Introduction to Financial Services Basic Banking Services Money Management Credit Introduction to Financial Services Basic Banking Services Money Management.
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• Introduction to Financial Services
• Basic Banking Services
• Money Management
• Credit
• Introduction to Financial Services
• Basic Banking Services
• Money Management
• Credit
• Activity 1…….Where Do I Keep My Money?
• Activity 2…….Evaluating Financial Services
• Activity 3…….Banks, Yesterday and Today
ACTIVITY 1
Where Do I Keep My Money?
Overview
• The functions of banks
• The cost of alternative financial services
• The stability of banks
Introduction to Financial Services - Activity 13
PLACES TO SAVE MONEY
Would you save your money in any of these places? Why? Why not? Can you think of other places to save money?
• Bed & Mattress• Cookie Jar• Pillow• Wallet• Money Belt• Small House Safe
Slide 1 - Places to Save MoneyLesson Reference: Introduction to Financial Services, Activity 2 – Overhead 14
Slide 2 - Alternative Financial Services Lesson Reference: Introduction to Financial Services, Activity 1 – Handout 1
ALTERNATIVE FINANCIAL SERVICES
•Cheque-Cashing Services
•Cheque-Deferrals, Cash Advances, Payday Loans
•Pawn Shops
•Rapid Tax Refunds
•Rent-to-Own
•Other Financial Services
5
CANADA DEPOSIT INSURANCECORPORATION (CDIC)
• Established in 1967 by Parliament, CDIC was incorporated as a Crown corporation.
• Insures most Savings, Chequing, GICs, and other Deposit Accounts.
• Up to $100,000 per depositor, per institution.
• Applies to most Commercial Banks, Savings Banks, and Savings Associations.
Slide 3 – CDIC Lesson Reference: Introduction to Financial Services, Activity 1 – Overhead 26
Overview
• Formal and informal financial services• Costs of alternative financial services and
average bank accounts • Advantages of establishing a banking
relationship
ACTIVITY 2
Evaluating Financial Services
Introduction to Financial Services – Activity 27
Slide 1 – Formal and Informal Financial Services Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 1
INFORMAL FINANCIALSERVICES
• Payday lenders• Cheque cashing services• Rent-to-own stores• Pawn shops• Title lenders• Loans from family/friends• Cultural savings clubs• Remittances offered through
nonfinancial institutions
FORMALFINANCIAL SERVICES
• Accounts• Credit cards• Loans• Investment vehicles• Direct deposit• Wire transfers/ remittances
8
Slide 2 – How a Bank Can Save You Money Lesson Reference: Introduction to Financial Services, Activity 2 – Handout 2
HOW A BANK CAN SAVE YOU MONEY
Monthly Fees without a Bank Monthly Fees with a Bank*
9
• $80 to cash paycheques• $4.16 on money orders and
stamps to pay bills• $20 to send money to family
with a wire transfer company
Monthly cost: $104.16 Annual cost: $1,249.92
• $10 monthly base service
charge• $0 to directly deposit
paycheque• $0 to get cash from bank's
ABMs or make debit card purchase
• $0 to pay monthly bills using electronic bill payment
• $5 to send money to family
Monthly cost: $15.00 Annual cost: $180.00
Annual Savings by Using a Bank: $1,069.92
Slide 3 – Advantages of a Banking Relationship Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 2
ADVANTAGES OF ESTABLISHING A BANKING RELATIONSHIP
Nearly everyone needs a bank account to help manage his or her day-to-day money.
Bank accounts can help you to:• Pay bills• Manage your money• Receive money• Send money to a friend or family member• Keep your money secure• Start building wealth• Earn interest
10
ACTIVITY 3
Banks, Yesterdayand Today
Overview
Introduction to Financial Services - Activity 3
• The many traditional financial services provided by a bank
• Other expanded financial services provided by a bank
• The impact of banks throughout the community
11
TRADITIONALSERVICESOF BANKS
• Chequing Accounts• Savings Accounts• GICs (Guaranteed
Investment Certificates)• Canada Savings Bonds• Loans
• Car• Home (mortgages and home equity loans)• Personal
• Safe Deposit BoxesSlide 1 - Traditional Services of Banks
Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 1 12
EXPANDEDSERVICESOF BANKS
• Insurance Sales• Small Business
Advising and Loans• Investments• Credit Cards• Remittances
Slide 2 - Expanded Services of Banks Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 2
TRADITIONALSERVICESOF BANKS
• Chequing Accounts• Savings Accounts• GICs (Guaranteed Investment Certificates)• Canada Savings Bonds• Loans
• Car• Home (mortgages and home equity loans)• Personal
• Safe Deposit Boxes13
BANK ACT REFORM 2001 (BILL C-8)
Eliminated many restrictions among banks, but also put in place a new review process for bank mergers.
Results?• Banks are required to open accounts for individuals without demanding a minimum deposit or that the individual be employed. • Financial institutions are also required to cash government cheques for non-customers, with a minimum form of identification.• Banks are required to make a low-cost account available to consumers.
Slide 3 – Bank Act Reform 2001 Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 3 14
SOME COMMUNITY-RELATEDSERVICES OF BANKS
• Bank employees mentor students in areas of basic financial skills.
• Bank employees serve on community organizations’ boards of directors.
• Banks provide scholarships to students going into the banking profession.
• Banks fund affordable housing construction.
• Banks organize fund-raising events, such as “Run For the Cure.”
• Bank branches participate in fundraising for many community
organizations, such as children’s hospitals.
Slide 4 - Community-Related Services Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 4 15
• Activity 1………….Why Do You Need A Bank?• Activity 2………The Many Services of a Bank• Activity 3…The ABCs of a Chequing Account• Activity 4………Opening a Chequing Account• Activity 5……………….How to Write a Cheque• Activity 6….Maintaining a Chequing Account• Activity 7……The ABCs of a Savings Account
Basic Banking Services - Activity 1
ACTIVITY 1
Why Do YouNeed a Bank?
Overview
• Purposes of banks• The differences between banks and
credit unions• Safety of financial institutions• Banks as money management tools
17
CANADA DEPOSIT INSURANCE CORPORATION
• Established in 1967
• A Crown Corporation
• Protects depositors against certain losses, up to $100,000 per depositor
Slide 1 – Canada Deposit Insurance Corporation Lesson Reference: Basic Banking Services, Activity 1 – Overhead 2 18
Basic Banking Services - Activity 2
ACTIVITY 2
The Many Servicesof a Bank
Overview
• Financial services provided by a bank• Bank employees• Services that might be of personal benefit• The impact of state and federal
regulations upon the security of a bank
19
REMITTANCE OPTIONS TO SEND AND RECEIVE MONEY
1. Money Transfer Organizations2. Bank Transfers3. Hand Delivery4. Mail5. Hawala6. Post Offices7. Stored Value Cards
Slide 1 – Remittance Options
Lesson Reference: Basic Banking Services, Activity 2 - Overhead 1 20
BANK OCCUPATIONS
• Tellers
• Personal Bankers
• Mortgage Lenders
• Operations Manager
• Branch Manager
Slide 2 – Bank Occupations Lesson Reference: Basic Banking Services, Activity 2 – Overhead 221
ELECTRONIC BANK SERVICESOnline banking is the fastest growing
Internetactivity in Canada.
Types of Services
•Bank Cards
•Automated Services
Protect Your Passwords!Slide 3 - Electronic Bank Services
Lesson Reference: Basic Banking Services, Activity 2 – Overhead 3 22
BANK CARD TYPES
Slide 4 - Bank Card Types Lesson Reference: Basic Banking Services, Activity 2 – Overhead 4
TYPE• ABM/Debit Cards
•
Stored Value Cards
DESCRIPTION• Bank cards that allow for the
payment of goods and services to be subtracted directly from a bank deposit account.
• Can be used with merchants that take major credit cards—known as point of sale (POS) transactions.
• Bank cards with preset, limited value.
• Used to pay for goods and services.
• Alternative to cash.23
AUTOMATED BANK SERVICES
• Direct Deposit
• Transfers between Accounts
• Transfers to a Third Party
• Online Banking
• Bank by Phone
• ABM
Slide 5 – Automated Bank Services
Lesson Reference: Basic Banking Services, Activity 2 – Handout 3 24
REGULATION OF ELECTRONICBANKING SERVICES
Electronic Funds Transfer CodeInitiated by the Ministry of Consumer and Corporate Affairs (CCAC) in 1989. It protects consumers using any type of electronic banking from loss and protects their privacy.
Banks must:• Offer consumers a record or receipt for all computer transactions.• Investigate errors and report to consumer within ten days of error notification.
Customers are responsible to report any errors.Slide 6 - Regulation of Electronic Banking
Lesson Reference: Basic Banking Services, Activity 2 – Overhead 5 25
Basic Banking Services - Activity 3
ACTIVITY 3
The ABCs of a Chequing Account
Overview
• Purposes of a chequing account• Shopping for and comparing chequing
accounts
26
Slide 1 - Chequing Account Terms Lesson Reference: Basic Banking Services, Activity 3 – Handout 1
CHEQUING ACCOUNT TERMS
•Bank Statement•Cancelled Cheque•Cheque•Cheque Register/Ledger•Endorsement•Fee• Interest•Minimum Balance
•Outstanding Transactions
•Overdraft•Overdraft Protection•Payee•Reconciling a Bank
Statement•Transaction Limits
27
Slide 2 - Shopping Around Lesson Reference: Basic Banking Services, Activity 3 - Handout 2
SHOPPINGAROUND
(THINGS TO ASK ABOUT
WHENOPENING A CHEQUING ACCOUNT)
SERVICESLocation of bankLocation of ABMsBanking hoursMinimum balance requiredMinimum transactions or limitsInterest-bearing accounts?Other
COSTSNon-primary bank ABM transactionsIn-branch transaction feesPer-cheque feesOther chequing feesOverdraft protectionPrinting of cheques
28
Basic Banking Services - Activity 4
ACTIVITY 4
Opening a Chequing Account
Overview
• Chequing Account Application Process• The Application• Acceptable Forms of ID• The Signature Authorization Card
29
Slide 1 – Opening a Chequing Account
Lesson Reference: Basic Banking Services, Activity 4 – Handout 1
OPENING A CHEQUING ACCOUNT
30
Slide 2 - Commonly Accepted Forms of ID Lesson Reference: Basic Banking Services, Activity 4 – Handout 2
Primary ID*
•Driver’s Licence issued in Canada
•Canadian passport
•Certificate of Canadian Citizenship
•Permanent Resident card or Citizenship and Immigration Canada Form IMM 1000, IMM 1442, or IMM 5292
•Birth certificate issued in Canada
•Social Insurance card* Financial institutions' ID requirements may differ; check with the institution first
before applying for an account.
COMMONLY ACCEPTED FORMS OF ID
•Old Age Security card
•Certificate of Indian Status
•Provincial health insurance card (except Ontario, Manitoba, and PEI)
•Provincial ID card, bearing the individual’s photograph and signature, issued by authorities such as Insurance Corporation of British Columbia, Alberta Registries, Service New Brunswick, etc.
31
Slide 3 - Commonly Accepted Forms of ID Lesson Reference: Basic Banking Services, Activity 4 – Handout 2
Secondary ID*
• Employee photo ID card
• Canadian University/ College photo ID card
• Canadian bank or ABM/debit card
• Canadian credit card
• Canadian National Institute for the Blind (CNIB) client card
• Foreign passport
* Financial institutions' ID requirements may differ; check with the institution first before applying for an account.
COMMONLY ACCEPTED FORMS OF ID
32
Slide 4 – Signature Authorization Card
Lesson Reference: Basic Banking Services, Activity 4 – Handout 3
SIGNATURE AUTHORIZATION CARD
33
Basic Banking Services - Activity 5
ACTIVITY 5
How to Write a Cheque
34
Slide 1 - Writing a Cheque Lesson Reference: Basic Banking Services, Activity 5 – Handout 1
WRITING A CHEQUE
35
Basic Banking Services - Activity 6
ACTIVITY 6
Maintaining aChequing Account
Overview
• Keeping a cheque register• Making a deposit into a chequing
account• Reconciling a bank statement• Maintaining a chequing account• Avoiding overdrafts
36
KEEPING A CHEQUE REGISTER
Slide 1 - Keeping a Cheque Register Lesson Reference: Basic Banking Services, Activity 6 – Handout 137
Slide 2 - Making a Deposit - Endorsing a Cheque
Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
MAKING A DEPOSIT - ENDORSING A CHEQUE
38
The Back Side of a Cheque
Slide 3 - Making a Deposit - Completing a Deposit Slip Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
MAKING A DEPOSIT - COMPLETING A DEPOSIT
SLIP
39
Slide 4 - Reconciling a Bank Statement Lesson Reference: Basic Banking Services, Activity 6 – Handout1
RECONCILING A BANK STATEMENT
40
OVERDRAFTS AND BOUNCED CHEQUES
Overdrafts and bounced cheques occur when you complete a financial transaction (e.g., write a cheque) for more than what is available in the account. Your financial institution may pay the amount and charge you a fee, known as an “overdraft fee” or a “nonsufficient funds fee.”
Tip: Avoid overdraft or non-sufficient funds fees by making a habit of monitoring the balance in your chequing account.
Slide 5 – Overdrafts and Bounced Cheques Lesson Reference: Basic Banking Services, Activity 6 – Overhead 1 41
Basic Banking Services - Activity 7
ACTIVITY 7
The ABCs of aSavings Account
Overview
• Purpose of a savings account• Shopping for a savings account• Applying for a savings account• Monthly bank statement checkup
42
REASONS TO SAVE
• Emergencies
• Future Purchases
• Future Investments
Slide 1 - Reasons to Save Lesson Reference: Basic Banking Services, Activity 7 – Overhead 143
SHOPPING FOR A SAVINGS ACCOUNT
Factors to consider:• Safety• Risk• Liquidity• Minimum Account Balance Requirements• Fees and Service Charges• Interest Rate • Returns (Earnings)• Automatic Transfer• Direct Deposit
Slide 2 - Shopping for a Savings Account Lesson Reference: Basic Banking Services, Activity 7 – Overhead 244
OPENING A SAVINGS ACCOUNT
Slide 3 – Opening a Savings Account Lesson Reference: Basic Banking Services, Activity 7 – Overhead 345
Slide 4 – Bank Statement Lesson Reference: Basic Banking Services, Activity 7 – Overhead 4
BANK STATEMENT
46
• Activity 1………………Saving vs. Investing• Activity 2……….….Saving for a Rainy Day• Activity 3……………………..1 + 1 = Saving• Activity 4…..Investing for the Long Term
Money Management - Activity 1
ACTIVITY 1
Saving vs. Investing
Overview
• Saving vs. investing• Information on a paycheque• Making a financial plan• Budgeting
48
Slide 1 - Do You Save? Do You Invest?
Lesson Reference: Money Management, Activity 1 – Overhead 1
DO YOU SAVE?
DO YOU INVEST?
49
Slide 2 - Saving vs. Investing Lesson Reference: Money Management, Activity 1 – Overhead 2
SAVING VS. INVESTING
Saving• Short-term.• Postpones spending.• Has safety precautions.
Investing• Long-term.• Exchanges money for something with the
future expectation of receiving a profit.• Has risk factors.
50
TAKE A GOOD LOOK AT A PAYCHEQUE
Slide 3 – Paycheque Lesson Reference: Money Management, Activity 1 – Handout 1 51
Slide 4 – Making a Successful Financial Plan Lesson Reference: Money Management, Activity 1 – Handout 2
MAKING A SUCCESSFUL FINANCIAL PLAN
1. Start as early as possible.
2. Set goals.
3. Include both short- and long-term strategies.
4. Support the plan with a practical, working budget.
5. Review the plan on a regular schedule.
6. Do your homework while working on your plan.
7. Put the plan in writing.52
Slide 5 - Financial Plan Assistance
Lesson Reference: Money Management, Activity 1 – Overhead 3
FINANCIAL PLAN ASSISTANCE
•Bankers
•Certified Financial Planners
•Schools and Courses
•Peer Groups and Investment Clubs
•The Media
•The Internet
53
• Savings & Investments
• Fixed Expenses
• Periodic Fixed Expenses
• Variable Expenses
• Debts
BUILDING MYMONTHLY BUDGET
Slide 6 – Building my Monthly Budget
Lesson Reference: Money Management, Activity 1 – Handout 4 54
Money Management - Activity 2
ACTIVITY 2
Saving for a Rainy Day
Overview
• Reasons to save• Concerns and issues with saving• Where to save
55
Slide 1 - Saving for a Rainy Day
Lesson Reference: Money Management, Activity 2 – Overhead 1
SAVING FOR A RAINY DAY
56
Slide 2 - Reasons to Save Lesson Reference: Money Management, Activity 2 – Overhead 2
REASONS TO SAVE •Provide for unexpected emergencies.
•Purchase expensive items in the future.
•Ensure retirement.
•Plan for investment opportunities.
57
Slide 3 – Concerns and Issues When Saving Lesson Reference: Money Management, Activity 2 – Handout 1
CONCERNS AND ISSUES
WHEN SAVING
• Safety
• Restrictions
• Liquidity
• Earnings
• Taxes
58
Slide 4 – Places to Save Lesson Reference: Money Management, Activity 2 – Handout 2
PLACES TO SAVE
• Savings Accounts
• Money Market Accounts
• Guaranteed Investment Certificates
• Registered Savings Accounts
• Savings Bonds
• Insurance
59
Slide 5 - Looking at Places to Save
Lesson Reference: Money Management, Activity 2 – Overhead 3
LOOKING AT PLACES TO SAVEOn a scale of 1 to 5 (with 1 being low and 5 being high),
rate the following places to save your money.
Based on the above ratings, where would you save your money? Why?
60
Money Management - Activity 3
ACTIVITY 3
1 + 1 = Saving
Overview
• Types of interest• The impact of saving• Savings regulations
61
Slide 1 - Types of Interest
Lesson Reference: Money Management, Activity 3 – Overhead 1
TYPES OFINTEREST
Which type of return on
your money would you
prefer?
What’s the difference?
62
Slide 2 – Returns on Savings Lesson Reference: Money Management, Activity 3 – Handout 2
IMPACT OF RETURNS ON SAVINGS
This chart shows what happens at several different rates to $100 in an account when no money is withdrawn and interest is compounded yearly.
63
Slide 3 - Savings Regulations
Lesson Reference: Money Management, Activity 3 – Overhead 2
SAVINGS REGULATIONSFederal Government InsuranceCDIC (Canada Deposit Insurance Corporation): Deposits are potentially insured up to $100,000.
Provincial Government InsuranceStabilization funds or deposit insurance programs for Credit Unions and Caisse Populaires (vary by province)
Disclosure provisions in Bank ActFinancial institutions must disclose the following information about their consumer savings accounts:• Fees on accounts• Interest rate• General terms and conditionsDefines the year as 365 days for purposes of determining the annual percentage rate of interest.64
Money Management - Activity 4
ACTIVITY 4
Investing for the Long Term
Overview
• Historical Performance of the S&P/TSX• Reasons to Invest• Investing Considerations
Investment ConcernsPlaces to Invest
• Online Money Management
65
Slide 1 - Savings vs. Investing Lesson Reference: Money Management, Activity 4 – Overhead 1
SAVING vs. INVESTING
SAVING • Short-term.• Postpones spending.• Has safety precautions.
INVESTING • Long-term.• Exchanges money for something with the
future expectation of receiving a profit.• Has risk factors.
66
Slide 2 - Saving vs. Investing, Historically
Lesson Reference: Money Management, Activity 4 – Overhead 2
SAVING VS. INVESTING, HISTORICALLY
67
Slide 3 - Places to Invest Lesson Reference: Money Management, Activity 4 – Overhead 3
PLACES TO INVEST
• Stocks
• Bonds
• Mutual Funds
• Retirement Plans/RRSPs
• Real Estate
• Collectibles/Valuables
68
QUESTIONS TO ASK BEFORE MAKING AN INVESTMENT
1. How safe is the investment?
2. What types of returns can I expect?
3. What kind of risk is involved?
4. Can I get my money back if I need it? How long will it take and how much will it cost to get it back quickly?
5. Are my investments in a variety of places to spread my risks (diversification)?
Slide 4 – Questions to Ask Lesson Reference: Money Management, Activity 4 – Handout 2 69
INTERNET PRIVACY & SECURITY
• Avoid passwords or screen names that are easy to guess.
• Change passwords often.
• Read privacy policies.
• Check online accounts often. Report unfamiliar transactions.
• Do not open emails with unsolicited offers that sound too good to be true.
• Do not open emails that pretend to come from a financial institution and ask you to reset your password. Slide 5 – Internet Privacy & Security
Lesson Reference: Money Management, Activity 4 – Overhead 4 70
• Activity 1………….…………The ABCs of Credit• Activity 2……………….……………Credit Scores• Activity 3………….…………Establishing Credit• Activity 4………….…Maintaining Good Credit• Activity 5………….………………….Credit Cards• Activity 6……….Managing Credit Challenges• Activity 7……………..…………….Identity Theft• Activity 8………Prime and Subprime Lending• Activity 9……………………..Predatory Lending• Activity 10……………………………..Bankruptcy
Credit - Activity 1
ACTIVITY 1
The ABCs of CreditOverview
• What is credit?• The five Cs of credit• Pros and cons of using credit• The big decision—Should I use credit?
72
CREDIT DEFINITIONS
CreditTrust given to another person for future payment of a loan, credit card balance, etc.
CreditorA person or company to whom a debt is owed.
Slide 1 – Credit Definitions Lesson Reference: Credit, Activity 1 – Handout 1 73
Slide 2 - The Five Cs of Credit Lesson Reference: Credit, Activity 1 – Overhead 1
THE FIVE Cs OF CREDIT
C = Capacity
C = Capital
C = Collateral
C = Conditions
C = Character
74
WHEN TO USE CREDIT
Can you describe a situation when
it is a good time to use credit and
when it is NOT a good time to use
credit?
Slide 3 – When to Use Credit Lesson Reference: Credit, Activity 1 – Handout 275
QUESTIONS TO ASK BEFORE USING CREDIT
1.
2.
3.
4.
5.
6.
7.
Slide 4 – Questions to Ask Lesson Reference: Credit, Activity 1 – Handout 376
Credit - Activity 2
ACTIVITY 2
Credit ScoresOverview
• Credit scores and their impact• The factors that make up a credit score• Strategies to improve your credit score
77
WHAT IS A CREDIT SCORE?• A credit score is a number that helps a lender
predict how likely an individual is to repay a loan, or make credit payments on time.
• A credit score is a number that changes as the elements in a credit report change.
• A credit score has broad use and impact. Your credit past is your credit future.
• FICO® scores, one of the most common credit scoring systems, vary between 350 and 850.
• VantageScoreSM, a new credit scoring system developed by the three credit bureaus, ranges from 501-990.
Slide 1 – What Is a Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 178
WHAT MAKES UP A
TYPICAL CREDIT SCORE?
Slide 2 – What Makes Up a Typical Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 279
Source: Fair Isaac and Consumer Federation of America, 2005
IMPROVING YOUR CREDIT SCORE
• Pay bills on time.
• Get current and stay current.
• Don’t open a lot of new accounts too rapidly.
• Correct mistakes.
• Shop for loan rates within a focused period of time.
• Keep balances low on revolving credit.
• Pay off debt.
• Check your credit report.Slide 3 – Improving Your Credit Score
Lesson Reference: Credit, Activity 2 – Handout 280
Credit - Activity 3
ACTIVITY 3
Establishing CreditOverview
• Types and sources of credit• Credit safeguards• Applying for credit• Questions to ask when applying for credit
81
Slide 1 – Types of Credit Lesson Reference: Credit, Activity 3 – Handout 1
TYPES OF CREDIT
Cash Credit
Sales Credit
Secured Credit
Revolving Credit
82
I.O.U.
Single Payment Credit
Installment Credit
Other Types of Credit
Slide 2 - Sources of Credit Lesson Reference: Credit, Activity 3 – Overhead 1
SOURCES OF CREDIT
What are other sources of credit?
What sources of credit should be avoided? Why?
Banks
Mortgage & Loan
Companies
RetailStores
FinanceCompani
es
Credit Unions & Caisses Populaires
Internet Stores
83
STEPS TO TAKE TO AVOID ABUSIVE LENDING
1. Have you shopped around for the best deal?
2. Do you feel the lender pressured you to take the loan?
3. Do you understand the terms of the loan?
Slide 3 – Avoiding Abusive Lending Lesson Reference: Credit, Activity 3 – Handout 284
Slide 4 – Parts of a Credit Application Lesson Reference: Credit, Activity 3 – Handout 3
COMMON PARTS OF A CREDIT APPLICATION
• Reason for Loan• Personal Identification Information• Employment Information• Mortgage/Rental Information• Documentation Required (for some
applications)• Current Debts• Credit References• Collateral (for some applications)• Bank References• Signature and Date
85
SAMPLE CREDIT APPLICATION
86 Slide 5 – Sample Credit Application Lesson Reference: Credit, Activity 3 – Handout 3
QUESTIONS TO ASK WHEN APPLYING FOR CREDIT
1. What is the annual fee?
2. What is the annual percentage rate (APR)?
3. When are payments due?
4. What is the minimum payment required each month?
5. Is there a grace period?
6. Are there other fees associated with the credit, such as minimum finance charges?
7. What is the credit limit?
8. What are the penalties for late or missed payments?
9. What are the terms and conditions of the credit? What else is included in the fine print?
Slide 6 – Questions to Ask Lesson Reference: Credit, Activity 3 – Handout 587
Credit - Activity 4
ACTIVITY 4
MaintainingGood Credit
Overview• Debt to income thermometer• Credit process • Credit reporting agencies• Credit safeguards for consumers• Credit reports, ratings and scores• Establishing a credit history
88
Slide 1 – Debt-to-Income Thermometer Lesson Reference: Credit, Activity 4 – Overhead 1
DEBT-TO-INCOME THERMOMETER
89
Slide 2 - The Credit Process Lesson Reference: Credit, Activity 4 – Overhead 2
THE CREDIT PROCESS
CREDIT HISTORY•
CREDIT BUREAU•
CREDIT REPORT•
CREDIT SCORE•
CREDIT RATING
90
SAMPLE CREDIT REPORT
91Slide 3 – Sample Credit Report
Lesson Reference: Credit, Activity 4 – Handout 2
Slide 4 - Credit Safeguards for Consumers Lesson Reference: Credit, Activity 4 – Handout 3
CREDIT SAFEGUARDS FOR CONSUMERS
Bank Act (Cost of Borrowing Regulations)
Consumer Protection Act
Personal Information Protection & Electronic Documents Act (PIPEDA)
Credit Reporting Acts
Collection Agencies Acts
92
Slide 5 - Things to Establish Good Credit Lesson Reference: Credit, Activity 4 – Overhead 3
THINGS TO DO TO ESTABLISHAND MAINTAIN GOOD CREDIT
What can everyone do to establish and maintain good credit?
1. Pay all bills on time.
2. Avoid late fees.
3.
4.
5.
6.
93
Credit - Activity 5
ACTIVITY 5
Credit CardsOverview
• Types of credit cards• Shopping for a credit card• Costs of credit
94
Slide 1 - Types of Credit Cards Lesson Reference: Credit, Activity 5 – Overhead 1
TYPES OF CREDIT CARDS
Private Label• Issued by a single source• Can only be used at a single source• Examples: Department Stores,
Gasoline Companies
General Label• Issued by a single source• Can be used in many places• Examples: Bank Card, Major Credit
Card95
Slide 2 - Shopping for a Credit Card Lesson Reference: Credit, Activity 5 – Overhead 2
SHOPPING FOR A CREDIT CARDDECISIONS, DECISIONS...
ANNUAL FEE?APR?
COMPUTATION METHOD?
GRACE
PERIOD?
FINANCE CHARGE?
CREDIT LIMIT?
CARD INCENTIVES?96
QUESTIONS TO ASK WHEN SHOPPING FOR A CREDIT CARD
• Annual fee
• Annual percentage rate (APR)
• Minimum payment
• Computation method
• Grace period
• Finance charges
• Card incentives
Slide 3 – Questions to Ask Lesson Reference: Credit, Activity 5 – Handout 197
Slide 4 – Costs of Credit Lesson Reference: Credit, Activity 5 – Handout 298
COSTS OF CREDIT
How much can credit cost? If you make only the minimum payment for an item, here are some examples of what you might actually pay and how long it will take you to pay it.
Credit - Activity 6
ACTIVITY 6
Managing CreditChallenges
Overview
• Warning signs of credit abuse• Credit card reductions• Correcting credit errors• Resources and assistance
99
Slide 1 – Rating Trouble Signs Lesson Reference: Credit, Activity 6 – Handout 1
MEASURING THE SERIOUSNESS OF CREDIT TROUBLE SIGNS
Rate how serious you think each of the following trouble signs is.
1 = Not Serious 4 = Very Serious
Trouble Signs
100
• Delinquent Payments
• Default Notices
• Repossessions
• Collection Agencies
• Lien
• Garnishment
• Others?
Slide 2 – Warning Signs Lesson Reference: Credit, Activity 6 – Handout 2
WARNING SIGNS OF DEBT PROBLEMS
101
1. Delinquent Payments2. Default Notices
3. Repossessions
4. Collection Agencies
5. Judgment Lien
6. Garnishment
Slide 3 – Credit Card Reductions Lesson Reference: Credit, Activity 6 – Handout 3
CREDIT CARD REDUCTIONS Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment.
Paying the minimum amount due keeps your credit history clean, but it also costs you more.
102
CORRECTING CREDIT ERRORS
1. Circle the incorrect items on your credit report.
2. Write a letter to the reporting agency, telling them which information you think is inaccurate. Provide supporting documentation.
3. Send all materials by certified mail.
4. Send a similar letter to the creditor whose reports you disagree with.
5. The reporting agency will conduct an investigation.
6. If negative information is accurate, it can stay on your report for 7-10 years.
Slide 4 – Correcting Credit Errors Lesson Reference: Credit, Activity 6 – Handout 4103
CORRECTING CREDIT PROBLEMS
• Take responsibility for actions.
• Communicate with creditors.
• Debt Consolidation
• Credit Counseling
• Bankruptcy
Slide 5 – Correcting Credit Problems Lesson Reference: Credit, Activity 6 – Handout 5104
Credit - Activity 7
ACTIVITY 7
Identity TheftOverview
• The growing problem of identity theft and how it occurs
• Strategies to protect your personal information
• Steps to take if your identity has been stolen.
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Slide 1 – Identity Theft Lesson Reference: Credit, Activity 7 – Overhead 1
IDENTITY THEFT
Identity theft occurs when someone uses your personal identifying information to either establish credit under your name or to take over an existing account that you established without your authorization.
This information may include:
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• Social Insurance Numbers
• Name
• Address
• Date of birth
• Mother’s maiden name
• Passwords
• PINs
HOW TO AVOID IDENTITY THEFT
1. Monitor your credit report.
2. Don’t give out personal information to unknown persons or companies.
3. Protect your credit and debit cards.
4. Protect your mailbox.
5. Protect your wallet.
6. Use passwords and PINs that can’t be easily guessed.
7. Use anti-virus software on your computer.
8. Notify your bank when you change your address or phone number.
9. Other suggestions?Slide 2 – How to Avoid Identity Theft
Lesson Reference: Credit, Activity 7 – Handout 2107
Slide 3 – What to Do Lesson Reference: Credit, Activity 7 – Overhead 2
WHAT TO DO IF YOUR IDENTITY
HAS BEEN STOLEN
If you think your identity has been stolen, take the following steps:
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• Contact the three major credit bureaus (Equifax, Northern Credit Bureaus, and Trans Union).
• Close accounts.
• Contact all creditors involved.
• File a police report.
• Keep a record of your contacts.
Credit - Activity 8
ACTIVITY 8
Prime and Subprime Lending
Overview
• Prime and subprime lending definitions• Alternative institutions that provide
higher-cost loans• Strategies to improve credit in order to
qualify for prime loans.
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PRIME AND SUBPRIME MORTGAGE LENDING
Prime Prime credit is typically available to an individual who has paid his or her outstanding credit on time.
Subprime A subprime loan is typically available to a person with either no credit history or a damaged credit history and who is considered to be a high-risk borrower. Subprime loans have higher-than-average interest rates.
Slide 1 – Prime and Subprime Lending Lesson Reference: Credit, Activity 8 – Overhead 1110
THE PRICE OF SUBPRIME LENDING
How much does a subprime loan cost you? If you are making payments on a car, for example, you could be paying significantly more just for getting a loan with a higher interest rate. This added interest is significant over the life of the loan.
Slide 2 – The Price of Subprime Lending Lesson Reference: Credit, Activity 8 – Handout 1111
MOVING FROM SUBPRIME TO PRIME
• Pay bills on time.
• Correct mistakes.
• Pay more than the minimum required.
• Use credit sparingly.
• Work with a reputable nonprofit credit counseling organization.
Slide 3 – Moving from Subprime to Prime Lesson Reference: Credit, Activity 8 – Handout 2112
If you currently have a lower credit score and want to
be able to qualify for prime loans in the future, you
should take steps to improve your credit. The
following steps can help.
Credit - Activity 9
ACTIVITY 9
Predatory LendingOverview
• Characteristics and warning signs of predatory lending.
• The key targets of predatory lending.• Common abuses and scams.• Nonprofit organizations that can help
consumers plagued by predatory lending.
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PREDATORY LENDING
• Sell properties for much more than they are worth, using false appraisals.
• Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
• Knowingly lend more money than a borrower can afford to repay.
• And many other scams.
Slide 1 – Predatory Lending Lesson Reference: Credit, Activity 9 – Overhead 1114
In communities across Canada, some people are losing their homes and their investments because of predatory lenders, corrupt appraisers, mortgage brokers, and home improvement contractors who:
IDENTIFYING PREDATORY LENDING
• Packaging a loan with single-premium credit insurance products
• Repeatedly refinancing a loan in a short period of time
• Charging excessive rates and fees to a borrower who qualifies for lower rates and fees
Slide 2 – Predatory Lending Lesson Reference: Credit, Activity 9 – Handout 1115
Predatory lending is not defined by provincial law except to the extent that a loan is a high-cost loan and contains one of a fixed list of terms or conditions. Predatory or abusive lending practices can include:
TEN WARNING SIGNS OF PREDATORY MORTGAGES
1. Unreasonably high interest rates
2. Multiple refinancing
3. Unnecessary debt consolidation
4. Balloon payment
5. Negative amortization
6. Door-to-door solicitation
7. Back-dating of documents
8. Large loan broker fees
9. Kickbacks between lender and broker
10. Single-premium credit life insuranceSlide 3 – Ten Warning Signs
Lesson Reference: Credit, Activity 9 – Handout 1116
COMMON SCAMS
• Advance fee schemes
• The prize that will cost you
• Online auctions
• Fraud jobs
• Moneymaking schemes
• Bogus charities
• Scam schools
Slide 4 – Common Scams Lesson Reference: Credit, Activity 9 – Handout 2117
TOP STRATEGIES TO AVOID SCAMS
• Don’t become a victim.
• Investigate strangers who have deals too good to be true.
• Always stay in charge of your money.
• Don’t be fooled by appearances.
• Watch out for salespeople who prey on fears.
• Monitor your investments.
• Report fraud or abuse.
• Do your homework.
• Be wary of door-to-door solicitations. Slide 5 – Top Strategies to Avoid Scams Lesson Reference: Credit, Activity 9 – Handout 2118
ADDITIONAL RESOURCES
• PhoneBusters - The Canadian Anti-fraud Call Centre -(888) 495-8501; http://www.phonebusters.com; info@phonebusters.com.
• Office of Consumer Protection - Quebec Provincial Government - There are 11 regional offices of the Office of Consumer Protection. One toll-free number serves them all: (888) 672-2556.
• Office of Consumer Affairs - Canadian Federal Government - (800) 328-6189; http://www.consumer.ic.gc.ca.
• Ministry of the Attorney General – Ontario - (416) 326-2220.
Slide 6 – Additional Resources Lesson Reference: Credit, Activity 9 – Handout 3119
Credit - Activity 10
ACTIVITY 10
Bankruptcy
Overview
• Personal bankruptcy and consumer proposal
• Provisions of the new bankruptcy legislation
• Strategies to avoid bankruptcy
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BANKRUPTCY
Personal Bankruptcy wipes out all allowable debts and allows certain personal property exemptions. The debtor gives up all property unless the state deems it necessary to support the debtor and his or her dependents. Eligibility is determined by a means test that measures income against expenses.
Consumer Proposal is a negotiated settlement between a debtor and his or her creditors. A typical proposal will involve the debtor making monthly payments for a maximum of five years, with the funds distributed to their creditors.
Slide 1 – Bankruptcy Lesson Reference: Credit, Activity 10 – Overhead 1121
PROVISIONS OF THE CANADIAN BANKRUPTCY REFORM
• Debtors who have surplus income will no longer be eligible for an automatic discharge after nine months.
• Bankrupt individuals with more than $200,000 in personal income tax debts will not be eligible for an automatic discharge.
• Student loans may be written off.
• A consumer can file a consumer proposal that is as high as $250,000. Slide 2 – Provisions of Bankruptcy Reform
Lesson Reference: Credit, Activity 10 – Handout 1122
THINGS TO CONSIDER BEFORE FILING FOR BANKRUPTCY
• A bankruptcy filing could determine whether or not you get a job.
• Your insurance rates could rise.
• You may find it difficult to rent an apartment or qualify for a home loan.
• Bankruptcies stay on your credit report for 10 years.
• Bankruptcy can lower your credit score.
Slide 3 – Things to Consider Lesson Reference: Credit, Activity 10 – Overhead 2123
THINGS TO DO BEFORE DECIDING TO FILE
BANKRUPTCY, CONT.
• Reduce your spending
• Talk with your creditors.
• Talk with a nonprofit counseling agency.
• Talk with an attorney and understand the consequences of declaring bankruptcy.
• Consider consolidation carefully.
Slide 4 – Things to Do Lesson Reference: Credit, Activity 10 – Handout 2124
TIPS TO REMEMBER
• Keep track of your daily expenses.
• Save money on a regular basis.
• Make changes right away if you see yourself starting to get into financial trouble.
• Pay attention to your household finances, especially if you are married.
Slide 5 – Tips to Remember Lesson Reference: Credit, Activity 10 – Handout 2125
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