange as represented by the total return index.  The average rate of return, (geometric average) is a little over 10.20% and the standard deviation of annual returns is more than 18.88%.  A volatile market.

I chose an opening balance of $10,000 and made constant $500 withdrawals each year.  Over 70 years, the ending balance, with the volatility, is $3.6 million.  With a constant rate of return equal to the average, it is $4.1 million.  Volatility, therefore, cost half a million dollars.

Interesting, but not terribly useful.

What I want to know is the answer to this question, “What is the equivalent constant yield that provides the same ending amount as the volatile yields.”

Answer:  Roughly 10.02% 18 basis points less but with standard deviation of 0%.

There are two important truths.  1) You can only calculate this adjustment after the fact.  In the beginning, you merely need to be aware of it.  2) Be reluctant to count on average rates of return if the withdrawals are a high percentage of  the original capital. In this case, if the withdrawal was level and equal to the average yield, exposed to volatile markets, the portfolio would crash in the 22nd year

Using bond returns instead, we find the following.  Average yield 5.7+% with a standard deviation of  8.5+%.  Much less volatile.  However, the end balance will be negative by the end of 1973 with the same $500 withdrawal.  If instead of $500, I draw the average return each year, it will last until 1961, 37 years.  Notice.  That period is longer than equities because the volatility is less.

At a constant rate of return and $500 out, I will need to reduce the average yield by 104 basis points to get the same result as I do with volatility.  Almost a six times bigger adjustment than for equities.

The take away, is that the average yields for a given dollar amount withdrawal are more misleading when you use bonds as your underlying investment than when you use equities.  Probably balanced portfolios are somewhere in between.

For different periods, different withdrawal rates and different market choices you will get materially different answers.  When building a model of your future finances, the key element is the mix of your expected rate of return and your withdrawals.  You can use the average over long periods and expect to survive, if you draw money at less than half the expected average rate of return.  If you draw more than that, you should adjust the yield expectation downwards, possibly by a lot or shorten the period that you can do it.

Contact: don@moneyfyi.com  |  Follow Twitter   @DonShaughnessy

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Price Does Not Indicate Value

bitterness of poor quality
Price, by itself, is a poor indicator of value.  Things have a lower price for a reason and the reason is that you are buying less.  If you do not know the excluded parts, there is no way to assess value

 

The result of the “price describes value” mistake is in this common wisdom, often forgotten.  Everyone should know it by now.

Best known for his work as an art critic and social critic, Englishman John Ruskin, expressed it clearly 175 years ago.  Nothing has changed since.

Its unwise to pay too much, but its also unwise to pay too little.  When you pay too much, you lose a little money ….. that is all.  When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do.   The Common Law of business balance prohibits paying a little and getting a lot … it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that, you will have enough to pay for something better.

The essential point is this.  Cost is what you pay and value is what you get.

Price is one part of cost, but not the only part.  As Ruskin points out, the risk of loss because of an absent aspect is another part of cost.  What could be taken away?   Durability, support after sale, ease of use, difficulty in maintaining, or any of a hundred other things.  Maybe it was stolen.

For example, Renewable Term 10 life insurance is about the lowest priced form that there is.  The reason is two-fold.  People who can pass a medical are nearly certain to live 10 years.  If they live more than 10 years and their health deteriorates in the interim, the price of the renewal will be high enough that the insurance company is okay.  They are saying to themselves, “Anyone who keeps this policy at this price, knows something about their health that we do not and that thing is adverse.”  If they had no problems they would just do a medical and buy new again.  You give up the right to keep the insurance at a reasonable price.

All life insurance costs the same.  It is the package that changes the price.  For more premium, you get more value.  For less, you get less.

Furniture is another category where the “price is not value” rule applies.  Good furniture is not cheap and cheap furniture is not good.

Before you make a decision based solely on price, notice this idea, also from Ruskin.

There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and  people who consider price only are this man’s lawful prey.

Being prey rarely ends well.

Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Traders Are Not Investors

“Animal Spirits” is a concept that Keynes raised in his 1936 book, The General Theory of Employment, Interest and Money.  It refers to the tendency of markets of all types to move based on non-fundamental factors.  Market sentiment is the current idea.  Crowd psychology.

Looking at the markets as a whole over long periods, we see that there are price level changes that occur that have no basis in financial or business reality but rather are based on how people relate to news, especially surprises, commentary, especially from commentators that are showmen, and internet gossip, especially from frequent commentators. These are the meals animal spirits consume.

Intelligent investors will refrain from wasting their time on this fashion item.

Since this form of material is so ubiquitous and easy to access, markets today seem more driven by news than fundamentals.  Fundamentals are liked demographics.  In the long run you cannot overcome them.

Reports can appear reasonable, but like graphs that compare incomparable things, they are contextually deficient.  “After the fed announced a rate change, markets fell.”  “In response to the European banking crisis, markets fell.”  “Markets rose with the improvement in the employment report.”  All nonsense.

Short term market action is essentially random.  “The efficient market hypothesis”   But investor behaviour is not so efficient.  Investors are emotional.

In longer periods, fundamentals win.

Maybe we can learn from that.  Investors who repeatedly hear some news tidbit and see a market move as the result, begin to believe two things.  Both likely false in the big picture, but possibly having short term value.

  1. External events cause price changes in the market
  2. Analysis of causation in the markets may be possible.

People who want to go here are not investors.  They are traders.  They are using information that they believe will be interpreted by other market participants in a certain way.  They are trading against the other people, they are not investing in the long run potential of the business in question or even of the markets in general.  Practically, they would not even need to know the name of the business.  Its symbol contains all the information needed.   It is a large game with many players.  It is a zero-sum game.  The winner is the one who defeats his fellow players.  Like tennis.

Investing on the other hand is independent of the other players.  In the Warren Buffet style, you buy good businesses, in good industries, with competent managers and adequate capital.  Then wait.  In his view the best time to sell a stock is never.

When playing “the market moves on news” game, every decision must have two parts.  When to buy at a price and when to sell at a price.  Buffet’s tend to be one decision situations.  He only sells if fundamentals change or if someone offers him more than he believes the business is worth.

All investors need to get their time frames straight.  If you are accumulating money for a purpose 30 years in the future, news will not matter over that time.  If you are playing a short-term game that feels good when you win, then other rules apply.  Be sure you know the difference.

Investors are not traders and traders are not investors.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Money and Teenagers

What does your teenager know about money and what should they know?

Success with money begins early and is a skill that grows with experience.  You need to participate to learn.  Like golf, you cannot learn it from a book or a DVD.  Books and DVDs can help but the important parts are experienced.

There are only a few things that are important.

  1. Money is value that a person receives in exchange for some other value they gave up.  Wages are in exchange for effort and time.  Interest is in exchange for waiting to use the money.  Profit is the return for investing and providing skill, time and effort.
  2. Money is the method that allows the time of earning and the time of spending to be different.  A $20 bill in a drawer will buy something another day and waiting will not diminish it.
  3. If someone gives you money, they are essentially giving you some past effort that they have made.  There is no free money.
  4. Governments want to spend money and they have none of their own and no way to earn any.  They need to take it from the people.  All government money is the people’s money first.  A citizen should notice that it would work better if the government spent less or at least spend what they take wisely.  Be aware of governments.  They will likely be your single larges expense.
  5. There is a difference between earning money and getting money.  People can get money in many ways.  Gambling is one, albeit unevenly profitable.  Reorganizing the capital in a publicly traded business is another.  Packaging and unpackaging assets is another.  Remember mortgage backed securities.  The most insidious “get money” deal is credit cards.  Few ads show the pain of getting out of credit card debt.  The pain of payments and the cost of interest lasts much longer than the joy of dinner.
  6. Money is time and skill and effort.  Sometimes spending makes sense if they think about it in terms of hours instead of money.  Is a video game worth five hours of working at a menial job with people who don’t treat you very well?
  7. Don’t spend all your money as you receive it.   If you do then you can never save and you cannot repay a debt without reducing your lifestyle.  Most people do not like reducing lifestyle.  Better to not start by spending all your money.
  8. You can only spend a given dollar once.  You cannot have your cake and eat it too.  When you decide to spend a dollar on something, it automatically means that you choose to not spend it on anything else.  Pay attention to what you have decided to exclude.  It is very easy to miss that the dollar you spend today was actually committed to be spent later for something more important.  In simple terms, you cannot buy hockey tickets today with tomorrow’s gas money and still expect to get to work.

Teenagers need money in order to learn what it is for and how it works.  Ideally regular income for required work.  Be sure they have enough to make some stupid mistakes.  Advances are okay but they must be repaid from reduced future income.  Do not bail them out when they do make mistakes.  They need to learn that once the money is gone, it is gone forever.  The only way to pay off a debt or to save capital is to reduce  lifestyle.  They will learn this lesson eventually, better they learn it when they are 17 than when they are 32.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.