• Introduction to Financial Services • Basic Banking Services • • Money Management • • Credit •
• Activity 1……. Where Do I Keep My Money? • Activity 2……. Evaluating Financial Services • Activity 3……. Banks, Yesterday and Today
ACTIVITY 1 Where Do I Keep My Money? Overview • The functions of banks • The cost of alternative financial services • The stability of banks 3 Introduction to Financial Services - Activity 1
PLACES TO SAVE MONEY Would you save your money in any of these places? Why not? Can you think of other places to save money? • • • 4 Bed & Mattress Cookie Jar Pillow Wallet Money Belt Small House Safe Slide 1 - Places to Save Money Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 1
ALTERNATIVE FINANCIAL SERVICES • Cheque-Cashing Services • Cheque-Deferrals, Cash Advances, Payday Loans • Pawn Shops • Rapid Tax Refunds • Rent-to-Own • Other Financial Services 5 Slide 2 - Alternative Financial Services Lesson Reference: Introduction to Financial Services, Activity 1 – Handout 1
CANADA DEPOSIT INSURANCE CORPORATION (CDIC) • Established in 1967 by Parliament, CDIC was incorporated as a Crown corporation. • Insures most Savings, Chequing, GICs, and other Deposit Accounts. • Up to $100, 000 per depositor, per institution. • Applies to most Commercial Banks, Savings Banks, and Savings Associations. 6 Slide 3 – CDIC Lesson Reference: Introduction to Financial Services, Activity 1 – Overhead 2
ACTIVITY 2 Evaluating Financial Services Overview • Formal and informal financial services • Costs of alternative financial services and average bank accounts • Advantages of establishing a banking relationship 7 Introduction to Financial Services – Activity 2
FORMAL FINANCIAL SERVICES • • • 8 Accounts Credit cards Loans Investment vehicles Direct deposit Wire transfers/ remittances INFORMAL FINANCIAL SERVICES • • Payday lenders Cheque cashing services Rent-to-own stores Pawn shops Title lenders Loans from family/friends Cultural savings clubs Remittances offered through nonfinancial institutions Slide 1 – Formal and Informal Financial Services Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 1
HOW A BANK CAN SAVE YOU MONEY Monthly Fees without a Bank Monthly Fees with a Bank* • $80 to cash paycheques • $4. 16 on money orders and stamps to pay bills • $20 to send money to family with a wire transfer company • $10 monthly base service charge • $0 to directly deposit paycheque • $0 to get cash from bank's ABMs or make debit card purchase • $0 to pay monthly bills using electronic bill payment • $5 to send money to family Monthly cost: $104. 16 Annual cost: $1, 249. 92 Monthly cost: $15. 00 Annual cost: $180. 00 Annual Savings by Using a Bank: $1, 069. 92 9 Slide 2 – How a Bank Can Save You Money Lesson Reference: Introduction to Financial Services, Activity 2 – Handout 2
ADVANTAGES OF ESTABLISHING A BANKING RELATIONSHIP Nearly everyone needs a bank account to help manage his or her day-to-day money. Bank accounts can help you to: • Pay bills • Manage your money • Receive money • Send money to a friend or family member • Keep your money secure • Start building wealth • Earn interest 10 Slide 3 – Advantages of a Banking Relationship Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 2
ACTIVITY 3 Banks, Yesterday and Today Overview • The many traditional financial services provided by a bank • Other expanded financial services provided by a bank • The impact of banks throughout the community 11 Introduction to Financial Services - Activity 3
TRADITIONAL SERVICES OF BANKS 12 • Chequing Accounts • Savings Accounts • GICs (Guaranteed Investment Certificates) • Canada Savings Bonds • Loans • Car • Home (mortgages and home equity loans) • Personal • Safe Deposit Boxes Slide 1 - Traditional Services of Banks Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 1
TRADITIONAL SERVICES OF BANKS 13 • Chequing Accounts • Savings Accounts • GICs (Guaranteed Investment Certificates) • Canada Savings Bonds • Loans • Car • Home (mortgages and home equity loans) • Personal • Safe Deposit Boxes EXPANDED SERVICES OF BANKS • Insurance Sales • Small Business Advising and Loans • Investments • Credit Cards • Remittances Slide 2 - Expanded Services of Banks Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 2
BANK ACT REFORM 2001 (BILL C-8) Eliminated many restrictions among banks, but also put in place a new review process for bank mergers. Results? • Banks are required to open accounts for individuals without demanding a minimum deposit or that the individual be employed. • Financial institutions are also required to cash government cheques for non-customers, with a minimum form of identification. • Banks are required to make a low-cost account available to consumers. 14 Slide 3 – Bank Act Reform 2001 Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 3
SOME COMMUNITY-RELATED SERVICES OF BANKS • Bank employees mentor students in areas of basic financial skills. • Bank employees serve on community organizations’ boards of directors. • Banks provide scholarships to students going into the banking profession. • Banks fund affordable housing construction. • Banks organize fund-raising events, such as “Run For the Cure. ” • Bank branches participate in fundraising for many community organizations, such as children’s hospitals. 15 Slide 4 - Community-Related Services Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 4
• • Activity Activity 1…………. Why Do You Need A Bank? 2………The Many Services of a Bank 3…The ABCs of a Chequing Account 4………Opening a Chequing Account 5………………. How to Write a Cheque 6…. Maintaining a Chequing Account 7……The ABCs of a Savings Account
ACTIVITY 1 Why Do You Need a Bank? Overview • Purposes of banks • The differences between banks and credit unions • Safety of financial institutions • Banks as money management tools 17 Basic Banking Services - Activity 1
CANADA DEPOSIT INSURANCE CORPORATION • Established in 1967 • A Crown Corporation • Protects depositors against certain losses, up to $100, 000 per depositor 18 Slide 1 – Canada Deposit Insurance Corporation Lesson Reference: Basic Banking Services, Activity 1 – Overhead 2
ACTIVITY 2 The Many Services of a Bank Overview • • 19 Financial services provided by a bank Bank employees Services that might be of personal benefit The impact of state and federal regulations upon the security of a bank Basic Banking Services - Activity 2
REMITTANCE OPTIONS TO SEND AND RECEIVE MONEY 1. 2. 3. 4. 5. 6. 7. 20 Money Transfer Organizations Bank Transfers Hand Delivery Mail Hawala Post Offices Stored Value Cards Slide 1 – Remittance Options Lesson Reference: Basic Banking Services, Activity 2 - Overhead 1
BANK OCCUPATIONS • • • 21 Tellers Personal Bankers Mortgage Lenders Operations Manager Branch Manager Slide 2 – Bank Occupations Lesson Reference: Basic Banking Services, Activity 2 – Overhead 2
ELECTRONIC BANK SERVICES Online banking is the fastest growing Internet activity in Canada. Types of Services • Bank Cards • Automated Services Protect Your Passwords! 22 Slide 3 - Electronic Bank Services Lesson Reference: Basic Banking Services, Activity 2 – Overhead 3
BANK CARD TYPES TYPE • ABM/Debit Cards DESCRIPTION • Stored Value Cards • Bank cards with preset, limited value. • Used to pay for goods and services. • Alternative to cash. 23 • Bank cards that allow for the payment of goods and services to be subtracted directly from a bank deposit account. • Can be used with merchants that take major credit cards—known as point of sale (POS) transactions. Slide 4 - Bank Card Types Lesson Reference: Basic Banking Services, Activity 2 – Overhead 4
AUTOMATED BANK SERVICES • • • 24 Direct Deposit Transfers between Accounts Transfers to a Third Party Online Banking Bank by Phone ABM Slide 5 – Automated Bank Services Lesson Reference: Basic Banking Services, Activity 2 – Handout 3
REGULATION OF ELECTRONIC BANKING SERVICES Electronic Funds Transfer Code Initiated by the Ministry of Consumer and Corporate Affairs (CCAC) in 1989. It protects consumers using any type of electronic banking from loss and protects their privacy. Banks must: • Offer consumers a record or receipt for all computer transactions. • Investigate errors and report to consumer within ten days of error notification. Customers are responsible to report any errors. 25 Slide 6 - Regulation of Electronic Banking Lesson Reference: Basic Banking Services, Activity 2 – Overhead 5
ACTIVITY 3 The ABCs of a Chequing Account Overview • Purposes of a chequing account • Shopping for and comparing chequing accounts 26 Basic Banking Services - Activity 3
CHEQUING ACCOUNT TERMS • Bank Statement • Cancelled Cheque • Cheque Register/Ledger • Endorsement • Fee • Interest • Minimum Balance 27 • Outstanding Transactions • Overdraft Protection • Payee • Reconciling a Bank Statement • Transaction Limits Slide 1 - Chequing Account Terms Lesson Reference: Basic Banking Services, Activity 3 – Handout 1
SHOPPING AROUND (THINGS TO ASK ABOUT WHEN OPENING A CHEQUING ACCOUNT) 28 SERVICES Location of bank Location of ABMs Banking hours Minimum balance required Minimum transactions or limits Interest-bearing accounts? Other COSTS Non-primary bank ABM transactions In-branch transaction fees Per-cheque fees Other chequing fees Overdraft protection Printing of cheques Slide 2 - Shopping Around Lesson Reference: Basic Banking Services, Activity 3 - Handout 2
ACTIVITY 4 Opening a Chequing Account Overview • • 29 Chequing Account Application Process The Application Acceptable Forms of ID The Signature Authorization Card Basic Banking Services - Activity 4
OPENING A CHEQUING ACCOUNT 30 Slide 1 – Opening a Chequing Account Lesson Reference: Basic Banking Services, Activity 4 – Handout 1
COMMONLY ACCEPTED FORMS OF ID Primary ID* • Driver’s Licence issued in Canada • Old Age Security card • Canadian passport • Certificate of Indian Status • Certificate of Canadian Citizenship • Provincial health insurance card (except Ontario, Manitoba, and PEI) • Permanent Resident card or Citizenship and Immigration Canada Form IMM 1000, IMM 1442, or IMM 5292 • Birth certificate issued in Canada • Social Insurance card • Provincial ID card, bearing the individual’s photograph and signature, issued by authorities such as Insurance Corporation of British Columbia, Alberta Registries, Service New Brunswick, etc. * Financial institutions' ID requirements may differ; check with the institution first before applying for an account. 31 Slide 2 - Commonly Accepted Forms of ID Lesson Reference: Basic Banking Services, Activity 4 – Handout 2
COMMONLY ACCEPTED FORMS OF ID Secondary ID* • Employee photo ID card • Canadian University/ College photo ID card • Canadian bank or ABM/debit card • Canadian credit card • Canadian National Institute for the Blind (CNIB) client card • Foreign passport * Financial institutions' ID requirements may differ; check with the institution first before applying for an account. 32 Slide 3 - Commonly Accepted Forms of ID Lesson Reference: Basic Banking Services, Activity 4 – Handout 2
SIGNATURE AUTHORIZATION CARD 33 Slide 4 – Signature Authorization Card Lesson Reference: Basic Banking Services, Activity 4 – Handout 3
ACTIVITY 5 How to Write a Cheque 34 Basic Banking Services - Activity 5
WRITING A CHEQUE 35 Slide 1 - Writing a Cheque Lesson Reference: Basic Banking Services, Activity 5 – Handout 1
ACTIVITY 6 Maintaining a Chequing Account Overview • • • 36 Keeping a cheque register Making a deposit into a chequing account Reconciling a bank statement Maintaining a chequing account Avoiding overdrafts Basic Banking Services - Activity 6
KEEPING A CHEQUE REGISTER 37 Slide 1 - Keeping a Cheque Register Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
MAKING A DEPOSIT - ENDORSING A CHEQUE The Back Side of a Cheque 38 Slide 2 - Making a Deposit - Endorsing a Cheque Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
MAKING A DEPOSIT COMPLETING A DEPOSIT SLIP 39 Slide 3 - Making a Deposit - Completing a Deposit Slip Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
RECONCILING A BANK STATEMENT 40 Slide 4 - Reconciling a Bank Statement Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
OVERDRAFTS AND BOUNCED CHEQUES Overdrafts and bounced cheques occur when you complete a financial transaction (e. g. , write a cheque) for more than what is available in the account. Your financial institution may pay the amount and charge you a fee, known as an “overdraft fee” or a “nonsufficient funds fee. ” Tip: Avoid overdraft or non-sufficient funds fees by making a habit of monitoring the balance in your chequing account. 41 Slide 5 – Overdrafts and Bounced Cheques Lesson Reference: Basic Banking Services, Activity 6 – Overhead 1
ACTIVITY 7 The ABCs of a Savings Account Overview • • 42 Purpose of a savings account Shopping for a savings account Applying for a savings account Monthly bank statement checkup Basic Banking Services - Activity 7
REASONS TO SAVE • Emergencies • Future Purchases • Future Investments 43 Slide 1 - Reasons to Save Lesson Reference: Basic Banking Services, Activity 7 – Overhead 1
SHOPPING FOR A SAVINGS ACCOUNT Factors to consider: • • • 44 Safety Risk Liquidity Minimum Account Balance Requirements Fees and Service Charges Interest Rate Returns (Earnings) Automatic Transfer Direct Deposit Slide 2 - Shopping for a Savings Account Lesson Reference: Basic Banking Services, Activity 7 – Overhead 2
OPENING A SAVINGS ACCOUNT 45 Slide 3 – Opening a Savings Account Lesson Reference: Basic Banking Services, Activity 7 – Overhead 3
BANK STATEMENT 46 Slide 4 – Bank Statement Lesson Reference: Basic Banking Services, Activity 7 – Overhead 4
• • Activity 1………………Saving vs. Investing 2………. …. Saving for a Rainy Day 3…………. . 1 + 1 = Saving 4…. . Investing for the Long Term
ACTIVITY 1 Saving vs. Investing Overview • • 48 Saving vs. investing Information on a paycheque Making a financial plan Budgeting Money Management - Activity 1
DO YOU SAVE? DO YOU INVEST? 49 Slide 1 - Do You Save? Do You Invest? Lesson Reference: Money Management, Activity 1 – Overhead 1
SAVING VS. INVESTING Saving • Short-term. • Postpones spending. • Has safety precautions. Investing • Long-term. • Exchanges money for something with the future expectation of receiving a profit. • Has risk factors. 50 Slide 2 - Saving vs. Investing Lesson Reference: Money Management, Activity 1 – Overhead 2
TAKE A GOOD LOOK AT A PAYCHEQUE 51 Slide 3 – Paycheque Lesson Reference: Money Management, Activity 1 – Handout 1
MAKING A SUCCESSFUL FINANCIAL PLAN 1. 2. 3. 4. Start as early as possible. Set goals. Include both short- and long-term strategies. Support the plan with a practical, working budget. 5. Review the plan on a regular schedule. 6. Do your homework while working on your plan. 7. Put the plan in writing. 52 Slide 4 – Making a Successful Financial Plan Lesson Reference: Money Management, Activity 1 – Handout 2
FINANCIAL PLAN ASSISTANCE • Bankers • Certified Financial Planners • Schools and Courses • Peer Groups and Investment Clubs • The Media • The Internet 53 Slide 5 - Financial Plan Assistance Lesson Reference: Money Management, Activity 1 – Overhead 3
BUILDING MY MONTHLY BUDGET • • • 54 Savings & Investments Fixed Expenses Periodic Fixed Expenses Variable Expenses Debts Slide 6 – Building my Monthly Budget Lesson Reference: Money Management, Activity 1 – Handout 4
ACTIVITY 2 Saving for a Rainy Day Overview • Reasons to save • Concerns and issues with saving • Where to save 55 Money Management - Activity 2
SAVING FOR A RAINY DAY 56 Slide 1 - Saving for a Rainy Day Lesson Reference: Money Management, Activity 2 – Overhead 1
REASONS TO SAVE • Provide for unexpected emergencies. • Purchase expensive items in the future. • Ensure retirement. • Plan for investment opportunities. 57 Slide 2 - Reasons to Save Lesson Reference: Money Management, Activity 2 – Overhead 2
CONCERNS AND ISSUES WHEN SAVING • • Safety Restrictions Liquidity Earnings • Taxes 58 Slide 3 – Concerns and Issues When Saving Lesson Reference: Money Management, Activity 2 – Handout 1
PLACES TO SAVE • Savings Accounts • Money Market Accounts • Guaranteed Investment Certificates • Registered Savings Accounts • Savings Bonds • Insurance 59 Slide 4 – Places to Save Lesson Reference: Money Management, Activity 2 – Handout 2
LOOKING AT PLACES TO SAVE On a scale of 1 to 5 (with 1 being low and 5 being high), rate the following places to save your money. Based on the above ratings, where would you save your money? Why? 60 Slide 5 - Looking at Places to Save Lesson Reference: Money Management, Activity 2 – Overhead 3
ACTIVITY 3 1 + 1 = Saving Overview • Types of interest • The impact of saving • Savings regulations 61 Money Management - Activity 3
TYPES OF INTEREST Which type of return on your money would you prefer? What’s the difference? 62 Slide 1 - Types of Interest Lesson Reference: Money Management, Activity 3 – Overhead 1
IMPACT OF RETURNS ON SAVINGS This chart shows what happens at several different rates to $100 in an account when no money is withdrawn and interest is compounded yearly. 63 Slide 2 – Returns on Savings Lesson Reference: Money Management, Activity 3 – Handout 2
SAVINGS REGULATIONS Federal Government Insurance CDIC (Canada Deposit Insurance Corporation): Deposits are potentially insured up to $100, 000. Provincial Government Insurance Stabilization funds or deposit insurance programs for Credit Unions and Caisse Populaires (vary by province) 64 Disclosure provisions in Bank Act Financial institutions must disclose the following information about their consumer savings accounts: • Fees on accounts • Interest rate • General terms and conditions Defines the year as 365 days for purposes of determining the annual percentage rate of interest. Slide 3 - Savings Regulations Lesson Reference: Money Management, Activity 3 – Overhead 2
ACTIVITY 4 Investing for the Long Term Overview • Historical Performance of the S&P/TSX • Reasons to Invest • Investing Considerations §Investment Concerns §Places to Invest • Online Money Management 65 Money Management - Activity 4
SAVING vs. INVESTING SAVING • Short-term. • Postpones spending. • Has safety precautions. INVESTING • Long-term. • Exchanges money for something with the future expectation of receiving a profit. • Has risk factors. 66 Slide 1 - Savings vs. Investing Lesson Reference: Money Management, Activity 4 – Overhead 1
SAVING VS. INVESTING, HISTORICALLY 67 Slide 2 - Saving vs. Investing, Historically Lesson Reference: Money Management, Activity 4 – Overhead 2
PLACES TO INVEST • • • 68 Stocks Bonds Mutual Funds Retirement Plans/RRSPs Real Estate Collectibles/Valuables Slide 3 - Places to Invest Lesson Reference: Money Management, Activity 4 – Overhead 3
QUESTIONS TO ASK BEFORE MAKING AN INVESTMENT 1. 2. 3. 4. How safe is the investment? What types of returns can I expect? What kind of risk is involved? Can I get my money back if I need it? How long will it take and how much will it cost to get it back quickly? 5. Are my investments in a variety of places to spread my risks (diversification)? 69 Slide 4 – Questions to Ask Lesson Reference: Money Management, Activity 4 – Handout 2
INTERNET PRIVACY & SECURITY • • • 70 Avoid passwords or screen names that are easy to guess. Change passwords often. Read privacy policies. Check online accounts often. Report unfamiliar transactions. Do not open emails with unsolicited offers that sound too good to be true. Do not open emails that pretend to come from a financial institution and ask you to reset your password. Slide 5 – Internet Privacy & Security Lesson Reference: Money Management, Activity 4 – Overhead 4
• • • Activity Activity Activity 1…………The ABCs of Credit 2………………Credit Scores 3…………Establishing Credit 4…………. …Maintaining Good Credit 5…………………. Credit Cards 6………. Managing Credit Challenges 7……………. Identity Theft 8………Prime and Subprime Lending 9…………. . Predatory Lending 10………………. . Bankruptcy
ACTIVITY 1 The ABCs of Credit Overview • • 72 What is credit? The five Cs of credit Pros and cons of using credit The big decision—Should I use credit? Credit - Activity 1
CREDIT DEFINITIONS Credit Trust given to another person for future payment of a loan, credit card balance, etc. Creditor A person or company to whom a debt is owed. 73 Slide 1 – Credit Definitions Lesson Reference: Credit, Activity 1 – Handout 1
THE FIVE Cs OF CREDIT C = Capacity C = Capital C = Collateral C = Conditions C = Character 74 Slide 2 - The Five Cs of Credit Lesson Reference: Credit, Activity 1 – Overhead 1
WHEN TO USE CREDIT Can you describe a situation when it is a good time to use credit and when it is NOT a good time to use credit? 75 Slide 3 – When to Use Credit Lesson Reference: Credit, Activity 1 – Handout 2
QUESTIONS TO ASK BEFORE USING CREDIT 1. 2. 3. 4. 5. 6. 7. 76 Slide 4 – Questions to Ask Lesson Reference: Credit, Activity 1 – Handout 3
ACTIVITY 2 Credit Scores Overview • Credit scores and their impact • The factors that make up a credit score • Strategies to improve your credit score 77 Credit - Activity 2
WHAT IS A CREDIT SCORE? • • A credit score is a number that changes as the elements in a credit report change. • A credit score has broad use and impact. Your credit past is your credit future. • FICO® scores, one of the most common credit scoring systems, vary between 350 and 850. • 78 A credit score is a number that helps a lender predict how likely an individual is to repay a loan, or make credit payments on time. Vantage. Score. SM, a new credit scoring system developed by the three credit bureaus, ranges from 501 -990. Slide 1 – What Is a Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 1
WHAT MAKES UP A TYPICAL CREDIT SCORE? Source: Fair Isaac and Consumer Federation of America, 2005 79 Slide 2 – What Makes Up a Typical Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 2
IMPROVING YOUR CREDIT SCORE • • 80 Pay bills on time. Get current and stay current. Keep balances low on revolving credit. Don’t open a lot of new accounts too rapidly. Correct mistakes. Shop for loan rates within a focused period of time. Pay off debt. Check your credit report. Slide 3 – Improving Your Credit Score Lesson Reference: Credit, Activity 2 – Handout 2
ACTIVITY 3 Establishing Credit Overview • • 81 Types and sources of credit Credit safeguards Applying for credit Questions to ask when applying for credit Credit - Activity 3
TYPES OF CREDIT Cash Credit Sales Credit Secured Credit Revolving Credit 82 I. O. U. Single Payment Credit Installment Credit Other Types of Credit Slide 1 – Types of Credit Lesson Reference: Credit, Activity 3 – Handout 1
SOURCES OF CREDIT Banks Mortgage & Loan Companies Retail Stores Finance Companies Credit Unions & Caisses Populaires Internet Stores What are other sources of credit? What sources of credit should be avoided? Why? 83 Slide 2 - Sources of Credit Lesson Reference: Credit, Activity 3 – Overhead 1
STEPS TO TAKE TO AVOID ABUSIVE LENDING 1. Have you shopped around for the best deal? 2. Do you feel the lender pressured you to take the loan? 3. Do you understand the terms of the loan? 84 Slide 3 – Avoiding Abusive Lending Lesson Reference: Credit, Activity 3 – Handout 2
COMMON PARTS OF A CREDIT APPLICATION • • • 85 Reason for Loan Personal Identification Information Employment Information Mortgage/Rental Information Documentation Required (for some applications) Current Debts Credit References Collateral (for some applications) Bank References Signature and Date Slide 4 – Parts of a Credit Application Lesson Reference: Credit, Activity 3 – Handout 3
SAMPLE CREDIT APPLICATION 86 Slide 5 – Sample Credit Application Lesson Reference: Credit, Activity 3 – Handout 3
QUESTIONS TO ASK WHEN APPLYING FOR CREDIT 1. 2. 3. 4. 5. 6. 7. 8. 9. 87 What is the annual fee? What is the annual percentage rate (APR)? When are payments due? What is the minimum payment required each month? Is there a grace period? Are there other fees associated with the credit, such as minimum finance charges? What is the credit limit? What are the penalties for late or missed payments? What are the terms and conditions of the credit? What else is included in the fine print? Slide 6 – Questions to Ask Lesson Reference: Credit, Activity 3 – Handout 5
ACTIVITY 4 Maintaining Good Credit Overview • Debt to income thermometer • Credit process • Credit reporting agencies • Credit safeguards for consumers • Credit reports, ratings and scores • Establishing a credit history 88 Credit - Activity 4
DEBT-TO-INCOME THERMOMETER 89 Slide 1 – Debt-to-Income Thermometer Lesson Reference: Credit, Activity 4 – Overhead 1
THE CREDIT PROCESS CREDIT HISTORY • CREDIT BUREAU • CREDIT REPORT • CREDIT SCORE • CREDIT RATING 90 Slide 2 - The Credit Process Lesson Reference: Credit, Activity 4 – Overhead 2
SAMPLE CREDIT REPORT 91 Slide 3 – Sample Credit Report Lesson Reference: Credit, Activity 4 – Handout 2
CREDIT SAFEGUARDS FOR CONSUMERS Bank Act (Cost of Borrowing Regulations) Consumer Protection Act Personal Information Protection & Electronic Documents Act (PIPEDA) Credit Reporting Acts Collection Agencies Acts 92 Slide 4 - Credit Safeguards for Consumers Lesson Reference: Credit, Activity 4 – Handout 3
THINGS TO DO TO ESTABLISH AND MAINTAIN GOOD CREDIT What can everyone do to establish and maintain good credit? 1. Pay all bills on time. 2. Avoid late fees. 3. 4. 5. 6. 93 Slide 5 - Things to Establish Good Credit Lesson Reference: Credit, Activity 4 – Overhead 3
ACTIVITY 5 Credit Cards Overview • Types of credit cards • Shopping for a credit card • Costs of credit 94 Credit - Activity 5
TYPES OF CREDIT CARDS Private Label • Issued by a single source • Can only be used at a single source • Examples: Department Stores, Gasoline Companies General Label • Issued by a single source • Can be used in many places • Examples: Bank Card, Major Credit Card 95 Slide 1 - Types of Credit Cards Lesson Reference: Credit, Activity 5 – Overhead 1
SHOPPING FOR A CREDIT CARD DECISIONS, DECISIONS. . . ANNUAL FEE? APR? COMPUTATION METHOD? GRACE PERIOD? FINANCE CHARGE? CREDIT LIMIT? CARD INCENTIVES? 96 Slide 2 - Shopping for a Credit Card Lesson Reference: Credit, Activity 5 – Overhead 2
QUESTIONS TO ASK WHEN SHOPPING FOR A CREDIT CARD • • 97 Annual fee Annual percentage rate (APR) Minimum payment Computation method Grace period Finance charges Card incentives Slide 3 – Questions to Ask Lesson Reference: Credit, Activity 5 – Handout 1
COSTS OF CREDIT How much can credit cost? If you make only the minimum payment for an item, here are some examples of what you might actually pay and how long it will take you to pay it. 98 Slide 4 – Costs of Credit Lesson Reference: Credit, Activity 5 – Handout 2
ACTIVITY 6 Managing Credit Challenges Overview • • 99 Warning signs of credit abuse Credit card reductions Correcting credit errors Resources and assistance Credit - Activity 6
MEASURING THE SERIOUSNESS OF CREDIT TROUBLE SIGNS Rate how serious you think each of the following trouble signs is. 1 = Not Serious 4 = Very Serious Trouble Signs • • 100 Delinquent Payments Default Notices Repossessions Collection Agencies • Lien • Garnishment • Others? Slide 1 – Rating Trouble Signs Lesson Reference: Credit, Activity 6 – Handout 1
WARNING SIGNS OF DEBT PROBLEMS 1. 2. 3. 4. 5. 6. 101 Delinquent Payments Default Notices Repossessions Collection Agencies Judgment Lien Garnishment Slide 2 – Warning Signs Lesson Reference: Credit, Activity 6 – Handout 2
CREDIT CARD REDUCTIONS Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment. Paying the minimum amount due keeps your credit history clean, but it also costs you more. 102 Slide 3 – Credit Card Reductions Lesson Reference: Credit, Activity 6 – Handout 3
CORRECTING CREDIT ERRORS 1. Circle the incorrect items on your credit report. 2. Write a letter to the reporting agency, telling them which information you think is inaccurate. Provide supporting documentation. 3. Send all materials by certified mail. 4. Send a similar letter to the creditor whose reports you disagree with. 5. The reporting agency will conduct an investigation. 6. If negative information is accurate, it can stay on your report for 7 -10 years. 103 Slide 4 – Correcting Credit Errors Lesson Reference: Credit, Activity 6 – Handout 4
CORRECTING CREDIT PROBLEMS • • • 104 Take responsibility for actions. Communicate with creditors. Debt Consolidation Credit Counseling Bankruptcy Slide 5 – Correcting Credit Problems Lesson Reference: Credit, Activity 6 – Handout 5
ACTIVITY 7 Identity Theft Overview • The growing problem of identity theft and how it occurs • Strategies to protect your personal information • Steps to take if your identity has been stolen. 105 Credit - Activity 7
IDENTITY THEFT Identity theft occurs when someone uses your personal identifying information to either establish credit under your name or to take over an existing account that you established without your authorization. This information may include: • • 106 Social Insurance Numbers Name Address Date of birth • Mother’s maiden name • Passwords • PINs Slide 1 – Identity Theft Lesson Reference: Credit, Activity 7 – Overhead 1
HOW TO AVOID IDENTITY THEFT 1. 2. 3. 4. 5. 6. 7. 8. 9. 107 Monitor your credit report. Don’t give out personal information to unknown persons or companies. Protect your credit and debit cards. Protect your mailbox. Protect your wallet. Use passwords and PINs that can’t be easily guessed. Use anti-virus software on your computer. Notify your bank when you change your address or phone number. Other suggestions? Slide 2 – How to Avoid Identity Theft Lesson Reference: Credit, Activity 7 – Handout 2
WHAT TO DO IF YOUR IDENTITY HAS BEEN STOLEN If you think your identity has been stolen, take the following steps: • Contact the three major credit bureaus (Equifax, Northern Credit Bureaus, and Trans Union). • Close accounts. • Contact all creditors involved. • File a police report. • Keep a record of your contacts. 108 Slide 3 – What to Do Lesson Reference: Credit, Activity 7 – Overhead 2
ACTIVITY 8 Prime and Subprime Lending Overview • Prime and subprime lending definitions • Alternative institutions that provide higher-cost loans • Strategies to improve credit in order to qualify for prime loans. 109 Credit - Activity 8
PRIME AND SUBPRIME MORTGAGE LENDING Prime credit is typically available to an individual who has paid his or her outstanding credit on time. Subprime A subprime loan is typically available to a person with either no credit history or a damaged credit history and who is considered to be a high-risk borrower. Subprime loans have higher-than-average interest rates. 110 Slide 1 – Prime and Subprime Lending Lesson Reference: Credit, Activity 8 – Overhead 1
THE PRICE OF SUBPRIME LENDING How much does a subprime loan cost you? If you are making payments on a car, for example, you could be paying significantly more just for getting a loan with a higher interest rate. This added interest is significant over the life of the loan. 111 Slide 2 – The Price of Subprime Lending Lesson Reference: Credit, Activity 8 – Handout 1
MOVING FROM SUBPRIME TO PRIME If you currently have a lower credit score and want to be able to qualify for prime loans in the future, you should take steps to improve your credit. The following steps can help. • • • 112 Pay bills on time. Correct mistakes. Pay more than the minimum required. Use credit sparingly. Work with a reputable nonprofit credit counseling organization. Slide 3 – Moving from Subprime to Prime Lesson Reference: Credit, Activity 8 – Handout 2
ACTIVITY 9 Predatory Lending Overview • Characteristics and warning signs of predatory lending. • The key targets of predatory lending. • Common abuses and scams. • Nonprofit organizations that can help consumers plagued by predatory lending. 113 Credit - Activity 9
PREDATORY LENDING In communities across Canada, some people are losing their homes and their investments because of predatory lenders, corrupt appraisers, mortgage brokers, and home improvement contractors who: • • 114 Sell properties for much more than they are worth, using false appraisals. Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan. Knowingly lend more money than a borrower can afford to repay. And many other scams. Slide 1 – Predatory Lending Lesson Reference: Credit, Activity 9 – Overhead 1
IDENTIFYING PREDATORY LENDING Predatory lending is not defined by provincial law except to the extent that a loan is a high-cost loan and contains one of a fixed list of terms or conditions. Predatory or abusive lending practices can include: • • • 115 Packaging a loan with single-premium credit insurance products Repeatedly refinancing a loan in a short period of time Charging excessive rates and fees to a borrower who qualifies for lower rates and fees Slide 2 – Predatory Lending Lesson Reference: Credit, Activity 9 – Handout 1
TEN WARNING SIGNS OF PREDATORY MORTGAGES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 116 Unreasonably high interest rates Multiple refinancing Unnecessary debt consolidation Balloon payment Negative amortization Door-to-door solicitation Back-dating of documents Large loan broker fees Kickbacks between lender and broker Single-premium credit life insurance Slide 3 – Ten Warning Signs Lesson Reference: Credit, Activity 9 – Handout 1
COMMON SCAMS • • 117 Advance fee schemes The prize that will cost you Online auctions Fraud jobs Moneymaking schemes Bogus charities Scam schools Slide 4 – Common Scams Lesson Reference: Credit, Activity 9 – Handout 2
TOP STRATEGIES TO AVOID SCAMS • • • 118 Don’t become a victim. Investigate strangers who have deals too good to be true. Always stay in charge of your money. Don’t be fooled by appearances. Watch out for salespeople who prey on fears. Monitor your investments. Report fraud or abuse. Do your homework. Be wary of door-to-door solicitations. Slide 5 – Top Strategies to Avoid Scams Lesson Reference: Credit, Activity 9 – Handout 2
ADDITIONAL RESOURCES • Phone. Busters - The Canadian Anti-fraud Call Centre (888) 495 -8501; http: //www. phonebusters. com; info@phonebusters. com. • Office of Consumer Protection - Quebec Provincial Government - There are 11 regional offices of the Office of Consumer Protection. One toll-free number serves them all: (888) 672 -2556. • Office of Consumer Affairs - Canadian Federal Government (800) 328 -6189; http: //www. consumer. ic. gc. ca. • Ministry of the Attorney General – Ontario - (416) 326 -2220. 119 Slide 6 – Additional Resources Lesson Reference: Credit, Activity 9 – Handout 3
ACTIVITY 10 Bankruptcy Overview • Personal bankruptcy and consumer proposal • Provisions of the new bankruptcy legislation • Strategies to avoid bankruptcy 120 Credit - Activity 10
BANKRUPTCY Personal Bankruptcy wipes out allowable debts and allows certain personal property exemptions. The debtor gives up all property unless the state deems it necessary to support the debtor and his or her dependents. Eligibility is determined by a means test that measures income against expenses. Consumer Proposal is a negotiated settlement between a debtor and his or her creditors. A typical proposal will involve the debtor making monthly payments for a maximum of five years, with the funds distributed to their creditors. 121 Slide 1 – Bankruptcy Lesson Reference: Credit, Activity 10 – Overhead 1
PROVISIONS OF THE CANADIAN BANKRUPTCY REFORM • • Bankrupt individuals with more than $200, 000 in personal income tax debts will not be eligible for an automatic discharge. • Student loans may be written off. • 122 Debtors who have surplus income will no longer be eligible for an automatic discharge after nine months. A consumer can file a consumer proposal that is as high as $250, 000. Slide 2 – Provisions of Bankruptcy Reform Lesson Reference: Credit, Activity 10 – Handout 1
THINGS TO CONSIDER BEFORE FILING FOR BANKRUPTCY • • • A bankruptcy filing could determine whether or not you get a job. Your insurance rates could rise. You may find it difficult to rent an apartment or qualify for a home loan. • • 123 Bankruptcies stay on your credit report for 10 years. Bankruptcy can lower your credit score. Slide 3 – Things to Consider Lesson Reference: Credit, Activity 10 – Overhead 2
THINGS TO DO BEFORE DECIDING TO FILE BANKRUPTCY, CONT. • • • 124 Reduce your spending Talk with your creditors. Talk with a nonprofit counseling agency. Talk with an attorney and understand the consequences of declaring bankruptcy. Consider consolidation carefully. Slide 4 – Things to Do Lesson Reference: Credit, Activity 10 – Handout 2
TIPS TO REMEMBER • Keep track of your daily expenses. • Save money on a regular basis. • Make changes right away if you see yourself starting to get into financial trouble. • Pay attention to your household finances, especially if you are married. 125 Slide 5 – Tips to Remember Lesson Reference: Credit, Activity 10 – Handout 2
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