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More Fraud Protection, A Big Party and Default Renewals

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More Fraud Protection for Credit Cards

A heads up if you have a Credit Union MasterCard. Their fraud management system has been upgraded and strengthened to detect suspicious activity. The software identifies unusual spending patterns and will trigger an automated call from their fraud department.

If you get the call, it will only ask you to verify you date of birth and a list of some recent transactions it will supply. If you’re not home, the MasterCard will be blocked until you call them to verify the transactions.

You will never ever be asked for any financial information, passwords, the three digit security code, or anything else. If you’re asked for that – it’s an identity theft attempt. Hang up the phone and call the number on your credit card.

What’s your budget for a celebratory party?

If you’re having a big celebration with five of your friends, what would be your budget? Somehow I’m guessing it’s not $26,000 a person. But it was for six Boston Bruins players the week after they won the Stanley Cup. The six drove across the state line to the Foxwoods Resort & Casino in Connecticut to celebrate. To celebrate a lot…with a tab of $156,679, not including tips. True, it included one bottle of champagne for $100,000, but it was a 30 litre bottle. It was one of only six of these Ace of Spade Champagne bottles in the world! Quite the party…and quite the dent on these players’ credit card!

Default Renewals

In the last two weeks I’ve had three e mails from really mad people. All three had purchased a new vehicle. The depreciation they paid right off the bat should have made them mad, but that wasn’t actually it. The vehicle came with free satellite radio for a few months.

But in order to activate it, they had to supply their credit card information. When the free subscription ended, they found charges on their credit card where the satellite radio company had automatically started them on a pay subscription that they didn’t want, order, authorize, or request.

You have to know that every company that sells you any kind of subscription wants your credit card information. You think it’s because of convenience, but it’s way more than that. Lots of companies include a clause in your agreement that you give them the automatic right to renew your subscription when the term expires without notice.

That default renewal is perfectly legal. It shouldn’t be – but there’s not going to be any help from the government to outlaw this. So you have to ask up front, or read the fine print. It will outline how you can stop it, but you will have to follow that procedure. Most of the time you need to notify them 30 days before your term runs out or you’re in for another year, or another subscription term.

If that happens, your first call should be to their customer no-service to dispute the renewal. Your second call needs to be to your credit card issuer to dispute the charge.

Government Debt vs. Ours – Is It Fair to Compare?

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Now that the Canadian Federal Election is a month behind us, what are we in for? If you voted Conservative, it’s nice to see there’s a majority government and we won’t be spending the $300 million on an election every two years.

If you’re not Conservative – don’t worry about it – that’s not a true conservative government that’s elected in any event. Partly, because us Canadians wouldn’t want it, or tolerate it.The budget two weeks ago had $37 billion in deficit. That’s more spending than income. And the government will take four years to get out of the hole. If you’re spending more than you’re earning, four years puts you into bankruptcy, and you had better deal with this BIG problem sooner.

You may also realize that nobody is talking about our $500 billion debt. That’s no different than most of us individuals. We only really want to focus on making it through each month, and thinking about our total debt is way too depressing. Well, you cannot change what you don’t acknowledge. But….let’s not talk about that, or even think about the total staggering amount of debt…. Right now, however, that debt takes $40 billion of interest payments. That’s the deficit right there if we weren’t in debt!

Again, it’s exactly the same as most people’s finances. The interest we pay each month has a real choke hold on our finances.

Four years to get out of the hole? That’s four years of not a single dollar onto paying down the debt. And that’s in an economic upturn cycle. So what happens when the next down cycle, or recession comes? Yup. We’re right back to borrowing, just to pay the bills.

The vicious cycle, for governments all over the world, and all of us, is totally backwards. Financially successful people SPEND during a bad economy and SAVE during the boom times. Think about that. They’re spending when everything is on sale and saving when earnings are up and inflation makes things more expensive.

Lastly, can we please stop comparing ourselves to broke countries? Well, we’re better off than this country or that. What nonsense. My neighbor might have one foot in bankruptcy court and that makes me financially successful? Give me a break!

And a final question to ponder: Who leads the way here? Should the government be the ones to balance their budget and live within their revenues, or should we lead by example and then hold the government accountable?

The Financial Nightmare of Greece

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Finance 101 is something I can teach every fifth grader: When you buy something, you have to pay for it. Either you pay for it right away, or you pay for it later at a lot higher price.

That, essentially, is the problem in Greece playing itself out with riots and deaths as protestors fight that basic logic of going in debt. When full pension retirement comes in the mid 50s, their utility company loses money, taxes are low, they have a huge underground economy, and massive social programs are so-called “free,” eventually the tab comes due. That’s now.

There was a protestor quoted yesterday as saying they’re being bled to death. No, that’s just stupid. You’re being forced to pay for what you and your countrymen have enjoyed for decades that your country never could afford – period.

Greece owes hundreds of billions of Euros to bond holders, lenders, and other governments. Now they’re asking for more and more bailouts. But others have money – the Greeks don’t. So, if I’m borrowing money I get to set the rules. Same as when we apply for a loan. YOU don’t set the terms – the lender does. You can say no, but you don’t get a vote in the rate, etc.

Right now, Greek bonds are at 30% for two years. Imagine that! That’s how risky the investment world thinks Greece is. And the $17 billion the European Union is asked to advance right now is just to cover the next few months! It isn’t solving a thing but treading water. But they won’t write the cheque if the Greek government doesn’t sell their money-losing public utility, increase tax rates, and do some other austerity measures.

When there’s financial trouble, whether it’s you, me, or governments, you can see it coming years in advance. Ignoring it means somewhere down the road, it’ll be hugely painful. Greece is there. The US has another two or three years, based on the estimates of a number of experts.

One thing you can bet on is that the Greek government will fall and there’ll be an election. And the next party elected will be one that’ll promise to ease up, reduce taxes, and the likes. People want to hear what they want to hear. Even today, Greeks are still in denial. I would suggest they haven’t learned. But then, I’d suggest we also don’t learn from others until we, as individuals, are in the same place. How sad. How stupid. How unnecessary.

You Can’t Borrow Your Way to Prosperity…Honest!

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This week, Finance Minister Flaherty announced that his department is done with the tweaking and tightening of lending regulations. Well, there’s only so much a government can do for our own good.

Mortgage refinancing is now capped at 85% and you can no longer get mortgage insurance on interest-only lines of credit secured by your home. Now, I guess, it’s up to us – as it has been all along.

While Statistics Canada just released figures that show our net worth is increasing to an average of $184,700 – our debts are climbing way faster. We now owe $1.55 trillion dollars, of which $45,000 is consumer debt, excluding mortgages.

News flash: You cannot borrow your way to prosperity. The majority of people have been trying that and we’re broke. How about trying to get to be debt-free, instead?

We freak out when gas is up 20 cents a litre. Really? 40 litres x 20 cents is eight bucks. THAT is a panic? We get a $500 repair bill and we don’t have the money and it’s an emergency and big stress? Is that how we want live our financial life? When will you get to the ENOUGH scream in your head and choose not to want to live like this anymore?

How sad that we aren’t learning the lesson from the U.S. Their debt levels are dropping like a stone. Last year, they paid down massive averages on their credit cards. In Canada, the average credit card balance dropped $25 from last year, according to TransUnion. Americans are also refinancing in large numbers to get OUT of variable rate mortgages and into fixed ones. And tons are bringing cash to the refinancing, in to pay down their balances. In Canada, we keep taking larger and larger mortgages.

More than half of us now have lines of credit, almost all of which are on a variable interest rate. Rates are heading up – they have nowhere to go but up. So the banks have us exactly where they want us. Owing BIG balances on our lines of credit that we can’t just pay off in a month or two, and rates go up. That’s how banks maximize their profits and how we go broke in a hurry.

Denial IS a financial strategy. It’s just one that won’t work very long. I heard a new radio ad yesterday: Debt problems aren’t about overspending – they’re about emergencies. WHAT? No! Are you nuts? Debt problems are exactly about overspending. If you live on less than you earn, you have money left over.

There is another ad that has a lady saying that so and so credit helped her pay off all her debts. What? They handed you free money? Like $10 or $20,000? NO! You consolidated – you didn’t pay off a dime! And you took a bunch of short-term debt and stretched it to two decades or more. Plus, the majority of people who do that have their credit cards and lines of credit run up again in less than 24 months. It’s not a solution. It’s making the problem worse!

Almost two-thirds of families live paycheque to paycheque. You have to know where you money is going and get in control. You think you know, but you don’t – honest. Spend 15 minutes doing a written budget. Off that, I guarantee most people can find $200 or so in savings right there.

Get yourself a separate savings account and work on saving one week of your net income. That will put you ahead of 65% of people. Thirdly, list your debts smallest balance to largest and start attacking the smallest balance with every dollar you can find and just make minimum payments on all the rest. When that’s paid off, focus only on the next smallest, and so on. There’s a whole section in the It’s Your Money book that’ll walk you through it.

Three short stories…

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Hurray for American Express

I remember last year having to contact their Call Centre. To start, there was a language barrier, to put it mildly, since their Call Centre is in India. And I started getting the rush treatment disputing a charge. You have to know that most of these staff are timed on a per-call basis. So their motivation is to end the call quickly – not necessarily to resolve it. Well, Amex has taken their staff off these timed calls. So far, the results are amazing for Amex. Their customer satisfaction levels are up, as is their charge volume per client.
Why can’t everyone realize that?

Which economic indicator do you trust?

There are two confusing economic stories from this past week:

Cosmetic surgeries were up 9% last year.
On the other hand, 60% of shoppers say they are buying more no-name store brands, instead of national brands.

Sony certainly has a big problem:

Sony Play Station’s main computer was hacked last month and banking and credit card information on 70 million customers was stolen. That’s a lot of people and it’s not an isolated story as more and more of our information is on-line. It’s another reason to be really thorough in looking through the charges on your credit card statement. Plus, you only have 60 days to dispute something. A day after that and you’re fully liable.

Easy Just Got Harder & A Heads Up

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We’ve talked a couple of times about technology called NFC, or near field communication. It’s the technology that lets you hold your smartphone to a credit card reader to pay for something. It’s also what makes Esso key fobs work at most gas stations and worked as easyPay at Shell…until yesterday.

Shell has discontinued their easyPay at the same time as almost everyone else is rolling out this technology. Their media relations department didn’t get back to me, so you get my guess of why it’s a lot harder to stay loyal to Shell starting today.

When you wave your keyfob at the gas pump, the system is checking if they have your accurate credit card information. It’s not getting an authorization at that point, because they computer has no idea of how much you’re purchasing. So it’s a trust transaction for a few minutes until you have the full amount shown on the pump. At that point, the system is getting an actual authorization for a specific amount.

If, at that point, it’s declined, there’s a big problem. Best guess is that the big problem became a big problem for Shell. To the point where I’m guessing a ton of lost business is better than a ton of uncollected charges. It makes no sense that they wouldn’t fix it, instead of discontinuing it, but my business now goes to Esso.

Here is a heads up that you should do each and every month. Whether it’s in the event of a Canada Post strike or not, you need to do a little check list of all your bills.

You know I really want you to do a budget, then you’ll have it anyway, but do a little list of all the bills you have to pay in a month. With no mail, or if you ever don’t get your mail, you still have to pay the monthly payment. I forgot, I didn’t get an invoice, or any of those excuses don’t get you off the hook.

The payment is yours to make and all the legal documents say that they’re due – whether you get a statement, reminder, invoice or not. A little check list will just be an easy way to see that you’ve made a payment to everybody during a strike, or in any month.

Make sure you add the annual bills such as house or car insurance, property tax, etc. on the list, too. If you don’t pay something like a utility bill, the service charge is around 2.5% for being a day late. On the other hand real debt such as your credit cards or line of credit, absolutely destroy your credit rating if you’re late. And that stays on your credit file for seven years. That’s a lot of damage for missing a payment, or not being pro-active during a postal strike, or any month.

College and University Grads: Hold Off Spending For One More Year

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Student loan debt in Canada is over $14 billion. It grows at over $1.2 million a day and adds 360,000 students a year, and tons of that $14 billion is saddled on people who are graduating this year.

College and University students should be well familiar with the phrases ‘short term pain for long term gain,’ and the concept of delayed gratification.

That’s because they usually don’t have much of a life, and certainly not a lot of money. They were just smart enough to get a degree and live like a poor student, for the benefit of a better income, with more education, down the road.

The downside is that some of the most broke people are those aged 25-35. That delayed gratification all ends, for most of them, with their first paycheque after graduation.

Usually, however, that poor student life tends to end immediately when they start getting a paycheque and spend like crazy – because they now have some actual disposable income. In fact, THE most broke grads, for the next decade, are lawyers, doctors, and pharmacists. Their income is generally significantly above average and they spend way beyond that.

But delay the big spending spree of the cool plasma TV, the new car, a ton of clothes, and the good furniture for a year. If you can live like a poor student, and keep that mindset for one more year, you’d be amazed what happens.

If you spend like you did in school for one more year after graduation, you’ll clear up at least half of your student loans. If you didn’t have any, you’ll have a savings fund of $10,000 to $15,000 in just one year. For anyone with student loans, they’re not something you really want to have around for the next two decades. It’s pretty depressing to have to send that payment each month, year after year after year. Get on with it and get it over with. 10-year old pizza isn’t very attractive. Neither is a 10-year old debt.

It’s a life-changing decision you can only make once: Take on rent, car payments, a bigger credit card balance, the usual work-related expenses, AND the hangover of the student loans, or press the spending pause button for a year. If you choose the former, ask some grads from the last few years what financial stress is like. If they’re honest with you, it’s not a place you want to be for the next decade or longer. But it’s always a choice.

Ease yourself into the world of big-time spending. It’s not your job to turn the economy around in the next few months. If you delay that need to spend like crazy for another year, it’ll be so worth it. If you don’t, I guarantee that years from now, you’ll tell your kids to do exactly what I’m suggesting to you right now.

Graduate Your Teen As a Millionaire

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Let’s face it, often our spending today comes with huge debts and monthly payments in the future, and they’re the biggest killers of our dreams and financial freedom.

So how do we avoid those debt traps for our kids? 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.

If the deal works out, they can spend every dollar the make for life. All the credit card debt, the cool car and whatever, because they’re already rich! Your teenager can spend every dollar they earn for the rest of their life – anytime and any amount.

Sounds irresponsible? Not at all – because that’s only half of the deal. The other half is that in order to do this, the only thing your teenager has to do is to save $10,000 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. It’s critical to know this, and to use it to your advantage, no matter what your age. 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 achieve this. Maybe you can charge them rent and keep that in a savings account for them. Some people match whatever the teenager saves to a certain amount. There’s all kinds of ways you can make them focus on it and make it happen.

Why can’t we this as adults? Simple: Because we didn’t save the money when we were younger. The longer you wait, the less time our money has to double up and double up again. If we want the money when we’re 65 years old and start saving at age 50, our savings will only double a couple of times, so we have to save a lot more.

But your 20-year old just has to sit back with all the time in the world and watch his or her savings double again and again until it reaches $1.3 million at age 67, using a 10% rate, and it all started with a one-time saving of $10,000.

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 just at a 10% rate
20… 10,000
27… 20,000
34… 40,000
41… 80,000
48… 160,000
55… 320,000
62… 640,000
67… 1,280,000

THAT is the best graduation present I can think of, and it’s not hard to do at all.

Establishing A Credit Rating for Your Son or Daughter

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As we’re getting near graduation season, I thought it would be appropriate to talk about some student, grad, and young adult stuff in the world of credit.

Let’s face it, our schools don’t teach kids many of the tools that are amongst the most important for financial survival. And, to be honest, many parents don’t really do a good job, either. Not from lack of wanting to, but sometimes just not having the tools and insights themselves. Plus, if the truth were known, lots of parents really hope their kids don’t end up in the same financial mess they’re in when almost two-thirds of households live payday to payday.

One of the most common questions I get is how to start to establish credit for an 18 or 19-year old. But I’m always torn on this issue. In an ideal world, I’d like no teenager to ever have credit. Why? Because it means they won’t borrow, and not borrowing is THE best recipe to financial success.

However, reality is that most of us do want to finance a home at some point in the future, and sadly, many want to finance a vehicle at some point. A credit rating is also something that many employers look to, and a credit report is pulled by most larger landlords or management firms.

There is a large section in the It’s Your Money book on establishing credit. Make this one of THE best $20 grad presents you can give your son, daughter, or grandchild. It’s something they can refer to for years to come – before it’s too late.

Here is one easy and quick way to establishing credit for any young person: Apply for a credit card under your name, with your son or daughter as the second applicant. The card is approved based on your credit rating, while your son or daughter will have their name shown on it. When the card arrives, lock it away. Do NOT give it to your son or daughter to use. Don’t even give them the card number, or they’ll have no problem using it for on-line charges.

Because their name is on the card, it’ll report to the credit bureau with the limit, the length of time the account has been open, and always a zero balance. They key is to get credit established so a credit file gets going. A credit rating is partly based on how long someone has had a credit file, and this will get them started.

Why not give them the card? Because you’re fully liable for the charges as a joint applicant. This isn’t meant to be an experiment in temptation, but an easy way to establish a track record and credit rating. Activate the card, put it far away, and just use it once a year for a $2 or $5 charge, in order to keep the account active.

Two or three years from now your son or daughter has a solid credit rating and what they do with it at that point is up to them. Hopefully, by that time, they’ve learned some financial, credit, and borrowing tools. If so, you’ve done your best. If not, whatever they borrow at that point isn’t your problem, and won’t impact your credit rating.

Make this a priority for a grad present. After all, “graduation” to understanding the insights of finances is something we’ll all use for a lifetime. Maybe it’s for someone graduating from high school or university. Or maybe it’s the rest of us graduating from financial insanity, graduating from not wanting to be broke anymore, or graduating from the years of living on way more than we earn.