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Internet Fraud – Get Informed and Spread the Word

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Yesterday, I received an e mail from one of my clients that I want to share with you:

“I’m writing this with tears in my eyes, I came down here to London, United Kingdom for a short vacation unfortunately i was mugged at the park of the hotel where i stayed, all cash, credit card and cell were stolen off me but luckily for me i still have my passports with me.

I’ve been to the embassy and the Police here but they’re not helping issues at all and my flight leaves in less than 6hrs from now but am having problems settling the hotel bills and the hotel manager won’t let me leave until i settle the bills, I’m freaked out at the moment…”

The e mail goes on to ask for money in wanting me to reply with some help. None of it is true, but many people fall for this scam.

Internet fraud is THE fastest growing white collar crime. This person’s account was hacked and the e mails went to everybody in her address book.

There is also the Nigerian scam that you’ve inherited a ton of money but just need to send some of the tax payment that’s due, and you’ll get your five, 10, or 20 million dollars. Plus, last week, I received an e mail that my Paypal account needed to be updated, and one that my Bank of Montreal account had been hacked. That one was easy, as I don’t deal with the Bank of Montreal.

You and I may know these are all scams, but literally billions of these get sent out, and lots of people do get taken.

To make sure you, or your family or friends, don’t get taken, here are a few easy steps to make sure it doesn’t happen:

If in doubt, first call the Canadian Anti-Fraud Centre at 888 495 8501

Make sure you educated you older parents that may have e mail access, but more likely to fall for the “family member needs help” scam, or to share personal information on-line.

Never ever, ever, supply any personal information by e mail. If it’s a business you deal with, call them at a number you know is accurate, and not one that the scamster supplied.

If you’re being asked for money to help a family member or friend, contact that person, or someone who knows them by phone.

Get informed and aware. There is a great booklet that explains most of the common scams that’s put out by Credit Unions. It’s called Defend Yourself from Fraud. Go into a credit union branch and find the display, or ask them for it.

Knowledge is power, and this is one area of the internet where you constantly have to watch yourself.

Where Exactly Is All That Money?

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Good news and bad news: It’s tax season, and most of us are likely getting a refund. That’s both the good news, for obvious reasons, but also the bad news.

Most people tend to think that a tax refund is free money. As a result, they tend to treat it as such, and generally blow it. Unfortunately, it’s not found money – it’s just refunding money that you overpaid all year long.

A big refund is bad news in that you have had too much money deducted from your pay each month. All you’ve done is given the government an interest free loan. You need to go to your payroll department and increase your exemptions. When you do that, it’ll increase your net income on each paycheque.

When you now have that money on each paycheque, you can use it all year long and not the government. If it’s a big increase in your net pay, use it to immediately start an RRSP or Tax Free Savings Account. You’ll be funding it with free money and your net pay won’t be any less than it was before you fixed your deductions!

One more question with this being the big tax refund month. I was thinking the other day where exactly all our money is, and has gone.

Sometime today, just add up what you’ve earned over the past ten years. Or make it five years if you haven’t worked for a decade. It’s not hard to do, and close counts. Take your T4 slips, or a calculator, and multiply your income by the last 120 months. Sure, you had raises, promotions, or whatever. Close counts.

What you’ll have is a pretty staggering number. Your pay over the past ten years has added up to a huge amount of money. Someone earning $3,000 a month has made $360,000 in the last decade. Yet, most people have never thought of that.

Now add up what you have in RRSPs, saving, and investments. The difference between what you have in savings and what you’ve earned is spent and gone. I know, I know – lots of that money includes rent, mortgage payments, groceries, utilities and the likes.

But, if you’re like most people, what you have in savings is less than 5% of what you’ve earned. That should scare you, or should be a huge wakeup call. I’m not even talking about adding up your monthly bills or the total debt load you have.

Just comparing your 10-year income to what’s actually left is enough food for thought. Now think of how many more decades you can, or choose to work. If you do another decade what you’ve done for the last decade in borrowing, not doing a budget, and not saving much, where will you be? Financially, can you afford another decade like the last one?

A Common Financial Trap We Do to Ourselves

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At least three times in the past few weeks I’ve heard a common financial strategy from people with a bunch of debt: I’m going to transfer it from my credit card to my line of credit because the rate is so much less.

Yes, but no: If you believe that the interest rate matters a lot, and that your debt is about math, you’re sort of right. Sure, transferring something from 20% to 6% might be a good idea. But getting into debt, and out of it is, not about math. It’s almost all about psychology. If it were about math we wouldn’t use a 20% credit card, or buy a new vehicle that has dropped $3,000 to $5,000 in value before we get it home!

Remember that transferring your debt around is NOT the same as paying it off. All you’re doing is shuffling it from one place to another, none of which accomplishes a thing in the total amount you owe.

If you owe the money on your credit card, you’ll be way more motivated to pay it off, exactly because of the high rate. If it’s transferred to a line of credit, that motivation goes down the drain. If you do it – fine. But in two years, look back on the math and add up what you’ve paid in total. I’d bet, for most people, it’ll actually cost more since we stretch out the repayment forever.

When we transfer this $1,000 or so, it also pays down our credit card. Hurray – now we have another excuse to use our credit card again because the balance is gone. We tell ourselves the balance is paid off, but forget that it’s just owing in a different place. But six months down the road, the credit card is run up again and we STILL owe the transfer on the line of credit. That makes things worse – way worse than leaving it on the credit card and focusing on paying it off.

I’m not even dealing with the fact that we still think debt is our friend and haven’t wanted to separate our wants from our needs. That has to be true, or we wouldn’t have charged this amount, but saved the money first. Then we can buy whatever it is and actually afford it!

It’s a vicious cycle that credit card companies and our line of credit lender love to assist us with, and keep us in forever. And we’re more than willing to play the game. But it comes at a very high cost in a number of ways.

Break the cycle. Buy it when you can afford it. And if you ignore that advice, which you will, leave it where it’s owing, and get on with paying it off as quickly as possible. That will be quicker, less costly, less likely to run up the credit card again, and less stressful.

Save or Pay Off Debts?

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Two weeks ago I had an e mail from a listener asking if her and her husband should pay off their $30,000 line of credit, will still contributing $400 to their RRSP each month, or to stop contributing, and focus on the debt? Unfortunately, there’s no black or white answer, and the note didn’t have any information about their income, tax bracket, etc.

Paying off debts is way more of a psychological and emotional issue than it is about math. If it were about math, who on earth would be dumb enough to run up debt on a 19% credit card? Who would finance a vehicle that depreciates so quickly AND adds thousands of dollars of interest on top of something that’s worth less each day?

That’s why I generally advocate stopping your investments while you clean up your debts. It’ll make it go that much quicker, and you get the huge self-confidence that you’re making progress each month.

There’s also no better return than getting out of debt. With a 19% credit card, you’re paying after-tax money. The chart to walk you through what your rates really mean is in the It’s Your Money book. So, that 19% card is really costing you 27%. And there isn’t a reasonable investment on the planet that’ll make you 27%.

The issue is a little different when it comes to a line of credit that’s likely in the 4 to 5% range. It’s also different for someone who has a substantial income and can pay off their debts within a year or 18 months.

If this couple is in a high tax bracket, the RRSP savings will net them a great tax return that should then go on the PLOC immediately. So essentially, half the investing is still going onto debt.

If they stop the RRSPs, it’s only for a year or so. It’ll give them way more traction, save a bunch of interest, and get it done two years faster. But that depends on whether they are really committed to paying off the balance in the first place.

Lots of people kid themselves that a line of credit is no big deal, because the interest is so low (forgetting it’s after tax money, that rates have already gone up ¾ of a percent, and often that size line of credit is secured by their home, and they keep using the line of credit…)

Anyone who is making some pretty steep payments on their debt anyway, and is seriously committed to getting debt free should absolutely stop investing for one year, and get their debts paid off and closed. If it’s going to take two or three years, it’s your decision: Get debt free fist, or just reduce your RRSP contributions for a while.

Whatever you do, this week, you need to do a written budget of where your money is going, and I bet you can find $100 to $200 in your budget that’s leaking out right now, and can go to the PLOC without you even noticing much of a lifestyle change at all.

When we focus on saving and paying debts and this and that, we know none of these will get done with much intensity. When we have a single-minded focus to pay off one or two balances, you’d be amazed how quickly it happens. If we want to…

The Giant Banks Are At It Again

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If you’re really quiet, and listen closely, that sucking sound you’re hearing is your bank ripping you off for some more, and bigger, service charges this month.

I’m looking at the notices from two banks. The others are pretty much in lockstep with each other, so there’s no point singling out these two. If you listened last year, this is now the second increase. It used to be once a year, now they’re changing the fees twice a year. Why? Because we don’t complain, and we don’t take our business elsewhere. So why wouldn’t they, if you think about it.

By the way, the reason they do it in February is because you got the notice for these in December. There’s an internal banking industry newsletter called the Fee Income Report. It had a story that the two times a year banks should give notices for increases are in August and December. Why? Because in the middle of summer, and just before Christmas, we are least likely to take the time to read our bank statements, or the inserts to give us notice.

Here are some of the highlights of the latest increases:

Different types of chequing accounts are increasing their service charges around 20 to 30 percent. That’s an insane increase, and it’s the second time in the past year!

On one account, with a couple of banks, it looks like the service charge went down, or was eliminated. Well, not really. It’s a shell game, because they drastically reduced the number of free transactions before you have to pay for each additional one.

There’s a bunch of accounts that will now also add a $1 charge to send your statement. Yes, you have to PAY to find out what the transactions are. For on-line statements, you won’t have a charge, but now you have to pay to get it by mail.

The carrot to get your monthly service charge waved just got a lot further away. The minimum monthly balance went up by 25 to 50%! So if you have $1,500 or $2,500 in your account, the fee is waived. But then, that’s billions of dollars the banks get to use for free, if you add up all the chequing accounts.

On savings accounts, the per-transaction fee increased by 25 to 50% as well. And that’s for EACH transaction on savings accounts.

Heavens forbid you ever bounce a cheque by mistake, because that’s now $40 to $45. Or the can trap you with an overdraft which changed with a number of banks from prime plus a bit to a fixed 19% or so. With Scotia, for example, that means the overdraft rate has more than doubled.

I would bet almost nobody knows this, or has read the notification. You have to look at your statement, and get in touch with your bank. Better yet, move your business to the credit union. Because the only way things will change is when you complain and vote with your feet! Until then, the banks know that THE most loyal clients are people with basic savings and chequing accounts. That’s also a large quantity of people, so $2 or $3 in added fees, twice a year, is billions of dollars of pure profit.

Eight Financial Legislation Changes That Would Really Help Us

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Recently NDP leader Jack Layton held a press conference here in Edmonton to put the spotlight on credit card issuer. Mr. Layton comments focused on the high merchant fees and on credit card interest rates.

He’s half right, and half off the mark. The merchant fees that retailers have to pay in order to accept credit cards average around two percent. In addition, there are also a ton of other fees which add up to another one or two percent. They’re not optional, because it’s impossible for a retailer not to accept credit cards, they keep rising, and they are certainly built into the retail price of what you and I pay.

The issue of credit card rates is another matter. I’m always hopeful that Mr. Layton will use the massive media attention he can draw in a positive and constructive way. But, once again, I was disappointed. Two years ago, Mr. Layton called for the elimination, or drastic reduction of ATM fees. Sorry, but an ATM fee is a “lazy fee,” as we discussed at the time. Nobody has to pay them, if they just go another two or three blocks to their own bank machine where there’s never a charge.

Mr. Layton wants the government to force financial institutions to have at least one credit card at prime plus 5%. Sorry, but with write offs and other costs, that can’t happen, and won’t happen. But then, for anyone carrying a balance, there are cards with 11% rates out there. If you are going to carry a balance, it’s a quick fix to change from a 20% card to the low-rate card. Forget the perks and points. Most are never claimed in the first place, the worst of which are airline miles. where Consumer Report found that over 75% are never redeemed.

There isn’t a law that says you HAVE to use your credit card. It’s your choice and it’s one of the most expensive ways to finance things.

If you carry a credit card balance – stop using it until it’s paid off! Broke people can’t keep spending! We’re at 150% debt to net income – and it’s getting worse, and we’re now more broke, and saving less, than Americans! No law Mr. Layton may want to pass will stop broke people from continuing to dig their financial hole deeper and deeper.

Needless to say, I would do anything to get one-one hundredth of the media attention Mr. Layton can garner to make a difference in financial education and to actually help families. Mr. Layton missed a great opportunity to shine the spotlight on financial issues that matter and that can, and should, be addressed.

How about some legislation that Universities and Colleges can’t sell their student lists to credit card issuers? It’s our educational institutions selling out their students for a kick-back.

How about that you actually need a job to get a credit card, and preventing them from being issued to students until age 21 and with proof of an actual income?

How about changing the giant rip off of mortgage insurance with CMHC? CMHC has $8 billion in net assets and made almost a billion dollars in 2009. Yet we have to pay the insurance on less than 20% down payments. In the U.S. it’s monthly premiums until you do reach the 20% equity. At that point, the premium charge stops.
Here in Canada, it’s entirely front loaded, and adds $14,000 to $18,000 in costs to the average mortgage.
How about re-starting Bill C27 that died, making it a criminal offence to steal someone’s identity, with up to five years prison?

How about a credit freeze law that allows individuals to totally block their credit report, making it impossible to be the victim of identity theft? Because it’s the ONLY way to accomplish that.

How about legislation that forces financial institutions to advice customers when their transaction will trigger an overdraft with huge fees? This opt-in rule would be a no-brainer in having an ATM screen display that you are about to go into overdraft with this withdrawal.

Better yet, how about matching the U.S. legislation that requires customer consent before every allowing an overdraft? That way, people can’t be trapped into huge overdrafts they never consented to.

And back on credit cards, how about restricting the $30 or $40 over-limit fees to a percentage of the balance, or requiring specific customer permission before over-limiting the account in the first place? Right now, a $2 coffee can trigger a $30 overdraft.

How about championing a consumer bill of rights, including the right or ability to speak to a human being at the credit bureau with inquiries, or concerns about their credit file. Because, right now, one-third of files have errors serious enough to prevent obtaining credit.

Those are eight reasonable and reasonably simply issues that can be passed through the House of Commons and become legislation. Unfortunately, they are certainly not as sexy as talking about ATM fees, or mandated low-interest credit cards. But then, is it about cranking people up, or wanting to help and make a difference?

Five Updates of Previous Stories

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According to Consumer Report, more than 25% of all gift cards we received LAST Christmas still have not been redeemed. That’s over a year ago, and this money is still sitting in a drawer? Yes, it’s real money. Make a point of pulling out all your gift cards and a goal of using them up – sooner – way sooner, rather than later. The last thing you want to do is have them go to waste, or finding out the merchant is no longer in business.

A year ago, a new technology was just taking off called NFC – near field communication. It’s the technology behind the pay at the pump card that’s on your keychain with a number of gas stations. Well, after just a couple of years, it’s now firmly in use with smart phones, because in 2009, its first year in use, over $69 billion was paid using a phones. That amount will jump drastically, as rumour has it that Apple will include that technology in their next i-Phone, and i-Pad, due out in April.

Here is a sad reality of something we’ve talked about in the past: According to a survey by Mint.com, a great on-line budgeting and financial planning site, 72% of couples under age 30 admit that discussing finances always leads to an argument. Even worse, in terms of building a strong and trusting relationship is that 43% keep some of “their” debts a secret from their partner.

We talked about it briefly a week ago, but now there’s proof that renting doesn’t have a negative stigma anymore – at least right now. According to the National Apartment Association, 76% of people believe that renting is preferable to owning a home right now.

Here is a strange story from American Express: According to a study from Amex, last year, wealthy people increased their trips to fast food restaurants by 24%, versus an 8% increase from lower income groups. OK, that makes sense. Even rich people are feeling the pinch. But there’s a second part to the report: These wealthy people increased their spending on cruises and DOUBLED their spending on business-class airline tickets. How do you reconcile that? Save on restaurants, but actually spend more money in the big ticket areas? Does that $10 saving make sense when dropping thousands more in business class airline tickets?