• Seeking heroes

    The Ukraine has a new boss. He’s a comedian. The country borders a voracious nation-state that recently sent tanks to rip out a key piece of Ukraine territory. And who do voters elect to face up to steely Vladimir Putin? A guy who played the role of president on TV. Name recognition, yes. Experience, no.

    They call him the Trump of the Ukraine. Not a stretch. The most powerful politician in the world also had no experience when elected. He was a reality TV star. Last week a special counsel report said Trump obstructed justice ten times, but his supporters don’t care.

    In France the burning of Notre Dame briefly brought the civilized world together in sadness and regret. Rich families pledged bags of money to help rebuild the cathedral. Days later thousands of yellow vest protestors started fires in the streets, angry at the wealth inequality, suggesting they need the money more than some old building.

    They say Jair Bolsonaro is the Trump of Brazil. Like the US president, the new leader of that country calls himself an avowed nationalist and used Twitter to circumvent the MSM. He’s said he would rather have his brother dead than be gay and sprinkled crudities about women and natives. His popularity runs high.

    In Britain the genie of populism slipped the surly bounds back in 2016 with a referendum on leaving the EU. Millions of uninformed people were asked to vote on the planet’s most complex trade and economic agreement. The majority sided against it, largely because of immigration and tribalism. Three years later the issue has torn society apart, rendered Parliament turgid and inert, wasted two PMs, diminished the nation and sowed the seeds of UK breakup.

    Just five examples of the creative destruction of western politics now taking place. Opponents call it populism. Proponents call it democracy. The issues are diverse and deep. Those in favour of globalism, free trade, the flow of capital and porous borders are clashing with others who support trade wars, immigration controls and economic nationalism. But there’s way more. Progressives worry about climate change and the next generation. Populists worry about next month’s mortgage payment and see carbon taxes as theft. The wealth divide is a visible symbol to many that capitalism has peaked and failed. Others say world per-capita income has never been this high, thanks to trade, growth and efficient markets.

    Walls versus treaties. Nationalism (a term not in vogue for decades) lined up against globalism. The offshoring of jobs, pitted against the fall of the western middle class. It’s bred a clutch of leaders with powerful, simple solutions to insurmountable issues, appealing to needy, unhappy masses through 140-character messages. Some people see the parallel in this month’s Alberta contest.

    In a democracy, everyone’s equal. One person, one vote. Winning election means capturing the attention and support of many, not just the privileged and successful. In fact it’s a feeling of disenfranchisement that motivates voters and feeds populism’s flames. Trump was masterful at being a billionaire living in a gilded penthouse, yet making himself a champion to the rustbelt unemployed. His opponents totally missed that and paid a price. They responded by attacking the character and fabric of the man – aspects his supporters ignore. Trump is about empowering the common man. He can eat kittens if he wants.

    Well, this brings us to…us.

    While many readers of this pathetic blog are 1%ers, financial nerds, investors, professionals and affluent canine aficionados, most people aren’t. Sometimes we lose sight of the struggle these Canadians find themselves in, whether it was self-inflicted by real estate lust or not. This week’s stats are arresting.

    An Ipsos survey finds 48% are less than $200 a month from insolvency. Currently 26% don’t earn enough to pay existing bills. Over half – 54% – fret they cannot repay debts and half say if interest rates (now near historic lows) rise, they’ll be pooched. A third insist that means bankruptcy.

    “This isn’t simply a matter of people living beyond their means,” says the insolvency firm sponsoring the poll. “The reality is that too many households simply cannot make ends meet, however hard they try.”

    And that’s the thing. The tipping point. The moment hope turns into helpless. It makes people vote for none-of-the-above; throw the bums out; to try the improbable and untested. The common good is an abstraction compared with the survival of their family.

    If most Canadians are a few bucks from losing it, quick to lay blame and seeking a hero, woe betide the way things are.

    Baby bucks

    Andy Seliverstoff photo

    Swimming in hormones, Jimmy opened the door to a knock. On the stoop was a trustworthy-looking guy with a briefcase. Twenty minutes later Jim and his wife owned not only a brand new baby, but an RESP. The wrong kind.

    The baby vultures sometimes hang around maternity wards. They read the birth notices. They follow social media. They’ve even been known to spirit lists of new moms from hospitals. Their job is to mine the same overwhelming new-parent obligation that makes people load up on foolish amounts of life insurance when they give birth. They sell RESPs not as open-ended and flexible investment accounts, but rather as locked-in programs with fat initial payments, high fees and dubious outcomes.

    So Jimmy fell for it. Don’t you.

    A registered educational savings account is a good thing. It can provide a guaranteed 20% annual return. The government gives you money. Gains are tax-free. And after two decades it can finance junior’s tortuously-expensive journey through dental college. Got kids? Then you need an RESP.

    Grace does, plus questions:

    “In a recent blog post, you mentioned a family that had two kids and a family RESP, and that it was best to have that kind. Could you explain why? My husband and I have three kids and as they were born, we set them each up with an investment account RESP with ETFs and stocks.

    “Also, I had until recently thought I would fund each to the maximum contribution amount, but am now thinking to only fund each up to the point of receiving the maximum $7,200 grant. That is, continue to contribute $2,500 per kid per year until they each max out their grant amount, then just oversee their accounts and keep reinvesting the dividends they receive in cash. I’d rather direct money to TFSAs and non-registered accounts to have flexibility in having/using those as needed, rather than have RESP rules dictate how those funds are used. The RESPs seem to be on the right track. 8 year old has $43k, 6 year old $30k and the baby (just started her account!) $3k+.”

    Good points, Gracie. Maybe it’s time for a small recap of why an RESP is a cool thing – so long, of course, as you avoid any ‘providers’ whose plans come with an initial fee, poor investments or exit restrictions. The best RESP is a self-directed one which you open with your bank, credit union or financial advisor, then stuff with the appropriate assets.

    The basic idea is simple: this is a savings plan for kids. All gains made within it are untaxed. You contribute on behalf of the little beneficiary, and the government will chip in an annual grant. There’s a lifetime limit on your per-child investment ($50,000) and an RESP can exist for as long as 35 years before it must be collapsed.

    The grant is called a CESG, equal to 20% of the first $2,500 contributed annually to a max of $500, as Grace mentions. The lifetime grant total is $7,200 up to age 18 and unused portions can be carried forward one year. Of course, if you put in $50,000 all at once, you’ll miss a portion of the grant money, but the larger amount of principal will enjoy more investment growth.

    By the way, an RESP does not need to be for your own child (or adopted). Grandkids, nieces, nephews or family friends also qualify – but they must be Canadian residents (not citizens) and have a SIN. Low-income families can also apply for a government bond payment worth $100 a year to age 15.

    How does money come out?

    With proof that they’ve enrolled in a post-secondary school, kids can take RESP funds out for education, pretty much tax-free. Original contributions are not taxed, and the grants and growth are considered taxable income in the hands of the student. Since most children don’t have employment income, taxes are nil.

    However if a kid raids an RESP to buy a Camaro, the grant money is repayable, up to 20% of the withdrawal. And if the beneficiary throws her life away by becoming a rockstar and earning a billion annually, you can fold the growth portion of the RESP into your own RRSP, or take it as taxable cash after paying a 20% penalty.

    However (and to Grace’s question) with a family plan the money can largely be moved to another child, for him/her to spend on schooling. Family plans can have multiple beneficiaries, all connected to you by blood or adoption. They’re flexible, since a portion of the overall pot can be attributed to children in differing amounts, accounting for their ages (more to the older ones with less time for growth). Family plans also cut down on account fees, since all of your brood can be covered by one.

    Naturally, all RESPs should have growth-oriented assets in them, since the time horizon is usually a decade or two and school costs keep rising. Don’t make the mistake of thinking your precious, special spawn needs safe widdle GICs. You’ll come to regret that decision. Be wary of bank mutual funds with their insidiously-high MERs. And make a point of kicking any baby vulture off your doorstep, no matter how addled your brain might be.

    Yes, puppies are so much easier.