DO CELEBRITIES GIVE BETTER FINANCIAL ADVICE?

Celebrities have mass appeal. Learning about money doesn’t. Maybe the solution is to get financial advice from celebrities such as billionaires, authors, journalists, bloggers or TV personalities.

Maybe.

Advantages

Whatever causes us to pay attention to money helps us.

Celebrities have the power to create awareness, build interest and provide motivation. Since they get promoted and already have audiences, they have a powerful advantage when spreading messages. Besides, we often like they way they talk and look. That makes us more receptive.

Pitfalls

We listen when Warren Buffett speaks about anything: life, philanthropy and career choices (“Warren had even considered actuarial science — the mathematics of insurance — as a career”). Yet Warren is from a different era and financial stratosphere. His tips may be valuable but aren’t tailored to your unique situation, unless your name is Bill or Melinda — and they don’t need much help.

In Pound Foolish: Exposing The Dark Side of the Personal Finance Industry, Helaine Olen gives numerous examples of questionable advice from the likes of Robert Kiyosaki, David Bach, Suze Orman, Jim Kramer and Dave Ramsay. We must be careful.

Repetition

“I’ve heard it all before. You’re saying nothing new.”
— Supertramp, Child of Vision

As you delve into the financial world, you'll notice huge overlaps in the advice provided. Have an emergency fund. Ever heard that one? Pay yourself first. Is that a new one for you?

We get the same messages over and over told in slightly different ways (much like Hollywood movies). Why do we continue to pay attention?

• we need help or reminders
• we don’t want to miss something new
• we want confirmation that what we’re doing is sound

Going Beyond

We often need more than than financial advice. Good habits take time to build and effort to maintain. Maybe that’s where we need the real help. Can celebrities provide personal attention? If you want to have ongoing discussions, they aren't your best choice. They're busy. They may be traveling. They may not know or want to the liability from getting involved.

Regular Folks

There’s no monopoly on common sense or money advice. I’ve been collecting stories for the What I Learned About Money project. The lessons are sound, even when they’re from “regular folks”.

Over-reliance on celebrities works against you. They are like us. Their biases, beliefs and motivations tint what they say and what they see. For example, opinions vary on the pros and cons of financial leveraging.

What do celebrities leave out? What do you filter out? Confirmation bias gets in their way and ours. You win by embracing different sources, thinking and comparing.

Procrastination

Since celebrities are busy, you have fewer chances to see them. Don’t make that an excuse to procrastinate. Get started where you are with what you have. Books make a great source, if you like reading (some titles).

You can't beat live events — even if that means going out on a chilly dark evening (say to Money 50/50: Insider Advice for Today’s Topsy-Turvy Times). Ask questions. Talk to other attendees. You don’t know who you’ll meet or how you’ll change.

Links

• The best money advice I ever got (or gave) (Wall Street Journal, Dec 2013)
• Don’t take financial advice from Michael Fassbender
• If you have/had/want money, read Pound Foolish
• Does billionare Seymour Schulich help you Get Smarter?
• Disaster-proof your life: the first rule for financial success (Preet Banerjee)
• Fight Back against corporate trickery (Ellen Roseman)
• Where financial bloggers fail
• image courtesy of stefanie van der vin

PS Remember that celebrities get bad financial advice too.

YOU BUY LIFE INSURANCE WITH YOUR HEALTH

Disaster-proofing your life is the foundation of financial success, according to Preet Banerjee (and me). That means protecting your biggest asset: your future income. You need insurance for disability and death. Getting coverage takes more than money.

You buy insurance for the four financial risks with your good health. If you're in poor condition or have harmful habits like smoking, you pay higher premiums. No law forces an insurer to cover you. In extreme cases, you can't get coverage at all. That’s when you most need protection.
How do you get the health insurance or life insurance which you and your family need? Here are three strategies that work alone and together.

1. Buy young
2. Buy more now
3. Stay healthy

Buy Young

You tend to be healthier when you're younger. That means it's easier to qualify for insurance. You also pay lower premiums since you’re less likely to make a claim. The price always go up because you're getting older, even if you get healthier.

Younger people tend to ignore the savings available to them. Perhaps they have less money, a smaller perceived need for insurance and other priorities.

Buy More Now

You can always reduce your coverage but can't always add more later. You face new underwriting each time. The testing is becoming more sophisticated too. Future prices are always higher because you're older.

If you buy more coverage now, you have better protection and reduce the need to add more insurance later. Even if you have lots of money, you're limited in how much protection you can buy. To be prudent, insurers limit the amount of coverage for which you qualify.

Exception: you might be able to add a “guaranteed issue” option to buy more insurance later with no questions asked about your health. This flexibility is especially helpful with disability insurance since you’ll likely want more coverage as your income increases. (You can also add options to offset the effects of inflation.)

Stay Healthy

Since we can't predict the future accurately, we can't anticipate all our changing future insurance needs. If you're healthy, you can apply for more coverage later. You also enjoy a better life.

Maybe you're in the midst of improving your health (e.g., by stopping smoking). Don't wait to buy insurance. You can apply for lower premiums later. In the meantime, you're protected.

Health is wealth. Health is the price you pay to qualify for insurance.

Links

• Disaster-proof your life: the first rule for financial success
• What happens during a paramedical exam for insurance?
• How to afford the insurance you need
• What do you learn from getting sick?
• The four financial risks
• image courtesy of Elnur

PS Get help with your insurance at Taxevity.

DISASTER-PROOF YOUR LIFE: THE FIRST RULE FOR FINANCIAL SUCCESS FROM @PreetBanerjee

“Most people don't want to learn and read about money but we must to a certain extent.” — Preet Banerjee

Preet Banerjeee quit his job the day after we first met. That’s coincidence. He was an investment advisor for a bank and I did advanced marketing for a life insurance company. We also met just before he started writing for The Globe and Mail, while he was filming Million Dollar Neighborhood, and other times too. He’s followed a squiggly career path.

The financial sector is filled with two kinds of people: salespeople (know how to sell) and technicians (understand what’s being sold). Preet stands apart. He’s very likable. Even better, he has a deep insider understanding of how the financial sector works, provides objective advice and says what needs to be said.

Preet spoke at Rotman about his new book. I already read and recommended Stop Over-Thinking Your Money: The Five Simple Rules of Financial Success (review on GoodReads). I attended to support him. The quotes in this post are from his live talk and have been lightly edited for readability.

Rule #1: Disaster-proof Your Life

“The risk of running out of money is important and something you need to address. But if retirement is potentially 40 years away, there are a lot of risks that exist between now and then. Your future income is your single biggest asset.. Protecting it is one of the most important things you can do.

What are all the different ways you can lose that income?

1. If you die, clearly you're not going to have any income and your family's lifestyle may be put in jeopardy
2. If you become disabled, you're going to lose your future income
3. If you lose your job, you're going to lose your income"

How true. 

1. Life Insurance

“Life insurance is boring if you are not in the industry. Even if you're in the industry it's pretty boring.”

I find insurance exciting, but I’m an actuary. What else provides a predictable lump sum tax-free at an unpredictable time of need? That’s peace of mind. I designed products, helped advisors sell them and use that insider knowledge to help the public review their protection.

We’ve changed. We understand the consequences of dying with financial obligations remaining but don’t always prepare. Term life insurance is inexpensive but life-changing events no longer trigger insurance purchases. For instance, the birth of a child creates expensive responsibilities. Yet 60% of parents don’t get life insurance within two years of their family addition. Does that surprise you? Maybe there are challenges affording the insurance.

If you’re single and without dependents, you might think you don’t need life insurance (but read this). Regardless, you likely agree you need insurance to replace your income if you become disabled.

2. Disability insurance

Disability insurance is complicated (see the guide to disability insurance, which includes links to an article and video by Preet). If you work for a company, you may think you have proper coverage. How do you know? Products are complex and life insurance literacy remains low.

How do you do you gauge

• the stinginess of the definitions
• the generosity of the benefits
• the quality of the guarantees

At work, you’re stuck with group coverage, one of the two types of insurance you can’t own. That puts you at risk because your employer has full control and likely wants to reduce expenses.

Your benefits aren’t guaranteed even if you pay part of the cost. Remember Nortel? The long-term disability insurance covered 50% of pre-disability income. Would that be enough? Many employees didn’t think so and topped up coverage to 70%. Unfortunately, Nortel went bankrupt leaving the 357 disabled with only 35% of their expected benefits. Could you live on that? How would you feel knowing that lawyers and other professionals have already received over $1 billion in windup fees?

If the Nortel employees got independent advice, they might have purchased personal disability insurance that Assuris guarantees will pay at least 85% of the promised benefits if a member insurer goes bankrupt.

If you’re self-employed, don’t you need disability insurance too?

3. Job Loss Insurance

You can’t buy job loss insurance. That doesn’t stop you from taking precautions to bulletproof your career, following the eight steps to getting a job today or taking a Krypton course.

You can self-insure against job loss by establishing an emergency fund once you decide on the right size. Yet 45% of Canadians have no savings for emergencies. How’s that for optimism?

Act

Knowing isn’t doing.

Disaster-proofing your life isn't glamorous. The process takes time. Preet tells readers to get started by contacting suitable advisors immediately: “Put down the book and book the appointment. You do not know when these [unpredictable] things could happen. Do it. Get the ball rolling.”

An author telling us to stop reading? At least Preet didn’t tell us to leave his talk. That’s advice we would have ignored. What advice will you act on?

Links

• Preet Banerjee: website, blog, book (Amazon.ca)
• Book review on Goodreads
• Income replacement: A guide to disability insurance
• Two types of insurance you may have but cannot own
• Oblivion: what happens if my life insurance company dies?
• How to afford the insurance you need
• Tips for first-time life insurance buyers
• Test your insurance literacy

PS Stop reading this post and get Preet’s book. It’s an easy read.

THE 2013 POSTS FROM RISCARIO INSIDER

Here are all 51 posts from Riscario Insider from 2013. You can select them by image or by category.

By Images

The title of the post shows when you hover your cursor over the image. Click to read the post.

By Category

You’ll find all the 2013 posts arranged by category and then in chronological order.

Advisors

1. Imagine your advisor winning an Oscar
2. (mailbag) Switching investment advisors: bad to worse?
3. Should you change advisors when you move?
4. How Tom Hanks got cheated by his insurance advisor
5. How to tell if your advisor is independent

Behavior

1. Stop blaming your parents
2. The battle between temptation and personal responsibility
3. Case study: Seller Beware vs Buyer Beware
4. We’re easy to fool (with examples)
5. 12 timeless tips for wise shopping

Careers

1. The unwelcome lesson from the RBC-iGate saga
2. Ctrl Alt Delete: Mitch Joel’s 8 steps to getting a job today
3. Join a genuine innovation in free lifelong education
4. Netflix for learning: unlimited access to emagazines and ebooks

Insurance

1. How to afford the insurance you need
2. Test your life insurance literacy
3. The best and worst times to cancel your life insurance
4. Is your life insurance like a shovel, snowblower or snowplow?
5. Budget 2013 punishes the innovation of “10-8” insured leveraging
6. Life changing events no longer trigger insurance purchases
7. Tips for first-time life insurance buyers
8. Handcuffed: comparing mobile phones and life insurance
9. Insurance lessons from Breaking Bad

Financial Planning

1. If you have/had/want money, read Pound Foolish
2. What’s your financial Plan B?
3. At 7, Boomer Esiason learned that no one is guaranteed a tomorrow
4. Will you have financial freedom at 35, 55 or 75?
5. The Wealthy Barber returns with more wisdom
6. Are your finances snowed in?

Health

1. How healthy are you really?
2. Five sweet ways to cut back on sugar
3. What do you learn from getting sick?

Money

1. Do you have a financial dream or a financial nightmare?
2. How would Mike Holmes fix the financial sector?
3. How Honest Ed turned $212 into $100,000,000
4. Money 50/50: The perfect live event to master your money
5. How to protect your money from Goliath
6. How to screen your sources for financial literacy education

Tech

1. Blackberry’s confusing message at the 2013 Tech Leadership Conference
2. Avoid Windows 8
3. Ultimate unlimited Internet? How Rogers fooled us three times
4. A review of Rogers Unlimited Internet (and how to use it)
5. How to get your Rogers Internet working over WiFi

Trust

1. Customers behave like Pinocchio too
2. Fight back against corporate trickery with Ellen Roseman’s insider tips
3. The reaction to Apple’s tax avoidance
4. Chocolate, price-fixing and salmonella poisoning
5. Why are we flooded with bad weather forecasts?
6. 23 lessons from mall Santas

Miscellaneous

1. Your favourite posts of 2012
2. A teen predicts the future in 1978

That’s 2013. The Riscario Radio podcasts stopped after 250 episodes. Look for more video instead — though not weekly!

PS Thanks for reading for another year.