A3 Financial Literacy: A Challenge To Newcomers_Daniel Chometa
Financial Literacy: A Challenge
Presented By: Daniel Chometa
Consolidated Credit Counseling
Services of Canada.
• We will be looking at:
– Identifying the Issues
– 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
• 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
• Often times newcomers become victims due to a
lack of education in the world of personal
• 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
If its too good to be true it
• 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
• Proceed with caution.
• Hold up all of your agreements otherwise there
may be penalties accrued that you are not
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:
• aggression, substance abuse
• memory loss / lack of concentration.
• A general loss of satisfaction with one’s
• Maladaptive behavior
• General lack of engagement with others
• People who suffer from debt stress often
have problems that are directly related to
• 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
What can you do?
• Look into the issues surrounding personal
• Develop a financial literacy program for
• 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
• 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
Words to live by
Budgeting starts with you!
"A budget is restraining and limits my
– 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.“
• You can do a lot to solve your money problems
right now by sticking to a budget.
– List all sources of monthly income
Secondary Income $0
Other Income $400
• STEP TWO: List Expenses
Fixed Expenses – Remains the same each
Car Payment $270
2nd Car Payment $0
may fluctuate over time going up or down due to time of season or
these are expenditures that you can change
Dining Out $100
Cell Phone $75
Total It Up
Income – Expense:
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
• Set a long term goal
• Where can you save
• Forego instant
money? gratification for your long
• What are your greatest term goals.
• Keep track of your
• Do your expenses match achievements
• 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
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
• 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.
• 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
• 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)
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
“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
• Ratings are based on a scale between 300
• 300 represents the worst score possible
• 900 represents the best score possible
• This is a numerical representation of your
• 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
• 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
• (chequing or savings account)
will automatically purge from
• system six (6) years from the
date of registration.
More on credit reports
VOLUNTARY DEPOSIT - REGISTERED CONSUMER
ORDERLY PAYMENT OF PROPOSAL
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
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
• Royal Bank of Canada – developed
“Welcome to Canada” initiative
• Offers a secured Visa to newcomers
• Many different bank account options
RBC offers Welcome to Canada
• 1) Monthly fees waived up to 6 • 2) Monthly fees waived up to 3 months with
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
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.
CIBC – Banking In Canada
• Various presentations in conjunction with
• Series is called “Facts and Finance”
• Covers topics such as opening a bank
account, loans and what you need to
know and investments
What do you do if you get in
• Often people think their only option is
• Not so!
• There are 3 options available to you
• 1) Consumer Proposal
• 2) Debt Management Programs
• 3) Bankruptcy
• 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
• Does have an effect on your credit 7 years R7
• 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
• Average interest rate • Average interest rate
• Total time to pay off • Total time to pay off
= 35 years 9 months 4years
• Total interest = • Total Interest =
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
• Debt free in 4 years or less.
• Fastest way to pay off this type of debt
• We stop the collection calls from coming in.
• 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
• Review of the file for any fraudulent
• 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
Effects of Bankruptcy on the Sponsor
• The sponsor must be able to support the
• 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
• 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.
• We provide • Budgeting Made Easy
educational seminars • Identity Theft
to assist you with
educating your people
• Coping with Financial
in personal financial
matters. • Money Saving Tips for
• Some Seminar Topics
are ---- • Credit In a New
• Understanding Credit.