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  • 1. MONEY MANAGEMENT AND AVOIDING THE CREDIT TRAPS A PROGRAM OF THREE WORKSHOPS FOR SENIOR SECONDARY SCHOOL STUDENTS Child & Family Services Ballarat Inc. Consumer Services Robyn M. OSLAND FINANCIAL COUNSELLOR 1999
  • 2. DISCLAIMER The information contained in this document was correct, current and relevant at the time of publication, 18 November 1999. It is recommended by the author that because of changes and alterations that are occurring within the industry and at government level with policy direction and legislation on an ongoing basis, any information taken from this document should be checked and verified as being current for that period. The information contained in this program and accompanying documentation was based on sources believed to be reliable at the time of publication and therefore the author gives no warranty that the said sources are still correct and accepts no responsibility for any errors or changes that have occurred since the date of publication. The author accepts no responsibility for any damage or loss, howsoever caused, suffered by an individual, group, school, agency, department or company. Copyright CHILD & FAMILY SERVICES, BALLARAT INC. © All documentation concerned with the Program “Avoiding the Credit Traps”, is copyright and all rights are reserved except as provided by the Copyright Act 1968 and Australian copyright law. Apart from any fair dealing for the purpose of private research, criticism or review, no part of this program documentation may be reproduced by any means or by any process without the written permission of the author and Child & Family Services, Ballarat Inc..
  • 3. MONEY MANAGEMENT & AVOIDING THE CREDIT TRAPS INTRODUCTION Robyn M. OSLAND FINANCIAL COUNSELLOR CHILD & FAMILY SERVICES, BALLARAT INC. 1999
  • 4. AVOIDING THE CREDIT TRAPS AIM: To deliver educational programs to young people (target audience Secondary School, Years 10, 11 & 12), highlighting the pitfalls of easy credit; credit traps; the need for money management through planning and budgeting; the rising incidence of sexually transmitted debt and the increasing incidence of bankruptcy among young people. OBJECTIVES: i. To foster greater awareness and involvement by young people of the nature of credit, its appropriate use and its drawbacks. ii. To increase the capacity of young people (the target group), to make skilled money management decisions including informed choices about credit use. iii. To increase the awareness of young people (the target group), about the need to plan their spending / options, particularly if they have a low income or statutory income (Austudy, Youth Allowance) and what options and / or benefits are available to them. iv. To increase the awareness of young people (the target group), about the rising numbers of cases of sexually transmitted debt and bankruptcy involving young people. v. To compile and distribute a kit of resources and information about credit, its use and abuse, money management, the services and options available should problems arise in the future. BACKGROUND TO THE PROJECT INTRODUCTION Statistics being collected by financial counsellors as part of their casework, indicate an increasing number of young people experiencing financial difficulties due to their lack of understanding of the potential dangers associated with the use of credit, credit cards, purchasing of a vehicle, owning and managing a mobile phone, guarantors, co-borrowers and money management/planning. This has resulted in an increasing number of young people petitioning for bankruptcy.
  • 5. Over the last 6 years the number of people bankrupting in Australia has increased by 200% and the number of young people (under 25) bankrupting has increased by 300%. The main reasons for this large increase are high levels of unemployment, gambling and the ease of obtaining credit. The lure to the world of credit and the credit roundabout can unfortunately set the young person on a course from which the solution is petitioning for bankruptcy. For some young people it begins even before turning eighteen, with the purchase of a mobile phone or at eighteen with the purchase of a car. The three financial counsellors who currently work for Child & Family Services Ballarat Inc., are seeing an ever increasing number of young people in their early twenties and younger, in severe financial difficulties or requesting to petition for bankruptcy. The contribution financial difficulties make to youth suicide and homelessness is considerable. Youth unemployment in Ballarat and surrounding areas is much greater than the national average and with Ballarat secondary schools attracting larger numbers of students from the region there is a presenting opportunity for preventative education and pro-active services. According to the Australian Bureau of Statistics (ABS), 1996 figures the statewide average in Victoria, for youth unemployment stood at 16.0%. Again according to ABS figures for 1996, youth unemployment for the Ballarat / Central Highlands region stood at 37.0%. The waiting list to see a financial counsellor at Child & Family Services Ballarat Inc., is currently three weeks. Statistics being kept as from 1 January 1999 have shown that this waiting period has not altered in any appreciable way, resulting in the need being much greater than can be met. The project through the prevention of crises aims to reduce this waiting list and benefit all sections of the community. This program of workshops will enable young people at senior secondary schools in the Grampians region to be more informed about the different types of credit that is available, the true cost of credit and the responsibilities associated with the use of credit.
  • 6. It is often said by many that information is true power. With this program providing young people with the necessary information we are in fact hoping to enable a redistribution of the power between the consumer and the seller. This program was piloted at Ballarat High School and Ararat Community College, targeting senior students. ORGANISATIONAL PROFILE Child and Family Services Ballarat Incorporated, (formerly know as The Ballarat Children’s Homes and Family Services) was established in 1865 and was one of the largest of the institutional services for children and young people in Victoria. The institutional focus is no longer the pivotal point of service provision by this organisation and the focus is now on community placement for children and young people as well as support and assistance for the families of children and young people. This approach also encompasses community education and pro-active support of children and young people. Child and Family Services Ballarat Incorporated is a non-government, non-profit community based organisation governed by an elected Board of Management and incorporated under the Associations Incorporation’s Act. Services provided by this organisation include family counselling, support and mediation, education, accommodation and consumer support services. The family services programs include Intensive Family Service, Family Violence Prevention Program and educational programs for young people such as ‘Stepping Out’ situated at a local Secondary School in the Ballarat Region. Accommodation services offered by this organisation include Foster Care, Permanent Placement, Group Homes and Supported Accommodation programs and services for Adolescents. Consumer Services offered by this organisation include Financial Counselling and Consumer and Tenancy advice and support. This project involves the design and provision of three educational workshop modules
  • 7. targeted at senior secondary students that provides information and learning about the need for money management and the uses and abuses of credit. These modules are to be designed to develop understandings regarding the possible pitfalls of credit, financial over- commitment and the resulting consequences, such as the escalating incidence of bankruptcy and sexually transmitted debt among young people. It is envisaged that this education will give the necessary information for young people to make informed choices about the use of credit in their future financial management. FINANCIAL COUNSELLING PROGRAM As financial counsellors we can provide information and support to those individuals and families who are experiencing financial difficulties. It is the role of the financial counsellor to ensure that people are: • provided with options and assisted with financial management; • consumer concerns; • given information and assistance as to their rights, responsibilities and the legislation pertaining to payments and recovery of debts; • provided with information regarding bankruptcy; • through negotiation ensure that they are receiving the correct government assistance to which they are entitled; • referred to other organisations and agencies that provide appropriate services. Many of the services available to people experiencing financial difficulties are reactive in nature. To lessen the costs to the community, it is essential to try and prevent some of the problems from occurring by developing and implementing proactive community education programs. The Grampians region has large areas of low income consumers of all ages who have limited access to information that enables them to make independent and informed decisions when participating in our credit and consumer driven society. Although limited access to such information by people in the lower socio-economic section of the community is not exclusively restricted to this region but common to society at large, it is exacerbated in this region by the factor of geographic isolation.
  • 8. MONEY MANAGEMENT & AVOIDING THE CREDIT TRAPS WORKSHOP ONE PERSONAL FINANCIAL PLANNING & MONEY MANAGEMENT Robyn M. OSLAND FINANCIAL COUNSELLOR CHILD & FAMILY SERVICES, BALLARAT INC. 1999
  • 9. WORKSHOP ONE: INTRODUCTION: PERSONAL FINANCIAL PLANNING - MONEY MANAGEMENT Duration:- 1.5 Hours Objectives: • To explain the reasons and advantages of money management through developing budgets. • To evaluate the need for money management and budgeting. • To learn the necessary records to keep track of spending and budgeting. Introduction: Pre-Lesson Exercise - Students are asked to write a brief paragraph in answer to the following: Your uncle just gave you $2000:00 to spend as you Wish. What will you do with the money and why? Students will be asked at the end of the session to reconsider and review the paragraph they wrote. Lesson Plan: 1) What is money management? Group is asked the following question – How many times have you really wanted something but haven’t had the money to buy it because you had already spent the money you had? We would all like to have plenty of money to spend on the things we want. For the majority of us, the reality is we do not! But we all know what it is like to have some money at times and we also know how quickly it gets used up if we don’t watch what we are spending. “Feast one moment and famine the next!” When you manage your money even if you only get a small amount, you have control over what you are doing and this allows you to achieve any goals you have set. The management of your money is a workable system to check money coming in and money going out.
  • 10. At all times we need to remember that a budget or financial plan is a tool to help you reach your goals. It is not a straight jacket that will keep you from enjoying life! It can be thought of as a road map to help you get to where you want to go. 2) Why manage money or develop a financial plan? Discuss with the group and list on paper or a white-board what they think are the reasons for managing money or planning for a secure financial future. Examples:- ⇒Keeping track of how much money is available to spend helps you know what you can buy, what you can afford and when. ⇒Keeping a check on money coming in and going out helps you plan for future goals such as the purchase of THE CAR. ⇒Keeping track of money coming in and controlling your spending helps you to avoid buying unnecessary things or promising to pay for things you can’t afford. 3) Developing a financial plan or budget. Before you start developing a budget some factors you may need to consider include your values, goals, attitudes, age, education and external factors such as income and benefits. An effective budget involves information gathering, decision making, action and evaluation. Importantly we must remember that our values influence the way we earn, save, invest or spend money. REMEMBER WHEN BUDGETING - KEEP IT SIMPLE, REALISTIC AND MANAGEABLE. The steps in the budgeting and financial planning process include: - 1. identify financial goals 2. estimate income and expenses 3. review personal debt/s 4. balance income and expenses 5. implement the plan 6. review and modify the plan as necessary
  • 11. Discuss with group personal goals for spending, saving and future financial planning. What are the things you would like to be able to buy and how do you think this may be achieved? The questions that you may need to ask prior to drawing up your budget include:- a) What period of time will my budget cover? b) What are my short and long term goals? c) What is my total income after any taxes? d) What are my current living expenses? e) Am I expecting any changes to my living expenses in the near future? f) How much can I save each week / fortnight / month for my future goals, such as paying off a car, university or enjoying myself? g) If I have credit am I using it wisely? h) Am I able to cope if there is an emergency that my money needs to cover? WORKSHEET ONE: Setting Goals Since a budget is a plan, it must serve a purpose. Why do you think it is necessary to determine your goals both long and short term before you set up your budget? Short and long term goals are often related. Budgeting and financial planning will be far more successful if you have specific goals in mind. After you have identified your goals, the next step is to work out how much they will cost. What do you believe are things that can be considered short-term financial goals and what do you consider are long term financial goals? You will also need to list only your regular income in any budget for whatever period you chose. The amounts and type/s listed will depend on whether you have a job (wages / salary), receive Centrelink benefits, Youth allowance,/Austudy etc.) Why do you think only regular income should be listed? The next step is to plan how your income or money is to be used. You will need to keep a record for a few weeks on how you spend your money to help establish what is your spending pattern.
  • 12. WORKSHEET TWO: Recording Your Expenses Expenses can be broken down into three types:- Fixed Expenses - these are things that must be paid regularly and do not change from budget period to budget period. Examples are rent, board insurances, loan repayments etc. Semi-fixed Expenses - these are expenses that must be paid regularly but can be differing amounts each time. Examples are food, telephone, gas and electricity, etc. Variable Expenses - these are the expenses that vary from period to period, according to what money you have. It is these items that cannot be determined exactly and there fore you must make an estimate as to what they will be in your budget, based on past experience. These expenses include repairs, entertainment and personal expenses, etc. WORKSHEET THREE: Completing a Budget A budget is a plan, which sets out: • anticipated regular income • fixed and semi-fixed expenses • anticipated variable expenses • planned savings It may be set out in any fashion. The purpose of a establishing a budget is to make sure it balances. INCOME = EXPENSES + SAVINGS Having set up your budget the next important step is to put it into action and compare it with what actually happened during the period. Keep records of your spending because not doing this makes budgeting a waste of time. By checking your records of income, spending and savings it will enable you to if your plan / budget is unworkable or it was workable but your expenditure or savings doesn’t meet the plan. It means then that adjustments will need to be made. A budget is not fixed or final, it needs to be flexible and importantly ACHIEVABLE.
  • 13. 4) Benefits of a Budget or Financial Plan Planning a budget can benefit in the following ways: ∗ Planning for and achieving goals - everyone has goals in life and these need to be planned for. By budgeting we acknowledge that material goals cost money and budgeting can allow us to work towards achieving them without relying on credit because we know what we have is already paid for. ∗ Controlling spending - by setting out your expected spending patterns you are less likely to spend on unnecessary items or spend what you don’t have. ∗ Value for income earned - by establishing a budget or financial plan you are making sure that your income / money will be used for maximum value whether short or long term or day to day spending. ∗ Keeping records - setting and maintaining budgets and plans means there is a need to keep records. They provide the necessary valuable information for current and future planning as well as giving you the means for preparing tax returns. Now let’s look back a the paragraph you wrote at the beginning of this session. Do you now think there is a need to review and reconsider what you wrote? What would you do differently after having really thought about what are your goals for your financial future? WORKSHEET FOUR: Case Studies - Developing Budgets
  • 14. WORKSHEET ONE: SETTING GOALS Name_______________________________________ Date _________________ Will you spend all your money today or save part of it for future goals? It is more fun to save when you have specific goals in mind. This worksheet helps to identify your goals and enables you to decide how much you can save and how frequently you can save in order to reach your goal by a specific date. 1) List several important short-term and long-term goals. 2) Estimate the cost of each goal and when you expect to reach the goal. 3) Record the amount of money already saved to meet the goal. 4) Figure how much money is needed to be saved during each period (weekly / fortnightly / monthly) in order to reach your goal. SHORT-TERM ALREADY MONTHLY WHERE GOALS COST WHEN SAVED SAVINGS SAVED 1 2 3 LONG-TERM GOALS 1 2 3 OVERHEAD WORKSHEET TWO: RECORDING YOUR EXPENSES Name ___________________________________ Date ___________________ THREE (WEEKLY/FORTNIGHTLY/MONTHLY) WORKSHEET
  • 15. PERIOD: ONE TWO THREE HOUSING Rent / Board Electricity Gas Water Furnishings/Household items Insurance FOOD / CLOTHING Food at home Food away from home/take away Clothing TRANSPORTATION Bus, train, taxi fares Petrol/Oil Car maintenance Registration/licence Insurance LOANS/REPAYMENTS Car loans Student loans Credit cards Other loans OVERHEAD EDUCATION Fees/tuition Uniforms Books RECREATION CD’s/tapes Takeaways Sports/activities Partying Other PERSONAL Personal items Medical/dental Chemist Pets Other SAVINGS FOR GOALS TOTALS
  • 16. OVERHEAD WORKSHEET THREE: THE BUDGET BUDGET PERIOD: Weekly Fortnightly Monthly Yearly Period from: ........................................ to .......................................... INCOME Austudy ......................... Youth Allowance ......................... Job Search ......................... Newstart ......................... Wages / Salary ......................... Pension / Benefit ......................... Other ......................... TOTAL A: ....................... EXPENSES FIXED Rent / Mortgage / Board ......................... Insurance ......................... Loan Repayments ......................... Car Registration ......................... School Fees ......................... Pocket Money ......................... Savings ......................... Other ......................... ....................... ......................... ....................... ......................... ....................... ......................... TOTAL B: .......................
  • 17. VARIABLE: Electricity ......................... Gas ......................... Telephone ......................... Mobile Phone ......................... Car ......................... Credit Cards ......................... Other ......................... ....................... ......................... ....................... ......................... ....................... ......................... TOTAL C: ....................... OVERHEAD GENERAL Food / Groceries ....................... Milk / Bread ....................... Medicines ....................... Petrol / Taxi ....................... Public Transport ....................... Medical / Dental ....................... Entertainment ....................... Clothing ....................... Lunches / Takeaways ....................... School Expenses ....................... Recreation / Sport ....................... Pets ....................... Hair Care ....................... Presents / Gifts ....................... Donations ....................... Household Items ....................... Newspapers ....................... Other / Miscellaneous ....................... ....................... ....................... ....................... ....................... ....................... ....................... TOTAL D: ..................... Add Totals: B: ................... C: ................... D: ................... TOTAL E: . . . . . . . . . . . . . . .
  • 18. Minus Expenditure Total from Income to Total: A: ................... E: ................... Surplus / Debit: ................... OVERHEAD WORKSHEET FOUR: CASE STUDIES CASE STUDY ONE: Imagine you have your first job. You are working at a local factory as a packer. You earn 183:00 per week after tax. You travel to work by bus and a weekly ticket costs $6:50. You buy your lunch at the cafeteria and it costs you $3:00 a day. Joining the union was something you decided to do and this costs $1:50 per week. Board, which is paid weekly, equals $50:00 and you spend $20:00 on average for clothes each week. You want to save some money each week for a deposit on a car, but you want to have some money left over for entertainment and enjoying yourself. Work out a budget that will show realistically how much you can save each week towards achieving your goal, (the deposit for a car) if you want to spend $20:00 for personal enjoyment. How easy would it be to stick to this budget? Did you / your group encounter any/ many difficulties in working out this budget? How long do you think it would take to save for a reasonable second-hand car? CASE STUDY TWO: Jason works in a bank and he earns after tax, $325:00 per week. He lives with his girl friend who receives $135:00 Austudy per week. They are renting a unit for which they pay $130:00 rent per week. They spend $60:00 per week on food and it also costs $30;00 per week to keep their car on the road. They have decided to pay regular amounts each week
  • 19. for gas, electricity, water and telephone. They rent some household items and these cost $15:00 per week. They are saving $30:00 per week for a holiday they want to take at Christmas. They like to go out and have fun at least once a week. How much can this couple afford to pay each week for their utilities, (gas, etc) and entertainment? What issues did you / your group have in drawing up a budget, if any? Was it easy to draw up this budget? Would it be easy to stick to, if this were your budget? KEYS TO CREDIT SUCCESS • Reduce Credit Card debt • Pay off card balance monthly • Avoid excessive spending THINK ABOUT
  • 20. • Do I really need it? • Why do I want it? • What are the tradeoffs? OVERHEAD YOUR CREDIT REPORT What is a Credit Report? • Your credit history and debt repayment record Who can get a copy? • employers, insurance agencies, landlords, credit providers, financial institutions, collection agencies.
  • 21. • Any subscriber / member of the credit reporting agency. Australian Credit Reference Association OVERHEAD MONEY MANAGEMENT & AVOIDING THE CREDIT TRAPS WORKSHOP TWO CONSUMER CREDIT A TOOL OR A TRAP?
  • 22. Robyn M. OSLAND FINANCIAL COUNSELLOR CHILD & FAMILY SERVICES, BALLARAT INC. 1999 WORKSHOP TWO: CONSUMER CREDIT A TOOL OR A TRAP - THE CREDIT CARD, BUYING THE CAR, THE MOBILE PHONE Duration: 1.5 Hours Objectives: • Identifying common credit problems confronted by young people. • Analysis of how young people can avoid credit problems. • Explanation of the advantages and disadvantages of credit and credit cards. • Evaluation of credit and credit card choices • Ability to make informed responsible choices about credit, credit cards and their use. Introduction: Pre-lesson exercise - Students are to write a paragraph or list in answer to the following: Explain their understanding of what is credit, what is it used for and do they think they will use credit and for what. Students will be asked at the end of the session to reconsider and review the paragraph or list they wrote.
  • 23. Lesson Plan: 1) Why Use Credit? Across all income levels all people want to improve their lives through better education and training, employment, housing and more of the comforts we have come to expect as part of the lifestyle of living in Australia. Credit can be useful when other funds are not currently available and can be more convenient than using cash. However, using credit commits future income, making tight budgets in low-income households or for young people less flexible. Using credit makes it easy to spend impulsively that can later be badly regretted. Credit purchases are always more expensive than using cash as they involve interest and finance charges. When credit payments are not made on time (late / overdue), late fees must be paid, goods can be repossessed, credit records tarnished and court proceedings can be a result. The fact that finance and credit providers lend money in the first place to students and low-income earners merely says that they expect to get their money back and make a profit. Credit providers lend money, they are not credit advisors. The lenders makes the assumption that the consumer has already made the decision to borrow money, use the credit card or use the mobile phone. 2) Acceptable Uses of Credit: Discuss with the group and list on paper the reasons people use credit. Have them prioritise this list and also label those reasons that are acceptable, responsible and necessary rather than impulse spending, wants rather than needs or luxuries than can be saved for with a bit of effort. Should everyone be able to obtain credit for a car loan, house mortgage, credit card or a student loan for university education? The right to borrow money is often taken for granted in Australia nowadays, yet in some cases it may not be the smart thing to do, that is borrow money. The use of credit can be helpful and useful tool but needs to be managed with a common-sense approach. A commonsense approach to the use of credit involves asking the following questions: “Is buying on credit now worth the extra cost of paying back the loan with interest at a
  • 24. later date?” “Where will I get the money to pay back the loan?” “Is this purchase something I / We really need or is it impulse buying?” Worksheet One: How Much Credit Can You Afford? When purchasing anything using credit a contract must be entered into. What do you think is a suitable definition of a contract, that is relevant for a consumer wishing to purchase goods and services etc? According to the Macquarie Encyclopedic Dictionary, a contract is: “An agreement between two or more parties for the doing or not doing of something, the supply of and or purchase of goods and services which is an agreement that is enforceable by law.” 3) What is a Guarantee? Guarantees are binding agreements that involve three parties: I. The credit provider (lender); II. The debtor (borrower), and III. The guarantor. (The Law Handbook, 1999:237) Guarantees, guarantors and co-borrowers are sometimes required by credit providers because before they agree to lend money they need to have evidence that their loan / credit can be recouped (the money will be repaid). This is particularly relevant for people under 25 years when they are contemplating credit and loans - someone will often be needed to act as a guarantor or co-borrower. The prospective Guarantor or Co-borrower will have to think very carefully before signing any contracts. They must ask themselves if: - The Credit Provider was not prepared to take the risk and lend finance to this Consumer can they afford to! Explanation of the role of a Guarantor: By signing the contract as a guarantor, a person is in fact is promising to repay the loan if the debtor refuses to pay or is unable to do so. In other words the guarantor must take
  • 25. over the repayments on the loan or credit contract. A guarantor can be liable for the repayment of debts even if the debtor has been declared bankrupt. PERHAPS THE MOST PRUDENT THING TO DO IS NOT AGREE IN THE FIRST PLACE AND NOT TO SIGN ANYTHING. Although this may be a hard step to take it may avoid huge financial problems in the future. Group to discuss what can be the possible consequences of a guarantee, the responsibilities of a guarantor and a co-borrower and their rights. Explanation of the role of a Co-borrower: Co-borrowers or co-debtors are each jointly responsible for the debt, (loan, finance, credit card etc) from the very start. This means a credit provider can sue each person signing the contract singly or together if they default in payments. According to the law a guarantor receives no benefit from the contract made between the debtor and the credit provider. However the law maintains that a person written on the contract as a co-borrower, shares the benefit of the loan, credit, finance or lease for which the credit was provided. Discussion with the group regarding the possibilities where a co-borrower may be released from any obligations of the contract. Such provisions are contained in the Consumer Credit Code 1996, e.g. Unjust Contracts. 4) What is a Credit Record? The way you use credit will effect your credit history. Your credit history is maintained in a credit report that is compiled by credit reference organisations. The Australian Credit Reference Association keeps a record of the credit use by individuals in our society. Each individual’s credit report and their credit history can be accessed and reviewed by credit providers, insurance companies, and those companies providing hire purchase or leasing
  • 26. of goods such as cars and furniture. Much of the information though only being able to be accessed by authorised persons for specific reasons says on your credit report for up to five years (bankruptcy) or more. You can request a copy of the information contained in your credit report for a fee and you can request that incorrect information be removed. What must be remembered is that the credit reporting system works so efficiently that creditors can obtain information about any consumer who uses credit within minutes. Maintaining a positive credit history is not only an important responsibility but one that ensures your use of credit for major commitments in the future will not be jeopardised. 5) Buying A Car - Do You use Credit? It appears to be the way of life in Australia today that as soon as we turn 18 we must own a car. Many consumers, particularly young people find it difficult to find the money to afford the purchase of a car. Buying a car is an important financial decision, but one for which many people are unprepared. Usually the price of a car is determined by the person who is selling it or the place from where it is purchased so it is important to gather as much information as you can before you go looking to buy a car. REMEMBER: The car salesman is out to make a deal and a sale so be careful about what you sign well before you sign anything. By being prepared you may avoid the credit pitfalls before they happen Worksheet Two: Understanding the terminology when buying a car and financing the purchase. So it is wise to gather as much information before you buy about the car, how much you can realistically afford, explore and understand financial arrangements as you negotiate the best deal. What happens all too often is that people know how to find the best car to suit them and how to reach a fair price but don’t know how to buy a car using credit.
  • 27. Discuss with the group what they believe are the preparatory questions that need to be answered before using credit to purchase a car. List these questions for any discussion that may arise. Examples: • How much will I need to borrow? • What is the maximum monthly payment I can afford? • For how many months / years do I want to borrow the money? • What is the interest rate/s that are being charged? • What are all the upfront charges or hidden charges in taking out credit / finance? • Do I need a guarantor and what does this involve? • Is their a co-borrower involved in the credit contract? • What is a credit contract and what must it contain? • Do I understand what is meant by a secured loan? DON’T BUY THE FIRST CAR YOU SEE AND DON’T BE PERSUADED TO SIGN A BILL OF SALE IMMEDIATELY, SHOP AROUND. Discuss with the group why it might be important to shop around, and leave the car yard without signing anything to return at another time if you are really interested in a certain car. 6) What credit sources are available for financing car loans? Group to list the various types of credit providers: a) Banks b) Finance Companies c) Credit Unions d) Dealerships and Linked Credit e) Parents, Relatives and Friends Think very seriously before you obtain finance through a car dealer. They usually receive a commission for selling both the finance and insurance. The price of both these will be
  • 28. higher than any finance obtained through a bank or credit union. The recommendation of financial counsellors is not to obtain finance through the car dealer in the first place. Shop around for the lowest interest rates. From banks and credit unions the interest rate can be up to 5% cheaper than finance company loans sold in car yards. 7) Guarantors and Co-borrowers For a number of young people who want to use credit, that is borrow money to finance the purchase of a car they will need a guarantor. This is a big step for all parties involved. As explained a guarantor accepts responsibility for repayments should the borrower / debtor not fulfil the terms of the contract, ( not make repayments). 8) Repossession When people can no longer make car repayments the financial institution may repossess the car. Mistakenly there is a belief by some that when the car is repossessed that it ends any responsibility they have for the loan. This is however not the case. The financial institution will attempt to sell the car and what money they receive for the sale is used to pay off the loan. Should this prove to be insufficient to pay all of the loan, the borrower, guarantor and co-borrower are still responsible to pay the amount outstanding on the loan and will receive notification of the amount of the loan still outstanding. Likewise if a car that is still under finance and is involved in a car accident where is deemed ‘written off’ , the outstanding amount of the loan must still be paid by the borrower. Understandably it cannot be repossessed but any money still owed to the financial institution will be pursued by them. Sadly some people who get into financial difficulty and sell the car for whatever reason can find themselves in trouble legally. If the car is under finance, permission must be gained from the financial institution to do so. Selling a car that is under finance is viewed by the law as fraud and charges can be laid. Under our current Credit Code (1996) if seventy five percent of the loan has been repaid
  • 29. then the goods (car) cannot be legally repossessed as they are now owned by the borrower / debtor. 9) Why is there a need for preliminary information from Credit Providers? As a prospective car buyer and possibly using credit to finance the purchase you need to be able to make the most appropriate ‘informed choice’ you can make. This way you can minimise the possibility of problems arising and the taking of risks with regard to finance for which you may pay dearly in the future. The easiest way to get information is to phone the financial institution and ask for a loans officer or loans manager. They will ask a few basic questions. Discussion: What do you think these questions might be? Examples: How much money is to be borrowed? For how long? What is the make, model and age of the car? What is the selling price? You as a potential borrower may be asked several questions about employment, income, credit cards and debts, the need for a guarantor or co-borrower. You can then request the answers to the following inquiries: The interest rate. Any additional fees. Monthly repayments. Finance charges. Restrictions on the loan. Insurance requirements. All fees and charges. The total cost of any credit primarily depends on four factors: 1. The interest rate. 2. The amount you have borrowed. 3. The length of the repayment period. 4. And any extras (fees, charges, insurance).
  • 30. Discussion with the group to summarise the necessary things to do before committing to using credit to finance the purchase of a car Examples: • Before signing any finance contract, read it carefully. • Make sure you carefully read the contract. • Be sure there are no blank spaces or lines to be filled in later. • Do not be afraid to ask questions if you do not understand. • Make sure you understand the creditor’s rights for situations such as late payment, default or pre-payment. • Make sure you know your rights as the borrower. • Be sure you understand what it means to be a guarantor or co-borrower. • Be sure you are aware of the availability of the ‘cooling off’ period under the Consumer Credit Code. • If the dealer has you sign the contract away from the dealership, (at your home) be sure you are aware of the full details of the contract. • REMEMBER DON’T SIGN ANYTHING BEFORE YOU THOROUGHLY INVESTIGATE ALL ASPECTS OF WHAT ACCEPTING CREDIT WILL MEAN. 10) Young People and Credit Cards Credit is a contract based on your promise to pay in the future for goods and services you receive today. Like many of us you appreciate the convenience and relative safety of credit cards. However the problems that can be caused by the over-use or abuse of credit cards may become very difficult to overcome or may lead to the need to petition for bankruptcy. Knowing some simple ‘rules of the road’ about the use of other means than credit cards or selecting appropriate credit cards or using them after becoming fully informed about credit card choices and uses. Have the group list what they believe to be the benefits or advantages of using credit cards. Examples: - ♦ Credit cards offer protection against theft. ♦ You can purchase goods and services when you need them rather than waiting until
  • 31. you have the cash. ♦ Credit cards are very helpful in emergencies. Have the group then list the disadvantages to using credit cards. ♦ Carrying a credit card enables you to easily buy on impulse. ♦ It is easy to buy beyond your means. ♦ You can spend so much that you cannot meet the bill when it arrives. ♦ If you only pay the minimum balance each month it can take a great deal of time to pay off the card. By only paying the minimum balance interest cards mount up, increasing the total of what you must pay. Why do you believe the list of disadvantages outweighs the list of advantages? Discuss this outcome with the group. 11) Types of Credit and Credit Cards. The two basic types of credit are secured and unsecured. Secured credit means that the product you purchased, such as a car, house, appliance or furniture serves as collateral to guarantee the debt. This means that if you default and not make payments on the loan, the creditor can legally take possession of the product/goods - repossession. Unsecured credit is based on a signature and a promise to pay without any collateral or savings as a guarantee. Credit cards both bank and store are unsecured in the overall majority of cases. Discuss with the group what types of Credit Cards are available and what can be their uses.  Bank cards: such as BankCard, MasterCard, Visa.  Travel, Expenses and Entertainment: such as American Express, Diner’s Club, Amex etc.  Company or Department Store Cards: such as Myercard, Targetcard, Shell or Mobil cards.
  • 32. 12) Choosing a Credit Card Credit companies have been known to actively seek young people as credit card users once they have turned 18 and will offer incentives for them to use one. It is not as simple as selecting the card that offers the ‘best deals’, ‘rebates’ or ‘bonuses’ (fly buys). The best advice is not to use them at all, but if you must then carefully evaluate all the terms and conditions for each card. REMEMBER YOU WILL BE ENTERING INTO A CREDIT CONTRACT. Look at what will occur if you cannot pay the full amount outstanding each month. Any decision you make about the use of a credit card will need to be evaluated by establishing a budget that lists all your income and expenditure. This will let you know if you can really afford the credit card ALSO, YOU NEED TO UNDERSTAND WHO WILL BE RESPONSIBLE FOR YOUR CREDIT CARD BILLS. 13) What are the costs of Credit Cards? The credit application or contract should list all the terms and conditions for the credit card use, check it carefully. The terms and conditions will effect the total cost of the credit card use. Worksheet Three: Shopping around for credit cards Discuss with the group what some of the terms and conditions that are contained in the credit contract. Example: ◊ Annual Fee - this is a yearly charge, similar to a membership fee. The credit provider establishes the amount of this fee. ◊ Annual Percentage Rate - this is the cost of the credit or interest rate stated as a yearly
  • 33. rate of interest. ◊ Finance Charge - this is the amount of money you will pay to use the credit card. It includes interest and all charges that apply every time you use the card. ◊ Grace Period - this is the number of days you have to pay the outstanding amount before the credit provider starts charging interest on the purchases. Remember there is no grace period for cash advances. Also not all credit cards have a grace period. ◊ Periodic Rate - this refers to the interest rate the credit provider applies to your outstanding account balance to calculate the finance charge for each billing period. Transaction Fees - this refers to the fees credit providers can charge for cash advances, late payments and when the credit limit has been exceeded. There may also be a monthly fee charged even if you do not use your card, (Account Keeping Fee). 14) Credit Card responsibilities With the first purchase using a credit card, you have entered into a legally binding agreement with the credit card / credit provider. Most young people when they reach your age feel they are capable of managing their own lives and be independent. One of the ways of demonstrating this is the responsible management of money. Using a credit card can either increase or decrease your spending power and increase or dramatically decrease your ability to survive financially. Discuss with the group the responsibilities that come with credit card use and any tips for using credit cards. Worksheet Four: Tips for Using Credit Cards Examples: • Have only one card, if you must have them at all. • Use it only for essential purchases. • Keep it in a safe place. • Do not lend it to anyone else. • Don’t sign credit card slips / dockets until you have verified that they are correct. • Destroy all carbon copies.
  • 34. • Inform the credit card company promptly if the card is lost. • Don’t use a credit card over the phone or on the Internet. • Don’t sign a contract for anyone else to obtain a credit card (guarantor or co- borrower). Remember you could be left with all the debt. What we all need to remember is that the establishment of a positive credit history will enable a more secure financial future and responsible credit card use can be an effective tool rather than a very expensive financial trap. 15) Young People and Mobile Phones. Over thirty per cent of Australians own mobile phones. Many of them will pay their bill each month without being aware of all the costs and charges that are associated with the ownership and use of a mobile phone. Many others will find that the amount of the bill they receive will mean they face severe financial hardship as a result of paying the account. Likewise they may experience an inability to pay any or all of the account and face legal recovery proceedings. Do mobile phones bring magic or misery? What you in fact everyone needs to know is that credit arrangements and credit contracts appear in many different and new forms. Mobile phones are becoming the ‘must have’ consumer item of the nineties. However many young people are finding out in the very hardest way possible the harsh lessons about ‘let the buyer beware’. The purchase of a mobile phone is often structured in such a way that up front payments required to access a service are very low. But without careful investigation and comparison of what is being offered and what signing on the dotted line really means, you can be tied to a lengthy contract that has no easy way out of it available.
  • 35. What in reality you may be facing is in fact a hire purchase contract. Discuss with the group the following questions: 1) Who in the group has a mobile phone? 2) For what reason did you purchase or were given a mobile phone? 3) Do you use it in preference to using the normal phone or e-mail? Why? 4) Who pays the monthly bills? 5) Were there any inducements, bonuses or gimmicks that encouraged you to ‘sign up’ with one particular carrier, rather than another? Worksheet Five: The real costs of owning a mobile phone 16) The credit contract As we discussed mobile phones are often sold very cheaply if and when you sign a fixed term plan (this is a credit contract). Once you have signed such a contract you are bound to that carrier for a certain length of time. This fixed period can be up to 24 months. If the contract is broken within this period a minimum amount will still have to be paid. The ‘real’ price of the mobile phone handset is often ‘disguised’ in these long-term contracts. You may still have to pay them out in full if the contract is broken or the handset is lost or stolen before the contract ends. If you default on this contract the carrier will pursue you through for recovery of any monies outstanding through the judgment debt recovery process, as would any credit provider. REMEMBER YOU HAVE SIGNED A CREDIT CONTRACT AND ANY DEFAULT BY YOU WILL BE PROCEEDED AGAINST BY THE CREDIT PROVIDER THROUGH THE COURTS IF NECESSARY. Worksheet Six: What questions should you be asking before purchasing a mobile phone? Example: Before you sign the contract, make sure you: - > Find out what the contract conditions mean. > Understand what connection and monthly access will cost.
  • 36. > Check if there is a minimum charge for calls and what it will be. > Ask if you can change to a different call plan during the contract period. > Find out much notice you have to give at the end of the contract if you want to change to another service provider. > Check what conditions apply and penalties are charged if you want to stop the contract before it expires. > Find out if the carrier supplies effective coverage to the areas, both rural and urban in which you want to use the mobile phone. You need to think very clearly about your telephone needs very carefully before you buy a handset and commit yourself to the accompanying credit contract. What will be the overall total cost for the use of the mobile phone? THE COMPANY THAT SUPPLIES (SELLS) YOU THE MOBILE PHONE HANDSET MAY NOT BE THE CARRIER WHO SUPPLIES THE PHONE SERVICE. IT IS WITH THE CARRIER THAT YOU HAVE A CONTRACT NOT THE PHONE SUPPLIER. It appears from information given to the Communications Law Centre that people under the age of 18 have been supplied with mobile phones. They have been encouraged to have adults sign on their behalf. AGAIN REMEMBER THE POSSIBLE EFFECTS OF BEING A GUARANTOR! The convenience and ease of use of mobile phones comes at a price and for some young people the ultimate price is not only very high but too high for some. The resulting debt from the inability to repay the telephone account may affect much of the life of a young person. Before buying do your homework. Taking a little extra time to establish why you want a mobile phone: • What are the total costs involved in not only buying the mobile phone and connecting to a carrier but also the on-going costs including calls • For what period of time does the contract cover. • How will it the monthly account be paid and who will pay for it.
  • 37. Answering these questions may stop any huge debts being faced by you in the future. WORKSHEET ONE: HOW MUCH CREDIT CAN YOU AFFORD? Answering the following questions can help you decide if you should use credit and if so how much credit. 1) Should you use credit? _______________________ • How long will I have to save to pay cash? _______________________ • How long can I wait to have the product? _______________________ • Will the price be higher or lower in the future________________________ • Will the convenience and satisfaction I gain be worth the interest / credit costs? ____________________ • Will the monthly repayments fit into my budget? _____________________ • Will the product have value after I’ve finished paying for it? _____________ 2) Do you limit credit use to amounts that can be paid from current and future income? _______________________ 3) What percentage of your income is already paying credit debts and commitments? __________________ 4) Have you established a debt limit? (10% - 20% of income) ________________ To determine how much credit you can afford, complete the following: (Monthly/fortnightly/weekly) net income-[take home pay] $_______________
  • 38. 10% of net income (income x .1) $_______________ 20% of net income (income x .2) $_______________ Credit repayments already owed $_______________ If your credit repayments are or will be less than 10% of your take home income you are or can control your credit use. If your credit repayments can or will be 10% to 20% you will need to carefully evaluate any additional credit. If your credit repayments are already more than 20% or will be more than 20% you should not take on additional credit. 0VERHEAD WORKSHEET TWO: UNDERSTANDING THE TERMINOLOGY WHEN BUYING A CAR AND FINANCING THE PURCHASE. Before going to buy the car of your dreams or more realistically, the car you will be able to buy, it will be a great advantage for you if you have some knowledge of the jargon / terminology of car salespersons and the finance industry. Purchaser Co-borrower Guarantor Trader Financier Insurer The contract Making an offer Purchase price The total sales price
  • 39. The total loan amount The finance charge Cooling-off period Linked credit OVERHEAD WORKSHEET THREE: SHOPPING AROUND FOR CREDIT CARDS. Shopping for the best credit card involves you comparing all the costs, terms and conditions. By filling out this worksheet you can realistically analyse the important factors to assist you in selecting the most appropriate card, if you must have one at all. CARD 1 CARD 2 CARD 3 Annual fee __________ __________ __________ Annual percentage rate __________ __________ __________ Method to calculate the balance __________ __________ __________ Finance charge __________ __________ __________ Grace period __________ __________ __________ Begins at the date of purchase __________ __________ __________ Begins at positing of charges __________ __________ __________ Date of billing __________ __________ __________ Operating fees __________ __________ __________ Transaction __________ __________ __________ Late payment __________ __________ __________ Cash advances __________ __________ __________ Over credit limit __________ __________ __________ Other __________ __________ __________ Special features __________ __________ __________
  • 40. Rebates __________ __________ __________ Bonuses __________ __________ __________ OVERHEAD TIPS FOR USING A CREDIT CARD. 1) Use just ONE card if you must use them at all. 2) Use it only for ESSENTIAL purchases. 3) Return all unwanted credit cards. 4) Keep all unused credit cards in a safe place. 5) Ideally you should carry your credit card separately from your purse or wallet. 6) Keep your card in view when you hand it to a trader / merchant. 7) Make sure all carbon copies are destroyed. 8) Never lend your credit card to anyone else. 9) Be careful using joint cards. 10)Check all invoices and monthly statements. 11)Promptly report any questionable charges. 12) Don’t sign any blank credit card charge vouchers. 13) Don’t give you credit card number over the phone or on the Internet.
  • 41. 14)Report a lost or stolen card immediately. OVERHEAD WORKSHEET FIVE: THE REAL COSTS OF MOBILE PHONES
  • 42. WORKSHEET SIX: WHAT QUESTIONS SHOULD YOU BE ASKING BEFORE PURCHASING A MOBILE PHONE. Rank the following statements in order of their importance in making my decision as to whether you buy a mobile phone. Is there a contract? Can the handset fit easily in my bag or pocket or hang on my belt? What extra options are available? What will any extra options cost? Is the handset very cheap to buy? For what period of time does the contract last ? Is there a minimum monthly call charge? What are the call costs for peak and non-peak periods? Does the handset come with a case and extra battery ? Will I be charged for call diversion or message bank? Will I get good coverage with this phone and service? With which company do I have a credit contract? Who is responsible for paying the telephone bill?
  • 43. OVERHEAD MONEY MANAGEMENT & AVOIDING THE CREDIT TRAPS WORKSHOP THREE SEXUALLY TRANSMITTED DEBT IS BANKRUPTCY A FRESH START? Robyn M. OSLAND FINANCIAL COUNSELLOR
  • 44. CHILD & FAMILY SERVICES, BALLARAT INC. 1999 WORKSHOP THREE: WHAT IS SEXUALLY TRANSMITTED DEBT AND IS BANKRUPTCY A FRESH START? Duration: 1.5 Hours Objectives: • To explain the concept and context of what is Sexually Transmitted Debt. • To develop the idea that in any relationship there is a need to plan for individual personal financial independence. • To inform the target group regarding the consideration of consumer credit issues as part of any relationship breakdown and separation. • To explain what is bankruptcy and its advantages and disadvantages. • To discuss the rising incidence of bankruptcy among young people. Introduction: Pre-lesson Exercise - Students are to write a response to the following: When a relationship ends and a couple separate, (maybe one or both partners have found someone else), who suffers the more financially, females or males? Students will be asked at the end of this session to re-visit their responses and discuss if their views have changed. Lesson Plan: 1) What is Sexually Transmitted Debt? (STD) This termed was first used by the Women’s Credit Task Force in the late 1980’s to describe a situation whereby legal responsibility for an outstanding debt, such as a personal loan, credit card, mortgage etc is transferred or transmitted from one person to another. The person transmitting the debt is more often than not male and the person to whom it has been transmitted and who is left to deal with it is usually a woman.
  • 45. What must be noted that in the majority of cases the person to whom the debt has been transmitted has had no direct financial benefit from the original debt. Because of the debt however they have become exposed to significant and often extreme financial risk. The term Sexually Transmitted Debt is specifically used to describe a situation where the responsibility for the repayment of the debt/s that are outstanding has arisen through the assumption/s made by lenders and credit providers. They maintain that repayments are the woman’s responsibility because she is in a close intimate relationship with the male debtor and her interests are the same as those of the debtor. Therefore there is the presumption that it is appropriate to automatically include the female partner on the contract that has been offered to the male partner. These pressures and assumptions are present in heterosexual relationships and are not always present in other kinds of relationships, (same sex, parent and child, between friends) so transmission of debt in these cases is termed Relationship Transmitted Debt. Many women sign contracts because: a) They feel obliged to do so to help their partners b) They love and trust their partners. c) Women also sign because they are expected to do so by partners and credit providers. d) Partners or credit providers pressure them into doing so. e) Because the true nature of the loan agreement / contract is not revealed. f) Because it is easier to keep the peace. 2) Examples of STD • A woman is asked by her partner to ‘go guarantor’ on his personal loan. The funds are used to buy a car solely for her partner’s use. • A woman being asked by her partner to mortgage their home as security for a loan to finance his business. She is not involved in any was in the running of the business nor does she receive any income from the business. • A woman agreeing to guarantee a loan made to her partner, when in reality she has
  • 46. signed as a co-borrower. As a result there is no protection under the law for her if the male debtor defaults. REMEMBER: As a GUARANTOR under the Consumer Credit Code a credit provider can sue both the borrower/debtor and the guarantor together only if they are unsuccessful in attempts to recover the money from the borrower. As a CO-BORROWER, if the borrower/debtor defaults on any payments, the credit provider can sue either or both parties for recovery of the money. THINK VERY CAREFULLY BEFORE YOU AGREE TO BE A GUARANTOR OR CO-BORROWER WITH SOMEONE, NO MATTER HOW CLOSE YOUR RELATIONSHIP. 3) Why do women get involved in STD? Let’s have a look at the following scenario: You’re young, in love and have just moved in with your boyfriend. Suddenly life is perfect. And since you are already sharing a flat, you might as well share your finances. You decide to apply for joint credit cards – what could be easier?. You walk into the bank during your lunch hour, fill out a few details, sign the form and in the following weeks mail there they are – matching his and hers matching credit cards. Let’s fast-forward six months; he’s moved out and taken the couch, the TV and the cat. The relationship is over because he has found someone else. You cut up the credit cards because they are a painful reminder of what you used to have. However as far as the bank is concerned the two of you are still linked and the
  • 47. credit card account has not been formally closed – both cards are still valid. Two months later the bills begin arriving in your mail box – his bills. You don’t know where he is and you try to say this to the bank. But as far as they are concerned you are a joint signatory to the account and are liable for the debt. If you can’t afford to repay the debt, you may be faced with bankruptcy and /or a bad credit rating for anything up to fifteen years. Discuss with the group their reactions to this scenario and list their responses on a whiteboard or paper etc. Women generally sign contracts because they feel obliged to help their partner wherever they can. Indeed, signing the contract is what may women believe their partner, the credit provider and society expects them to do. Women sign because they love and trust their partner, whom they believe would not allow anything horrendous to happen. Women sign because their partner and / or the credit provider pressure them directly or indirectly. And they sign because the true nature of the credit contract is never revealed to them. Worksheet One: How to avoid Sexually Transmitted Debt. Consider the very real possibility of being left with the responsibility of repaying the loan. Remember as guarantor or co-borrower you will be entering into a contract with the credit provider, not your partner. Any assurances and promises given by your partner that they will make all the repayments or their share of the payments won’t stop any creditor from suing you to recover the debt. Discuss with the group why it is that most of us do not read a credit or loan contract properly before we sign it. Could it because it is filled with legal ‘jargon’ that we don’t really understand? You should ensure there is a ‘cooling off’ period before you sign anything and have the contract checked out by an independent adviser.
  • 48. REMEMBER: Don’t sign unless you are prepared to pay it off yourself, because by signing it, the onus is on you to prove why and how you didn’t understand the contract! If sadly you find yourself in the position where you have been left with substantial debts what options are open to you? Worksheet Two: The options of victims of Sexually Transmitted Debt. Discuss with the group what options they believe may be open to people who find themselves in this situation of being the victim of Sexually Transmitted Debt. Look at those that are included in worksheet two. Complete each statement with the answer you feel is most appropriate. Example: Seek independent advice from a _______________________________. Don’t ignore the problem because it won’t _______________________. Either negotiate with the ____________________________ yourself, or have a financial counsellor or legal adviser advocate on your behalf. 4) Bankruptcy. Many people believe that bankruptcy may be the only solution to their financial problems. When they seek assistance from a financial counsellor they might find that there are other options available and these will need to be considered carefully before deciding upon the option of bankruptcy. Discuss with the group the possible options available in dealing with financial debts. These options include:  Formal debt agreements.  Moratorium on debts.  Reduced payment instalments.  Selling assets.  Informal debt agreements. WHAT IS BANKRUPTCY? Bankruptcy is an option available to a person when they are unable to pay their debts. It involves them handing over their financial affairs to a trustee. The trustee is employed by
  • 49. Insolvency and Trustee Service, Australia (ITSA) or by a private trustee company. In Australia, any person can petition for bankruptcy if they are unable to pay their debts. The bankruptcy normally lasts for three years, but an early discharge can be applied for after 6 months, under certain circumstances. However the bankruptcy is kept on the public record forever and on a person’s credit rating (which is kept by the Credit Reference Association) for a period of seven years. Bankruptcy should not be viewed as an easy short-term solution to all your debt problems as not all debts are covered by bankruptcy. However for many people it enables them to be provided with a fresh start. 5) Bankruptcy and Young People. Over the last 6 years the numbers of people in Australia who have bankrupted has risen by 200% and the number of young people (under 25) petitioning for bankruptcy has increased by 300%. The main reasons for these large increases are unemployment, the too easy availability of credit and gambling. While bankruptcy may be a fresh start for many and it is not the end of the world, bankruptcy is definitely a poor way to begin adult life. It should be viewed as the final option available after all others have been explored and evaluated. YOU NEED TO PLAN CAREFULLY FOR YOUR FINANCIAL FUTURE BY EVALUTING YOUR SPENDING HABITS AND CREDIT USAGE. There is considerable pressure placed on young people in today’s consumer society to overcommit themselves financially – cars, mobile phones, holidays, computers, furniture are often purchased through a poor choice of credit. Banks and finance companies spend millions of dollars encouraging young people to take out credit cards and personal loans. As the majority of people are able to repay any loans, the provision of credit has become very profitable for lenders. Unfortunately for ever increasing numbers of people in our community, the problems they encounter through circumstances that arise, such as unemployment and illness, can mean: CREDIT BECOMES A NIGHTMARE.
  • 50. 6) The Advantages of Bankruptcy. • Most debts are wiped out by bankruptcy when you are discharged. However there are some debts not covered by bankruptcy and some that can cause huge problems. • Creditors will have to stop harassing you. • It may reduce personal stress levels. • Any deductions taken from your income to pay debts will stop. • You can keep all necessary items such as household items and clothing. • Personal jewellery such as wedding and engagement rings can be kept. • A car if it owned and is the primary means of transport but valued at $5000 or less can be kept. • Tools of trade to the value of $2600 can be kept. • You can maintain a bank account. • You can still travel overseas, but permission from the trustee maybe required. • Your bankruptcy is not published in the daily newspapers but is placed on the public record forever. • You can still operate a small business as long as you trade under your own name. • Most jobs / employment are not affected. • You can still save some money for normal living expenses. 7) Disadvantages of Bankruptcy The following debts can cause problems: * Fines, Vehicle accident debts, Guaranteed debts, Some taxation debts, Money borrowed after bankruptcy, Child support debts, Social Security debts, HECS and Austudy debts. * The trustee must be told if you change your name, address, place of work or you daytime telephone number. * You will have to pay money out of your wages / income if it exceeds the ‘base income threshold’ for your particular situation. * If you own a car that is valued at more than $5000 it will in most cases be taken and sold. However $5000 will be returned to you for the purchase of another car. * Most lump-sum payments that you receive during the period of your bankruptcy will
  • 51. have to be handed over to the trustee – lottery wins, inheritances etc. * Items such as antiques, family heirlooms, original paintings will be taken and sold. * Credits cards should be returned to the creditor. * You may be required to surrender your passport. * Your bankruptcy is kept on public record forever and is recorded on your credit file / rating for 7 years. * If a third party owes money or property to you the trustee may institute proceedings to recover what is owed. * The trustee will take a taxation refund received during bankruptcy for a financial year that ended prior to your bankruptcy. The advantages and disadvantages of bankruptcy will be given to the group as Handouts One and Two. Discuss with the group the statements listed on both sheets. Brief explanations will be given, as much of what may be asked and discussed will be contained in the publication ‘A Consumer Guide to Bankruptcy’, by Virginia Noonan that will be part of the information kit to be distributed at the end of the final workshop. 8) Debts that can Cause Problems. There are a number of debts that still will have to repaid by somebody else or that cause you difficulty if you go bankrupt. These debts include º Guaranteed debts that a family member has agreed to repay if you stop paying or cannot repay. When you bankrupt the creditor will demand that the person or persons who are guarantors take over payments of the outstanding debt or pay the amount outright. º Rental arrears should be included as part of your petition to bankrupt. A private landlord is likely to seek an eviction order. The Office of Housing also has the right to seek an eviction order. It may be far more beneficial to negotiate for time to pay of rental arrears in this case. º Secured debts often cause the most problem when a person petitions for bankruptcy. As you remember a secured debt is one in which the lender or credit provider has lent you the money but has taken some form of security over your property to protect their money. Examples of secured debts are:
  • 52. a) A mortgage over your house or land. b) A goods and chattels mortgage over your car, boat or some machinery. You can choose to either continue paying these debts or not. In the case of the latter decision, a secured creditor has the legal right to take the goods and sell them. If the secured goods are sold but the sale does not cover the entire amount of the loan this balance becomes an unsecured debt and should be included in the bankruptcy papers. Paying off a secured debt is permissible while you are bankrupt but depending on the value of the goods such as a car, the trustee may order when the final payment is made that the goods be sold. Your family home will be sold or any other property you own or are buying, either solely or jointly also will be sold. This sale can take place at any time even after you are discharged from bankruptcy. º Gambling or ‘hazardous speculation’ that has added to your inability to pay your debts is an offence under the Bankruptcy Act. You will need to seek advice before taking the option of bankruptcy. Before you take the option of bankruptcy seek as much information or assistance as you can. Look at all options that may be available to you and leave petitioning for bankruptcy as the final option. REMEMBER IT IS NOT THE EASY WAY OUT AS THERE ARE CONDITIONS TO WHICH YOU MUST ADHERE. HOWEVER IT CAN BE THE MEANS FOR A FRESH START. Maybe through planning for your financial future with this type of information and education you may not have to make the final decision to petition for bankruptcy.
  • 53. WORKSHEET ONE: HOW TO AVOID SEXUALLY TRANSMITTED DEBT. Match the beginning of each sentence with its correct ending. 1. Read all contracts thoroughly – 2. Don’t accept oral assurances from salespeople – 3. Never sign on the spot – 4. Remember you are individually liable for – 5. Understand that you are taking out a contract with the credit provider and not your partner – 6. If your relationship with your partner breaks down make sur – A. You will usually be held to the letter of the contract. B. Make sure you cancel all joint credit cards in writing and keep a copy of the letter, even if the credit cards have not been used in a long time. C. If you don’t understand it, don’t sign it until after you seek independent legal advice. D. Go away and think about it first. E. Your partner’s assurances that they will meet the repayments, won’t stop the credit provider from suing you to recover the debt. F. The full amount of any debt that is signed for by you and your partner. & & & & & & OVERHEAD
  • 54. WORKSHEET TWO: OPTIONS AVAILABLE FOR VICTIMS OF SEXUALLY TRANSMITTED DEBT. Complete each of the following statements with what you think is the most appropriate response. 1. Seek independent advice from a ________________________ _________________________________. 2. Don’t ignore the problem, it won’t ______________________ _____________. If you ignore it the credit provider will take legal action to enforce and recover the debt, the result of which could be bankruptcy. 3. Either negotiate with the ____________________________ yourself or have a financial counsellor or legal adviser advocate on your behalf. 4. Finally, please don’t think, ‘It __________________________ to me’. A broken relationship can and does happen to anyone.
  • 55. OVERHEAD HANDOUT ONE: THE ADVANTAGES OF BANKRUPTCY. • Most debts are wiped out by bankruptcy when you are discharged. However there are some debts not covered by bankruptcy and some that can cause huge problems. • Creditors will have to stop harassing you. • It may reduce personal stress levels. • Any deductions taken from your income to pay debts will stop. • You can keep all necessary items such as household items and clothing. • Personal jewellery such as wedding and engagement rings can be kept. • A car if it owned and is the primary means of transport but valued at $5000 or less can be kept. • Tools of trade to the value of $2600 can be kept. • You can maintain a bank account. • You can still travel overseas, but permission from the trustee maybe required. • Your bankruptcy is not published in the daily newspapers but is placed on the public record forever. • You can still operate a small business as long as you trade under your own name. • Most jobs / employment are not affected. • You can still save some money for normal living expenses.
  • 56. HANDOUT TWO: DISADVANTAGES OF BANKRUPTCY The following debts can cause problems: * Fines, Vehicle accident debts, Guaranteed debts, Some taxation debts, Money borrowed after bankruptcy, Child support debts, Social Security debts, HECS and Austudy debts. * The trustee must be told if you change your name, address, place of work or you daytime telephone number. * You will have to pay money out of your wages / income if it exceeds the ‘base income threshold’ for your particular situation. * If you own a car that is valued at more than $5000 it will in most cases be taken and sold. However $5000 will be returned to you for the purchase of another car. * Most lump-sum payments that you receive during the period of your bankruptcy will have to be handed over to the trustee – lottery wins, inheritances etc. * Items such as antiques, family heirlooms, original paintings will be taken and sold. * Credits cards should be returned to the creditor. * You may be required to surrender your passport. * Your bankruptcy is kept on public record forever and is recorded on your credit file / rating for 7 years. * If a third party owes money or property to you the trustee may institute proceedings to recover what is owed. * The trustee will take a taxation refund received during bankruptcy for a financial year that ended prior to your bankruptcy.
  • 57. MONEY MANAGEMENT & AVOIDING THE CREDIT TRAPS EVALUATION Robyn M. OSLAND FINANCIAL COUNSELLOR CHILD & FAMILY SERVICES, BALLARAT INC. 1999
  • 58. EVALUATION The aim of this evaluation questionnaire is to gain an understanding of your opinions regarding the content and presentation of the information given to you through the three workshops. We would really appreciate you taking the time to answer the following questions. Your answers will play a major part in determining the future of these workshops and the project. 1. Do you think that the content of the three workshops was presented Y/N in a way that made sense to you? 2. Do you think there was too much information for the time allowed? Y/N 3. Did you have any problems understanding the information presented in the workshops? Y/N 4. Was any of the following information new to you? • Money management / budgeting Y/N • Cost of living Y/N • Types of credit Y/N • Costs of credit Y/N • Guarantors Y/N • Co-borrowers Y/N • Checklist for purchasing a car Y/N • Credit card costs Y/N • Mobile phone costs Y/N • Sexually transmitted debt Y/N • Credit Reference Association Y/N Y/N • Privacy Act Y/N • Consumer Credit Code Y/N • Financial Counselling Y/N 5. Do you think the information given in these workshops will encourage you to: - • Save for things/items you want. Y/N • Develop your own financial plan to help your control Y/N your own finances. • Live within your means without the use of credit. Y/N • Live within your means with the use of credit. Y/N • Not use credit for everyday expenses such as, food, Y/N petrol and clothing. • Take a checklist with you when purchasing items such as a car, mobile phone or other large item. Y/N • Consider the full cost of running a car or using a Y/N mobile phone before purchasing one. Y/N • Read and understand all the details of a contract before signing one. Y/N • Obtain independent legal advice if you do not understand what is in a contract or agreement. Y/N • Not go guarantor for anyone regardless of the relationship. Y/N • Consult with a financial counsellor if you get into financial difficulty before it becomes a huge problem Y/N
  • 59. 6. How would you rate the methods used to present the information? (place a tick on the continuum that best reflects your view) - verbal boring …………………………………………….. interesting - overheads boring …………………………………………….. interesting - brainstorming boring …………………………………………….. interesting - groupwork boring …………………………………………….. interesting - workshops boring …………………………………………….. interesting 7. Would you like further information workshops or sessions in the Y/N future? 8. Which topics would you like more information about? • Consumer Y/N • Credit Y/N • Legal Y/N • Other (which ones)………………………………. Y/N ……………………………… 9. How would you like these sessions presented? • Workshops like these have been with a combination of glasses Y/N • To individual classes / groups • By outside presenters Y/N • By your own classroom teachers Y/N 10. Have you or will you discuss the information you have received Y/N from these workshops with your family / household? Y/N 11. Are there any other comments that you would like to make? Y/N ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… THANKYOU FOR TAKING THE TIME TO COMPLETE THIS EVALUATION FORM. THE INFORMATION YOU HAVE GIVEN WILL BE EXTREMELY HELPFUL FOR US. Robyn M. OSLAND FINANCIAL COUNSELLOR CHILD & FAMILY SERVICES BALLARAT INC. 1999. ACKNOWLEDGEMENTS
  • 60. The assistance and information that has been received from the following people and organisations has been invaluable in the design and development of this program. On behalf of Child & Family Services, Ballarat Inc, and myself I wish to gratefully acknowledge the information and input given. Robyn M. OSLAND FINANCIAL COUNSELLOR. Mr Kevin Zibell, CEO CAFS Ballarat Ms Janet McKay, Co-ordinator DFS, Daylesford The Consumer Services Team at CAFS The Financial & Consumer Rights Council The Western Region (Rural) Financial Counsellor’s Network. Ms Leah Bird, AFS Ararat Carolyn Bond and CCLS The Good Shepherd Youth and Family Service, Deer Park & Hastings REFERENCES Bingham, P. (1987). The Credit Handbook. Cussen. East Melbourne Bingham, P., & Niven, D. (1998) Credit Handbook: consumer rights under the credit laws throughout Australia. Melbourne, Leo Cussen Institute. Bowen, J. (1994). The Macquarie Easy Guide to Australian Law. Macquarie University. NSW Butterworths, Concise Australian Legal Dictionary. (1997). Butterworths. Sydney. Cascone, G. & Kenos, A. (1996). Victorian Law: Units 1 & 2 for VCE. Longman. Melbourne. Matthews. M. Ed. (1993). Don’t Shelve It: A Community Workers Guide to Social Change. Melbourne: CAFCA. Latimer, P (1995). Commercial Law Workbook. Cpt 13. Law Book Company: Sydney. McPhee, C. Ed. (1999). The Law Handbook 1999. Fitzroy Legal Service. Melbourne. Noonan, V. (1994) Debtors’ Rights: A community workers guide to resolving debt related problems. CAFCA of Vic: Melbourne. Ryan, M. (1996). Social Work and Debt Problems. Avebury. Aldershot. Tarakson, S. (1995) Everyday Law. Federation Press. Sydney. Turner, C. (1996). Australian Commercial Law. 20th Ed. The Law Book Company. Sydney. White, R. (1993). Debt Recovery in Victoria: A Guide to the Law. Longman. Melbourne. Other Sources The New Consumer Credit Code. Steven Edwards. Business Law Education Centre. Published paper, February 1996. Consumer Rights Journal Vol. 1 No 1. December 1996 Vol. 1 No 5. August 1997. Vol. 1 No 6. October 1997 Fair Trading: Codes of Conduct – A guide. Dept of Consumer Affairs, October 1996. Codes of Conduct: Issues Paper. Nov 1996: Dept of Consumer Affairs. Just Policy No 9 March 1997 The Consumer Credit Code. John Ernst. Published article.