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Adult Graduation to Financial Reality
Advertisements: What You Hear & What You Need to Know
I actually enjoy good ads. Not only do they keep all media outlets in business, they support a ton of local businesses, and can also inform, and be memorable. Who doesn’t enjoy the U.S. Superbowl ads? Even the Canadian ones are well done.
But not all ads are created equal and some of them really need you to think and ask questions before buying. Do you only see the large print and never the ‘up to’? Up to triple the reward points…1% introductory rate? No payment for six months?
The largest credit card marketing is for reward cards because they have an annual fee. When you see any ad with triple reward points, that’s not the time to apply, but to get a magnifying glass and check the fine print first. Your triple rewards will be on one or two categories such as restaurants or drug stores. It’ll likely be for places with the biggest markups where they have the “room” to give you the triple points, or restaurants where you’ll earn maybe an extra 5 or 10 points, because you’re probably going out to dinner two or three times a month, tops. On the rest of your charges, the 90% or more, the points aren’t tripled. Hear me really clearly: Nobody ever became financially successful because of their reward points. People become financially successful paying cash or debit!
One of my favourite shows is the Amazing Race. This year, Scotiabank is the main sponsor with their American Express card and they have two very cute ads in the show. This is not a real charge card that you ought to have (and the only one I use) where you have to pay the balance in full. It’s a regular Amex card that allows you to make minimum payments versus having to pay it off each month.
Scotiabank’s main slogan is that you’re richer than you think. In fact, it’s the opposite: You’re poorer than you think. 50% of us can’t live without one paycheque, 70% can’t write a cheque for a $3,000 emergency, the percentage of seniors taking debt into retirement is exploding, and a CBC report last night showed 48% of us will rely on CPP for our entire retirement income. But remember that the main business of banks is to lend money. That’s how they make a profit. If the slogan were that you’re poorer than you think, you may borrow and spend less and save more. That’s how banks would lose money. However, if you have a ton of borrowed money, you’re richer than you think…for a while…until you have to pay it back from the same income you had BEFORE the line of credit, car loan, or new credit card.
It’s the old saying of buyer beware. Enjoy the ads, get the information, and then start asking yourself the right questions before signing. It’s a jungle out there – be careful.
An iTunes Scam and Gift Cards Heads Up
Phishing scams are junk e mails that tell you you’ve won something or you need to click on an e mail because your paypal, credit card, or bank account has been frozen. The crooks want you to click through and divulge some personal information and they can then get into your credit card, bank account, or commit identity theft.
A really nasty one started this morning, because I just received it. You need to pass this on: It’s an e mail from the Apple iTunes Store that shows up as a receipt for two purchased movies for $36.98. Just below the receipt it states: If you haven’t authorized this transaction, click below for a full refund. And millions of people will click before thinking.
Stop, count to 10 and look: The e mail comes from store.com and not from Apple. Apple does not send email receipts, and it looks unprofessional, and has spacing errors. That’s four clues right there. All you need to do is go to google and type in the website address it came from. When I typed in “store.com” it forwarded me to mysimon.com – a phony shopping site. Right there you know it’s not from Apple. It’s used by the same scammers to attempt to spoof simons.ca, the Quebec, Canada based department store.
When in doubt – do not click, or you’re in for a world of pain and identity theft if you answer any of the questions in clicking through on it.
Starbucks just released their financial statement, and in 2013 they sold $4 billion in gift cards in North America. I was just stunned when I read that. Want to guess what Starbucks will eventually make on unredeemed cards? The breakage (or non redeemed cards) is around 8% or more. So they’ll end up with around $320 million in profits for NOT selling coffee. If your card is down to a buck or two – just hand it to the person behind you in line – that way you’ll at least make sure they card gets used up.
If you have gift cards you don’t want, there are now a couple of credible sites that buy, sell, or exchange gift cards. One big one is cardpool.com. Large retailers such as Wal Mart or Target will have small discounts to buy and sell – boutique stores with much less volume have a much larger discount. That’s just a supply and demand issue. Right now, a $100 Lowe’s gift cards, as an example, can be bought for $93, or you can sell it to cardpool for $84.
Gift cards lock you into buying at one store – cash is good everywhere. If the chain is big AND financially stable, that’s not a problem. But the smaller the store, the more you’re taking a chance that they’ll still be in business when you or the recipient want to redeem the gift card! Be careful.
Guaranteed Lowest Price & Your Facebook Friends Set Your Credit Rating?
Do you want a way to guarantee you’ll get the lowest price on whatever you buy?
There are now a number of apps called showrooming…but for the U.S. only right now, and that comparison won’t help you, but only frustrate you.
The perception or reality is that Walmart isn’t considered the lowest price retailer anymore, and that’s something they want to correct! In nine cities they’re now testing something called Savings Catcher. You just need to enter your receipt number online. Just the receipt tracks everything you’ve purchased anyway. If Walmart finds another retailer with a lower price, they’ll immediately refund the difference to your credit card. Unless you live in San Diego, Dallas, or one of the other seven test cities, you’ll have to wait quite a while to sign up for it, though.
Should your credit rating be partially determined by who is your friend on Facebook or on LinkedIn? Another lending site called cabbage has now started using social media to determine your credit score. Yes, who you have as friends on Facebook can impact whether you get a loan or not. In the old days, your banker used to know you – character was a part of the decision making processing. These online lending sites have found that the chance of someone going past due is reduced 20% with a good social media score. It sounds wrong and stupid, but they think it matters and works. So somewhere down the road – be careful who you friend on Facebook.
The new Tim Horton Visa card
A New Tim Horton Visa Card
Affinity cards are regular Visa, MasterCard or American Express cards, but they’re issued in conjunction with a company or organization. You can get a University of Vancouver MasterCard, a Target Stores Visa, a Shoppers Drug Mart card, or even a Justin Bieber pre-paid credit card…with a ton of fees. The Kim Kardashian card was pulled off the market as lawsuits started with all the fee traps…but I digress…
As of last week, there is now a Tim Horton CIBC Visa card. With 3,500 locations, the marketing for this card is all over their stores – inside and out. If you’re one of the 5.3 million visits a day, you’ve probably already seen it. CIBC needs the business as they lost half a million cardholders to the TD last year, and Tim Horton will get a big kickback on every charge made.
Yes, I actually read the 12-page disclosure because you aren’t going to…you’re welcome. This is a normal Visa card with a 20% interest rate and no annual fee that you can use everywhere Visa is accepted. The perk, or reward, on this card is that 1% of your purchases can be redeemed at Tim Horton for coffee, or anything else. Since Tim Horton sells over 2 billion coffees a year, I’m sure they can afford some freebies.
After a year of work and research, it’s the first credit card with a blinking light. If that excites you – I’m not sure why. One light will blink if you’re using it as a regular credit card and a second light blinks if you’re using it at Tim’s to redeem your rewards.
Who should consider getting this card? That depends on whether you want to get free coffee, regular price coffee or pay around double the price for your coffee:
If you run a credit card balance: You need (not want) a low interest rate card. There are a half dozen in Canada, including the Scotia Value Visa. You’re way ahead of the game at a 12% rate versus 20%. If you don’t, your so-called free coffee reward will actually cost you double with the extra interest you pay.
If you charge a lot but always pay off your card, you want a reward card with 1.5% to 2% perks. You can get 50% to double the rewards with other cards if you shop around. A listener e mailed me last week. She runs $55,000 on her card a year and pays it off monthly. She shouldn’t chase $550 of free coffee when she can get $1100 of other rewards.
If you charge maybe $500 to $1000 or so a month, and pay off your card, you’re not likely to reach any huge rewards with another card. If you like Tim Horton, this card may be for you. At least you’re getting some return for your spending.
Two more quick things:
As with any credit card, you’re playing with fire and one day you will get burned – it’s just a matter of when, and not if.
One day, I want to issue a new Visa card. It’ll have audio with it, and not just a blinking light. When you use the card it’ll say: Your balance is already $3485.00 are you sure you want to make another charge that you won’t be able to pay off anytime soon?
The World of Reward Points Is Changing
The average Canadian has five reward programs of one kind or another. It might be a 10th free haircut, frequent flyer miles, 10% off if you spend over a certain amount, or rewards on your credit card.
Whatever you’ve figured out about them will be all different in the next few years. In short, the programs will be converting from volume to profitability and the opposite for credit card rewards. Right now, you’re getting rewards on your visits or spending totals. Down the road it’ll be whether you buy something profitable. No more points (or very few) to buy something at a discount, but now big rewards when you buy something way overpriced or at full retail price.
In the airline business, Air Canada has done three quiet changes to their reward programs already. Cheap seat-sale tickets now get you 25% of the miles versus full price so-called Flex tickets. Delta Airlines is already the process of fully converting their frequent flyer program. If you collect miles you need to know this. It will become the norm with every other airline. You’ll no longer earn miles based on distance flown, but on the amount you spent. It’s turning frequent flyer programs upside down. So, a last minute ticket to Vancouver at a big price will get you more miles than a discount flight to Europe.
The programs will be based on your profitability with the airline. If you make them a ton of profit – you’ll get a ton of miles. The biggest losers will be those of us who are price sensitive and bargain shop for flights. In the next few months I’m cashing out all my miles for gift cards or cash – better safe than sorry. When this comes to other airlines, you’ll be way better off getting a points reward card that lets you accumulate points for gas and other purchases – you’ll end up getting a lot more rewards than from an airline!
In the credit card world, the change will be to quantity of transactions. American Express has now introduced a new credit card that will increase your reward points by 20% once you reach 20 transactions in a month. For Amex that makes sense because their average client spends four times as much per transaction, and has a much higher average income. It’s just maximizing their transaction fees.
There was a recent study that found over a third of all reward programs are never claimed. In the airline world, according to Consumer Report, over 75% of miles are never claimed. Stop chasing and start cashing out. You won’t be a prisoner to one company or another and will become a free agent that can get the best deal from any company. I’ve started cashing out my Aeroplan miles by getting $2,000 in Esso gift cards. Check what you can redeem for the least amount of points or miles. With Aeroplan, chasing a free ticket can be a fools game. Gift cards tend to be a good deal on redemptions. Amex gift cards cost 7500 points for a $50 card whereas the Esso gift cards cost me 6500 points each.
Hacking an ATM Seems Easy & God Can’t Get Credit?
Two 14-year olds in Winnipeg seemed to have no trouble hacking a Bank of Montreal ATM machine. They found an ATM internal operating manual online and decided to test it at a real machine.
They actually managed to get into the operating system of the ATM, and guessed the six digit password on the first try! Gee, when the password is 123456 you think there’s a problem? That was enough for them to get out of the system and go into the branch to share their information. But the branch staff didn’t take them serious. So the kids asked if it would be OK to get the proof and were told good luck trying.
Back at the ATM, they went back into the operating system and printed out the amount of money in the machine, the transaction history and the income made from surcharges.
They even changed the ATM surcharge down to a penny and the greeting to read: Welcome to the BMO ATM. Go away! This ATM has been hacked.
Back in the branch with all the printouts, the staff now realized they had a problem.
BMO Media relations stated in an email to the Calgary Herald that no customer information and contents of the ATM were ever at risk. Yea..right…
God can’t get credit?
A Russian immigrant by the name of God Gazarov can’t get credit. Yes, his first name really is God. He was named after his grandfather, and in Eastern Europe that first name is quite common. It’s kind of like many Latinos name their son Jesus.
But Equifax, one of the credit reporting agencies is refusing to accept his first name. As a result, they won’t open a file with his current credit references. No credit report – no borrowing, no credit cards, or car loan – something he tried to apply for last year. He now has a lawyer and is suing Equifax.
Graduate As a Millionaire
85% of teenagers never take a course on credit or finances. That means they haven’t got much of a hope of being financially successful from the get-go.
The first thing most teenagers do when leaving the home is to take on a car payment, get a credit card, pay rent, and often have a student loan. But if you have teenager that’s about to leave the home, here’s a deal you can make that’ll insure their financial freedom for the rest of their life.
The only thing your teenager has to do is to save $8,000 by their 20th birthday. Nothing more – nothing less. After that, without getting into debt, or touching these savings, they can literally spend every dollar they make.
It’s the magic of compounding and works with something called the Rule of 72. Simply take your rate of return and divide it by 72 – that’s how long it’ll take for your savings to double. So at a 7% rate, it’ll double every 10 years, while a 10% rate will double it every seven years.
Do some lateral thinking of how you can help them achieve this. Maybe you can charge them rent and keep that in a savings account. Some parents match whatever the teenager saves to a certain amount – there are all kinds of ways.
Then your 20-year old just has to watch his or her savings double again and again until it reaches $1 million at age 67, using a 10% rate, and it all started with a one-time saving of $8,000.
Oh, if only we had done this when we were their age. But one more thing: Because they’re teenagers, I’d recommend there’d be two signatures on the account – just in case they get the urge to take some money out…
The Rule of 72: At 10% it’s 72 divided by 10 = money doubles every 7 years
At 11% it’s 72 divided by 11 = money doubles ever 6 ½ years
At age Amount now saved through compounding interest at a 10% rate
THAT is the best graduation present I can think of, and it’s not hard to do at all. It works with any starting amount. Even if it’s $5,000, it’ll turn to $640,000 and that’s not a bad deal for a year of two of savings at an early age!
Adults can get there, too. If you want to have $1 million when you retire at age 67, for example, you just need to work backwards.
So at age 60 you’ll need half a million because it’ll double when you reach 67. At age 53, you’ll need $250,000 and at age 46 you’ll need $125,000, and age 39 you’ll need $63,000. When you reach any of those amounts, at whatever age, it’ll double and double until you reach a million at age 67. But, depending on your age, you may want to use a more conservative 7%, depending on your age in order to lower the risk of your investments.
However, there’s a big proviso: It’ll never happen if you’re also in debt and making a bunch of payments. Sorry, can’t be done. You need to be debt free to have some serious money to put away for investments. I know the world has taught you that you can have it all – it’s not true. There’s no chance you can save a little, pay a little here and there and still have a life with your normal rent, mortgage, utilities, gas, etc. I know you think you can and it’ll be another five, 10, or 20 years of finding out that you were really wrong and wasted another decade.