A Fighting Chance: The High School Finance Education Everyone Deserves

By Doug Allan

A Fighting Chance was created to address the lack of financial literacy in high school curriculums around the world, leaving young people unequipped to manage their finances as they enter the work world. As youth enter their financial lives, it is critical that they have the foundational knowledge and tools to make sound financial decisions that build wealth through measured risk-taking and financial strategy. Written by an award winning Canadian Chartered Professional Accountant, the book is written in an approachable unintimidating tone and provides real examples, tactics and mindsets which allow young readers to harness their most valuable financial asset: time. A Fighting Chance provides readers with a financial guidebook for their life that will allow them to create and execute a plan that allows them to accomplish both their financial and non-financial goals.

• Language: English
• Publisher: Tellwell Talent
• Release date: Jan 28, 2021
• ISBN: 9780228847724

Doug Allan

Doug Allan holds a Bachelor of Commerce degree from McGill University with a Major in Accounting and Finance. He graduated with Honours before beginning his studies toward becoming a professional accountant. Doug became a CPA in 2011, graduating in the top 1% of his class in Canada and as valedictorian in his home province of British Columbia. He spent the first eight years of his career with a big four accounting firm before moving into commercial real estate development and investment. Doug also has served as a board director for not-for-profit and for-profit entities. Awarded CPA British Columbia's Early Achievement Award in 2019, Doug is working as Vice President, Finance & Operations for a commercial real estate investment firm. Doug is married with two wonderful kids.

Book preview

A Fighting Chance

The High School Finance Education Everyone Deserves

Doug Allan, CPA

A Fighting Chance

Copyright © 2021 by Doug Allan, CPA

Disclaimer:

INFORMATIONAL PURPOSES

All content in this book is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the book constitutes professional and/or financial advice. Doug Allan is not a fiduciary by virtue of any person’s use of or access to the Book or its content. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in the book before making any decisions based on such information.

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the author, except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law.

Tellwell Talent

www.tellwell.ca

ISBN

978-0-2288-4771-7 (Paperback)

978-0-2288-4772-4 (eBook)

For more financial literacy content please visit our website at www.afightingchancefinance.com.

Follow A Fighting Chance Finance on social media!

DEDICATION

This book is dedicated to my older brother, Captain Chris Axe Allan. Chris was taken from us in a boating accident at the young age of 31, but he continues to inspire me throughout my life. Chris was a fighter pilot with the Royal Canadian Air Force. He flew multiple tours of duty during his time in the Air Force, standing up for peace and justice in the world. Chris’s leadership and commitment to doing the right thing have inspired this book. Financial education is something I strongly believe should be a part of everyone’s curriculum. It’s just the right thing to do.

Contents

Glossary of Key Terms

1. Establishing Credibility – About the Author

2. Why should you care and why now?

2.1 Inflation destroys the value of money

over time

2.2 Compound Interest

2.3 Set an End Game goal for yourself

3. Day to Day Finances and Your Personal Balance Sheet

3.1 Your income from your job

3.2 Your income from outside your job

3.3 Spending habits

3.4 Budgeting Software

3.5 Budgeting strategy

3.6 Understanding taxes and government deductions

3.7 Personal Balance Sheet

3.8 Safety Net

4. Debt

4.1 Credit Cards

4.2 Student Debt

4.3 Car Loans

4.4 Home Mortgage

4.5 Home Equity Line of Credit (HELOC)

4.6 Investment/Margin Loan

4.7 Seller Carry-Back Loans

4.8 Payday Loans

4.9 Overall Debt Strategy

4.10 Tax considerations for debt

5. Investments

5.1 Stocks

5.1.1 Public and Private Stock Markets

5.1.2 Categories of stocks

5.2 Bonds

5.3 Active Investing Funds

5.4 Passive Investing Funds

5.5 Money Market Instruments

(GIC/Term Deposits)

5.6 Commercial Real Estate Indirect via REITs

5.7 Commercial Real Estate Direct

5.8 Principal residence

5.9 Commodities

5.10 Cryptocurrency

5.11 Art and Collectibles

5.12 Investment Account Options

5.13 Tax-deferred accounts

5.13.1 Canadian

5.13.2 American

5.14 Employer Matching Programs

5.15 Investment Tax Planning

6. Investment Due Diligence

6.1 Financial Statement Review

6.1.1 Balance Sheet

6.1.2 Income Statement / Statement of Profit and Loss

6.1.3 Cash Flow Statement

6.2 Press Releases/media releases

6.3 Macro trends

6.4 Analyst reports

6.5 Investing networks

7. Mindset as an advantage

7.1 Confidence is king

7.2 Be skeptical

7.3 Forget the naysayers

7.4 Don’t sweat the small stuff

8. Major life decisions, explained

8.1 Buying a home

8.1.1 Is buying a house a good idea, versus renting?

8.1.2 If buying is the right choice,

is this a good buy?

8.2 Buying a car vs leasing

8.3 Entering a long-term relationship

8.3.1 Get Life Insurance

8.3.2 Prepare a Will

8.4 Having kids

9. How to stay on top of things

9.1 Understand politics and their impact

9.2 Use your commute – Podcasts/Audiobooks

9.3 Subscribe to push notifications

10. Pulling it all together into a plan

10.1 Quantifying the End Game

10.2 The Plan

Glossary of Key Terms

In this book, and in the financial real world, you will come across a lot of terms that you were probably never taught in school. For a lot of people, this makes the process of managing finances intimidating, which is a barrier to success.

I tend to think sophisticated investment advisors, brokers and companies create these terms for the very reason of making their customers feel confused and to validate their own worth.

The following is a list of terms, defined in plain English, which are imperative for you to fully understand so that you can have an educated conversation about financial topics and cut through the jargon. Consider referring to this list at any time throughout your financial journey – no need to master everything now.

Asset – Something you own which has value, and hopefully increases in value over time and/or will pay you cash as income periodically. There are good assets, like real estate and investment portfolios which appreciate (rise in value) and/or produce income, and there are bad assets like cars that almost always depreciate (decrease in value and/or produce no income). Try to get as many good assets as you can.

Liability/Credit – Something you owe which will result in cash going out the door in the future. Think credit card bills and other loans. Like assets, there are good liabilities that you have used to buy good assets, and there are bad liabilities that you have used to acquire things that are not assets, like trips, eating out and clothing. Try to have as few bad liabilities as possible.

Equity – When we subtract the liabilities we have from the assets we own, the net number is our equity. For example, if I own a house worth $1 million (asset) and I owe the bank $700,000 in a mortgage loan which I took out to buy that house (liability), I have $300,000 in equity in the house. This concept of net worth or equity applies to personal financial situations, as well as companies. The goal is to grow your net worth/equity as fast and as large as possible.

Appreciate – This is a term used to describe the rise in value of an asset. Not all assets appreciate in value over time. Assets that go up in value are what you want in your financial portfolio: stocks, investment funds, bonds, real estate, artwork, jewelry, collectibles – the list goes on of all the things you can accumulate that may rise in value.

Depreciate – The opposite of appreciate, depreciate means to go down in value. People make the mistake of acquiring and/or investing in depreciating assets early in their careers. Common depreciating assets are cars (aside from the most collectible, luxury and limited edition), boats and recreational vehicles. These things lose incredible amounts of value within a few short years of purchase.

Financial Statements – A financial summary of a company, real estate investment, person or any entity. These statements, consisting of the face statements, called Balance Sheet, Income Statement and Cash Flow Statement, summarize the financial health and income-producing ability of the entity. If prepared properly under generally accepted accounting principles (GAAP), they will also include dozens of pages of notes which further explain how the company’s financial statement accounts are prepared and what they consist of.

Taxes – The money collected by cities, provinces, states and countries to pay for services and infrastructure, like highways, social programs, medical coverage and defence. Governments spend tax dollars for important programs and tax is a necessary expense for people who earn income. Tax Code is very complex, often thousands of pages long, so once your financial picture gets complex, get a tax accountant. In the meantime, do your best to reduce your current tax burden by using tax-deferred accounts to push taxes into the future and taking tax-deductible expenses. Earning money on deferred taxes is a powerful tool to build wealth.

Stock – Every company is ultimately owned by people. Ownership of the company by each person is tracked via stock, also called shares. If a company is owned by 10 people who all own an equal share, each person owns 10% of the stock of that company. Some companies’ stocks are traded on the stock exchange where people can buy and sell stocks of different companies. People buy and sell stock for many different reasons. Usually they either believe in the company and buy its stock, or they may believe that the business is on a downward trend, and sell. Other companies’ stocks are privately owned and not available for the public to buy.

Bond – Companies, governments and large-scale projects issue bonds to raise money. These are essentially loans that pay lenders an interest rate while they wait to be repaid. Companies issue bonds to investors rather than issuing stock, because the cost of borrowing is lower, and they don’t dilute shareholders by issuing more pieces of the company’s equity pie, therefore making each share worth less per share if the company isn’t able to grow enough to justify the share issuance. Bonds are an important aspect of any investor’s portfolio as they provide a steady source of income, with less risk than stocks. Generally, bonds form a small part of your investment portfolio when you are young, when you have time to take on risk, and a larger part when you are old, and can’t afford the risk of a stock market crash in your portfolio.

Risk – A concept that is very important to understand. Risk is a word used to describe the possibility of something going wrong in the future, causing loss. Every investment decision carries some form of risk. Let’s say that I buy an apartment with the strategy of renting it out. The following risks would apply: 1) The apartment goes down in value with the real estate market and is worth less than the loan I took out to buy it; 2) I can’t find a tenant to rent it and am stuck paying the mortgage myself; 3) The tenant I do find trashes the place; 4) The interest rate on my mortgage loan, or any multitude of other costs of owning real estate increase faster than the rent I earn, causing me to lose money; 5) The apartment burns down in a fire and so forth. It is very important to understand how much risk you are taking on in exchange for the rate of return you are earning on your investment. In general, the higher the risk you take of loss, the higher return you will prospectively, but not definitely, earn on your investment. I think Captain Kirk from Star Trek said it best when describing becoming the captain of a starship, saying, Risk is part of the game if you want to sit in that chair.

Real Estate – Property, land, buildings, houses, warehouses, offices. Real Estate is a type of asset that is physical. It is occupied by people for living or working and, in general, comes with land. Last time I checked, they aren’t making any more land, which makes real estate one of my favourite asset classes. Basic economics