The Barefoot Investor is a financial services business that broadcasts, and publishes financial education via newsletters, emails, websites, television, radio, audio recordings, seminars and written reports. Our investment information, education and commentary is provided by the Barefoot Investor in a number of ways. Our mission is to help people tread their own path!
It all began when I answered a question from Louise in last week’s newspaper.
Here’s a recap:
Louise read my book, went on a Date Night (by herself!), and dutifully checked her bank statement. She found that she was being whacked $90 a month for credit card insurance.
She’d been told — when she applied for a credit card — that the only way the bank would give a single mum a card was if she got credit card insurance.
That was a lie.
For the uninitiated, credit card insurance is what Vanilla Ice is to hip hop: a total marketing conjob concocted to fleece unsuspecting people of their money. And that’s not just my view either — the Royal Commission labelled credit card insurance ‘junk’ and called for it to be banned.
So, for the next month Louise tried to put her policy on ice, ice baby. Yet that was easier said than done — her bank, St George, bounced her from one department to another, and all the while kept billing her.
Just before the school holidays the bank agreed to stop the payments.
And Louise could do with a win.
She’s a single mum.
She’d just been laid off from her full-time job.
And her little girl has a very serious illness.
But you know where this is going, don’t you?
Yes, during the school holidays, when money’s always tight, St George hit her account and swallowed up the little money she had. That left her account overdrawn (then again, on the upside, more fees for St George!).
So in my reply last week I went straight to the top: I googled “who the hell is the CEO of St George Bank?” and up popped the smiling face of Ross Miller, the General Manager. I gently suggested (to a few million readers) that he pull his finger out and do something.
I can only imagine poor old Roscoe choking on his morning cornflakes as he read the paper and saw his name in print!
In any event, he got straight on to it. And I mean straight on it — on a Sunday no less, when banks are all closed, and counting their billions.
The result? Louise not only got her junk insurance cancelled, she got a full backdated refund, paid into her account first thing Monday morning.
Alright, stop, collaborate and listen.
After Grandmaster Hayne recommended that government and regulators act to stop the selling of junk insurance, consumers could be up for up to $1 billion in refunds. So if you’ve been sold junk add-on insurance, head over to demandarefund.com and get your money back.
I went on a father and sons trip, camped out in a national park and let the kids range free.
The boys climbed trees, fell out of trees, and ate damper on sticks that weren’t first thoroughly disinfected with wipes.
It was sensational … and also a bit loose.
One morning I sent Liz a picture of the boys warming themselves around the morning campfire:
“Put their jackets on and get them each a beanie or they’ll catch a cold!” screamed the reply text.
(Terri Irwin she ain’t.)
As we made our way home, the boys were clearly impressed with squeezing into a tent, doing their business behind a tree, and not showering.
“This was the best holiday ever”, announced my six-year-old.
“The best EVER”, parroted his three-year-old brother.
“The best ever?! But what about the time we went to Fiji and I chartered that boat with the marine biologist (which cost me four hundred bucks)? Or when we hired that villa in Bali and went to the water park?”
Blank stares in the back seat.
“Can we go through McDonald’s drive-through on the way home?”
“Yes … but don’t tell your mother.”
As parents we can get stuck on the idea that we need to spend a lot of money – especially in the school holidays – to create memories with our kids. Yet what they really want hasn’t changed that much in generations: outdoor fun, and uninterrupted time with their parents.
Case in point: this week the World Health Organization (WHO) recommended that kids under age five should have no more than one hour of screen time per day.
(What that means for us adults, who spend eight hours a day glued to our screens at work, and then thumb through Instagram till our head hits the hay, is a class action suit for another day.)
Still, Silicon Valley tech millionaires – who got rich getting us all hooked on screens – worked this out long ago: Bill Gates didn’t let his kids get a mobile phone until they were 14, and Steve Jobs famously wouldn’t let his kids near an iPad. And in Silicon Valley some of the most popular schools are those that are ‘screen free’.
In a world of increasing distraction, technology and busyness … parents are still the killer app!
Before we got married, we signed up for pre-marriage counselling at the local country church.
The pastor asked about our thoughts on work, which was a sticking point: at the time I was working around the clock getting Barefoot up and running, appearing on television, and travelling the country most weeks doing paid speaking gigs.
I turned to Liz and said:
“If in a decade from now I’m still working my guts out, and travelling constantly around the country, the only reason will be because I’m status hungry, and that I value my work over my family. Whatever excuse I give you in the future … will be a lie.”
Liz has not only remembered that conversation … she has skillfully reminded me of it at opportune times.
What the hell was I thinking?
Well, life is difficult to measure, which is why money is such a simple substitute for happiness:
Do I have a bigger house than I used to? A better car? A fancier title? Earning more money?
Even millionaires think they need more. A 2018 Harvard study asked 4,000 millionaires how happy they were, and how much money they’d need to be perfectly happy. The overwhelming answer? Two or three times more than they currently had.
However, I’ve also spent a lot of time around a lot of really old people (some of them fabulously wealthy). And the one regret that keeps coming up is:
“I wish I’d spent less time working, and more time with my family.”
Now I’m sure there are plenty of things pre-marriage counselling didn’t pick up on that I totally suck at.
However, I’m proud to say that I haven’t done a (paid) speaking gig since my kids were born.
And this year my oldest son started school, and he’s coming up for his first school holidays. He’s been excitedly telling me about all the things he wants to do with me … like going camping on the farm, and doing lots of secret boys’ stuff.
That’s why in my last negotiation with this newspaper I told them that from now on I wouldn’t work on school holidays.
Sir Richard Branson leaned across the table, smiled, and winked at me.
“It’s pretty sexy, right?”
In his hand was a credit card ‒ a Virgin credit card ‒ with an aesthetically revolutionary ‘clipped corner’.
That boozy night happened, from memory, about 16 years ago. At the time Branson was banging on about his card helping people, while simultaneously sticking it to the ‘fat cat banks’ (and making himself a boatload of cashola).
This week Apple announced it’s launching a credit card (only in the US to begin with), simply called ‘Apple Card’.
And it’s titanium, baby.
As in metal. Laser-etched. There are no numbers on the front ‒ which coincidentally makes it safe to show off on Instagram, if you’re so inclined (and the people who get this card most certainly will be).
And it’ll totally blow the mind of the 7-Eleven attendant when you plonk it down to buy some Cheezels:
Attendant looks down at shiny metal card … then looks up at you, slowly studying your face.
“Are you some kind of celebrity bigshot … Mr Cheezel man?”
This week Apple CEO Tim Cook gushed about his new credit card: “While we all need them, there’s some things about the experience that could be … so much better.”
Okay, so I’m going to pull you up on that one, Timbo. You actually don’t need a credit card. (Well, maybe if you’re spending $319 on wireless Airpods, which make you look like, to quote my old man, a “bloody drongo”.)
Strip out the metal and the marketing and this is just another ‘debt card’, and not a particularly revolutionary one: Apple’s fine print shows it charges up to 24.24% interest on the card.
However, there are a couple of things they’re doing which are interesting:
The first is the tech: as you’d expect from Apple, they’ve got a great app for the card which allows you to easily categorise and track your spending, and ‘gamifies’ and personalises it to help you make better financial decisions. That being said, a lot of these features and tracking are already here in Australia with Up Bank. And within a couple of years all banks will offer this.
The second is the card’s rewards system. They’re going with daily cash back instead of points. This makes total sense. Frequent Flyer points are s-o-o-o 2007. Banks and airlines have created their own confusing alternate currency for much the same reason that Zimbabwe issues trillion-dollar notes: to deliberately confuse the poor plebs who are forced to use it.
The Aussie banks will be disrupted over the next decade, make no mistake. However, I’m not sure it will be by Apple, who are just trying to fill another hole by building their ‘ecosystem’ as iPhone sales stagnate.
And remember: the Apple Card is still just a credit card. So while it’s a danger for our banks … it’s also a trap for iPhone users.
I’ve decided to make a move into a new industry: health and fitness.
(I’ve even come up with a catchy name for my program: ‘The Barefoot Bikini Challenge’.)
Why am I so excited?
Well, I just read the following email from Claire, who has given me one of my most inspirational book testimonials yet.
Here it is:
“My fiancé and I started ‘going Barefoot’ in November 2017.
“At the time, we were living paycheque to paycheque at my in-laws’ house. I was also battling some demons in regard to my physical health, being obese at 170kg.
“Fast forward to now ‒ 18 months later ‒ and we have achieved the following:
Paid for gastric sleeve surgery out of our own pocket ($5,000)
Gone to America for three weeks
Paid off one of our credit card debts ($3,000)
Moved into our own property and bought brand-new furniture and appliances
Paid for multiple things for our wedding using savings and not credit
And … still managed to save $15,000.
“What’s more, I have lost 96kg, which has eradicated my physical health problems. I have included photos from before and after starting Barefoot, because without your advice I don’t think I would have been able to have this surgery and achieve so much in such a short period of time!
So, how did Claire nail the two biggest goals most people have (fitness and finances) in one hit, and so quickly?
Well, it had nothing to do with fad diets or get-rich-quick schemes … which never work out in the long run.
And she certainly wasn’t spurred into action by continually beating herself up about her situation.
This reminds me of a book that legendary financial columnist John Beveridge wrote called Invest or Die.
Truth be told, my book has roughly the same stuff in it (just with less death threats and more date nights).
And the Barefoot approach worked for Claire:
She created rituals, like going to the pub for Barefoot date night. And while she was there she automated her finances so she didn’t have to rely on her willpower … or even think about her finances after it was set up. And the process of continual wins built up her confidence, little by little.
The outcome is that she’s not only changed her life, she’s saved her life.
Her name is Samantha, and she’s worked out a way to get a private 30-minute financial strategy session with me every single month. How much does she pay me?
In fact, I pay her $40!
Then again, she does wield sharp scissors and often holds a razor to my throat (so I’m the very definition of a captive audience).
Over the past few years I’ve heard about her on-again, off-again, on-again boyfriend (it’s my version of MAFS … each month I get a new episode). Yet over the past 12 months they’ve gotten engaged, and are now looking to buy.
She put in my lap a brochure from a new development on the ‘fringe’ of Melbourne.
“This joint looks more like the back of the mullet than the fringe”, I quipped (as she snipped dangerously close to my ear). “How much are you looking to spend?”
“We’re looking at places around $450,000, and we’ve saved up $50,000”, she said.
“That’s a great start, but not enough.”
“Well, we’ve already got pre-approval from the ANZ!” she countered.
“Did you have to submit payslips or any other documentation?” I asked.
“Er … no.”
That, I explained, is the equivalent of a swipe right on Tinder: you’re not getting married, you’re simply in the ‘maybe’ pile. So I challenged her to spend the next month playing the field, and she dutifully went to two banks and a broker.
The response? “Yes … no … and maybe.”
Still, Samantha is in a rush, and she wants me to wave my magic wand and help her buy as soon as possible, “while prices are low.”
But here’s the interesting thing:
At 23, she has absolutely no concept of an economic downturn. In fact, even her parents, who are in their early forties, have never experienced a recession in their adult lives.
Let’s put that in perspective:
In the 1991 recession, Aussie property prices had their longest fall on record: 20 months of decline.
So how does that compare to today?
Well, nationally prices peaked in September 2017, which means they’ve been falling for 17 months.
However, I’d argue that this slump is only getting started, for three reasons:
First, the Reserve Bank suggests there are almost $500 billion in interest-only loans that are due to be reset to principal-and-interest in the next five years, which their analysis suggests will cost the typical borrower $7,000 more a year.
Second, interest rates are already at historical lows, so small rate cuts add up to only small repayment savings. And besides, it’s unlikely the banks will pass on the full rate cuts.
Finally, the upcoming federal election will likely bring a new government, and with it changes to negative gearing and capital gains tax (CGT).
As a result of all these factors, banks are being very cautious with their lending … and it’s the banks that ultimately control property prices, based on their willingness to lend.
Plenty of people who bought in the past two years are copping a buzzcut. That’s why my advice to Samantha — and anyone else with less than a 20 per cent deposit — is simple: there’s no rush!
Last Monday, I broke bread with a bloke who’d just made $54 million … before lunch.
His name is Anthony Eisen and he’s one of the founders of Afterpay.
And he’s very, very rich.
Yet a few years ago he was like any other dad living in the burbs. As he’d turn out the lights at night, he’d notice there was always one light glowing across the street. It came from the room of Nick Molnar, a kid in his final year of uni who lived with his parents.
“Probably studying for his exams”, thought Eisen.
One day Eisen got talking to Nick, who explained he stayed up all night working on his eBay jewellery store. Yet the real jewel that caught young Nick’s eye was a groundbreaking payment system for his store:
“You buy something, and then you make a series of payments … but there’s no interest”, Nick told his neighbour.
“Ummm, that’s actually been around for years. It’s called lay-by”, said Eisen.
That conversation happened about four years ago in a sleepy suburban street in Melbourne.
Today, the Afterpay Touch Group is one of Australia’s fastest growing companies, worth over $4 billion.
So, how did they do it?
Well, the genius of Afterpay is that it looked at credit from the customer’s point of view.
The traditional credit model involves screwing the customer: think credit cards, personal loans, and so-called ‘interest free’ deals. Millennials have worked this out, and shun credit as a result.
Afterpay screws the retailer instead.
It charges the shop a 4% commission on goods that are Afterpaid (it’s a verb, apparently). The customer then pays off the purchase in four fortnightly instalments. And if they pay on time, there are no fees, and no interest. Think of it as a modern-day version of lay-by with a millenial twist ‒ you get the goods immediately.
Clearly it’s a better option than a credit card, or a personal loan, or anything old Gerry Harvey has come up with.
So here I was meeting up the man who started it all … and I found out that, like me, he’s on a mission to help young people with their money.
“We’re here to help people, it’s in our DNA!” Eisen told me, sounding positively Zuckerberg-ian.
“Steady up, cobber”, I replied.
Here was another fabulously rich white tech dude who was saving the world … one short-term loan at a time.
It’s my job to needle these visionaries on their ‘new new’ money thing.
Look, there’s no denying that Afterpay has transformed the way millenials shop.
However, I’ve learned that with these ‘new new’ things, it takes a while for the ‘bad bad’ to show up. (Case in point: Mark Zuckerberg started out with the simple, wholesome aim of ‘making the world more connected’ ‒ and look where that got him.)
Specifically, what happens when you train a generation to spend money they don’t have?
Because, make no mistake, that’s where we’re headed:
The majority of Afterpay’s 2.6 million customers are millennials.
Eisen told me that the average outstanding balance for a customer is just $208.
Yet many are on a merry-go-round ‒ 90% of Afterpay’s transactions are from repeat customers.
Late last year ASIC found that one in six of millenials who use ‘buy now, pay later’ services like Afterpay are in financial strife … getting overdrawn, delaying bills, or borrowing more.
And that’s why I call Afterpay the ‘marijuana of credit’ ‒ my point is that, once you get hooked on spending someone else’s money, there’s every chance you’ll graduate onto harder stuff.
Still, I seem to be in the minority. That very morning that I met Eisen, the Senate inquiry into the ‘buy now pay later’ industry had left Afterpay off the hook from tougher regulation, which predictably caused the share price to rocket. In turn, Eisen, already one of the wealthiest men in Australia, was $54 million richer that day, at least on paper.
At the end of our lunch the waitress came over with the bill.
“I’ll pay”, said Eisen.
“No, I’ll pay … with cash!”
Tread Your Own Path!
P.S. Afterpay is a hot button for plenty of people ‒ I’ve been inundated with emails. So this week I’m devoting my questions to it. And to kick it off, someone who is clearly a fan …
See, Monday — when the findings of the Hayne Royal Commission were released — was like Grand Final Day for me … I (almost) got more airplay than Kerri-Anne Kennerley. Not only was it the biggest news item of the week, it was arguably the biggest finance story since the GFC.
So, earlier in the week I wrote to the Barefoot Community — literally hundreds of thousands of people — and offered to answer any questions on the Royal Commission, in today’s column.
I had a tin of Nescafe Blend 43, and toothpicks, at the ready to answer the flood of questions.
Here’s what came through:
One guy wanted to know if marijuana stocks would be affected (ummm no, smokey), another asked what aftershave I use (?), and a few wanted to know if it was a good time to buy or sell homes.
So here’s my big takeout from this week:
You don’t really give a toss about the Royal Commission findings, do you?
(Sure, the media banged on about it, but everyone else was like, “How about that psycho on MAFS, am I right?”)
Yet there was one group who flooded my inbox: mortgage brokers — who were angrier than Alby Mangels (google him) at the Hayne-bomb’s recommendation to blow their trailing commissions to Timbuktu.
It was easy to spot them — they often wrote IN FULL CAPS. Why were they so mad?
Well, the biggest change from the Royal Commission recommendations will come in two to three years’ time when you shop for a home loan. If it all comes to pass, banks will be banned from paying both up-front and trailing commissions to brokers. Instead, you’ll pay an up-front fee to the mortgage broker for the advice.
Yet how will that work out in the real world?
Luckily, I happen to know, because I did this last year with one of my staff, Karen, who came to me and said she wanted to refinance her home loan.
We did three things:
First, we shopped around to see what rate online lenders like UBank and Homeloans.com.au were offering.
Second, she rang her bank and used the scripts in my book to see if they’d match thecheapest deal.
Third, I arranged for her to see a totally independent mortgage expert who charged an hourly fee for his unconflicted research, with absolutely no kickbacks. (This is the proposed model that will be in place in a few years.)
His fee for the research?
Well, you could have knocked Karen over with a feather.
“I don’t have $4,000!” she cried.
The independent broker explained it would take 20 hours of research at $200 per hour … but that he would also rebate both the upfront and the trailing commissions.
In the end, Karen ditched him and went with another broker who was recommended by her accountant.
“What did they charge you?” I asked.
“Actually, I don’t remember … but I know I didn’t have to pay anything up front!” she said.
And there’s the problem:
The finance industry has trained customers to expect that financial advice should be ‘free’ … free home loan advice, free insurance advice, and (back in the old days) free financial plans.
However, the truth is that ‘free’ is the most expensive way to get advice — because they’re loading up the cost of the product and generally expressing it as a percentage rather than a flat dollar cost, to obscure it further.
Still, most Aussies are like Karen … they’d rather have ‘free’ advice — no matter how much it costs them in the long run.
here have been a couple of times in my career that I’ve come across a subculture.
The first was right back when I began: people who would write to me about my … feet. Yep, that’s a thing. Some people get their socks off looking at bare feet in the newspaper.
The other was a few weeks ago when I got a question from uni student Tim, who said he ‘dumpster dived’ for food.
I thought he was joking … yet little did I know that I was myself about to get binned like a bent banana.
The email responses came in like two-day-old loaves of bread:
“Dude, you don’t know what dumpster diving is? I earn $180,000 a year, and yet on my days off I go to the local Woolies bin around midnight for all the eggs, bread, pink milk (not expired), and slightly spoiled but still good fruit and veges.” (This person signed off as ‘Dumpster Diving Till I Die’, which may be tempting fate.)
As I dived into the subject, I discovered that the devotees of this movement even have a name: ‘freegans’.
Yet my favourite freegan was Benjamin, aka ‘Binjamin the Raccoon’, who wrote: “I live almost entirely out of rescued food from the bin (plus some home-grown veg). Every day, I systematically take all the food from two dumpsters and distribute it out to feed probably 20 struggling families per week, as well as bread for farmers’ livestock.”
Okay, so that’s actually pretty cool.
So this week I grabbed my five-year-old son and we went dumpster diving at the back of an inner city KFC — “It’s finger-lickin’ good, mate!”
Okay, so we didn’t do that. (My wife doesn’t allow us to eat KFC, let alone from a dumpster.)
Yet we did go on a father-son trip to Australia’s largest hunger relief not-for-profit, Foodbank, who each month help feed over 700,000 Aussies.
The reason I had my son come along was twofold: first, he loves factories, forklifts and donning high-vis vests. Yet, more importantly, it was also my first step in a long journey to making sure he doesn’t become an entitled brat.
And Foodbank is an awesome way to teach kids one of the fundamental keys to happiness: generosity.
See, the hidden crisis in this country is that one in five kids live in ‘food insecure’ households.
No, it’s true.
That explains why in Victoria they are expanding the ‘Breakfast Club’ program to be in 1,000 schools.
On our way to the factory I asked my son if he remembered what it feels like to be hungry.
“Yes, it’s hard to think, and I get angry because I have a sore tummy”, he said.
“Well chances are that some of your classmates arrive at school with those tummy rumbles. You can’t see it, of course, and your mates may be too embarrassed to talk about it, but that doesn’t mean it’s not happening”, I said.
Then I explained that he could help these kids by buying food, and having Foodbank deliver it.
It was like seeing a lightbulb go off in his little head: he got it.
Even better, he’d brought along his Give jar and proudly gave some of his pocket money.
Sir John Barnard was by all accounts a ripping bloke.
He was one of the first officials to fearlessly take on the finance industry, and ask a simple question:
“How do we stop these greedy finance bastards from ripping us off?”
His answer was to pass investor protection laws, which later became known as ‘Sir John Barnard’s Act’.
Yet get this: these laws ‒ which aimed to stop the spivs and protect the public ‒ were passed in 1734.
Yes, society has been trying to rein in the finance industry for centuries … without much luck.
Today’s Sir John Barnard, Kenneth Hayne, has now had his go, and he’s done an admirable job cleaning up the corporate kitty litter which our banking fat cats have soiled themselves in.
Yet the truth is that Hayne, like Barnard, is up against it.
That’s because human nature hasn’t changed in 285 years, and it never will. Gordon Gekko ‒ the cigar-chomping, suspender-wearing Wall Street character ‒ nailed it when he said, “Greed is good”. (Well, for bankers at least.)
Greed is what caused the public to be fleeced (and outraged) in the South Sea Bubble of the 1720s, the Global Financial Crisis of 2008 (where bankers made billions in bonuses ‒ and only one went to jail), and the dodgy dealings that the Hayne Royal Commission uncovered.
And like clockwork, every decade (or so), the ramifications of this greed come to light and shock the public. New laws are brought in … and then, a few years later, things largely go back to normal.
How can this be?
Well, I like to think of it as a billion-dollar game of whack-a-mole: as you read this, the finance industry is poring over the Royal Commission findings, looking for angles. Then, like a bobbing mole, they’ll shift their position. They have, after all, 29.5 billion reasons (cash profits of the big four per year!) to care more about it than you and I do.
The bankers are going to bank, and the lobbyists are going to lobby.
And so, if the industry isn’t going to change … we must.
While Kenneth Hayne should be thanked by every Australian for the work he’s done, arguably the biggest gift the Royal Commission has given us is the proof that financial institutions do not have our best interests at heart. Strip away their fluffy advertising, and the talk of cultural change, and the fundamentals haven’t changed since 1734:
No one cares more about your money than you do.
If we really want genuine change, we need to teach the next generation this simple truth. By my reckoning, kids spend a total of around 2,300 days at school. Yet not even one of those days is dedicated to teaching them how to pass the ‘money exams’ they’ll be tested on every single day of their lives.
Mark my words, greed isn’t going away. Therefore, we owe it to our kids to make sure they learn the lessons we didn’t. And that’s why this Royal Commission should be about kicking off a financial revolution, that begins with us banking on our kids.