Doug Hoyes is the co-founder of Hoyes, Michalos & Associates Inc., one of Canada’s largest personal insolvency firms. In his thirty-year career as a chartered accountant and Licensed Insolvency Trustee, he has personally helped over 10,000 individuals solve their debt problems and rebuild their financial future. Frequently interviewed in the media, he has shared his knowledge and expertise on the most common financial mistakes and traps on Global News, CBC, The Globe and Mail, the Toronto Star, Business News Network, The Financial Post, and CTV News. Doug was kind enough to do a phone interview with me. The interview was done on December 12, 2017 (Tuesday @ 1000). The duration of the interview was 32 minutes and 8 seconds.
Urgen Kuyee: Hi Doug, why don’t you let my readers know a little bit about yourself and how did you get into personal finance?
Doug Hoyes: I am a chartered accountant so right from the start I was always conscious about money, interested in money. When I was a kid, I was cutting lawns or delivering papers, kept track of where the money went. I had hand written ledgers and spread sheets so that’s just the way I am wired. I became a chartered account and gravitated towards the world of insolvency and I started doing restructuring of big companies. I didn’t enjoy it that much because all I was really doing was recovering money for the banks, which was not the most exciting thing ever. I then gravitated into helping individual people, that’s what I do now. I started my company Hoyes, Michalos & Associates back in 1999 and we focus on doing, helping individual with their debt. So, we do personal bankruptcy and consumer proposals and everything related to that.
UK: What are one to three books that have greatly influenced your life?
DH: There are so many good ones. In terms of recent books, I would say Wealthing Like Rabbits by Robert Brown.
UK: Yup, I have read it. I found it informative and entertaining.
DH: Yes, it is a great book. Older books, obviously The Wealthy Barber Returns by David Chilton. I mean I like to read a wide variety of books too though. Books on psychology, people like Robert Cialdini, about persuasion. So, I think it is important to read a wide variety and then, apply those concepts in personal finance and other areas.
(UK: Robert Cialdini’s books on persuasion keep coming up again and again when asked about books. I plan to read it by the end of the year and I urge everyone to do the same)
UK: Many Canadians believe that house prices always go up. Sure, house prices historically have increased over a long period. But, I disagree with the notion that house prices only go up and up. You actually bought a house in 1989 at the peak of the market, then, the house prices dropped. Do you recall how long it took for the house prices to recover?
DH: You are right. The peak was 1989, give or take depending on what city your were in. I sold that house 7 years later at a loss. So, even though I held it for seven years, I lost money on it. The market itself didn’t get back to those 1989 levels in general until the 2002.
UK: Oh, Wow.
DH: Now, again that’s the market average. Obviously, your results may vary. Your experience could be different but it is very possible to buy a house and not be able to sell it for the same price for many many years. And, I think that’s certainly a risk we have got right now because people who have owned a house for 5 or 6 years, think their house always go up. And, historically that’s just not the case.
UK: Right. Do you mind sharing how much money did you lose in that house?
DH: I believe it was about $20,000. My recollection is that I bought the house, it was a town house on the north end of the city. I think I paid $205,000 for it. I thought I was really smart because somebody else in the same complex had bought a unit, 6 or 7 months earlier for $275,00. So, I thought look the house prices have come down. I paid a lot less than that guy did and it was 7 years later when I sold it for $20,000 less than that. In essence, it was a 10% loss after owning it and paying the mortgage, the property tax, fees everything for seven years. So, in hindsight what I should have done back then was rented. Obviously, didn’t know at that time.
UK: In your book, “Straight Talk On Your Money”, you talk about the credit score scam. In fact, you mention credit scores were developed entirely for the benefit of banks. Personally, I believe unless you have millions of dollars in cash, maintaining a good credit score is important. How would an average Canadian function without a good credit score?
DH: Well, you are right. You have to have lots of cash and I agree that, that is not realistic. What you would have to do if you wanted to completely ignore your credit score was you would have to rent, you would have to never own a house, never own a car, and never finance anything. For most people, that is just not realistic. People need a car to get to their work. For example, they need a credit card so they can pay for their Netflix subscription or buy something online. So, I agree that if you are going to borrow, then yes, you want to have a good credit score as you can to keep your cost of borrowing down. My point though is exactly what you just said. A credit score is not for your benefit, it’s for the benefit of the lender. It is to help them decide whether they should loan money to you or not. And, so the mistake I see people making is that believing that most important thing in their life is credit score. It’s not important if I save money or not, it’s not important if I put money into my RRSP or TFSA, what’s important is have 4 credit cards, rotate the balances so I can get my credit score as high as possible. And, I don’t agree with that.
UK: Yes, makes sense. What is the difference between a consumer proposal and bankruptcy?
DH: A bankruptcy is exactly what people think it is. You lose your stuff. So, if you own a home for example, that has equity in it, you lose your equity. If you have a car and that’s worth $20,000 with a loan against it, you are going to lose it if you go bankrupt. I mean if your car is worth a thousand bucks, nobody cares. You can keep it in a bankruptcy.
DH: If you have money in an RESP for your children and you go bankruptcy, you lose it. If you have money in a TFSA and you go bankruptcy, you lose it. So, in a bankruptcy, every month, the bankruptcy trust, you have to report what your income is and the more money you make, the more you have to pay. So, the cost of the bankruptcy goes up and down with your income. It is very open-ended. In a consumer proposal, we go to everybody you owe money to and we say, I cant afford to pay you the $50,000 I owe you on my credit card, bank loan, pay day loan, taxes and whatever other unsecured debt I have got. But, I could afford to make a proposal where I pay you, let’s say $20, 000 over the next 5 years. If they accept that deal, it doesn’t matter what your income is every month, you get a raise at work, you can work overtime, the payments are fixed. They don’t change. So, a consumer proposal is a great option for somebody who has more debt than they can ever hope to repay but they also think that their income may increase, they have other assets that they want to protect. In fact, in Ontario right now, four people file a consumer proposal than file a personal bankruptcy.
UK: What effect will it have on your credit when you declare bankruptcy and consumer proposal?
DH: A first bankruptcy remains on your credit report for 6 or 7 years. A normal bankruptcy if your income isn’t above the limit, you would be bankrupt for 9 months plus add another 6 years to that. So, roughly 7 years it’s on your credit report. You are coded as an R9 which is the lowest possible ranking so it makes it that much more difficult to borrow in the future if you go bankruptcy. Not impossible, but more difficult and you will pay higher interest rate. With a consumer proposal, you are coded as an R7, which is not quite as bad as R9. It stays on your credit report for 3 years after the proposal payments are done. If you pay the proposal off quicker, it can come off the credit report quicker.
UK: What age group is common for Canadians to declare bankruptcy and why is that so?
DH: The most common age is around about age 45 although we do bankruptcies for people who are in their late 20’s, in their 30’s, even up in their 60’s, 70’s and even 80’s in certain circumstances. The reason for that is, at age 40, about age 45, age 50 in that range, you still probably have independence at home, you kids are still at home and you are supporting them. You might be helping your elderly parents too and so, you are kind of sandwiched in the worst possible spot. You have worked long enough to build up credit and build up debt but you haven’t inherited anything from your parents yet because they are still alive. You are still at the maximum expense point in your life. So, that’s the most common age that people get into serious financial trouble.
UK: You spoke about how we might lose any kind of any unregistered investments when you decide to go bankruptcy. But, why do you think it is a bad idea to cash in with your RRSP and locked-in retirement account (LIRA) if a person is considering bankruptcy?
DH: As a general rule, no, I don’t think it is a good idea to cash in your retirement account. The rule in a bankruptcy is you get to keep your RRSP except for what you have contributed the year prior to the bankruptcy. So, you can’t just take out $10,000, put it into your RRSP on Monday and declare bankruptcy on Tuesday. You will lose your $10,000. It doesn’t work like that. But, most people that I deal in financial trouble haven’t been able to contribute to RRSP anyways, that’s why they are in trouble. So, my advice is take a look at your situation, how much debt do you actually have. So, if you got $50,000 in your RRSP and you owe $10,000 on a credit card, okay then maybe the correct answer is take the money out of your RRSP and take the tax cut and pay off the debt and be done. But, most people I deal with, is the other way around. They have got $5000 in their RRSP but they owe $50,000 in their credit cards and other debt. It doesn’t make sense to cash in their RRSP if you are not going to lose it in your bankruptcy anyways. You might as well keep that and consider a bankruptcy or a proposal. The key point is you want to talk to a professional before making that decision because there are lots of different factors involved.
UK: Can we talk about payday loans? There are payday loans in almost every intersection here in Toronto. I like to observe when people enter the payday loan stores while I am waiting for my bus or the streetcar. From my small or informal experimentation, I have seen a lot of people in their 20’s and 30’s entering the stores. More males though I have seen females as well. But, in your book, you explain from all your clients that go bankrupt owing money on a payday loan, the highest amount owed on payday loans are by seniors. Why would seniors, many of who are retired, be getting a payday loan?
DH: I think it’s because when you retire, your income generally goes down. Your pension is probably less that what you were earning working. But, your living expenses don’t immediately go down. You are still paying the same rent, your grocery bills are still the same, and your hydro bills are still the same. So, they have to make it up the difference and so, rather than dramatically reducing their expenses, which are not always possible, they often then resort to borrowing. And, payday loans are one way they do it. I think also there is a bit of an embarrassment factor because if you have been doing fairly well your whole life and always have been able to pay your bills, it’s tricky to all of a sudden, you know have to start talking to your adult children and say, can you help me out? So, I think there is a huge embarrassment factor for seniors.
UK: Joint bank accounts? Are they a must? Divorce lawyers tell us to maintain separate bank account. In fact, they will tell us to keep everything separate: banks accounts, investment and retirement accounts.
DH: Well, I think it depends on your situation. If one or both of you is at risk of having their wages garnished or something taken from them, then it is very dangerous having a joint bank account. For example, if I was self employed let’s say, then I am at greater risk to having my wages garnished or let’s say I am self employed and haven’t kept up to date with my taxes. Well, revenue Canada could just come in and seize my bank account. That’s why you don’t want to have a joint bank account with someone. One because if the bank account gets seized, you have lost all your money. And, if one of the two partners has any kind of debt and they are at risk of losing it or have someone take action against them, then a joint bank account isn’t a good idea. You got to look at your individual situation to see what makes most sense.
UK: In your book, you talk about how we should never loan money to family or friends. Like you said, Thanksgiving dinner isn’t a lot of fun if the topic of conversation is “When are you going to pay me back that money I loaned you?” How do you say no if a friend or family member asks for financial help?
DH: You just say No. That’s the simple answer. The longer answer is if I loan you this money, am I actually helping you? Or, am I just prolonging the inevitable? I have done bankruptcy for people particularly older people who have loaned money to their kids, their adult children. They have not been able to pay them back and now the parents are in financial trouble because to loan the money to the kids, they had to loan the money themselves. They had to borrow on their line of credit. Well, that’s a disaster. You don’t want to put yourself into worse financial position to help someone else out. So, my advise is if someone is asking you, like if your friend says Ah man, I forgot my wallet at home, can you loan me $20 for lunch. Fine, here’s $20. If you don’t pay me back, it’s not going to break me. But, if your friend says I want to invest in bitcoin.
DH: Can you loan me $10,000? Ahhhhhhh. Well, again is $10,000 a big number? If you have got $10,000 cash in your pocket, fine give him the money. But, for most people, that’s a lot of money. So, I am not a fan of putting yourself into financial difficulty to do that. Now, here’s what I do suggest. I am not saying you should never help anyone, what I am saying is you should not LOAN money to people. So, if you friend is having a tough time at bed and cant make his rent payment this month, and he wants to borrow 500 bucks off you, I would say you know what I will help you out. Here’s the 500 bucks. Don’t worry about paying me back, it’s not a loan, it’s a gift. And, if someday if you got some money, great but don’t consider this a loan. I don’t want this to damage my friendship with you. I am going to assume you will never pay me back. Now, there’s much less stress. Thanksgiving dinner isn’t quite so annoying because I don’t have to worry about when are you paying me back. It wasn’t a loan, it was a gift.
UK: I am curious. Quickly, what’s your take on Bitcoin?
DH: I think that 10 years from now, bitcoin won’t be a thing. It will be replaced with something else. I don’t know what it will be. I mean right now, we are talking in December of 2017, so if someone is reading this in January of 2018, the world might be in a totally different place. Right now, we are quite obviously in a mania. Everyone is jumping into it. I think blockchain will be a very important technology going forward. I think it maybe just as impactful as the Internet was. But, that does not automatically mean that bitcoin is going to be the blockchain application that changes the world. I think cryptocurrencies are here to stay but there are many of them. And, bitcoin as it exists today isn’t scalable enough to be useful. So, the way block sizes and everything works now, bitcoin can only process a maximum of I think is like 6 or 7 transactions per second. The visa system, the credit card visa system can process something like 60,000 transactions a second. There’s no way all of us are going to be using bitcoin to pay for our coffee because the system cant just handle it. So, I think either bitcoin will have to evolve or fork into something more scalable. I encourage everyone to spend a 100 hours learning about blockchain, cryptocurrency, bitcoin and those sorts of thing. There are tons of resources in the Internet, there are lots of youtube videos, and there are lots of ways you can learn. Before you buy any cryptocurreny, you should read the whitepaper to understand whatever it is. And, most of the whitepapers I have read for different cryptocurrencies and blockchain investment and so on, are marketing materials, nothing more. So, I am skeptical but think back what it was like in 1999 with the internet, all you needed to do was put the word dot com on the end of your company and you could go and raise a billion dollars. And, the vast majority of the companies don’t exist anymore. Now, some of them do. Amazon still exists today and in fact, it’s worth billions and billions of dollars. So, I am not saying Internet was a fad, obviously it’s a part of our life right now but it was very difficult to pick the one company in 1999 that would be worth billions of dollars in 2017 and 2018. I think cryptocurrencies are the same. Yes, I think they are here to stay but I don’t know which one so I would certainly spend some time researching it. And, if you want to put a couple of bucks into it, fine but it should be money you are willing to lose. I believe that’s a good way to learn about any kind of investment, put in a little bit that you are willing to lose because when you got some skin in the game, it is a lot easier to focus your attention and learn how it works.
UK: Very interesting points and I believe valid points as well. Now, in your 30 years of experience working in the financial industry, what are bad recommendations you hear in your profession or area of expertise?
DH: Bad recommendations. Well, the most obvious one would be buy as big house as possible. That kind of goes back to what we talked about earlier. If houses always go up in value and if a house is going to double in value in the next 5 years, I don’t want to buy a $500,000 house because I am only going to make $500,000. I want to buy a million dollar house, or 2 millions dollar house because I will make that much more money. And, unfortunately and even if that’s true, even if the house is going to go up in value, you have got massive carrying costs. The bigger the house, the more the carrying costs. The mortgage is more, the hydro is more, and property taxes are more. So, I think with all things in life, the best strategy is to take a few minutes or a few days and step back and actually, think about it. What is it going to cost me to carry this house? Our emotions get the better of us rather than crunching the numbers with the correct answers.
UK: Very true. We are almost done. Doug, how many times do you write in a week?
DH: There are some weeks when it’s everyday. And, you know there are some weeks when it’s much less. I find it easier to have a schedule. I personally am a morning guy.
UK: Yea, so my next question was what is your writing practice like? Do you prefer writing in the morning or nighttime?
DH: I am definitely a morning guy. I am usually up by 6am and so I will get into the office early and start doing my writing then. Or, if it’s the weekend. I can’t sleep till noon in a Saturday, I just can’t do it. Even if it is possible, I cant do it so I get up and get going. I am not good in the evenings, I am not creative in the evening so in the evening I will be doing things that are less mentally taxing or less requiring me to be creative. So, if I want to read some white paper on cryptocurrency, I will do that in the evening. I can do it in my own pace, stop and go or something. I am definitely a morning person. I think it’s important to understand how you work and what works best for you and follow that.
UK: You said you are usually up by 6am, what time do you go to bed?
DH: I usually go to bed by 10. I need my sleep. I am not one of those guys who can operate on 4-hour sleep. What I might do is I might read for a bit or something to wind down. You know try to avoid the screens, I don’t watch TV so that’s not a thing for me but I try to wind down by maybe listening to a podcast. I don’t use alarm clock to get up. I find if I get enough sleep, then I am going to get up when I need to get up. So, I haven’t used an alarm clock in 20 years but you got to be disciplined enough to say, well this is when I want to go to bed and I want to be productive tomorrow. Also, I wear blue blocker glasses in the evening so I am trying to filter out the blue lights. And, obviously I am not drinking coffee before I go to bed. I think you have to experiment with yourself and figure out what works best for you.
UK: I agree with you one thousand percent. I think it’s best to experiment you’re your own body because everyone is different. Lastly, what advice would you give to a smart, driven college student about to enter the “real world”? What advice should they ignore?
DH: I would say you probably didn’t learn much in college. I think in future, fewer and fewer people will go to college. I mean obviously if you want to be a nurse, you have to go to school because there are courses you have to take. If you want to be a chartered accountant, or a doctor or a lawyer, then yes you have to go to school. But, if you want to operate a business, then I think what you have got to do and do it. My advice to someone who is graduating from school would be keep learning and we are in great time in the history of the world because all of the knowledge is out there. A google search will tell you pretty much everything. There are all sorts of resources out there. Try to learn something everyday, try to explore something that you know nothing about and by doing that, I think you will be able to make connections to whatever it is that you want to do. I mean I talked earlier about books that talk about psychology and persuasion. Well, I am an accountant. Why am I reading that kind of stuff? Well, it’s because it is very important in what I do. If you come to see me with a whole lot of financial problems, lot of debt, I need to persuade you that there is a better way to handle it and here is what you should do. So, it’s not just about the numbers, there’s more to it. And, I think that applies in pretty much every area of life. So, graduating from college isn’t the end, it’s the beginning. It is the starting point. What are you going to do going forward to continue to improve? So, I think that is something to focus on.
UK: Great points. Thank you so much for your time, Doug.
DH: Excellent. Thank you.
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