October 31, 2008, 6:00 am

What My 3 Year Old Son Knows About Money Already

by: The Financial Blogger    Category: Personal Finance

This little story happened at the beginning of October, precisely before the first Montreal Canadiens game of the season. Since I am a big hockey fan (I promise I won’t write about the Canadiens until they go in playoff next spring!), I started last year to watch hockey with my son. He was watching 5 minutes and then he was gone with his truck. However, this year, he seemed to be more interested.

We decided to buy beer…. I mean chips 😉 before the game starts. So my wife ask William how is going to do to pay for those chips. William first answered:

– I’m going to trade chips for Amy’s necklace.

We told him that the guy won’t accept.

– I’m going to give him a piece of paper then.

I guess he was referring to money but since he doesn’t have any, a piece of paper would do just fine for him. 3rd try:

– I’m going to give him a card.

– Which card I replied?

– Daddy’s card!

We all started laughing. My son already learned about 3 fundamental rules about economics and personal finance:

#1 On the market, you can trade what is not yours (short sell, options) but you better make sure that someone will want your asset anyway.

#2 Money will worth something only if people believe in it. A piece of paper is a piece of paper; however, there are some pieces worth more than others 😉

#3 If you can’t afford something, you have to concentrate on finding a sponsor who will pay for it. Parents are pretty good sponsors in general 😉

Happy Halloween!!!!

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October 30, 2008, 6:00 am

The Root Of Our Financial Crisis: Education!

by: The Financial Blogger    Category: Personal Finance

Then severe correction happens on the market, most people are more interest to know what is going on with their stocks every hour instead of wondering what really happen and how to avoid this situation in the future. It is obvious that financial institutions such as Lehman Brothers, AIG, Bear Sterns and all the others abused the financial system.


TheStreet.com 300x250 Best Seller Giveaway

They played a game with high risk, temporary reward and an absolute loss at the end of the night.

Other people will blame commercial banks of lending to people who can’t afford mortgages or credit card companies of advertising everywhere until they get you in their claws. However, I think the problem has a deeper root; financial education.

I was re-reading an old post I wrote about the lack of financial education in our school. I don’t know how it goes in your country, but in Canada, there is no such thing as credit 101 or basics of financial planning for teenager. However, we have Much Music offering a pre-paid Master Card for people of 16 years old!

I truly believe that we should teach the basic of personal finance to our teenager. At the age of 14, 15, they start working and paying for themselves for specific goods. They have been bombarded by advertisement since they were born and they now have the chance to buy all those goods without asking anybody. In a few years, they will have the right to have a $500 student credit card and max it out to buy new clothe, the latest IPod or a Playstation 3 (hum… I wish I was 18 again!).

I can imagine a class separated in 4 parts:

Credit 101: we would learn the basic of credit, the impact of interest charges when minimum payment is made on a credit card, how to manage credit cards properly and the result of bad credit over time.

Saving 101: we would learn how to save money efficiently. How to resist ads’ temptation and how to find good deals (who would not listen if you tell them how to save $25 on their $200 Diesel jeans?).

Investment 101: we would learn the power of compounding interest, basics of diversification and the advantage of periodic investment.

Retirement planning 101: This would be joint with Investment 101 in order to show them how saving at the age of 15 for their retirement would make them millionaires. They have to know the basics of retirement plans (such as RRSP’s or 401k) and the impact of inflation over time.

A stronger education builds a stronger society. Since economic is the base of our North American system, it seems normal to me that we teach it to our kids!

Now I just wish one day some politicians will get to this blog and steal my idea 😉

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October 29, 2008, 5:53 am

Did we hit the bottom?

by: The Financial Blogger    Category: Investment, Market and Risk,Trading

Did you see what happened to the market yesterday? Many factors weighed in but the outstanding rise of the Dow Jones, especially in the final two hours, gave hope to investors that maybe the worst is now past us. An important part of it is because of 2 factors:

-Once more, the G7 countries put out a statement explaining how committed they are to resolving this issue. This time, a lot of it was related to the Japanese Yen, the currency that is often used as the barometer of risk. It has been extremely volatile in the past few months and many think that this has had important effects on the world stock markets.

-The G7 countries, through organizations such as the IMF, have also started to help emerging economies that are currently having severe liquidity issues. One such example is the 16,5B$ load to Ukraine.

-And also, the governments are pondering more rates cuts. Speculation is that the Japanese government will take down rates to 0% (yes you read that correctly) while the Fed is reportedly considering a 50 points decrease, which would help as well.

However, if you look at this second graph, you will see that this is still very much a downward trend. And many traders considered today’s volume to be weak considering the move. It will be interesting to see if the market can hold these gains tomorrow. It’s probably that a lot of the investors and funds that have been trying to unload their stocks might now want to do it and take the important gains that they had today!

TFB believes that while there will be many more ups and downs, the worst is over and that we will not go under 8000 on the Dow Jones. However, there are still many remaining fundamental issues with the economy and the ride will not be easy. We are certainly not predicting anything easy.

One of the interesting topics to be discussed in coming months is the involvement of the US government in the economy. Many have been talking about a socialist state, but even the Republican nominee John McCain who has been talking against the notion is in favour of the 700$B plan that includes a partial nationalization of the US banks and has even suggested the government partially buy an important portion of the defaulting mortgages of the US consumers… should be very interesting times…


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October 28, 2008, 6:00 am

VIX – The Fear Index

by: The Financial Blogger    Category: Investment, Market and Risk,Trading

The only thing to fear is fear itself”. I got this quote from Rosevelt about 75 years ago. Well let me tell you that it can’t be more accurate. What is fear? Fear occurs when we think that something bad will happen. However, fear is not real since it is based on an individual or a group’s perception. Considering our modern society, medias can definitely help boosting fear or reassuring people.

For example, we just went thought government’s election and we didn’t get much coverage on it since media were too busy talking about the Apocalypse on the market. Some people may say that sex sells, well catastrophe sells even better!

There is nothing to help people getting reassured by the market. We can now follow the VIX – aka The Fear Index. When I first read about it, I was quite curious to know how it works. In fact, it is quite simple; it measures the daily fluctuation and assesses the global volatility on the market.

The Fear index was created by Robert E. Whaley a renowned expert in the field of derivative securities. The VIX exists since 1993 (in September 22,2003 CBOE upgraded to the “new” VIX which is now based on the more popular S&P 500 index (SPX)). but it increased in popularity recently because of the market turmoil.

By following this graph:

You can see if people panic or not. As you can see, it reached unknown peaks during September and October. At the beginning of October, somebody told me that he had good news about the market: “the month of September is over”. I asked him yesterday what he thought about October so far with a smile 😉

How do we handle fear on the market?

This is actually quite easy; don’t listen to people 😉 Ask yourself why you bought stocks or mutual funds back in 2005,2006,2007. The reasons why you went into the market back then should be as good today.

In order to understand better the fear factor; here is another definition over at wikipedia.

You can also watch this video about fear and the price of oil, gold and US dollar value : FEAR VIDEO

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October 27, 2008, 6:00 am

My Thoughts On Having A Daycare At Home Part 2

by: The Financial Blogger    Category: Project $1500

It is funny to think that I am currently dead tired but I still wanted to write another post before closing my computer simply because I am thinking of my wife at work and I really want this to stop. Last week, I discuss the pros of having a daycare at home. Today, we are looking at the other side to make sure this project is a good idea. I would say upfront that our decision is not taken yet and that we are still debating on the topic.


Visa Prepaid Card

Still less money in our pockets

Even though I said in my previous post that this project was viable, it is still creating less cash flow than my wife’s regular job. Since she would only take four kids (counting that we already have 2) and charge about $22 per day per kid, she would be getting a maximum of $440 a week. This sounds like a good income, but we have to deduct expenses such as food (yes, we have to feed the kids while they are at the daycare 😉 ), toys and other stuff for activities (papers, pencils, stickers, etc.). The good news is you can register your daycare through the government system. Once registered, you get $27 per kid from the government and parents are paying you another $7. That would make the whole thing very interesting. However, we have no clue how long it could take to get approved.

More hours

My wife is presently working 35 hours over four days. Daycares usually open at 7AM and close around 5PM; that makes 10 hours per day, five days a week. Depending on days, she would be able to take a break when kids are sleeping during the afternoon. Hopefully she could be lucky enough and they will sleep 2 hours in a row 😉

Added tasks

There are tasks that need to be added such as cleaning and disinfection along with cooking. You need to be able to offer balanced meals every day to these little angels. That will definitely added more “off hours” since she can’t really cook while children are there.

Dealing with our children

The final obstacle is to deal with our children. They are lucky enough to have a play room in the basement. This play room would actually be modified to become the daycare. They would also have to learn to share some of their toys as we won’t transfer everything in their bedroom (only their favourite). This might be a challenge to make them understand what is going on. On the other, I would love to see my children sharing with other kids. This is definitely an important value.

So this is where we are; still thinking about the pros and cons of having a daycare at home. If we ever make a decision, I’ll let you know 😉

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