Your Money Book

A year or so ago we talked about the drive of credit card companies to hook college and university students on their cards, and to have them broke as soon as possible. It’s their training ground for life, and they pay literally tens of millions of dollars to colleges to be able to buy their marketing lists and sell their products on campus.

But here’s something different and quite surprising: A couple of weeks ago the University of Alberta announced that they were going to be discontinuing taking credit cards for tuition fees. The U of A made the move, according to their statements, to be more fiscally responsible. In other words – to save the huge merchant fees they pay to Visa and MasterCard. Want to take a guess of how much the U of A pays in merchant fees a year? $1.3 million! Now think about all those retailers and what they pay because you know that’s included in the prices they charge.

Their hands aren’t totally clean as they have previously done work with MBNA and have sold their student lists to credit card companies. But I’m prepared to forgive and forget, because this is just great news and Phyllis Clark, the V.P. of Finance is absolutely my hero of the month!

Sure, they did it for selfish reason, but I won’t look a gift horse in the mouth: A major institution in Canada is actually going to stop contributing to having students go broke! THAT is great news. Education should include not contributing to the financial ruin of their students – simple as that.

And a note to the person from the student union whaling, whining and complaining how awful this was, and that most students don’t have any other payment options: Think before talking!

Other payment options include: Debit cards, cash (remember what that is), cheques or money orders. If he was alluding to the fact that students don’t have the money, the comment is even more ridiculous: Think part-time job, think saving BEFORE deciding to enroll for the next year, think budgeting or using student loans for course fees – no, not all students use the money for what it was intended…I know that’s shocking.

If that spokesperson believes huge student credit card debt is a great idea – go get a cash advance off your card. It’s THE best way to go broke but surely your job isn’t to help students get ripped charging stuff at 19% is it?
So congratulations to the U of A, and I hope they become the first of many to set this example in weaning student off credit cards and setting a financially responsible example! Now if they could just take the next step and implement a policy that they will not take money from credit card companies, sell their student lists or help them with promotions on campus…

I was surprised to get a number of media calls about a story the CBC did last week. They went to a Winnipeg mall, randomly picked 10 people, and asked them to call their credit card company to get a lower rate, which six out of ten did accomplish.

Can we lower our obscene credit card rates that the no-service mega banks charge us? In the words of Barrack Obama: Yes we can! Let’s face it, credit card rates run 19% plus when prime is around 5%? Give me a break. Besides, full rates are like sticker price on a car – and who pays sticker?

In 2006, North America wide, credit card companies mailed out over 6 billion junk mailers but their response rate is less than a third of one percent. It’s not only very hard to get new clients, it’s also very expensive. So good business practices say keep the customers you have loyal to you and that’s all this amounts to.

You don’t really need a script, you just need to know you can do it and call the toll free number on the back of your credit card. You should have one of the junk mail offers in front of you. Best if it’s one from Capital One or MBNA offering a fixed rate card at 9.9 or 10.9%. Don’t use one of the teaser rates they use to suck you in for 1.9% or so. That’s only temporary – you’re looking for a fixed rate that doesn’t end next week!

Simply tell customer service you have this offer and would like them to match it because you’re a loyal and good customer. The rate on the offer in the mail is way better and you’re considering switching to save money. If they don’t cooperate, ask to speak to a supervisor.

You’ll likely get it if you have a credit score over 720, have dealt there for a while and have a good payment track record. You’re exactly the kind of client they want to attract and keep!

You’ll likely strike out if you’re at your credit limit, have been in arrears and are only making minimum payments. Card issuers aren’t dumb. They know most of those customers are lucky to have a credit card, and switching is more of a threat than reality.

But remember: If you don’t carry a credit card balance each month – who cares what the rate is and THAT is the situation we should all be in. It’s the start of financial freedom!

The recent headline in the newspaper was pretty direct: “Canadians’ overspending is escalating.” As though we haven’t talked about that for a long time now.

This was a study by Mackenzie Investments that reinforced what you’ve have heard me say for some time: Try saving a little and stop impulse spending with money we don’t have. In this case, it’s pretty much a generational divide, breaking down the over and under 50 age group. In the over 50 age group, only five percent are chronic over-spenders, while those under age 34 are the biggest debtors at 29%.

The key findings are a lot of common sense. It’s just that common sense is so uncommon these days. Factors to overspending include an almost non-existent social stigma to being in debt and vast amounts of available credit. Just sign here, quick approvals, and introductory rates designed to make you feel like you’re saving today, just to get the rug pulled out from under you later.

The online survey actually had 53% of people under age 50 admitting they use their credit cards to buy stuff when they don’t have enough money. THAT is impulse purchases and not having a clear understanding between needs and wants.
What was even more eye opening was the admission by almost half the respondents that they have purchased something without any consideration of the long term implications of the debt, and costs to their personal finances.

And things will get worse – way worse. Remember that I’ve been saying for two years what happens in the U.S. will happen here in Canada. 90% of Canadians now have more debt than they did just five years ago, and last year we barely reached seven percent of our RRSP contribution room.

Singles are twice as likely to be over-spenders than married people, which stands to reason. But what was an interesting insight is that women are also twice as likely to be over-spenders, than men!

The best line of this article from Canwest News had to be the sub-title: “We don’t deny ourselves much – except for a dose of reality.”