There is nothing more permanent than change and with the arrival of a new year, a new set of challenges also arrives. In 2018, this will also be true. Families will face new challenges and new opportunities too!
Following are a few trends to watch out for…and plan for:
1. Diesel car owners will feel the pinch – across the EU, Governments are increasingly concerned with the impact surging diesel car sales are having on urban air quality. In cities such as Paris and London, city planners are moving to restrict diesel cars in a drive to reduce harmful emissions. For diesel car owners, the shifting focus of authorities away from diesel-powered cars will mean less incentives and more penalties, decreasing the demand for diesel engines. And for existing diesel car owners, higher restrictions and depressed demand for diesel cars will likely result in a drop in the value of their diesel engine cars. While cars always lose value, the diesel dilemma puts this in a whole new dimension.
2. Your investment adviser will have to work harder…which is good news for you! EU authorities are determined to make the investments markets more transparent for investors. Since January 3rd, they have launched MIFID II which is a behemoth of regulatory framework that impacts not just EU investment trading but trading on a global scale. To date, the investment landscape has been described by EU authorities as too ‘opaque’ which it suspects fuels an unnecessary rise in the overall cost of investing to the ultimate investor. From 2018 on, investment traders will be required to provide much more in the way of disclosures to consumers in how they attain research and get remunerated. For Irish investors, while this could translate to a rise in upfront advisory fees, over the long-term, it should translate to higher rates of investment growth (and a faster rate of growth in their investments and retirement account values).
3. Your relationship with money will matter even more – this is the year the Central Credit Register (CCR) begins to finally take over the role of ‘credit police’ from the Irish Credit Bureau. So, while the optics of a new guardian of consumers personal credit information may have the appearance of a new gate-keeper, it is the back-room power of the new organisation that will make a world of difference. For example, while the CCR is ‘owned’ by the Irish Central Bank, it is managed by the Pan-European Crif. And Crif are one the world’s leading managers of credit data. But they don’t just manage consumer credit data, they interrogate and manipulate it using a complex algorithm which produce personal credit ‘scores’. It is the credit scoring system (similar to FICO in the US) that has the power to transform how others can quickly and easily analyse our personal relationship with money.
4. Mortgage rates will become a focus at the European Central Bank – for Irish mortgage holders, especially those with low-margin tracker mortgages, July 2008 was a watershed. This was when the ECB increased the base-rate of interest to 4.25%. But shortly thereafter, with the arrival of the ‘credit-crunch’ and start of the global recession, they have fallen ever since (except for a rise blip in 2011). Since March 2015 and the start of Quantitative Easing (the purchase of assets by the ECB), interest rates have been at zero (0). For tracker mortgage holders with a margin of ECB + 1%, their effective rates of interest is currently 1% also. But with the Eurozone economy in full recovery and the Euro gaining in strength against major currencies, there is growing expectation that European Central Bank will end QE, which is the first step to returning mortgage interest rates to a more ‘natural’ level. And this ‘natural’ level will mean only one thing for Irish mortgage holders; a rise in monthly mortgage repayments.
5. The money in your wallet will be unwelcome – the rise in cashless payments at an increasing number of merchants makes it easier to pay for a wide number of goods and services; coffee, groceries and even road tolls. But internationally, more and more merchants are abandoning cash entirely as ‘cashless card’ providers move to subvert cash entirely. In the US, reports of local bakeries and coffee outlets being rewarded (US$10,000 and more!) to go entirely cashless for all sales transactions means that cash is officially ‘unwelcome’ at a growing number of retailers. And this shift is unique as it now means that since the foundation of modern states and the rise in ‘fiat’ money, private industry is pushing to replace the foundations of the monetary system that underpin their own business models. While Ireland is still one of the most ‘cash-friendly’ countries in the Eurozone, the rise in cashless trade in other countries means that many of us will encounter the new reality at increasing rates in 2018.
Frank Conway is the founder of MoneyWhizz.org, the financial education organisation. It promotes better money habits in primary schools, secondary schools, colleges and in leading employers across Ireland.
If New Year resolutions are not your thing and 2017 ended up like your bank balance (broke) then the following are sure ways to get your personal finances back on track and keep them there for 2018!
1. Stop paying the minimum on your credit card – this is a sure way to give away a lot of your hard-earned money to large multinationals. Credit cards can be a really convenient way of paying for goods and services but if you repay using the minimum payment option, you’ll end up paying a whole lot more than you might have planned for.
2. Don’t leave the car insurance renewal to the very last minute – give yourself enough time to call around to your existing provider and at last three of their competitors for the best deal.
3. Avoid the ‘pay monthly’ option on home insurance – and go for the pay-all-at-once option. Paying your home insurance monthly means you actually take out a ‘micro’-loan and loans cost money. In fact, your home insurance will cost anywhere from 5% to 8% more when you choose the installment payment option (this works for car insurance too!).
4. Love public transport – if you live in an urban area with lots of public transport, the State actually pays you to use it to get to and from work (there are even schemes for bikes). So let the extra cash burn a hole in your pocket with the tax savings you’ll collect when you use the taxsaver scheme.
5. Claim back what is rightfully yours…its estimated that Irish people leave anywhere up to €800 Million in unclaimed tax in the Government coffers each year! To make matters worse, people are allowed 4 years and provided a really simple process to claim their cash back, but to no avail! So go ahead and claim back part of that €800 million tax windfall!
6. Put a brake on smoking! A a pack of cigarettes costs about €11. The ‘average’ smoker in Ireland blows through about 12.71 cancer-sticks per day which means the ‘average’ smoker burns through €2,541 per year in after-tax income. Saving by quitting is simple maths really!
7. Live on detail – money details that is! Details really do matter when it comes to managing money but if your goal is to save more and spend less, details will be your guiding light. For example, if you have never checked your retirement savings account statement then you are probably paying a bundle in excessive fees; and if you don’t know how to get a copy of your retirement account balance, ask your benefits / HR team!
8. Set your financial goals – setting financial goals can really provide the benefit of giving you a focus. Make sure those goals are set within your financial capacity. For example, if your goal is to save €3,000 over the course of a year, then break this down to a month-by-month financial goal. It will make the goal a lot more achievable.
9. Badger for receipts – we really mean this, when you spend money, get a receipt! This is especially important if you want to achieve your financial goals. Without receipts, your spending will be like driving to your destination in complete darkness; possible but highly improbable.
10. Don’t gamble! – it’s a sure way of showing others that you have a loose relationship with money. For example, banks and credit unions take a really dim view when they see online gambling accounts during a loan application process.
11. Obsess about your profile…you credit profile that is – it really is your most important profile and with the new Central Credit Register taking on the role of the old Irish Credit Bureau, this monster of a database will have far reaching consequences for those that care. Remember, you’ll be entitled to a free copy once per year to get it and review it!
12. Embrace financial education – Ireland has one the lowest levels of financial literacy in Europe but one of the highest rates of investment management fees…knowledge matters and lack of it costs. Take every opportunity to learn about how money really works!
Frank Conway is a Qualified Financial Adviser and founder of MoneyWhizz.org, the financial education service that promotes better financial skills in schools, colleges and in leading employers as part of corporate well-being.
The headlines said it all…
‘Investors lose millions in Detroit property fund‘.
It’s a classic story of a trusted advisor getting an investment strategy wrong. It happens!
But in the case of the lost Motown millions, there is another story and it is one that Irish investors suffer from; lack of understanding of diversification.
Lack of diversification
A number of studies, including those by MoneyWhizz and Standard and Poors reveal that the Irish public has poor financial literacy skills and difficulty when it comes to risk diversification and the impact of inflation.
In the case of the shrinking millions in the Motown property market, the Irish public lost millions because their investment strategy was simply too focused in property. Sound investing begins with having the ability to contain and manage risk. Property by its very nature is and will always be a HIGH RISK INVESTMENT for a variety of reasons, not least, the fact it requires very large capital outlays and can be near-impossible to sell in a down market. In the case of the Detroit market, other factors were probably also at play but regardless of what those may have been, investing in one single asset class is generally not a recipe for long term success…unless the investors are extremely lucky!
Investing on blind faith
Another mistake investors can often make is investing on blind faith. This occurs when the investors are led to believe in a form of cult of personality. In other words, they invest without even the smallest level of financial knowledge and instead take a leap of faith in an individual or company hoping that a public profile will somehow protect them against significant losses; it rarely does. In fact, there is much evidence that proves the most successful ‘active’ fund managers cannot outperform ‘passive’ investors over time. And this is where there is a wide spread of risk, in small-cap and other fund asset classes. Property by it’s nature is a high-risk asset class that can destroy investor value for years, or worse, forever!
There are some basic rules all investors should follow to ensure they protect their money:
Building personal wealth is a long-term challenge. In order to be successful, investors must put their needs first. They must also be informed, patient and prepared to accept their only loyalty must be to their financial well-being. When it comes to their advisers, unless they can prove their value and earn their keep, like a poorly performing asset class, investors must be prepared to dump them!