One of the biggest mistakes we make with money is not paying more attention to our finances at a young age. After all, who wants to worry about saving for retirement when you’re in high school or college? At that age, money is meant for fun, right? My guest this week is a chartered professional accountant who has a passion for financial literacy. He believes the education system has done a disservice to our youth by omitting important financial concepts from school curriculums. Doug Allan has just released the book, A Fighting Chance: The High School Finance Education Everyone Deserves. He sat down with me to talk about this important topic.

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Did you know 57 percent of Canadian adults don’t have a will? Willful has made it more affordable, convenient and easy for Canadians to create a legal will and power of attorney documents online from the comfort of home. In less than 20 minutes and for a fraction of the price of visiting a lawyer, you can gain peace of mind knowing you have a plan in place to protect your children, pets and loved ones in the event of an emergency. Get started for free at maplemoney.com/willful and use the promo code Maple Money to save 15 percent. Now, let’s chat with Doug…

Tom: Hi, Doug, welcome to the Maple Money Show.

Doug: Thanks a lot for having me.

Tom: Thanks for being on. You recently published a new book. I normally cover this at the end but just to set it up, can you tell people what that book is and just a little bit about it?

Doug: Absolutely. The book is called, A Fighting Chance: The High School Finance Education Everyone Deserves. It’s about 170 pages long through 10 chapters. What it’s really designed to do is replace the gap in the high school curriculum I think exists for financial literacy. It has all of the things I think people who are 16, 17 years old really need to be learning about to manage money and grow wealth from a young age.

Tom: I like this idea because I’ve brought it up a few times on the blog and the podcast. I think there should be some kind of financial literacy program in high school. Some provinces are starting to work on that now but it’s still definitely something that’s slow to happen. When did you catch on to this whole idea in your own life? When did you realize that you should be saving money towards the future?

Doug: I had the benefit of going to university for accounting and finance. I left high school with nothing, of course, and went off to McGill. It wasn’t until probably the second year of university that I started to get into finance courses, accounting courses and started to go through concepts like compound interest, inflation and the time value of money. All of these concepts made me realize time is my number one ally when it comes to growing my wealth over time and I needed to get on this. I went from university into being a CIA chartered accountant so I had the benefit of that career. And now I work in commercial real estate doing commercial real estate deals. The knowledge I’ve gained through my career in finance has been unbelievably valuable to my personal financial planning and wealth management, but only by the virtue of making the choice to be in the finance industry. To me, this is knowledge that everybody can use. Everybody has the same decisions to make every day around purchasing, investing, taking on debt and managing their wealth. I don’t think it’s really fair that I have this super big advantage over everyone else. Others may have picked a different career choice than me or a different education path than me so I’m trying to spread the knowledge I’ve gained over my career and experiences to everyone else.

Tom: When I was in college, I received the same advice. I had an economics teacher showing us the graphs saying, if you start saving now, you’ll have this much in retirement compared to if you wait until you’re 30. Something about me at the time, though, just wasn’t ready to listen. It was sitting there right in front of me but it took me until about 30 years old to get my finances under control and start being an adult. Did you immediately act when you learned this? Unlike me, did you actually listen to this advice and change what you were doing?

Doug: I did. Like everybody else in high school, I had summer jobs. I earned a few thousand bucks a summer doing different things. And finally, when I was in the summers between my university years, I started to get internships and earn a little bit more money. Then I actually started to open up investment accounts and start putting away money for retirement because those graphs floored me. The idea that putting money into an index fund can earn 10 percent in an S&P 500 index fund over time, that money over 45 years turns into $73. But over 35 years it’s more like $20. So, those exponential snowballing effects really hit me hard. I knew I needed to get money into the market and not wait until I was 35 or 40 years old and 25 years from retirement. Because when you do that, the amount of money you need to be putting away every month grows and grows until it’s really almost impossible.

Tom: You mentioned you had jobs in high school, but you weren’t saving though, right? You just had a job and were enjoying the money?

Doug: You nailed it, yeah.

Tom: I did that for like an extra 10 years. I think people still do this. You can always make a reason why you can’t afford to save. I was doing that at the time. I would say, “I’m broke. I’m in college. I can’t afford that.” But when I look at some of the things I bought and just outright blew money on, I probably could have put quite a bit away if I just sort of looked at it a little differently.

Doug: For sure. I think those are fundamental financial literacy things that you just never learn. You never learn the idea of opportunity costs… the idea that if I don’t spend my money on this, what could I have done with my money? If I’m 17 years old and really want that new Xbox that costs $800—if I don’t spend the $800 on the Xbox but put it towards retirement, then maybe I’ve got $50,000 or $100,000 in retirement. Or, I could have the Xbox now. It’s learning about what you’re giving up by making certain spending decisions when you’re young. I also think a lot of lessons we learn when we’re young come from our parents. When I went through school there was no financial literacy education at all. A lot of times when our parents grew up, the strategies they used around their finances were totally different than they are now. If you look back in the 70s and 80s when bank accounts were paying 12 percent interest, people put money in the bank and that was a way to accumulate wealth. Well, now, when interest rates are at 0.1 percent versus inflation of two to three percent, putting money in the bank actually is reducing your wealth. It’s not prudent anymore. I think there’s these sort of preconceived conditionings we go through when we’re kids that come from our parents. They need to be challenged every generation. I definitely put a section in the book on challenging the status quo and making decisions based on today’s environment.

Tom: Let’s step back and talk about why time matters. What is it that makes such a big difference? The idea if you start when you’re in high school and you’re 20 compared to when you’re 30 or 40, what is it that’s causing this to grow so much more in such a little extra amount of time up front?

Doug: I actually put in the book, if there’s one thing that you take from this book (and you forget everything else) the number one thing you need to know is the power of compounding. The power of compounding is the idea that if you put $100 into an investment and that investment earns 10 percent, after a year, your $100 turns into $110. But in the second year, you don’t just earn another $10 on your original $100. You also earn 10 percent on the $10 you earned in year one. So after a year or two, you have $121. You earn returns on returns over time. It’s like a snowball. As it gets bigger and bigger, the returns, on returns, or returns, get bigger, and bigger, and bigger. And so it’s exponential. It’s not linear. You want your snowball to get started rolling as early as possible. What people also need to be aware of in terms of time is the concept of inflation. We, as investors, as people with financial portfolios, are constantly battling against the destructive forces of inflation, governments want inflation to be around two or three percent per year. We need to battle against that because, if we put our money into cash, inflation takes it up to three percent per year. Our purchasing power decreases. We need to find ways to earn returns and grow our net worth, at least by inflation over time. It’s this constant sense of urgency to always be looking at ways (over long periods of time) to grow wealth.

Tom: Inflation is an interesting thing that I honestly haven’t put much thought into myself. When you’re at the point where you’re actually trying to decide how much money you need for retirement, are you sort of increasing the amount to account for inflation, and not just look today’s dollars and say, “I need $500,000 or $1 million.” You’ve really got to look at those extra decades?

Doug: Absolutely. Yeah. I think that’s chapter two in the book. Before you can put together a financial plan for yourself, how your life will pan out financially, you need to have an endgame in mind. You need to know where you’re going, what you want your life to look like down the road when you’re retired. And you can quantify that pretty easily. If you say, “I want to have a property and Palm Springs and to golf three times a month and have this much money per year to spend,” you can quantify that in today’s dollars and say, “Okay, I’m going to retire for 30 years and I’ll need this much money per year. This is how much money I need right now…” But as you mentioned, you need to adjust that for the time value of money. You need understand that in today’s dollars it’s this amount. But if you apply inflation at two percent per year between your age and when you think you’re going to retire, 30 more years at two percent per year, compounding is 50, 60 percent more than you thought that you might need. So you need to have an endgame that is quantified in future dollars because dollar today is not the same as a dollar thirty years from now.

Tom: Speaking of retirement planning through your book, when you’re encouraging people in high school or college to start saving, is it as deep as knowing your retirement amount or is it just to save some money? Because looking back, if I had put $10,000 away during college, I wouldn’t need to have this big picture of needing to save up this much. Just get the money aside. I think that would have gone a long ways.

Doug: For sure. I do think, actually, that people should be trying their best to quantify where they need to get to. Because I think the best way to go about saving for your future is putting that future first. Instead of going through your day spending, spending, spending and investing whatever’s left at the end, it’s better to take your paycheck, your income, and take off what you need for investing for your future, and then spend what’s left. If you invest what’s left after spending, what happens if you don’t have anything left? You can really hamper yourself. So it forces you to make better financial decisions because you don’t have as much money anymore for the frivolous parts of your life or the parts that are more just for today’s pleasure. It really forces you to make those sacrifices now to set yourself up for success in the future.

Tom: I guess it probably helps from a motivation standpoint. If I were to tell my kids once they’re in late high school or early college, to put $10,000 and say, “Just trust me. This is how much money you’re going to need and this is what you can do now to get that.” I guess that’s probably a little more motivating than expecting them to just take it at face value that $10,000 at that age would go a long ways. There are a lot of things they’d rather do with that money, I’m sure.

Doug: I agree, for sure. This is where these sort of compounding charts can get pretty motivating, right? If you say invest $1,000 this summer and put it away for your retirement, you’re not going to retire until you’re 65 so you’re getting 45 or 50 years. Now, that $1,000 maybe grows to $80,000 or $100,000 in retirement. Imagine having that much money. Imagine being able to retire with millions of dollars and just having that lifestyle earlier than you thought. Maybe it means you can retire, you’re 50 or 55. That starts to get pretty exciting. I do say in my book that the endgame, your future vision, needs to be exciting because you are going to be making some sacrifices. You’re not going to be able to buy that Xbox and the iPhone every year. But if your endgame is exciting and is something you are super attracted to lifestyle-wise down the road, then it’s all the more motivation for you to make those sacrifices today.

Tom: Yes, I like the idea of retiring early, motivation-wise. My oldest kid is in grade six and he’s already starting to say he doesn’t want to work. So, as they get to college age, I think I could impress upon them, “Well, do you want to work until 65 or do this for a shorter amount of time?” They’d probably be pretty motivated by that. I’m just seeing this motivation side because it’s something I obviously didn’t have. Something wasn’t quite clicking for me at age 20 that said, “Do this now because it’s going to help you later.”

Doug: Absolutely. It’s really important. I tend to think the whole the whole concept of retirement—I don’t see myself ever really stopping working, so to speak. I find myself more and more thinking that when I get to that age it’s more about financial freedom than it is stopping working. I think I’ll still want to spend time managing investments, looking for new opportunities, giving back, staying busy. And so it’s really just the motivation of freedom more than stopping working. It is the ability to do whatever it is you want and not nothing—unless you want nothing to do.

Tom: No, I agree. I throw early retirement around loosely but it’s something I don’t really believe in either. You keep doing something because you need to do something. Hopefully, you’re not just going to sit around watch TV for your retirement, especially if you do it early at age 50 where you decide you’re pretty much done doing anything. It doesn’t sound that interesting to me.

Doug: We’re talking a lot about investing here but I think it’s also the concept of bringing this book out and trying to get it into the hands of teenagers. It’s also about avoiding mistakes that happen a lot. When you’re leaving school and going off to university a lot of times you’re looking at pretty big financial decisions, right? Student loans, buying a car, things like that. If not handled properly, that can land people in a lot of debt and with a lot of depreciating assets that don’t make financial sense. I think people need to have the tools and understand where mistakes can be made so that they can avoid them, because it’s not just on the investment side, it’s also on the liability side of things as well.

Tom: That’s a great point. Even as I said, I wasn’t saving or investing in college, I was also getting some debt. Nothing out of control like some of the stories you hear but I was certainly struggling with that first college credit card that you’re very encouraged to get. That was actually one of the bigger reasons why I’m a big fan of some kind of personal finance in high school. Even when I was in high school, I know half the stuff we were learning in math class, we weren’t going to use anywhere. And I was right… unless you’re an engineer maybe. But all the stuff we learned in math wasn’t necessary. Meanwhile, some very basic math like compound interest, we never covered. So even to include topics like that kind of spread into the core education would go a long ways. It doesn’t have to be that they sit down with a personal finance class each week. It could just be woven into some of these other topics like social studies and math.

Doug: I think it really needs to be because there are so many fears and unknowns about money and finance that can be intimidating and make people shy away from it. I think the more you bring these concepts to top of mind, the more people will feel empowered to go out and use the tools available to them. Credit cards is a good example, right? They can be dangerous. Sure. There is a 20 percent interest rate if you don’t pay the thing off but it’s also a way to build credit. Everyone needs to have a good credit score if they want to take on a mortgage one day or buy an investment property that needs a loan and so on and so forth. That is a tool that has risk to it but it’s also a tool to build your credit score. You can earn rewards and points. It’s all about whether you have the diligence to pay it off every month or not. I struggle sometimes with this concept of debt is this dark, cloud that everyone should rid themselves of. And it’s bad no matter what. That’s not necessarily the case. You can get home mortgages now at 1.5 percent interest. That’s quite a tool to build wealth when (after inflation) you can essentially get free money. But getting over that fear that debt is always bad is an important one to bring to light, in my mind.

Tom: Well, I’m glad you said tool because I’ve said this before… It’s not my quote and I don’t deserve credit for it but the idea that it’s a tool no different than a saw or hammer, you can use it for its actual purpose or you could actually injure yourself. It’s the same with the credit card. It has a purpose. It can be beneficial in helping you but you can also hurt yourself with it. I do like the comparison as a tool, quite a bit. One of the other things I wanted to cover related to the time side of this that you touched on was fees. Fees have come up recently with a few conversations I’ve had with people. Just how much that one percent extra fee on your mutual fund can cost you over time. It seems to be time working against you at this point. Now, I would say when you start off, it’s going to matter less. You’re dealing with that $10,000, $20,000 in savings. The fees aren’t going to hurt as much at that point. It’s going to become a bigger thing as you go forward so you can always switch. But I’m okay with someone just starting, period. I was in terrible mutual funds. They had high fees. I thought I knew what I was doing. I thought I picked these great performers in past years and they had these high fees in them. I got out of them once I learned about E-series funds at the time (with TD) before ETFs became popular and common. But just the idea that at least you’re getting started, I’m okay with that. Losing an extra percent is better than not having anything saved at all. Do you cover this, that over time these fees are going to hurt you just as much as inflation?

Doug: Absolutely, yes. Yes, I do. The compounding is—This is the deal here. If you take off one or two percent per year in investment returns because of fees, that has an exponential impact on your wealth over time. What I tried to do in the book was to say, when you start your first job and you’re offered your first employer group RRSP plan and you can select from funds to put money into, that’s not the only way you can invest money. There’s often a self-directed option where you can say, “No thanks. I want those mutual funds that have two or two and a half percent fees. I’d like to self-direct my own investment returns and invest in index funds.” ETFs that are tracking an index since they’re so passively managed come with a fee of less than one percent. Often after less than half a percent. And famously, Warren Buffett, was a hedge fund manager and he bet $1 million dollars over a 10 year period, the S&P 500 dollars, passively managed, would beat the returns of this actively managed hedge that comes with a massive fees for management. And he won. It’s difficult to beat the market so what you want to do is try and find ways to invest your money that bring most of the investment returns to you. Because when you think about it, if the TFX returns you eight, nine percent per year on average over long periods of time and you’re paying two percent to your mutual fund manager, that’s 25 percent of the returns. You’ve got all the money up so is that fair?

Tom: I always look to that if you take all these mutual funds that are out there as a whole, they are the market. They are the average. You can try to get a mutual fund that can beat the average, but you’re just as likely to get the one that’s not. On the whole, they are the market. And if you assume you’re not going to do better than average, those fees are what drags it down. You might as well just go with the indexing and be the average with as narrow fees as possible.

Doug: Absolutely. But in high school, they don’t teach you about mutual funds versus ETFs versus index funds, stocks, bonds, real estate rates. All these things are pretty far into many concept so people are often advised to get into certain funds and there’s trailer fees and commissions that go along with getting clients into those funds. Another thing is around bias of who’s telling you to buy these things. What do they get out of it? I just think you should be aware of these kind of inherent biases of people that are assisting you with your wealth management.

Tom: Yeah, exactly. There’s so many great options now. It’s not like just a few decades ago where you pretty much just went into your bank and did everything. You’ve got your mortgage at your bank, your credit card at your bank. That’s just the way it was. And now there’s just so many more options for investing and saving and everything. I hope that people realize there’s more information out there now too. When I was going through this, there weren’t blogs. I didn’t have an easily accessible list of any books that existed then. I wish I read The Wealthy Barber a lot sooner than I had. Technology has helped a lot. Like the Internet, for example, both on the actual financial service side and on the information available. I hope we continue to get smarter and smarter around this.

Doug: I think the only caveat I would say is really around looking at the credibility of what you’re finding online. There’s lots of great people like yourself that have all the great intentions in the world to educate people and give them the tools to empower them. But there’s also people that are looking, again, at self-benefit. You go on Instagram, Tick Toc and there’s a lot of stock promoters out there that are saying, invest in this and that… You’ll triple your money next week, blah, blah, blah. And often it’s a pump and dump scheme or they’re being paid. If something sounds too good to be true, it usually is. Just be very skeptical of who you’re taking advice from. One of the lessons I have in my book is to take ownership of your own financial portfolio. Look at your net worth as though you’re an investor in it and have to make sure the money is being managed properly and there’s enough risk in that that you’re comfortable with. As an investor into a portfolio, would you be comfortable if the manager of that portfolio is just throwing money at the wind and hoping that stock prices went up and they could make money? Probably not. So you treat it with respect and do your homework. And make sure the information you’re doing your homework on is credible. The book goes into that; how to read a balance sheet, how to read an income statement, how to evaluate the management of these companies you want to invest in. It’s not rocket science but it takes a little bit of work, for sure. I get nervous when I see these stock plays like GameStop that we saw last week. There are millions of people throwing money at a stock play with no due diligence whatsoever. It’s a recipe for disaster.

Tom: And by the time most people hear about things like that, it’s kind of gone. By the time you’re talking about it at the proverbial water cooler, it’s you’re already too late anyway. Even if it was for more legitimate reasons.

Doug: You’re the guy buying at the top that gets the guy at the bottom out and makes him money but you don’t end up making any money.

Tom: Exactly. Just like I did in taking an extra 10 years to really get started, it seems the common excuses are, you’re broke in college and now you’re in a career but it’s an entry position so you’re not making a lot of money, and then you get children. How do you get people to overcome this? It seems like you can come up with a reason at every stage in life why you can’t save some money.

Doug: Again, this is why it’s so important to start early because really modest amounts of money over long periods of time can become quite meaningful. I go back to my example of over 45 years, one dollar can turn into over $70 if it’s invested at 10 percent compound rate of interest. So put away $100 a month in the first year and it’s $72,000 to $73,000 in your first year of retirement. So the sooner you can get started, the more modest you can be about it. That’s the main thing, I think. But also there’s some pretty significant tax advantage vehicles our government offers you to advantage you as well. You can invest in a TFSA account. I wish it weren’t named a savings account because it’s allowed to be used as an investment vehicle for stocks, ETFs, bonds, whatever you want. That allows you to grow your wealth tax-free. That’s a significant percentage that would otherwise be taken away to taxes. So you use those vehicles when you’re young. Max out those TFSAs and RRSPs if you can. Once you’ve maxed out those, then move on to your non-registered investments. It does require some diligence. There’s no way around that. You do have to make sacrifices and invest your time and energy towards this.

Tom: Yeah, for sure. I keep bringing up mistakes I made in my 20s. But I had all those video game systems. I had to sell them not too long ago just to get rid of all the clutter of this junk I had bought. I’d much rather have that extra money in my investment account than making a fraction of the original price selling on Kijiji.

Doug: Oh, me too. Last summer I sold 400 or 500 heavy metal CDs that I bought as a teenager for $50. So much for appreciation, right? They cost thousands.

Tom: What if someone’s in their 30s, 40s, 50s and just don’t have a lot of savings? What can they do then? Depending on which of those examples I just gave, if time is working more and more against them, what can they do? How do they make this work?

Doug: Well, I think some of it is about adjusting expectations. If you’ve got nothing saved and you’re 55 years old and you’re expecting to retire at 65, well, that may not be possible anymore unless you’re able to add income, drop expenses and really boost your investment savings every month by considerable amounts. You might need to just adjust your expectations on when you can stop working. Maybe start thinking about stopping working full-time at 65 but take on some part-time stuff or consulting work to keep on working and earning income into the later years. I think that’s probably a reality for a lot of people these days anyway. The cost of living is so immensely higher than it was 20, 30, 40 years ago. Find things you love to do and try to make money from them.

Tom: I think that’s a good idea for almost anybody no matter where their savings are at because those later years are becoming higher and higher as we move forward. It’s not like it used to be when you retired at 65 and died at 70. You’re much more likely to be in retirement for 30 plus years possibly. Sure, you may have a lot of money put away but it still seems like something where you might not want to fully retire in that sense. You might want that fun job at Home Depot just so you can chat about tools with people and do something that’s sort of “light and interesting” where you can make a little extra money. But also just do something, like I said. Do you really want to spend a 30 year retirement just sitting in front of a TV?

Doug: Probably not. I think one of the really cool things about living today is that we have the Internet. You can use the Internet to make money in so many different ways. One idea for those of us who have decades of experience in anything is online courses and teaching. Now, they say the online teaching industry is going to blow up into the hundreds of billions of dollars over the next several decades because the cost of education continues to outpace inflation. Getting a university education in a more formal manner is getting to be unaffordable and causes people to go into all kinds of debt. So put your experience to work and go on “Teachable” or one of these websites where you can put together your own course and teach about anything. Teach photography, teach about creating a surfboard, teach about financial literacy. People will pay you for that knowledge they otherwise would have had to spend tens of thousands of dollars on university to go and acquire. You’ll have fun with it and you’ll make money.

Tom: I’m a huge fan of someone doing something on the side no matter what their financial situation is. It’s just the best way to get ahead. It’s getting harder and harder for people to get raises but you can take it into your own hands a little bit. This is another one of my “pro Internet rants” because there are so many different ways to make money online. Or even with an app if you’re just driving for Uber, delivering food. There are all these options. It’s something you can start the same day, quite often. And you don’t have to get a formal pizza delivery job. That might have been the side hustle a couple of decades ago. There’s just tons of options out there where people can make that extra money now.

Doug: Absolutely.

Tom: This has been great. Thanks for walking us through all of this. Can you tell people where they can find you?

Doug: Absolutely. I’ve started a website for my book at, afightingchancefinance.com. That’s my website. The book itself can be found at Amazon, Indigo, Apple Books, Kobo, Kindle, your favorite book retailer. And I’m on social media as well, on Instagram, Twitter, LinkedIn, Facebook and Pinterest. All over the map.

Tom: Perfect. Thanks for being on the show.

Doug: No problem.

Thank you, Doug, for explaining why everyone should have a financial plan at an early age. Your explanation of things like compounding interest, inflation and investment fees makes it easy to understand. You can find the notes for this episode at maplemoney.com/138. I’d like to take a moment to thank you for listening to the Maple Money Show. I appreciate your support in helping us continue to grow. If you have the Apple podcast app on your phone, can you make more money and give it a quick rating? Even better, leave a review to let everyone know what you think of the show. Thanks, as always, for listening and we’ll see you back here next week.