Money Advice Guide

I know a couple of men who are the same age (mid twenties), about the same intelligence and, for the most part, are equally good looking. One is a businessman with a rapidly growing marketing company grossing about $500,000.00 per year. The other works a routine job making enough money to live from hand to mouth. There is one difference between the two menone comes from a wealthy family and the other comes from a lower income family. Can you guess which comes from which? I have talked to both of these gentlemen and discovered there was a very important factor that played a role in both their lives. One got financial training at an early age and the other did not.

I asked the successful guy how he had gotten so focused in business and his answer was interesting; he told me his father took him to the bank to open a savings account when he was around ten years old. When he started making money-cutting lawns, delivering papers and other jobs, his dad coached him and under that influence most all the money went into the savings account. He had a keen sense of understanding about saving money in an interest bearing account. He had a budget. When he was 18 he opened a checking account in his name. He was writing and managing a checking account at 18 years old. At 18, he had already been an entrepreneur with 8 years experience generating income, handling money, saving and spending money on (and within) his budget. He went on to college to get a degree in international finance, worked for a major corporation for a couple of years and now he has his own business. The other guy doesn’t have a college education and is just now getting around to setting up a checking account.

I bring this to your attention for a couple of reasons. First, wealthy people tend to groom wealthy children because the kids are taught to respect and manage money at a very early age. Whereas lower income people tend to ignore this issue and subsequently tend to raise lower income children. Obviously, wealthy people have advantages over lower income people like money to send their kids to colleges, etc. but that’s not the point. The point is in the trainingthe orientation to the banks, teaching kids wise money management, basic economics, how businesses work, about real estate and so on. Key word: Knowledge. I think all parents will do well by their children to teach and show them, at an early age, everything they know about basic banking, how to set up a savings account, how to budget their money, how checking accounts work, etc. My advice is to make sure you introduce your kids to basic economics at an early age. Don’t assume they will learn on their own or at school. High schools tend to fail miserably at teaching kids the “street smarts” needed to function intelligently in business, real estate and finance.

I don’t think a college education is critical to make and manage money. Indeed, there are many millionaires in the country that don’t have a formal education. What is critical is teaching kids a high work ethic and how to manage money. If you need to get this information for yourself or your family, I strongly suggest you do so (the public library is free) because “You pay once for knowledge but the cost of ignorance can last a lifetime. “

Copyright © 2006
James W. Hart, IV
All Rights reserved

NAME: James W. Hart, IV
TITLE: Author/CEO Smart Books Publishing
WEB SITE: http://www.smart67.com
EMAIL: talktosmartbooks@smart67.com
PRODUCT: Consumer Books, Kits & Special E-Reports in the areas of Real Estate & Business. Smart Books Publishing Web Site is a Pay Pal-Secured Seller/Secured Credit Card merchant. (Ebay User Number jim12302)
MEDIA INTERVIEW AVAILABILITY: Yes. Call For Bookings (419)-636-7210.
BIO: Mr. Hart, consumer advocate and CEO of Smart Books Publishing, previously licensed in the sale of real estate in the state of Ohio, has been directly involved in the origination of residential and commercial mortgage financing. Hart is an honorably discharged veteran of the U.S. Army, graduate of the University of Toledo. He is a member of the National Panel of Consumer Arbitrators and the Council of Better Business Bureaus, Inc. Mr. Hart has appeared on a number of radio and TV stations throughout the U.S. including WJR-AM, WWWE-AM, WHUR-FM, WRC-AM, WLW-AM, WTVN-AM, WSPD-AM, KDKA-AM, KBGS-AM and CNBC-TV and many others Hart is an experienced and dynamic media guest.

Tags: economics, education, finance, information, kids, learning, money, savings, training, Wealtheconomics, education, finance, information, kids, learning, money, savings, training, Wealth

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Money is the source of all evils - so goes the popular saying. Money is also what makes real estate spin around. So the critical question of the year becomes: where are real estate prices headed? Short of using a crystal ball, there are indeed a few considerations that can be made to have a general idea as to whether prices will continue to surge - at the average rate of 15 percent a year for the past four years - or, alternatively, if we are poised for a shift in the market.

Record-low mortgages, pent-up demand and improving consumer confidence have made this the fourth consecutive best year for home and condo sales in the Greater Vancouver area. The sales-to-active listings ratio, defined as the number of sales at any given time relative and directly in function of the number of inventory listings available at the same time, is over 30 percent compared to about 20 percent in a balanced market. If we want to be even more technical, price increases have been rising at about 7 to 8 times the national inflation rate, a sure sign that demand has consistently exceeded supply which, in turn, has made real estate a Seller’s market for the most part of the past four years.

And the consequence of this all, albeit you may not have directly noticed, is that Canadians are getting richer because of built-up equity. You bought a condo, for instance, in 2003 for CAD $150,000 using a $100,000 mortgage at 4.5 percent interest calculated semi-annually, not in advance. Your condo is worth, today, $195,000 in 2005 Dollars. Your loan has now diminished to an outstanding balance of approximately $97,770 so that, therefore, you have acquired a built-in equity of CAD $97,230. Since you initially invested CAD $50,000 of your own money, your return has been $47,230 in two years or a hefty 47.23 percent per year. Not too shabby. That sure beats the stock market.

Will you be making another 47.23 percent at the end of 2006 ?
You probably will, unless certain economic forces will conjure up against you. These forces - or variables as they are known in economics - are: energy cost, interest rates and affordability. Now, here there are a few clouds looming on the horizon that may make the future look somewhat different from the past.

Energy costs are on the rise. And Hurricane Katrina and Hurricane Rita and the hurricanes that will come afterwards do not help. To be sure, energy prices were on the rise even before the hurricanes that have devastated the Gulf region came around. In fact, most economists still predict no overall long-lasting impact from Katrina. Yet, the same economists also predict that energy costs will not come down to pre-2004 levels. The rises are here to stay, and that applies to all motor vehicle fuels, natural gas, electricity. Everything that affects our capitalistic economies, and not solely in North America.

Prices of consumer goods, henceforth, are on the rise as well because it is costing more to produce and to ship them all around. Each and every house component is bound to cost more as well. And the people that are in the process today of building your future dream home or your next real estate investment … they too will have to pay more to go to the work site. And, taken globally, a rise in manufacturing and shipping costs typically translates in an overall currency devaluation, a noble way to avoid mentioning the infamous i-word: inflation.

Fed Chairman Alan Greenspan - Mr. Monetarist as some affectionately call him - has been saying this all along this past year. Except that nobody wanted to listen. Reality was much rosier than the somewhat gloomy outlook offered by the venerable Chairman. And the Fed has been keeping the steady course of raising interest rates, albeit not hurriedly or in a draconian fashion. And they continue to hold this course.

Which, then, brings us to the third variable: affordability. Let’s take a look back at the initial example of you buying a condo in 2003 for $150,000 with $50,000 of your own money. Ask yourself this question: could you, today, buy the same condo for $195,000 with the same $50,000 downpayment ? If you are like the majority of real estate consumers, the answer is probably no. You would need a $145,000 mortgage today as opposed to the $100,000 mortgage you took in 2003. Which means you would have to show your lender that your gross income has increased of $15,000 per year - which probably has not. Bankers say they cannot lower their qualifications standards as they are working on the bare minimum (I still have to meet a banker dying of starvation, but …). Which, therefore, leads to the conclusion that you would not qualify today for the mortgage. Such being the case, you would no longer be what we in real estate call a ‘market participant’ . And if a lot of people are or will find themselves into the same situation, the end result will be a lower demand.

So, therefore, what’s the verdict? Are prices going to continue to surge or are we heading for Apocalypse Now? Probably neither. But if the foregoing models hold true, it is reasonable to expect a slowdown in appreciation of property values - which in turn implies a correction in prices. Those of us who are involved into real estate on a professional level are beginning to see this already: asking prices are somewhat shifting down, although asking prices are not really reflective of market trends due to their very subjective nature. And it must also be noted that a shift downwards in asking prices is a far cry from the dreaded real estate bubble some people have been prognosticating all along. But it looks more and more that the market is due for an adjustment.

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.

Tags: economics, finance, investment, real estate, real estate bubble, real estate priceseconomics, finance, investment, real estate, real estate bubble, real estate prices

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