Thursday, October 20, 2011

Want-it-now! and other Financial Pitfalls

Financial Literacy Now!
I don't usually put things off. I'm more of a "get the job done so that I can go on to the next thing" kind of person. But sometimes frustration can trigger a rather nasty episode of procrastination. Tomorrow is a professional day. The kids get a long weekend, but teachers will be at a variety of subject-specific conferences. I have been invited to present a workshop for K-12 teachers on the subject of financial literacy, a subject that is just a blip on the K-12 curriculum.

I wonder how many teachers will sign up for my workshop on "lessons that boost storytelling skills and build financial literacy." They don't have to teach kids about money (unless they are teaching the four-week financial unit of Planning 10) so why would they bother attending my workshop? And, as I know from having done these workshops for teachers before, the ones who come usually have a decent level of financial literacy already. So how is my work advancing the financial literacy cause? Why bother?

Financial and other Pitfalls
Last week, the business editor at The Province newspaper asked me to write a week's worth of tips and advice on money for kids between the ages of 10 and 20. This is part of a larger financial literacy series that starts Sunday, October 30th. My tips will run the second week.

As I pondered the assignment and wrote the seven tips, along with an additional three pitfalls that teens and their parents should avoid, I started to think that tomorrow's financial literacy workshop may not be futile after all. When I drafted the pitfall on delayed gratification (see #3 below), I realized this: Just like every dollar counts when it comes to spending and saving, so does every workshop participant count when it comes to building a more financially literate citizenry and a brighter economic future for all of us.

I have to remember that I don't have to have the world today, the "world" being a country in which every student leaves high school financially literate. The truth is I want this now, but I can wait and doggedly continue to do my part to make it happen one step at a time while side-stepping frustration and procrastination.

On the same note, here are three money pitfalls that youth and their parents should try to avoid.

#1 Not letting teens manage their own money.
Teens, don’t let your parents handle your finances. Parents, give your teens some money to manage entirely on their own. It is far better to regretfully blow $500 when you are 15 than $5,000 when you are 25, or $50,000 when you are 35.

#2 Making money a taboo subject.
Don’t make money a taboo subject in your home.  Money should be one of the easiest things to talk about at the dinner table: the good, the bad and the ugly. Share everything, including the gaps in your knowledge. Learn together.

#3 Not practicing delayed gratification.
Don’t buy into the idea that you have to have the world today. Even when you have saved up for something, slow down and wait seven days before you go out and buy it. You don’t want to be a slave to a want-it-now attitude. Practice some self-control.

Copyright 2011. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme at telus dot net.

Friday, October 7, 2011

TFSA Over-contribution Nightmare

Are you one of the 1.5% of Canadian TFSA holders who "accidentally" over-contributed to your TFSA in 2010? If you recieved a letter about this from Revenue Canada in August, you have just 60 days from the date the letter was sent to make sure that you are not stuck paying for your ignorance of the TFSA rules.

It turns out, that you cannot transfer your TFSA from one institution to another without it being considered an over-contribution. Here's what happened to me.

Ignorance could cost me $1,100
Early in 2010 I decided to move my TFSA holdings from a savings account at one bank to an investment account at another. I did this myself without giving much thought to it. After all, it was just a transfer. Though I was maxed out on my contributions, I was not technically adding any more money to my TFSA. Wrong.

Any movement of cash out of you TFSA is considered a withdrawl. You cannot put money back into a TFSA account during the same fiscal year that you withdrew it. Once it's out, it has to stay out. You can top it up during the next fiscal year. If you do so before that, you will be charged 1% of the total of each month's highest excess amount for the year. My $10,000 "over-contribution" meant that I was charged 1% on $110.000, even though I had technically not added an extra $10,000 to my TFSA but had simply moved my money from one spot to another.

Fortunately, as you can see in a press release issued by Revenue Canada on August 19th, there is room for a pardon on this mistake as long as you respond within 60 days of the date of their letter. I had a late summer holiday and came back to a mountain of paperwork. I found my letter (dated August 18th) this week. I have to respond by October 18th and here's what I have to do.

Making your case
This is what Revenue Canada told me to do:
  1. Write a letter to Revenue Canada pleading your ignorance of the rules and asking them to please waive the penalty.
  2. On the one-page TFSA Return 2010 (form 0026301), fill in the "information about you box" and then sign the back at the bottom.
  3. Attach any bank paperwork that proves your innocent mistake.
  4. Put it all in the provided envelope and get it in the mail ASAP. I'm mailing mine today!

Copyright 2011. Laura Thomas. All Rights Reserved.
For reprint permission contact moneyme at telus dot net.