By Kathy McGrath

Financial expert and author Douglas Hoyes debunked common financial myths  when he spoke to residents at the Port Union Library on February 6. Hoyes is the co-founder of Hoyes Michalos, a firm specializing in bankruptcies and insolvencies, and is the author of Straight Talk on Your Money: The Biggest Financial Myths and Mistakes…and How to Avoid Them.

Unfortunately, many of us make financial decisions based on emotions, Hoyes explained. Companies like Costco understand this and develop business models accordingly, he said. By selling memberships and giving out cards, Costo gives its customers the feeling that they have special buying power. In reality, he said, people tend to overspend on bulk items they don’t need because they feel they are getting a great deal. Hoyes advised the audience to simply buy needed items when they are on sale at their local grocery store.

He pointed out that Costco designs its stores to play on people’s emotions as well. Buyers enter the store through a small, dark entrance that feels like a secret door and then get an endorphin rush as they walk into the brightly lit warehouse full of merchandise. If you’re going to shop at Costco, Hoyes recommends taking a list and sticking to it.

People also run into financial problems when buying large items like cars because they think the most important consideration is their monthly payments. Hoyes explained that the most significant number is actually the overall price of the vehicle. Paying the lowest monthly fee may seem like a good idea but it means the payment time is extended, which increases the final cost.

When shopping for cars, Hoyes recommends speaking to the finance department at the dealership before looking at the vehicles. Understanding the financing options will help when deciding which car to choose. He cautions that there is no such thing as zero percent financing because the shortfall is just worked into the price of the car.

Another common financial myth, according to Hoyes, is the belief that buying a house is always a good investment. When people have money tied up in pricey mortgages (and maintenance costs), they can’t invest that money elsewhere, he explained.  A good investment may yield a higher return than the profit made on the sale of the house. It‘s important to think about whether home ownership is beneficial for you in the long run, he said.

Finally, a big financial gaffe is to blindly trust the advice of experts — even those who work at banks. While some bank employees are very experienced and able to give good advice, others may only have been on the job for a few weeks and may be pressured to sell products they don’t fully understand. You may need to ask yourself, “Why is this bank employee offering me a $30,000 line of credit?”

Ultimately, the most important thing is how much money you have in your bank account, Hoyes concluded.

This free talk, part of Toronto Public Library’s personal finance program, was supported by VISA.