Business

TheReview Wednes

day, August 8,1990°— A12
$

The case of the big-screen TV Recent decline in home building

Slowing real estate sales and
high mortgage rates contributed to
a decline in home building on the
Peninsula throughout June.

Among the three Peninsula
municipalities, Sidney led the way

Of course we don’t need a
big-screen TV. But I must admit I
have been checking the ads lately
— hot seriously comparing prices
but doing a little research in case .
. . Well, just in case.

Then one day our 19-year-old
son Matt caught me at it. Before I
knew what was happening, we
were in the store staring at those
banks of TV screens.

“Come on, Dad, live a little —
spend some money,” said Matt as
I looked dubiously at the $3,000
price tag on one particular model.

“But,” I replied, “there’s noth-
ing wrong with our trusty 20-year-
old 20-inch Trinitron.”? A friend
had got the set for us wholesale
and except for a $50 repair bill 15
years ago when the lightning blew
out something, it hasn’t cost us
anything except the electricity,

How could I justify spending
$3,000 to replace something
which wasn’t even broken? (Ah,
the curse of being a pennypincher
— I mean, of being “careful with
one*s money.”)

“Check this one out,” said
Matt. “It has a screen-in-screen
feature so we can watch two chan-
nels at once. And it’s only another
$750.”

(Better yet, I thought: buy
another TV instead for that $750.
Then we could have three TVs in
the same room and watch three
different programs at the same
time.) But I didn’t say anything.)

Between stores, I took Matt
aside for a moment and said: ““To
help us decide about this purchase,
let’s figure out the true cost over
the next 20 years of spending
$3,000 on a TV today.”

He wasn’t thrilled, but he did

listen as I ran the calculations.

“In an RRSP earning 10 per

cent, that $3,000 will grow to
$20,000 in 20 years. With a suc-
cessful mutual fund earning 13 per

cent, the $3,000 will grow to
almost $35,000.”

“But,” said Matt, “what will
that buy after inflation?”

Good point. Assuming the
money eams 3.5 per cent over the
inflation rate, the $3,000 will still
double to about $6,000. If the
return were 6.5 per cent over
inflation, in 20 years the $3,000
would be worth almost $11,000 in
terms of today’s purchasing power.

Ignoring both the tax saved on
the RRSP contribution and paid
on the withdrawal, “it will cost us
$300-$550 a year to own that TV
— the true opportunity cost (that
is, what the money could have
eamed) if the $3,000 would have
been invested in an RRSP,” I said.

At his age, Matt wasn’t too
impressed with a 20-year retire-
ment projections (which prompted
me to add: “Of course, if you left-

‘In an RRSP earning 10 per cent,
that $3,000 will grow fo $20,000 in
20 years. With a successful mutual

fund earning 13 per cenf, the
$3,000 will grow to almost $35,000’

Charges laid affer rear-ender

Police said a 19-year-old Rich-
mond man driving the Chrysler
was not seriously injured although
the Pontiac’s driver and a 23-year-
old female passenger were taken to
hospital with injuries.

A 21-year-old Sidney man was
charged with driving with undue
care and attention after a rear-end
accident on the Pat Bay Highway
at Island View Road about 3:25
p-m. July 1.

The man apparently drove his
1960 Pontiac into the back of a
northbound 1984 Chrysler that
was stopped for a red light.

Police said the Pontiac left a
skid mark about 100 feet long,
then slammed into the back of the
Chrysler, driving it about 230 feet
across the intersection.

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the $3,000 in your RRSP for 50
years earning, say, five per cent
over inflation, your $3,000 would
buy what $34,400 buys today.”?)

So we looked at other altema-
tives the average person might
have.

— Spending $3,000 on a big-
screen TV could be $3,000 you
will then not have for a sun break
next winter. That’s another
“Opportunity cost.”

— Putting the $3,000 against a
25-year $75,000 mortgage at 14.5
per cent would lower the payments
by $36 a month and save about
$8,000 interest.

— Paying off $3,000 on out-
Standing credit card accounts
(which charge up to 33 per cent
interest) could easily save you
$1,500 - $2,500 interest - again,
your opportunity cost - over the
next three years. The same applies
if you plan to buy the TV on
credit. :

“Okay, Dad,” said Matt, “I get
the message a large-screen TV is
not worth up to $550 a year — for
you.

“But if you arent going to
spend money on the TV, perhaps
this is a good time to mention the
high school graduation gift you
promised me if I did really well.
After all, it’s now more than a year
since I graduated.

“That money invested in an
RRSP eaming 5.5 per cent over
the inflation rate for one year —
which you should easily have been
able to achieve — would be worth
just about the price of a CD player
I noticed today.”

What could I say? At least I paid
with a credit card which gives me
a frequent flyer point for every
dollar spent. And by not having to
pay the bill until about a month
from now — let’s see, in an RRSP
eaming ...

Mike Grenby is a Vancouver-
based columnist and independent
personal financial adviser; he
will answer your questions as
space allows in his column —
write to him clo The Review, Box
2070, Sidney, B.C. V8L 3S5.

— MILBURN DRYWALL

Home Renovation Specialist:
1 BROAD, TAPE, & TEXTURE
Prompt Reliable Service
aes FREE ESTIMATES

Terry Milburn 656-7596

Money taken

Sometime overnight July 18-19
the Slegg Lumber locked com-
pound was broken into and a small
quantity of money stolen, in the
2000-block Malaview Avenue,
Sidney RCMP said.

Police said the culprits tried to
open a safe in the business office
but were unsuccessful. Persons
with information are asked to call
police or CrimeStoppers.

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13.05%

CANADA TREASURY BILLS
100% GOVERNMENT GUARANTEED
(RATES SUBJECT TO CHANGE)

in housing starts in June with 15
units Commencing construction.

North Saanich came next with
14 housing starts, while Central
Saanich saw 12 houses begin con-
struction.

Greater Victoria showed a 29
per cent decline in housing starts
in June as compared to May.-In
total, 209 units began construction ~
in June, which is down from 295 a
month previously.

“Slower activity is ‘forecast to
follow an exceptionally robust per-
iod in 1989 and the-first half of
1990,” Lee King, a Canada Mort-
gage and Housing Corporation
spokesman said.

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