Wednesday, January 26, 2011

Active, Passive & Portfolio Income

Do you talk to your kids about the three kinds of income? Do you know that there are three kinds: active, passive and portfolio? If the language seems a bit strange, take heart, you probably know what these words mean already and, guess what, your kids can figure them out pretty quickly too!

Agent Story Money & Me Workshop
This week I had the privilege of doing a one-hour Money & Me workshop on the topic of earning money with a split-class of 23 students in grades one and two.

(In my school-wide assembly shows I cover earning, spending, growing and sharing your money. But for the grade-specific classroom workshops I ask the teacher to choose one of those four topics.)

My goal was to introduce these youngsters to the idea that there are three ways to earn money: active income, passive income and portfolio income. And with the help of a take-home craft and a memorable story about three little ferrets who have to figure out how to earn money to put in their pockets, I'm hoping that at least one of the kids will bring up the topic of income at the dinner table. "Hey, Mom, do you have any portfolio income?" Wouldn't that be cool?

Now if you are not entirely familiar with the terminology, here's your cheat sheet.

Active Income
Think about what "active" means. It means moving, doing, being in action. When you earn money by working (either for yourself or someone else) that is what we call active income. You are working and you get paid. In a child's world, allowance is active income. Me do chores, me get paid.

Passive Income
It's really almost the opposite of active income. If you rent out a room in your house to an overseas student, you are making passive income. If you get an inheritance, that's passive income as well. Monthly cheques from the government like the Universal Child Care Benefit fall into this category of income. For kids, a good example of passive income is getting money in a card from Grandma. You don't really "work" for this kind of income.

Portfolio Income
This kind of in-coming money is both passive and active: you are largely passive, while your money works for you. Interest, capital gains, dividends and other forms of investment earnings fall into this category. The term portfolio comes from the practice of keeping track of one's investments in a portfolio or record book. If you have an investment that fits this category, show your kids your monthly statement. Point out the money that you have saved and invested and the amounts that your money has made for you. They'll get it.

Teacher Feedback for Workshop
And maybe they'll want to start saving so that they can build a portfolio of their own. My daughter uses an old exercise book as her portfolio and she does all her entries in pencil. It's a great math exercise, plus she's learning that while we don't really "work" to earn portfolio income, we have to supervise our money and make sure that it is indeed working for us.

Copyright 2011. Laura Thomas. All Rights Reserved.
For reprint permission contact

Saturday, January 22, 2011

The Language of Retirement

Confession of a Financial Illiterate
Money smarts really begin and end with vocabulary (says the writer). No it's true. I was on The Lang & O'Leary Exchange last week as the "viewer-who-needs-retirement-advice" and it was quite an experience in financial literacy, I mean illiteracy. What on earth is an OAS and a GIS? I wondered as I strained into my earpiece to hear number-one ranked personal finance blogger Preet Banerjee.

First, let me tell you that Preet was great, and by great I mean seriously knowledgeable, so you should definitely check out his blog Where Does All My Money Go? And if you want to see the instant replay of my moment of financial ignorance you can watch here. The segment is about 9 minutes long but be warned that we don't really finish the discussion.

However, Preet and I hope to fix that this week when I interview him for this blog. I want to know where his passion for personal finance came from and how young he was when he started picking up the vocab.

But back to the retirement vocab that I now know I need to know. I mean, how can I talk to a financial advisor (as Preet suggested on the show) about retirement planning when I don't really know the money words that make up the language of retirement?

OAS stands for Old Age Security pension, a monthly income that comes to you from the federal government. You must apply to receive it. You may qualify if you are over 65 and have lived in Canada for at least 10 years since your 18th birthday. This is taxable income and can be reduced if you are bringing in too much income from other sources such as investments, RRSP, workplace pension, etc. The government recommends that you apply for OAS 6 months before you turn 65. Maximum monthly benefit $524.23.

GIS stands for Guaranteed Income Supplement. You have to already be receiving OAS and the amount you qualify for depends on your income and marital status. It's designed to help low-income seniors. Maximum monthly benefit for a single person is $661.69.

CPP stands for the Canada Pension Plan. If you have paid CPP as an employee, you can apply to start recieving monthly payments between the ages of 60 and 70. If you are self-employed I'm not sure exactly what you do...I'll have to check with Preet or my financial advisor (when I get one).

RRSP stands for Registered Retirement Savings Plan. The idea behind this is that you are earning a higher income now than you will when you are retired. So this program has been set up to encourage you to sock away income, tax-free, in an RRSP when you are younger and richer so that it will grow (hopefully at a rate higher than inflation) and you can take it out and pay less income tax on it when you are older and earning less.

For even more retirement planning fun and to test your retirement vocabulary try the Canadian Retirement Income Calculator on the Service Canada website. It will get you thinking about what you know (and don't know) about how government money is going to come to you (or not) in your old and crusty years. And, if you buy into my idea that money smarts begin with financial literacy, you'll find the calculator a fun way to brush up on the language of retirement.

And please, if you comment on this post, please refrain from cautioning me about the dangers of street-crossing and, please, say nothing about pizza, of any kind!

Copyright 2011. Laura Thomas. All Rights Reserved.
For reprint permission contact

Wednesday, January 12, 2011

The FCAC: Helping Canadians Get Financially Fit in 2011

The Financial Consumer Agency of Canada was set up by the federal government in 2001 to protect the rights of consumers of financial services and monitor the financial services industry. Part of the FCAC mandate, of course, includes basic financial education.

This week I had the opportunity to speak with Julie Hauser, mother of two and FCAC Media Relations Officer. Not only did I find out her thoughts on kids, money and financial literacy, I was also briefed on the great resources that the FCAC has lined up for us in 2011.

Never Too Early
Julie, who told me that a grade-twelve business education course helped her learn the basics of personal finance, says that she has witnessed how stressful mismanaged finances and consumer debt can be. Not wanting her kids to ever have to go through the trauma of being harangued by creditors, she has been talking to her daughters about money since they were toddlers.

She started by using treats to teach basic math concepts like division: if I get twelve smarties and I have two friends over, how many do I give each of them? She also had them counting and sorting coins so that early on they knew little facts like: there are five pennies in a nickel and two nickels in a dime.

Not only has this early introduction to money, counting and the language of money helped her now-teenage daughters do well in math class, it has also laid the groundwork for some interesting family discussions at the dinner table about things like the hidden costs associated with gift cards and other money topics that come up in Julie's work at the FCAC.

The O'Leary Question
I have a question that I first asked Kevin O'Leary of Dragons' Den back in July of 2010, which I pose to all of my interviewees: What three things do you think we should teach five-year-olds about money? Here is Julie's answer:
1. Learn about money.
2. Remember that money is only part of your life.
3. Saving money is important because you might need it later to buy something special.

Money lessons for kindergarten kids aside, Julie suggests that, "We all need to learn enough about money so that we can manage it in the way that best meets our needs and wants." She also feels that having our finances under control is critical to our well-being. She suggests that even if we hire a professional to manage our finances, we should still educate ourselves so that we know how the financial system works.

FCAC "Workouts"
One thing you need to know about the FCAC is that it has resources to match every learning style: videos for visual learners, interactive tools for hands-on learners, etc. They also have an interactive financial learning "game" called the The City that is geared for youth and educators.

You will notice on The City registration page that you can join as a "student" or "teacher." Julie assures me that as a parent, you are welcome to register as a "teacher" (after all, we are teachers...aren't we?). And be sure to input your province because the game will automatically adjust the financial landscape to reflect the cost of living in your area.

Teachers and students who register and participate in The City before March 31 will be eligible to win some great prizes. Teachers can win a Smart board for their classroom and students can win a laptop. In this case, I'm not sure that we parents would qualify as teachers, however, I think it's a great incentive and I intend to sign up for The City and let you know what I think about it in a future post.

One last thing, Julie is shipping me a copy of  the FCAC's Financial Basics workshop delivery kit. If you would like to boost your financial fitness in 2011 (or help others do so), you can order the workshop materials or find out how to host a program by visiting what might be the most helpful financial literacy portal in Canada, the FCAC's Money Belt.

I do believe these are federal tax dollars well-spent and I plan on using the site, and Julie's expertise, to continue building my financial fluency in 2011.

Copyright 2010. Laura Thomas. All Rights Reserved.
For reprint permission contact