When David Chilton in 1989 wrote and published The Wealthy Barber, it was a huge hit, selling over 2 million copies. But in my opinion it’s the sequel, The Wealthy Barber Returns, now on sale, that is the better work.
For one thing, The Wealthy Barber Returns is an easier read. Instead of the first book’s somewhat ponderous fiction format, it’s just Chilton “chatting casually about the world of money,” amply embellished with humour and anecdotes. “It’s almost as though I’m in your living room except better because, well, I’m not,” he quips.
And I did laugh out loud in places. For example, in a chapter entitled “Oblivious,” Chilton argues the best investors are the ones who are indifferent, oblivious or otherwise “clueless” to the ups and downs of stock markets.
To illustrate, he tells a story about his father. One day—after a rare peak at his portfolio—the elder Chilton complained that a mutual fund his son advised him to buy in the 1980s had declined in value to $13,500 from a purchase price of $25,000. Puzzled, Chilton took a look at his father’s account. “Turns out he had 13,500 units,” Chilton remarked. “At seven bucks each, his holding was worth $94,500.”
The content is also better in The Wealthy Barber Returns. The older book had a few questionable bits of advice, such as recommending that investors pour money into mutual funds, engage in active investing, and save 10% of income on top of maximizing RRSP contributions, making mortgage payments on shortened amortizations, setting aside money for kids’ education and so on.
The new book, to its credit, acknowledges that some of the previous advice was off target. In fact, Chilton now advocates passive investing using exchange-traded funds or index funds. Good financial advisors, he adds, focus on building sound financial plans rather than assembling portfolios based on predictions about market trends.
One powerful theme to which Chilton adheres is to “live within your means.” Getting this message across again was the chief reason he wanted to write a second book. He had become frustrated with seeing Canadians going in the opposite direction, becoming increasingly loaded down with debt.
You have to save in order to reach your financial goals. The best way to do so is through a “forced savings” program based on either payroll deductions, automatic withdrawals or pre-authorized chequing. The majority of people with automated savings hardly notice the difference in their consumption level, Chilton has found.
Although it’s the same “pay-yourself-first” message as in Chilton’s first work, many new perspectives and tips are offered. These include the “Diderot’ effect whereby spending begets spending, four liberating words for controlling spending, and avoiding the “biggest financial mistake” of buying too big a house.
Canadians have to take some of the blame for caving into status-motivated consumption, and society’s siren call to spend. But the banks also come under fire for having evolved into “credit pushers” that make it all too easy to obtain and use lines of credit and credit cards.
The book’s second half deals mainly with investment-related questions and there are some intriguing observations in this regard. One is a method for beating the market by buying shares in firms you do business with, but hate. Another is divining when the stock market is at a peak by the level of interest teachers are showing in leveraged investing.
The Wealthy Barber Returns wraps up with a chapter on the simple financial plan and investment approach of a farmer in his early fifties, as told to Chilton when he was starting out as a stockbroker in the 1980s.
The farmer used pre-authorized chequing and maximized contributions to his RRSPs, one of which was a spousal plan (which gives a tax advantage). Half of the RRSP monies were in a GIC ladder and the other half were in stocks of big Canadian companies, with dividends automatically reinvested.
Outside the RRSPs, any extra money went toward paying down the mortgage, and after it was paid off, toward helping their son in university and picking up shares in utilities and banks. Last, the couple had an up-to-date will, and term insurance to pay off the taxes their estate would have to remit when they died.
“I’ve seen thousands of financial plans over the years,” Chilton writes. “Few, though, have been better than the farmer’s.”
It’s a praiseworthy book, if only for the reason that it makes personal finance less intimidating for the average Canadian and may get many of them to save instead of borrow and spend. As the Financial Post’s Jonathan Chevreau says on the cover, government initiatives on financial literacy “can stop dithering.” All they have to do is distribute The Wealthy Barber Returns.