Jill Kerby

My personal blog articles will be coming soon

QUALITY, NOT QUANTITY FOR CHRISTMAS ‘09

It is said that Christmas is for children and if you mean by that, the tree, the brightly wrapped toys and parcels, the panto and the general level of excitement, then I suppose it is.  But what I don’t ‘get’ about Christmas is the volume of worthless junk that our children receive, much of it laid out for the nation on the annual Late Late Toy Show. 

This year was no different.  With a few exceptions, practically every toy displayed required batteries or an inexhaustible supply of electricity, and even host Ryan Tubridy noted on more than one occasion that “this should keep them occupied for ten minutes” or comments to that effect. 

“The best toys are dolls for girls and guns for me,” my small son once told me, brandishing an old-fashioned cap gun and holster, but the politically correct can relax:  the child also got lots of Lego and Playmobile stuff – the greatest toys of all time – and zillions of books.  (He reads to this day and his children will hopefully get good use out of his book collection and the Playmobile castle that I packed away so carefully.)

The original present-givers, the Three Wise Men, definitely had the right idea in going for quality rather than quantity.  Gold, frankincense and myrrh were valuable and rare, the ideal gifts for a newborn king.  You might want to keep that in mind before you fork out hundreds of euro for (still) overpriced toys and gifts that will be quickly forgotten and discarded.  

Since I have an aversion to giving cash as a gift other than to a charity, I’m certainly not advocating handing over envelopes of money to anyone this Christmas.  But if you do have the resources to be generous and you want to give someone a money-based present that will last longer than the few weeks of this holiday, let me make a few suggestions that can be stuffed into a loved one’s stocking.  

You may have to make a bit of an effort in arranging some of these, but I can guarantee that your thoughtfulness will be appreciated and might even offset some of the anxiety that has been caused by the December Budget: 

FOR CHILDREN: 

If you’re a parent, grandparent or indulgent relative, open up a savings account for the beloved young child and either pay in a regular contribution that is arranged on-line or by direct debit. As the child gets older (s)he can be encouraged to save as well.  (Pop a little piggybank into the stocking to get them started.)

Open an investment fund for the child.  A regular monthly contribution (as little as €100 a month with Rabo Funds) should smooth out stock market volatility and if you have sufficient time, a well-chosen fund will hopefully, return a long term yield that exceeds the deposit rate and reward the risk you take.  Be careful about the fund you choose – I think gold and precious metals are a good play because of the way the money supply is being inflated, but some commentators believe prices are ready for a correction.  Oil and energy shares should also be a good long term buy and emerging markets, but until you familiarise yourself with the ins and outs and technicalities of the market, you can start them in a low risk cash or bond fund. 

Buy them some physical gold or silver – and then keep it safely stored.  Encourage them with a collection of coins or stamps or other small, affordable antiques.  The great collector and philanthropist Chester Beatty of the Dublin library/museum fame, bought his first rare snuff bottle at an auction in New York for a few dollars when he was ten. 

Stuff their stockings with some Prize Bonds.  You need to buy them in batches of €50 now, but there is a million euro tax free draw every month and every bond remains active until it wins. 

Anyone can ‘gift’ a child – who doesn’t even have to be a blood relative – up to €3,000 a year without it having to be declared to the Revenue.  This is a good way to disperse an estate early to low tax-free categories of beneficiaries without any tax implications and could go some way towards helping pay long term education fees.

FOR GROWNUPS:  

I can’t think of a better non-cash gift to give than gold or silver this Christmas in any form – a fund, an ETF, physical coins or even jewellery, but the latter needs to be pure gold (a la a Dubai souk) to expect a fair encashment value. The price is likely to fall back after reaching its €1,200 peak but goldbugs believe it has far to go over the medium term. 

Offer to pay for an investment course for someone interested in building a share or fund portfolio.  Check out Rory Gillen’s excellent investoRcentre.com for one day seminars and his weekly subscription newsletter. 

Older family members who want to play ‘The Wise Man’ or woman this Christmas could offer to help out younger members with offers to assist with some bill paying this year if they are struggling financially.  How about picking up their heat or electricity bill, a portion of their mortgage, school fees, or private health insurance bill.  A gift like this can go the other direction too. 

A wonderful gift for an older person who lives alone is a taxi-account.  Start a tab for them at your local taxi-company that you can clear every month directly from your own bank account. 

Make a financial donation to the recipient’s favourite charity. Both the home and overseas charities will send out gift cards to donors. 

And finally, how about adding some ‘how to’ finance books and magazines to everyone’s stocking this year? My favourite weekly picks are The Economist and MoneyWeek magazine, subscriptions to the UK financial newsletter, Fleet Street Letter and to DailyWealth, a UK trading letter and other Agora Financial letters like Capital & Crisis, S&A Resources and Daily Wealth.   A great read for the holidays is the updated Empire of Debt by Bill Bonner and Addison Wiggin of www.dailyreckoning.com fame and of course the ‘four angry (Irish) men’ collection from Penguin: Matt Cooper, Shane Ross, Pat Leahy and Fintan O’Toole’s books about the boom and bust years. 

And a Happy, Prosperous and Joyful New Year to all. 

TAM from Co Galway:

I will retire very shortly after 42 years working and will have a lump sum of €150,000 to invest. I have a mortgage balance of €70,000. What suggestions would you have to offer for either/or short/long term?

Most financial advisors I know recommend that their clients always aim to clear their debts before by retirement for the very good reason that you will most probably be living on a reduced, and maybe even fixed, income going forward. It’s also the reason that mortgage lenders prefer not to extend a repayment term beyond age 65.  By clearing your mortgage you not only have the reassurance that whatever happens, the roof over your head is paid off, but you also free up monthly income that can otherwise be spent on essentials like groceries and running a car, health insurance, utility and insurance bills, etc.  What you do with the remaining €80,000 depends on your needs and risk profile. If this money is surplus to an occupational pension that comfortably covers your basic needs then you might feel secure in invest some of it to boost your pension.  Advisors inevitably suggest that someone in your position leave a good portion of the fund on deposit for easy access, but that you then consider spreading the rest between an income yielding bond or dividend returning blue chip share(s). Low cost ETFs are a good fund option. You might consider buying some gold (in the form of ETFs or certificates) as a way to protect the value represented by your paper euros.  Before you do anything however, do your own research and since you will have the time, I suggest you sign up for an investment course – I’ve just attended Rory Gillen’s InvestRcentre course. Also, log onto free financial sites like www.fool.co.uk and www.dailyreckoning.co.uk and subscribe to some good finance magazines/newsletters. The markets are highly volatile places and you need to know what you’re doing before you buy any shares or commodities. Good luck. 

PW writes from Dublin:  

I’m a bit concerned about how tax rates may increase after the Budget and whether the new tax will apply immediately or later. The background to this is that my husband has been offered a good job in Canada.  He is there now and the children and I will be joining him in the early New Year. We have put up a second property we own for sale and there is an interested party, but I am concerned about the capital gains tax changes that may happen in the Budget.  If we sell the house after the Budget would we have to pay higher tax right away, or is there a grace period? Also, I am wondering if you know if our VHI policies can be used in Canada until their renewal date in May?

Capital gains tax has gone up from 20% to 23% to 25% in the past year and in both cases the higher tax applied immediately, presumably as an effort to stop sellers from attempting to backdate their transactions.  Only the Minister for Finance knows if he is going to raise these capital taxes and perhaps even deposit interest which is also at 25%, but you might want to close that property deal sooner rather than later.  As for your VHI policies, it is my understanding that they cannot be maintained once you are no longer living in this state, but that you will be entitled to a refund if you cancel them before the renewal date.  Your husband should be applying for provincial health cover for you and the children immediately as residency rules vary between Canadian provinces. You will also need to register with a family doctor in order to avail of free GP visits and consultations. 

John McFarlane of the Post Polio Support Group writes:

 I have been following the letter about medical cards for pensioners coming from other countries with interest and agree with you in every detail except one.  In the instance that any person entering Ireland from another EU is in receipt of a disability allowance from their EU state, they are issued, upon application, with an Irish medical card without means testing but have to prove they are in receipt of another EU member state disability allowance or benefit.  This applies in the case of the UK where the person is in receipt of Incapacity benefit or Disability Living Allowance and not in receipt of an Irish State benefit (apart from Child Benefit or Early Childcare Supplement) and not be liable to contribute to the Irish Social Welfare System. We have several members who have returned home from the UK who are in receipt of UK benefits and who make no claim on the Irish State who have benefited from this EU trans-national ruling.  I agree that it applies only to a small number of people but have brought this respectfully to your attention for clarity and future reference.

Thank you (and two other readers) who brought this clarification to my attention. The original correspondance specifically concerned UK pensioners, not UK citizens in receipt of UK disability benefits or pensions, who believed they were entitled to the medical card without means testing because they received free medical care under the free NHS service in the UK. But that is not the case here: medical cards for pensioners are means-tested in Ireland. I include here the HSE website you kindly passed on, regarding medical cards for disability benefit recipients: http://www.hse.ie/eng/services/Find_a_Service/entitlements/Medical_Cards/Your_Guide_to_Medical_Cards.html#qualify

The price of gold hit $1,215 an ounce last week (and over €808), yet the morning afterwards it didn’t even merit a mention on the morning business news. Instead, the usual ISEQ and FTSE prices were announced – they were both down of course. 

I’ve been writing about the importance of gold as a store of value against depreciating currencies and the threat of future price inflation in this column since the autumn of 2005 after the first signs appeared that the US property bubble had finally popped.  It then cost about $575 an ounce. 

Since then, the price of gold has gone up and up, and sometimes, down, but always the projectory was upward.  Meanwhile, property bubbles have burst all over the place, the world’s financial system has imploded, dragging a few countries down with it.  Last week was Dubai’s turn. 

Gold is what nervous people buy when they see the value of savings, property, and shares fall and debt rise.  But very few of those gold buyers are ordinary people who foolishly stuffed their pensions with companies they can’t name, buy-to-let properties and holiday homes that don’t pay their own way, or fancy cars that lose a quarter of their value the moment they’re driven off the forecourt. 

Most gold buyers are contrarian, competent, knowledgeable professionals (and their clients) who understand the very simple principle that the more pieces of paper money you print, the less they are worth.  They know that you can’t print gold coins or bars. 

And these people, but especially the ones who work for the Indian, Chinese and Middle East governments are very, very worried.  

Their purchase of hundreds of tonnes of gold from the IMF in recent months is pretty much the main reason why the price of gold, and silver - another form of sound money - have soared this past year and is up 13% in November alone.  

Half the commentators I read think gold is due a brief sell-off, that like the stock market, the price is too ‘toppy’, and that the dollar is probably oversold.  The other half just say, “buy it”. They’re convinced that over the medium to long term the dollar is toast and Dubai’s inability to repay its sovereign debts is just the tip of a debt iceberg that is on a crash course with massively indebted countries that includes the United Kingdom, the United States, Greece, most of the Baltic countries… and us, of course. 

If the high price of gold frightens you, then you can always try and time the market by waiting for a sell-off, which many commentators believe will happen when this stock market rally ends. Or you can buy cheaper silver on the dip. 

In fact, the historic correlation between gold and silver is so out of sync at the moment that gold has to become a lot cheaper or silver a lot more expensive before the historic 16:1 price ratio reappears.  On that basis, silver might be the better value buy.

Finally, if someone says that gold is in a bubble, ignore them.  A gold bubble will only form when your neighbours and in-laws are talking about gold and are queuing to buy krugerrands, gold ETFs or Perth Mint gold certificates and not to sell their old gold jewellery.  

Richard Russell, one of the world’s greatest investment gurus said not long ago: “The greater the world ocean of fiat paper, the higher gold goes. You see, gold is the secret, unstated world standard of money. Gold can't be devalued or multiplied out of thin air. So as the various currencies of the world decline in relation to each other, gold stands alone. It can't be cheapened or devalued or bankrupted.”

Financial Services Ombudsman Joe Meade retires

The Financial Services Ombudsman Joe Meade retires at the end of this month and has decided to let rip about the state of the industry before he goes. 

"Financial institutions have to understand that they are given people's money in trust,” he says in his final report. “It is obvious from the complaints I have dealt with that banks and other financial institutions have been giving wrong advice.”

How wrong?  Well, how about the advice a bank gave a 68 year old separated woman with no pension to invest the €410,000 proceeds of her family home into the same property fund that they had earlier convinced her to place her entire savings of €100,000?  (She was refunded the entire sum.) 

Or the high risk investment fund that an elderly couple with €113,000 in savings were sold, despite the fact that they went looking for a “deposit account with a good interest rate”?  

And then there was the six year guaranteed bond that a life assurance company sold an 80 year old grandmother with no history of investment experience, who actually wanted a fund for “emergency expenses” and “a burial fund” for herself and her husband. 

Meade says that the culture of misselling and sharp practice that targets vulnerable pensioners in particular, hasn’t changed since he took office five years ago. At least when he leaves his job in a few weeks, he can go knowing that unlike the bankers and investment industry chiefs who continue to oversee this behaviour, he goes knowing he’s done the people of this country some service. 

Pension Funds

Anyone working for an Irish publicly listed company like AIB and Bank of Ireland, Aer Lingus and others won’t be too pleased to hear that despite the stock market surge since March, the combined pension deficits of all these companies has risen almost 15% to €5.4 billion from €4.7 billion at the start of this years.

Asset values held in these pensions went up by €2 billion to €14 billion says Attain, the Dublin pension consultancy firm that did the research, but liabilities rose from €16.7 billion to €19.4 billion.

Pension funds here have taken one of the biggest hits in Europe and continue to be volatile because of the low exposure by Irish pensions to bonds, says Maurice Whyms of Attain, but also because “With close to a quarter of pension liabilities on Irish company balance sheets relating to UK subsidiaries, the deterioration in the UK [pension] position was bound to have some spill over effect.” 

It’s another reason to review your own pension urgently…and to buys some gold.

PART 2:  LIVING WITH DEBT IS THE NEW ‘LIFESTYLE CHOICE’

Remember ‘lifestyle choices’?  Shall it be a new kitchen or a new garden and deck this year? Shall we buy a new SUV or take that month long family holiday to Australia and New Zealand? Should we buy that cheap holiday apartment (for just €100,000) in Kusadasi or in Croatia? 

A ‘lifestyle’ is now synonymous with debt in this country; a ‘life’ is usually something you manage, as well as you can, through earnings, savings and as little debt as possible. 

We are now a nation of people who are rediscovering what having a ‘life’ is all about– and how our obsession with borrowing and spending on stuff we didn’t need (including over-priced new and old houses) and couldn’t really afford,  is going to result in a life-long process of debt repayment for many. 

The private debt bill for the fewer than two million earners is so huge – over €100 billion in mortgage debt and €3 billion in just credit card debt alone  -  that the current estimates of one fifth of all mortgage holders and renters being in payment arrears is probably just the tip of the iceberg.  The numbers of homeowners that could default is now estimated at about 75,000.

Next week’s Budget is another great iceberg towards which we are on a collision course, which is why you should be acting now, rather that waiting any longer, to consider your options if you are already in serious debt. 

DRAW UP A SCHEDULE

If you are unable to pay your taxes or VAT (if you have a business or are unemployed), your rent or mortgage, utilities, bank loans and credit cards and other bills like insurance payments, school fees and even food, begin by 

drawing up a schedule of all income and expenditure so that you – and your creditors – have an accurate picture of your financial position.  All other assets (house, car, pensions, household goods, jewellery, etc) should be included as well. Consider renting a room or rooms (for up to €10,000 tax free) under the Rent a Room Scheme.

Go to your local library and take out Eddie Hobbs’ book, ‘Debt Busters’ which lays out half a dozen worked examples of different degrees of personal debt and how to prepare a debt and repayment schedule to present to your creditors.  Mortgage lenders are giving a six to 12 months moratorium to homeowners in arrears before they pursue legal action.  Other creditors are under no such obligation, so make appointments to see them too.

If you need help in appealing to your creditors, approach your local credit union, MABS office or St Vincent de Paul charity for assistance.  A problem shared is halfway to being solved and each of these agencies is there to help. 

If you are hopelessly insolvent and in serious arrears – and this doesn’t just concern low earners who were sold sub-prime loans, but formerly middle class earners who have lost their jobs and cannot make their repayments on their homes that are now in negative equity – you need to look at all the options and decide how realistic it is for you and your creditors to try and refinance your loans.

This latter option is one that requires consultation with your lenders, creditors and ideally an objective agency like MABS, your solicitor and/or the assistance of an insolvency advisor.  The lender may prefer that you accept a new repayment schedule, or even a (once off) purchase/rental arrangement with them so that they hold the deeds but you pay both capital and rental payments.  

This may not be the most appropriate long term arrangement if it doesn’t involve a large write-down of capital and instead means that the capital debt remains the same, but you now pay rent until you can revert to full capital payments.  Given now far property values can (and I believe, will) fall, you may never be able to repay the debt in your lifetime. 

Formal bankruptcy in this country is inflexible, hugely expensive (it is a High Court action paid for by creditors) and rare – only 15 occurred here in 2008 compared to 67,000 in the UK and more than twice that number of UK personal insolvencies known as IVAs.  

Informal insolvency arrangements do exist here, arranged on a case by case basis here under a pilot plan devised by MABS and the Irish Banking Federation and MABS.  Where successful, creditors agree to a equal, proportionate payment of their debts, often repaid from the proceeds of assets like the debtors house, car, etc and the debtor is relieved of all or most of their debts.  It may take them many years to rebuild their compromised credit records, but it does give them a chance to start again.

Finally, many parents and families are coming to the rescue of their indebted children and grandchildren by lending them money – early inheritances to pay off certain high cost debts - or are helping to pay their monthly mortgages or to even do a debt for equity swop by having their own names put on the deeds as co-owners. All of these will certainly be less costly than court proceedings or shared ownership schemes put forward by the banks. 

No parent wants to see their child thrown out of their homes but before you undertake any of the above, make sure you get proper legal, tax and financial advice on how this could compromise their own finances.  

Sometimes, tough love is also called for.   It may be kinder in the end, to step aside and let your indebted adult child lose their home rather than watch them be chained to hundreds of thousands of euro worth of bricks and mortar that they are never unlikely to repay in either of your lifetimes. 

Better that they have the freedom to move on to the chance of rebuilding a new life, poorer but wiser. 

MoneyTimes is sponsored by Postbank

It’s Christmas…again. Yikes. That was quick.

Actually, I’m very pro-Christmas. I really look forward to meeting friends, going to parties and carol concerts, the panto.  I love Christmas Eve service and all the baking I end up doing. I positively dread Christmas shopping which is why I spread if over the year, but I love decorating my house and putting up our huge Christmas tree, laden down as it is with zillions of beautiful ornaments.  

A few of them even hung on my mother’s childhood Christmas tree in Montreal in the 1930s.

Her family did very well during what is still known in Canada as The Ten Lost Years*. Her father, a first generation Irish Canadian, was a stockbroker in a firm that was still standing despite the crash, and her mother and her two sisters inherited a large fortune from two wealthy, childless aunts who both died in 1932. (A fortune my grandfather gambled away by 1939 when he went bankrupt.)  

My mother’s Christmas memories were mostly of weeks full of food preparation – everything was delivered in those days from the grocers and shops to the big stone house in Outremont – the ‘outer mountain’ of Mont Royal, the extinct volcano at the heart of the island of Montreal.  The entire house was decorated with holly wreathes and swags of ivy and tall white candles with red satin ribbons, as were the mounds of presents my grandparents bought for the extended families that joined them on Christmas Day. 

But the magnificent Canadian spruce Christmas tree was something that Santa Claus brought with the children’s toys and their stockings at the stroke of midnight on Christmas Eve. My mother and her two brothers were put to bed early (just as my grandmother and her two sisters were before them) and when they woke up early the next morning they found their stockings filled at the end of their beds and a Christmas tree covered in lights and glittering with ornaments and tinsel downstairs in the living room.

Santa never had the energy to set up the tree on Christmas Eve during my childhood, (or my sons’), but our Dublin tree is as true to tradition as possible and it is the abiding symbol of Christmas that our family – scattered around the world now – has carried through the generations.  

This year though, I remember other, not so idyllic stories my mother told of those Canadian Christmas’s.  They include the ‘recyclers’ – as we would politely call them today - who knocked on every door in that tony Outremont neighbourhood, not as eco-champions, but to collect rags and bones, old clothes and newspapers and wax candle stubs, in order to keep their families alive.  

“I especially remember the poor man who came every week during the long winter with his little girl, who was probably even younger than me, to collect our newspapers," she recalled.  "My father used to have three or four papers delivered to the house every day. 

“The man told my mother that he rolled the newspapers tightly after pouring melted wax and paraffin between the pages.  Bundles of such rolls would be tied together and then burned in their stove. They couldn’t afford cords of wood, or the coal that was delivered on great horse carts to our house and then poured down the coal shute into the huge furnace in the basement. 

“My mother would always have a bag of coal set aside for him as well as the newspapers and candle stubs, and at Christmas she’d give him a basket of food, as well as the others. The churches and charities were overwhelmed in those days with people out of work and their hungry families.  He and the little girl came every week for years.”  

With no social welfare safety net during Canada’s hungry ‘30s, Christmas was a mixed experience of great extravagance and guilt for my mother’s family, just as I expect it will be this year for those of us who find ourselves financially solvent at the end of this first year of the Great Recession. 

With Irish and third world charities all reporting a sharp drop in donations and so many of their donors experiencing lost or falling incomes and asset prices, higher taxes and fewer public services, there’s more than just a bit of a whiff of The Hungry Thirties about this season. 

Extravagance and excess just doesn’t seem at all right this Christmas.  

But how the charities are going to cope with providing groceries and presents for hundreds of Irish families let alone sending a goat to drought ridden Kenya or a hive of bees to Bangladesh, is something we should ponder as we turn on our Christmas tree lights.    

GRINCH?  SCROOGE?   BAH! HUMBEG!

This year is going to lay to rest, once and for all, that Christmas is only about endless shopping for stuff no one needs, wants or remembers receiving a week later, with money we don’t have. 

However, Christmas is the season of good will and giving and you can still give and get without it costing a fortune. 

Recycle.  Make a list and start putting together little packages of your own collection of CDs, DVDs, computer games, books, family photos, handbags, silk scarves.  We all have so much stuff – so much of it barely used or even unused – that you can pick out an item that you already know has been admired or coveted, wrap it up and pass it on. 

Start cooking, baking, sewing, painting, potting, gardening, filming, downloading etc.  Everyone loves home made food gifts, but what about downloading some music or pictures or potting up seedlings (if you’re a gardener?) 

Start a ‘bottom drawer’ for a much loved child?  This means passing on family heirlooms and other precious things if you have them – like a piece of old jewellery or Granny’s silver spoons, a piece of crystal or hand finished linen napkins. 

Make a gift of your time – to babysit, dogwalk (or dogwash), to do some gardening, grocery shopping or chauffering.

And if you do hit the shops, try to buy local and buy Irish.  Your neighbourhood butcher, baker, grocer, garden centre and clothing shops will certainly have a happier Christmas.