Jill Kerby

POOR GREECE – A DRAMA LESSON FOR ALL OF US

The Greek debt drama is a salutary lesson for us all:  that if you’re not a member of a social, corporate or sovereign elite whose transgressions/debts are forgiven because you’re ‘too big to fail’, then not paying back your loans as they fall due is eventually going to lead to bankruptcy.

By the time you read this, the parties to the latest, last minute talks in Brussels may very well have reached an ‘agreed’ settlement for Greece. It would be great if it amounted to:

-       Writing off c€200 billion worth of Greece’s unpayable c€330 billion debt or cutting the interest rate on that debt to zero and pushing out any remaining capital repayments to at least the next century.  

-       Creating a radical post-World War 2 type Marshall Plan for Greece that gives them capital to expand tourism, shipping and agriculture (stuff they already do) and help build new industry.

-       Helping Greece (as part of Marshall Plan 2) to build a better public administration system and judiciary; create a simple, effective, sustainable tax code and method of collection; reformed, sustainable social welfare services and to improve education and health services.

Since none of this was on the last minute agenda, it seems unlikely that a settlement has/will include any of the above.

You know better than I, reader, what the outcome has been. I filed this article before the talks ended but I’m going to guess that

the Troika stick to their course so far and put the Euro before Greece and force its government to concede most/all of the reforms they said they’d never accept. 

Act 2, or is it 3, is over but it will resume some time in the future, probably where it left off.

The only reason we didn’t have a similar post-crash experience to the Greeks is because, for all of our past political failings, corruption, cronyism…our politicians and civil servants were never, ever as bad as they were in Greece. We’ve also had better judicial, administrative and education systems. It helped that we were vassals of the British, not the Ottomans.

Most Irish people tend to pay their taxes and tax collection is extremely efficient now.

Our black economy was never as widespread as their black economy and even today it doesn’t tend to spill over into the PAYE system, though PAYE, VAT and excise are the only taxes consistently collected in Greece. 

They may be chronically wasteful and unaccountable, but even our socialist model state-run institutions (ie the health service, the transport system, utilities) have not been as badly run as their socialist, state-run institutions, and we’ve already successfully privatised some of them.

Nevertheless, we too were badly burned by the access to cheap credit that came with Eurozone membership in the 2000’s. We didn’t handle it much better than the Greeks and are now also paying the price – the loss of parliamentary sovereignty over our own finances. That decision means that at least one more, maybe two generations of Irish people will be indebted to our EU “partners”, even if we are now (due to sucking up the pain) free(sic) again to increase our €215bn national debt (it was only €50bn in 2007) by borrowing money outside the Troika.

Whatever degree of sacrifices, privations (loss of income, savings, jobs, wealth) most Irish people have experienced, it has been nothing compared to what most Greeks have experienced.  The combination of centuries of terrible politics and then colluding with the misspending, waste and corruption by turning a collective blind-eye, has been their ruination.

Desperately electing a government (Syriza) of radical left socialist academics, economists and activists, who, albeit didn’t contribute to the previous political rot but have no experience of running any kind state or private businesses or institutions, hasn’t proved to be a very good choice either.  Not that the Greeks had been left with much political choice, but to their great credit, they rejected the extreme nationalist party Golden Dawn.

The lesson I’m taking away from this Greek drama is that bad choices – decades of bad choices – come with bad outcomes. To paraphrase one of my favourite economic commentators, Bill Bonner, “the correction is always equal and opposite to the deception that preceded it.”

We all need to prepare for a long period of correction and recovery in our own country.  It won’t be as long or hard as it will be in Greece, but recovery will also be helped or hindered by the political, social and financial decisions that are made going forward.

Whatever about the politicians and central bankers, given recent past experiences, I expect most Irish people will do the right thing and avoid unnecessary debt. They’ll try to live within their means, to save and invest and seek professional, impartial financial advice.

And be generous. If you can afford a holiday next year…take it in Greece.

If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.

ELDER FINANCIAL ABUSE – WHO DO YOU TRUST?

There were 13,000 cases of elder abuse reported to the HSE to the end of 2013 and one in five of those (20%) were described as financial abuse. More recently, a survey conducted by Age Action, the advocacy organisation for the elderly and Ulster Bank found that about half of the bank officials in the 500 banks involved suspected that their customers had been victims.

In most cases, the perpetrator was a family member.

Elderly people make easy targets for financial abuse. As a group, they’re financially sound with little or no debt, mortgage-free and they pay off their credit card balances. They also have more cash in banks, credit unions and post offices than the rest of the population and often live alone. As they approach advanced old age they also rely on others for their domestic needs, like shopping, banking or bill-paying.

The Age Action survey, which provided four typical examples of financial abuse, showed just how vulnerable you can be when you are not in full control of your finances and are, literally, physically unable to protect yourself:

Case one involved a woman in her late 70s whose son had moved in with her after the break-up of his marriage. He was increasingly aggressive and moved his own son into the house. They contributed very little to the household bills and she was afraid to keep asking them to. They drank too much. She stopped asking them for any money “as it would lead to arguments, including physical threats but was reluctant to go to the Gardai “as it concerned her family.” Eventually the son moved his girlfriend into the house and the woman moved to the UK to live with her brother. When she eventually returned her son refused to let her back into her own home She now lives in sheltered housing.

The next case involves an elderly man of 80, living alone, whose daughter was forcing him to withdraw money from his bank and hand it over to her. The man told his son that she “had shouted at him and threatened to put him in a nursing home if he did not give her money.”

Case three involved credit card fraud and a lady with dementia, whose son had convinced her to set up a joint bank account. He used the account to get a credit card on which his mother was charged.  With the help of a daughter, the bank discovered the fraud and reimbursed her.

The final case involved an elderly lady of 85 who had to be hospitalised for an operation. She lent her car to her son. When she recovered and returned home – after a full recovery – and wanted her car back, he refused and became verbally abusive.

In too many cases of financial abuse, the victim is reluctant to report their case of theft – because that’s what it is – to the Gardai, say Action Ireland. Even when cases are reported to the policy, prosecution and convictions are miniscule… and the abuse continues.

After the survey came out,  nearly everyone I spoke to about it shared stories of financial abuse that had happened to people they knew:  a nursing home resident (the friend of their own mother) who was ‘forced’ to write cheques to adult grandchildren who said they would stop visiting her.  The widow whose two daughters who took her out for outings to shops and restaurants and on holidays, but only on condition she paid the bill for these events. The single, elderly man convinced to make a charitable donation, but was told to write the cheque to the charity worker. And the widow who ended up giving valuable jewellery and a coin collection to one child, who sold them unbeknownst to her siblings. The adult child had claimed these items would be “her inheritance” even though she was still named as an equal beneficiary of her mother’s estate.

Financial elder abuse doesn’t always happen with menaces. But it is understood to be on the rise since the economic crash. Higher levels of debt and unemployment may be a trigger, but it’s further complicated by family dynamics like sibling rivalry and resentment, especially if some siblings live far away, or don’t share care responsibilities or visits.  There can also be a history of violence, substance abuse, poor health and co-dependency, say Age Action.

Suspected elder abuse in the form of assaults and sexual abuse are notifiable offences for health workers, but there’s no legal obligation to notify the Gardai in a suspected financial case.

More’s the pity. This latest survey shows financial elder abuse is commonplace and deplorable. Given that some complaints allegedly involve the collusion of so-called trusted family solicitors and other advisers, it may be very hard for a vulnerable person to know whom to trust.

 I’d be inclined to turn to Age Action or, yes, even my bank for help. See www.ageaction.ie  or Tel (01) 4756989

If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.

RESPONSIBLE PARENTING VS OVER-INDULGING

Parenthood is a tough gig. And modern parents have made it even more difficult for themselves with their aspirations for perfect children - hence our obsession with their 24/7 safety, well-being, health, education achievements - even after they’ve left their childhood and adolescence.

Yet new pieces of child-related research by two Irish insurance companies show how muddled our thinking on this really is:  the first, by Irish Life revealed that up to 500,000 parents of children under age 17 have absolutely no life insurance.

The other, by Aviva Home Insurance found that more than one in four (26%) of Irish 25 to 44 year olds are moving back to live with their parents in order to save money for a deposit on a house.  Presumably, as they save for the 20% deposit that most new home buyers of properties worth over €220,000 now require, many are consuming their parents’ incomes/savings – in the form of free electricity, heat, broadband, food, and perhaps, even their transport (aka the parental car or second car) because the ‘child’ doesn’t have their own car, (on account of them saving for the deposit).

The Irish Life study is especially ironic. It states that about 500,000 parents (45% of total numbers) admitted to having no life insurance whatsoever when questioned about their finances. While there will certainly be many among that number who can genuinely plead an inability to pay, how can all the others in this age of child-centrism, not protect their offspring’s financial security in the event of their own untimely deaths?

Meanwhile, of those who do have life insurance, 25% admitted they didn’t know how much they have. Just 5% have cover above €300,00 and the average policy is worth just €152,040. For anyone with an average income of €36,003, this represents just a little over four years’ salary.

So how did those surveyed feel generally about their lack of financial preparedness? Just 16% said they “felt confident”, but they were mostly in the ‘early retired’ category, and/or in their late 50s. Less than a third (29%) of respondents said they “feel OK” about their level of financial planning, while 55% of respondents said they were “worried”. Of this latter group, 83% had no financial plan in place.

Which leads us back to the second study, conducted by Aviva Home Insurance and the home returnees.

My experience of speaking to Irish parents about their co-habiting adult children is that only a minority of parents charge their children a marketable rent if their offspring has income.  Few if any expect their children to purchase their own food, cook for themselves. Even fewer hand them the utility bills and expect them to pay a third (or quarter if two are still living at home).

However expensive rents have become, however difficult it is to put together a €40,000 down payment for a €200,000 mortgage, few parents, in my experience, impose very many terms and conditions on their adult children’s return residency, which might include sacrificing their own car in favour of public transport or a bike or foregoing foreign holidays, two of the biggest discretionary spends for young people.

By the time your children reach adulthood, you hardly need much life insurance. Theoretically, your job as their protector is done and they should be financially independent. By your late 40s or 50s the cost of a new life insurance policy is much too expensive anyway; any remaining should be aimed at providing for a dependent spouse, at least until retirement.

Which returns us to the Irish Life study.  It is when your children are at their most vulnerable – up to age 18, (or if they are still in third level education) that you want to make sure, as parents, that they will be financially protected via the life insurance on your lives. (Just €24 a month can buy c€200,000 worth of joint cover for non-smoking 30 year olds.)

If your offspring are still dependent on you in their mid 20s or 30s, it’s a financial adviser, not an insurance broker that you need, since the income or savings still being consumed by them could very well scuttle your own financial independence in retirement. (Other surveys consistently show that people in their 40s and 50s have underfunded their pensions. The average defined contribution pension fund in retirement is worth only about €100,000 or an annuitized annual income for life of only about €3,500.)

So two conclusions can be gleaned from these surveys:  you buy lots of cheap life insurance when you and your children are young…and once they reach adulthood, get a job and move out, the money you have been spending on them for their food, clothes, education, hobbies, holidays gets diverted into the retirement fund that you will be relying on for the last 20 years of your non-working life.

Anything else could be construed as …over-indulgent?

If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.   

THOSE HIDDEN TAXES ARE A KILLER…

The impact that taxation has on our lives is universal: at its most simple, it means that you have less to spend on the things you want to buy, as opposed to what the politicians you elect want to buy.

Everyone pays tax of some kind:  earners, savers, pensioners, social welfare recipients (the latter in the form of VAT on their purchases).  Much of the income tax/PRSI that is collected is then redistributed to directly pay the incomes and pensions of public servants, recipients of state pensioners and social welfare recipients.  None of it is invested, not even the long term payments that are directed into the state pension which can only be collected from age 66 onwards.

We receive receipts when we pay tax:  you can see your tax, USC and PRSI contribution at the bottom of your payslip or on your annual P60. If you wish, you can ask for a VAT receipt.

For example, most basic foodstuffs – meat, dairy, breads, butter, vegetables, fruit, etc, are VAT exempt in Ireland, even if they are canned – while most processed foods are liable to VAT of 23%.  Perhaps another reason to go easy on the crisps, chocolate biscuits, fizzy and booze.

However, oral medicines, certain books, most baby and children’s clothing are all VAT exempt but throw up unusual anomalies, like christening shawls being exempt, but baby blankets taxed at the full 23% rate. Many other goods/services like domestic fuels, restaurant/hotel bills, hairdressing, entertainment tickets, etc are subject to reduced rates of 13.5% or 9%. (See the entire list: http://www.revenue.ie/en/tax/vat/guide/vat-rates.html )

Meanwhile, some goods are subject, not just to the standard 23% VAT, but to excise tax.

Which leads me to a very interesting letter from Mr KM who reads this column in the Meath Chronicle every week. Mr KM explained that he is a PAYE earner who happens to buy diesel for his car. He wanted to know if I could do “a small calculation” for him. 

“Can you take €1 of my pay. Deduct all the income tax, PRSI and USC due on that €1.” With what’s left over, if I were to spend it on diesel, how much of my €1 would go to the government and how much would be left over for me?”

Mr KM didn’t say how much he earns – which will impact how much USC he pays. But I’m assuming, for this calculation exercise, that he earns €33,80I and that that final euro tips him into the higher income tax bracket of 40%.

Here’s what happens to his extra €1 of income:  Income tax:  40 cent; PRSI:  4 cent; aggregate USC rates of 1.5%, 3.5% and 7% on income up to €33,801:  c4.5 cent.  Total 48.5 cent gross.

When we factor in his single person’s income tax and PAYE credits of €3,300 against his income, his net tax drops by about 10% and his €1 is subject to just 43.5 cent income tax/PRSI/USC, leaving him with 56.5 cent to spend on diesel.

Good luck dribbling 56.5 cent of diesel into your car tank, but if you could, of that amount, 48% would go on excise tax, and 23% on VAT. That combined 71% worth of tax on a 56.5 cent purchase, amounts to 40 cent.

All told, between income tax, PRSI, USC, Excise and VAT, that poor little €1 of earnings has been subject to 83.5 cent worth of tax to be paid to the government, leaving our reader with 16.5 cent. The price of a few sweets.  Maybe.   

Benjamin Franklin once said, “In this world, nothing can be said to be certain, except death and taxes”.  He helped lead a revolution against the latter and it wasn’t until 1913 that the United States introduced the first income tax.

Whatever about hoping that our government brings down our high rates of income tax and the universal social charge, is the anything we can actively do to reduce those indirect VAT and excise taxes?

Well, Mr KM had the right idea in choosing to drive a diesel car.  The excise tax per every 1,000 litres of diesel is €479 compared to €588 per 1000 litres of petrol. This is a gross tax savings of just over 18% every time he fills up his tank. More when you include VAT.

It may have brought a government down, adult woman who are small enough can still buy child-sized shoes or clothes and save 23% VAT. If she makes a chicken curry from fresh ingredients rather than buy a takeaway, she’ll save another 9% VAT.

But your biggest discretionary savings will always be by cutting back on fuel, alcohol and cigarettes (a typical pack of 20 cigarettes costs c€9.90, €8.22 of which is excise and VAT). Just two fewer litres of petrol a week, two fewer packs of cigarettes and just five fewer pints of beer and you can deprive the Revenue of about €2,280 in the course of a year.  

Much better in your pocket than theirs.

If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.   

Before you married, did you and your fiancé sit down and discuss your personal finances?  Did you look at each other’s pay slips, bank statements and credit card balances? 

Did you find out exactly how money has/is being saved every month…or the debts that might be owed to the bank?  What about rent or mortgage outgoings, the size of car expenses, insurance contracts and how much you were both spending on clothes, personal grooming, entertainment or holidays?

I didn’t think so. 

Personal finance might be a topic in the pre-marriage courses that many Catholic couples are expected to undertake, but they seldom, I am told, go into this kind of detail. Nor is there any evidence to suggest that couples who take up civil partnerships undertake this exercise. 

The only married people I know who ever examine their individual or joint finances so forensically ...are usually getting divorced or are trying their best to avoid personal insolvency.

Since this is wedding season, and because the passing of the same sex marriage referendum is likely to result in a little surge of marriage ceremonies this Autumn, I’ve come up with a useful checklist of personal finance actions that anyone who is engaged, is planning to marry or is a newlywed should do to prevent one of the many causes of marital unhappiness and breakdown:  money.

That said, there’s no ‘one size fits all’ process or recipe for how every couple should address their finances. I’ve been married 32 years and it was only last year, when my husband ARF’d his private pension fund (transferring a deferred occupational pension and his private PRSA into a post-pension Approved Retirement Fund) that we finally set up a joint savings account.  We still keep our personal current and savings accounts separate, though we whole-heartedly embraced the favourable joint taxation arrangements for two earner couples.

Yet even after all these years one of us pays for certain expenses (the car, groceries, health insurance, school fees, etc and we still have occasional ‘settling of accounts’ payments, usually because I am the holiday booker and Christmas organiser. We’ve always considered our tax and pension funding to be a joint project.

Many couples muddle through their married life with only a vague idea of each other’s earnings, the amount of tax they pay, how much they spend on themselves or the amount that is being put into a pension fund.  It can also be a recipe for financial disaster…if the unexpected happens, like a serious illness, early death or even separation/divorce.

Much of this unnecessary vagueness, uncertainty and worry can be avoided, right from the start. That means sitting down for a head-to-head personal finance conversation before the wedding.  The fewer the money surprises once you’re married, the better. 

Your Pre-Wedding Money Checklist:

-       Sit down with your fiancé and discuss your short, medium and long term financial goals and desires (the cost of the wedding and honeymoon; a new or second car; a home of your own; further education/career break; the type of education for your children; the kind of retirement you envisage.)

-       Now produce your respective financial documents. On notepads, list your monthly/annual incomes, tax and other salary deductions like pension contributions, health insurance, and any direct debits or payments you currently make for rent/mortgage, insurance, utilities, loan repayments, savings or investment funds and pensions. 

-       Mark down your debts and servicing costs, repayment terms.

-       Mark down your assets and what they’re worth. Include savings, stocks and shares, investment funds, a business interest, a car, property, jewellery, coin/stamp collections or other valuables.

-       Once you disclose your personal finances, try to project your joint expenditure.  Together could you save or invest more? Reduce your collective debt faster? (You may need the help of a tax adviser or accountant.) 

-       Decide whether to set up joint or separate bank accounts or keep your own accounts. (Fewer accounts will save on bank charges.) Establish how bills will be paid, by whom and by overall, by what proportion of income.

-       Open a joint emergency household account. Aim to save 3-6 months worth of household expenses.

-       Arrange to write new Wills. Consider including an enduring Power of Attorney

-       All asset transfers – like putting a house you own into joint names – is entirely tax-free between spouses, but take expert legal/tax advice.

-       Buy convertible life insurance policies in each other’s names. Look into income protection insurance. 

-       Join a company pension schemes, a group PRSA that your company must offer if they don’t operate their own scheme, or a personal retirement savings account. Accept that your (tax deductible) contribution will be a permanent budget item…just like income tax. Your lifestyle and spending will easily adjust to your joint ‘bottom line’ and retirement will be one less worry.

If you have a personal finance question for Jill, please email her at jill@jillkerby.ie or write to her c/o this paper.