A3 Financial Literacy: A Challenge To Newcomers_Daniel Chometa

Financial Literacy: A Challenge to Newcomers Presented By: Daniel Chometa Consolidated Credit Counseling Services of Canada.

Overview • We will be looking at: – Identifying the Issues – Budgeting – What credit is and how we can develop it – Understanding credit scores and the credit reporting process in Canada – Barriers and Options for the new comer – What are our options if we get into trouble. – What are barriers that are created through these options.

Identifying the Issues Surrounding Credit

At Issue: • Access to Credit can be too easy to get at times • Credit can be seen as an easy way to establish yourself in Canada! • There are dangers to this type of thinking • We must look at the dangers that credit can create for the newcomer • Too much credit can be dangerous and increases liability for the individual or even the entire family.

Education • Often times newcomers become victims due to a lack of education in the world of personal financial literacy. • Becoming increasingly important that the frontline worker understand personal finance • There may appear to be little in the way of information for frontline workers available • Many resources are available however impartial information is difficult to find

Putting it into perspective • Most countries do not have credit reporting agencies as we know them in Canada. (only the UK Canada and the US have these systems) • If someone immigrates from one of these countries to another their credit reports will not be transferable • Ontario’s education system does not have a financial literacy component in the curriculum for schools. • Most newcomers will look to their frontline workers to help them to understand the world of finance and banking.

If its too good to be true it probably is • Sub prime lenders are targeting newcomers • Often times people enter into contracts without understanding what they are signing. • We must read and understand all of the terms of the contract. • Proceed with caution. • Hold up all of your agreements otherwise there may be penalties accrued that you are not aware of.

Buy now and Pay later! • Often time new comers are vulnerable to these offers as they may need to establish themselves and may not be able to afford certain big ticket items • Balloon Interest Payments • Service fees • Often costs more than the value of the item due to charges for late payment.

What are some of the issues you are facing as a frontline worker?

Seeing the big picture • If you are working as an intake worker it may be important for you to understand the financial background of your clients • Look for signs of financial stress. • Be aware that financial stress can put pressure on a family or an individual that may result in tragic consequences.

What is Debt Stress? • Debt stress = Chronic Stress • Chronic Stress lasts a long time and happens quite frequently • In severe cases chronic stress can lead to panic attacks or panic disorders

How do we Identify Debt Stress? • Symptoms of chronic stress can be but are not limited to: – anger – depression – anxiety – insomnia

More Identifiers • aggression, substance abuse • memory loss / lack of concentration. • A general loss of satisfaction with one’s work. • Maladaptive behavior • General lack of engagement with others

The Statistics • People who suffer from debt stress often have problems that are directly related to health issues • People with debt stress are more likely to develop heart disease – in fact they are twice as likely to suffer from a heart attack (AP-AOL poll 2005)

Health Issues compared 2000/2005 in k pa b ac er / low cle us m on ss re d ep re ve se 2005 s he d ac /h ea es ain igr 2000 m ct tra ve sti ige /D rs ce Ul ks tac t At ar He 60% 50% 40% 30% 20% 10% 0%

What can you do? • Look into the issues surrounding personal financial literacy. • Develop a financial literacy program for your organization. • Educate yourself on how to work with credit, budgets and people who suffer from financial stress.

Ask the Questions • What are the reasons for applying for credit? • Have you ever used credit in the past? • Do you understand the issues that surround credit? • Do you have a credit history? • Do you need to borrow money or can you wait? • Budgeting Skills are more important to develop than credit at times.

Budgeting for the Newcomer Budgeting for the future is more effective than using credit

“Those who fail to plan, plan to fail” Words to live by

Budgeting starts with you! "A budget is restraining and limits my freedom." – Not so. • It does the opposite. It puts you in control and helps you achieve your financial goals. "I can’t solve my money problems unless I make more money.“ – False. • You can do a lot to solve your money problems right now by sticking to a budget.

How Canadians Spend • Housing 25% • Transportation 15% • Savings 15% • Food 10% • Utilities 10% • Debt 5% • Entertainment 5% • Medical/Health 5% • Clothing 5% • Other 5%

Budgeting Structure •STEP ONE: – List all sources of monthly income Income $1500 Secondary Income $0 Other Income $400

Expenses • STEP TWO: List Expenses Fixed Expenses – Remains the same each month Mortgage/Rent $540 Car Payment $270 2nd Car Payment $0

Flexible Expenses may fluctuate over time going up or down due to time of season or usage Electricity $90 Gas/Oil-Heating $125 Phone $50 Cable $45 Groceries $200 Gas-Auto $180

Discretionary Expenses these are expenditures that you can change Barber/Salon $40 Magazines $0 Newspaper $0 Dining Out $100 Recreation $200 Internet $49 Cell Phone $75

Total It Up Total Expense: $1,964 Total Income: $1,900 Income – Expense: -$64 In The Red or Black?

What to do with the budget? • Prioritize your spending: • Set your GOALS!!!! What can you cut back • Set a short term goal on? • Set a long term goal • Where can you save • Forego instant money? gratification for your long • What are your greatest term goals. expenses? • Keep track of your • Do your expenses match achievements national averages? • Pay yourself • Plan what bills to pay with what cheque

SMART – Goal Setting • S • Specific – be specific with the goal • M • Measurable – A goal stated in dollar terms • A • Attainable – realistic plan • R • Relevant – must be relevant to the individual who is making the lifestyle change • T • Tentative - flexibility

Understanding Credit Navigating the Credit report

How Credit is Defined? • Credit ratings: • Credit Scores: a • The assessment of the statistical analysis of a credit worthiness of an persons credit files. individual, corporation or • The score is a product of even a country. information created by • Tells a creditor the credit bureaus. probability of the subject • Used by banks to have an being able to pay back a understanding of the said debt potential risk of lending • Poor rating = high risk of money to a person default company ect. • Used for qualification and rate adjustment

Credit Rating • This is determined by a collection of information on you. • The information that is collected is done so by these companies. • Equifax – www.equifax.ca • Transunion – www.transunion.ca

Credit Rating cont’d • Creditworthiness: A representation of a persons standing with the three bureaus. • Calculated by financial history based on your current assets and liabilities • Tells the lender the probability of paying back a loan or debt. • Also allows for the lender to determine the interest rate allowed for a loan. • Shows saving/spending patterns. • Also shows debt load.

Types of Credit • Installment Loans • Revolving Accounts – Borrow a fixed amount - Gives you a certain and pay it back over a amount that you may said period of time borrow against your – The repayment is done “credit limit” at a fixed rate - Can usually pay off in – Examples: A Car Loan one payment or make or a Mortgage. smaller payments - Example: Credit Cards.

Loans • Secured • Unsecured - loans that have collateral - There are other loans as back up that do not require - The collateral can be collateral repossessed due to - Higher interest on these default on the loan. types of loans due to - Ontario: seize and sue higher risk on the part of province. the lender - Car Loans, Mortgages, - Can be harder to obtain Secured Lines of Credit. as there is no recourse for the lender

Letter Representations • The “R” Score: revolving credit where you make regular payments in varying amounts depending on the balance of the account and can borrow money up to a credit limit. (credit cards) • The “I” Score: Given credit on an installment basis such as a car loan where you borrow money once and repay it over a period of time. (Mortgage) • The “O” Score: You have an open line of credit that you can borrow as needed. The total balance is due at the end of each period. (Lines of Credit, Student loans)

Numerical Representations The numbers are based on a scale of 1-9 “1” Represents the perfect credit score where the individual makes a purchase and pays that balance within thirty days of the purchase. “9” Represents the worst rating this represents bankruptcy or that you never pay your bills.

FICO score (Fair Isaac Corp) • Bill Fair and Earl Isaac founded in 1956 • Covers more than 1400 financial service providers (banks, cell phones, dept stores ect.) • Ratings are based on a scale between 300 and 900 • 300 represents the worst score possible • 900 represents the best score possible

Credit Score • This is a numerical representation of your credit report. • Allows creditors (not only banks) but also cell phone companies, insurance companies, employers and government departments to see what your score is. • This is a representation of your attitude to debt and finance.

Understanding Your Credit Picture - How long can information be reported? • The first thing most people with bad credit want to know is, “How long can this information haunt me?” • While positive or neutral information can be reported indefinitely, negative information can only be reported for a specific length of time. The following information is according to Equifax Canada

Duration of Credit Report actions • CREDIT INQUIRIES TO • CREDIT HISTORY AND THE FILE BANKING INFORMATION • An inquiry made by a Creditor • A credit transaction will will automatically purge three automatically purge from the (3) years from the date of the system six inquiry. The system will keep a • (6) years from the date of the minimum of five (5) inquiries. last activity. All banking information • (chequing or savings account) will automatically purge from the • system six (6) years from the date of registration.

More on credit reports VOLUNTARY DEPOSIT - REGISTERED CONSUMER ORDERLY PAYMENT OF PROPOSAL DEBTS, CREDIT COUNSELLING: • When a registered • When voluntary deposit - • consumer proposal is OPD- credit counselling is paid, it will automatically paid, it will automatically purge three (3) years purge from the system • from the date paid. three (3) years from the date paid.

More on credit reports • BANKRUPTCY: • JUDGMENTS, SEIZURE OF • A bankruptcy automatically purges MOVABLE/IMMOVABLE, six (6) years from the date of GARNISHMENT OF WAGES: discharge in the case of a single • The above will automatically bankruptcy. If the consumer purge from the system six (6) declares several bankruptcies, the years from the date filed. system will keep each bankruptcy • COLLECTION ACCOUNTS: for fourteen (14) years from the date of each discharge. • A collection account under public records will automatically purge • All accounts included in a from the system six (6) years from bankruptcy remain on file the date of last activity. indicating “included in bankruptcy” and will purge six (6) years from the date of last activity.

Development of Credit: Options for Newcomers Where can we go to begin the process?

Banks • Royal Bank of Canada – developed “Welcome to Canada” initiative • Offers a secured Visa to newcomers • Many different bank account options • http://www.rbc.com/canada/financial/wtcpack

RBC offers Welcome to Canada • 1) Monthly fees waived up to 6 • 2) Monthly fees waived up to 3 months with the months with the RBC VIP Banking® account† RBC Signature No Limit Banking® • All-inclusive banking package that includes account† the option to open up to four accounts with monthly fees waived, unlimited transactions, • An all-inclusive banking account unlimited non-RBC ATM transactions per that offers unlimited banking month1, 2 free email money transfers per transactions, 3 non-RBC ATM month, 12 drafts and/or money orders per transactions refunded per month1, year, free personalized cheques, travel benefits and more. 2 free email money transfers per month, 12 drafts and/or money orders per year, free personalized • Choose one of the following cheques, and more. RBC Rewards or Specialty Rewards Visa cards and we will waive the entire annual fee for both the primary and co-applicant. • Choose between an – Visa Infinite* Avion®, Visa Platinum RBC Royal Bank® Visa Classic II Avion®, Visa Gold Preferred; Visa card or any other eligible+ RBC Platinum Preferred, US Dollar Visa Rewards or Specialty Rewards Gold; Visa Classic II; British Airways Visa card and we will waive the Visa Platinum; Cathay Pacific Visa Platinum and RBC Mike Weir Visa Card. $35 annual fee of the primary applicant+++. http://www.rbc.com/canada/financial/wtcpackage/index.html Source:

Scotia Bank – Start Right Program • Requires 2 pieces of identification to open a bank account – 1) Proof of landed Immigrant Status (IMM5292) – 2) Valid Photo Id: Foreign Passport, landed immigrant card, Canadian issued Drivers License • Free account for 1 year – power chequing account • Landed within 1 year no fee Credit Card with a limit of $1000 and no credit check. • If you are brining in cash to Canada and would like to invest in GIC you will get a 1% over posted rate bonus • Free small safe deposit box for 1 year. • http://scotiabank.com/mcben/cda/content/0,1679,CCDmcben_CID2 836_LIDen_SID122_YID29,00.html

CIBC – Banking In Canada • Various presentations in conjunction with the YMCA • Series is called “Facts and Finance” • Covers topics such as opening a bank account, loans and what you need to know and investments

What are the options if we get in trouble?

What do you do if you get in trouble? • Often people think their only option is bankruptcy • Not so! • There are 3 options available to you • 1) Consumer Proposal • 2) Debt Management Programs • 3) Bankruptcy

Consumer Proposal • In Canada a person can file for a consumer proposal as a alternative to bankruptcy. • Consumer Proposal = negotiated settlement • Can only be made if a debtor has an excess of $5000 to a maximum of $75000 (not including the mortgage on their principal residence) • In 2006 there were 98,450 filings in Canada 79,218 bankruptcies and 19,232 consumer proposals • Does have an effect on your credit 7 years R7

Debt Management Programs • Allows you to honor your debts • Counseling session that will help you to determine your best course of action • Allows you to pay off more toward the principal rather than paying high interest rates and fees. • We help to reduce your interest rate between 0% to 10%

Debt Management Cont’d • Example One • Debt Management • $16000 of debt on 6 • $16000 of debt on 6 cards card • Average interest rate • Average interest rate 18% 6.9% • Total time to pay off • Total time to pay off = 35 years 9 months 4years • Total interest = • Total Interest = $23,615.45 $2355

The Benefits of Debt Management • Transunion found that people who go through debt management programs were 40% less likely to default on a loan. • Benefit though the learning process • Access to many self improving materials and counseling sessions. • Debt free in 4 years or less. • Fastest way to pay off this type of debt • We stop the collection calls from coming in.

Bankruptcy • It is a legally declared inability or impairment of ability to pay the creditor • It is regulated through Federal Law in the Bankruptcy and Insolvency Act. • Bankruptcy must be done through a Trustee who is an administrator. • Shows an R9 on your credit report for 7 years or depending on the province you are in

Trustees Responsibilities • Review of the file for any fraudulent activities • Chair meetings of creditors • Sell any non-exempt assets. • Objects to the bankrupts discharge • Distribute funds to the creditors.

Effects of Bankruptcy on the Newcomer • Business Class • Skilled Workers - Must meet - Must Hold a Job conditions that - Must show they have indicate that they sufficient means to have had a successful support themselves business for one year - Must have at least - If bankruptcy is 10,000 in the bank to declared they may support themselves or not be able to meet family if they are unemployed. requirements.

Effects of Bankruptcy on the Sponsor • The sponsor must be able to support the newcomer • If the sponsor declares bankruptcy they generally do not have assets to support their sponsored person. • Their application if approved before bankruptcy may be rescinded.

How Is Consolidated Credit Helping Advance Personal Financial Literacy?

• Distribute educational material in the form of self help booklets. • Distribute display units that help to allow individuals to get help without asking for it.

Educational Seminars • We provide • Budgeting Made Easy educational seminars • Identity Theft to assist you with educating your people • Coping with Financial Stress in personal financial matters. • Money Saving Tips for New Parents • Some Seminar Topics are ---- • Credit In a New Country • Understanding Credit.

Budget Lounge

For more information on our Personal Financial Literacy Program • Call Daniel Chometa at: - 1-800-656-4079 ext 1034 or locally at 416 915 7283 x 1034 • Go to our website: www.consolidatedcredit.ca

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A3 Financial Literacy: A Challenge To Newcomers_Daniel Chometa

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A3 Financial Literacy: A Challenge To Newcomers_Daniel Chometa — Presentation Transcript