• Introduction to Financial
Services
• 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
3
Introduction to Financial Services - Activity 1
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?
•
•
•
•
•
•
4
Bed & Mattress
Cookie Jar
Pillow
Wallet
Money Belt
Small House Safe
Slide 1 - Places to Save Money
Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 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
Slide 2 - Alternative Financial Services
Lesson Reference: Introduction to Financial Services, Activity 1 – Handout 1
CANADA DEPOSIT INSURANCE
CORPORATION (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.
6
Slide 3 – CDIC
Lesson Reference: Introduction to Financial Services, Activity 1 – Overhead 2
ACTIVITY 2
Evaluating Financial Services
Overview
• Formal and informal financial services
• Costs of alternative financial services and
average bank accounts
• Advantages of establishing a banking relationship
7
Introduction to Financial Services – Activity 2
FORMAL
FINANCIAL
SERVICES
•
•
•
•
•
•
8
Accounts
Credit cards
Loans
Investment vehicles
Direct deposit
Wire transfers/ remittances
INFORMAL
FINANCIAL
SERVICES
•
•
•
•
•
•
•
•
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
Slide 1 – Formal and Informal Financial Services
Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 1
HOW A BANK CAN SAVE YOU MONEY
Monthly Fees without a Bank
Monthly Fees with a Bank*
• $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
• $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: $104.16
Annual cost: $1,249.92
Monthly cost: $15.00
Annual cost: $180.00
Annual Savings by Using a Bank: $1,069.92
9
Slide 2 – How a Bank Can Save You Money
Lesson Reference: Introduction to Financial Services, Activity 2 – Handout 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
Slide 3 – Advantages of a Banking Relationship
Lesson Reference: Introduction to Financial Services, Activity 2 – Overhead 2
ACTIVITY 3
Banks, Yesterday
and Today
Overview
• 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
Introduction to Financial Services - Activity 3
TRADITIONAL
SERVICES
OF BANKS
12
• Chequing Accounts
• Savings Accounts
• GICs (Guaranteed
Investment Certificates)
• Canada Savings Bonds
• Loans
• Car
• Home (mortgages and
home equity loans)
• Personal
• Safe Deposit Boxes
Slide 1 - Traditional Services of Banks
Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 1
TRADITIONAL
SERVICES
OF BANKS
13
• Chequing Accounts
• Savings Accounts
• GICs (Guaranteed
Investment Certificates)
• Canada Savings Bonds
• Loans
• Car
• Home (mortgages and
home equity loans)
• Personal
• Safe Deposit Boxes
EXPANDED
SERVICES
OF 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
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.
14
Slide 3 – Bank Act Reform 2001
Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 3
SOME COMMUNITY-RELATED
SERVICES 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.
15
Slide 4 - Community-Related Services
Lesson Reference: Introduction to Financial Services, Activity 3 – Overhead 4
•
•
•
•
•
•
•
Activity
Activity
Activity
Activity
Activity
Activity
Activity
1………….Why Do You Need A Bank?
2………The Many Services of a Bank
3…The ABCs of a Chequing Account
4………Opening a Chequing Account
5……………….How to Write a Cheque
6….Maintaining a Chequing Account
7……The ABCs of a Savings Account
ACTIVITY 1
Why Do You
Need a Bank?
Overview
• Purposes of banks
• The differences between banks and
credit unions
• Safety of financial institutions
• Banks as money management tools
17
Basic Banking Services - Activity 1
CANADA DEPOSIT
INSURANCE CORPORATION
• Established in 1967
• A Crown Corporation
• Protects depositors against certain
losses, up to $100,000 per depositor
18
Slide 1 – Canada Deposit Insurance Corporation
Lesson Reference: Basic Banking Services, Activity 1 – Overhead 2
ACTIVITY 2
The Many Services
of a Bank
Overview
•
•
•
•
19
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
Basic Banking Services - Activity 2
REMITTANCE OPTIONS
TO SEND AND RECEIVE MONEY
1. Money Transfer Organizations
2. Bank Transfers
3. Hand Delivery
4. Mail
5. Hawala
6. Post Offices
7. Stored Value Cards
20
Slide 1 – Remittance Options
Lesson Reference: Basic Banking Services, Activity 2 - Overhead 1
BANK OCCUPATIONS
• Tellers
• Personal Bankers
• Mortgage Lenders
• Operations Manager
• Branch Manager
21
Slide 2 – Bank Occupations
Lesson Reference: Basic Banking Services, Activity 2 – Overhead 2
ELECTRONIC BANK SERVICES
Online banking is the fastest growing Internet
activity in Canada.
Types of Services
• Bank Cards
• Automated Services
Protect Your Passwords!
22
Slide 3 - Electronic Bank Services
Lesson Reference: Basic Banking Services, Activity 2 – Overhead 3
BANK CARD TYPES
TYPE
• ABM/Debit Cards
DESCRIPTION
• Stored Value Cards
• Bank cards with preset, limited value.
• Used to pay for goods and services.
• Alternative to cash.
23
• 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.
Slide 4 - Bank Card Types
Lesson Reference: Basic Banking Services, Activity 2 – Overhead 4
AUTOMATED BANK SERVICES
• Direct Deposit
• Transfers between Accounts
• Transfers to a Third Party
• Online Banking
• Bank by Phone
• ABM
24
Slide 5 – Automated Bank Services
Lesson Reference: Basic Banking Services, Activity 2 – Handout 3
REGULATION OF ELECTRONIC
BANKING SERVICES
Electronic Funds Transfer Code
Initiated 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.
25
Slide 6 - Regulation of Electronic Banking
Lesson Reference: Basic Banking Services, Activity 2 – Overhead 5
ACTIVITY 3
The ABCs of a
Chequing Account
Overview
• Purposes of a chequing account
• Shopping for and comparing chequing accounts
26
Basic Banking Services - Activity 3
CHEQUING ACCOUNT TERMS
• Bank Statement
• Cancelled Cheque
• Cheque
• Cheque Register/Ledger
• Endorsement
• Fee
• Interest
• Minimum Balance
27
• Outstanding
Transactions
• Overdraft
• Overdraft Protection
• Payee
• Reconciling a Bank
Statement
• Transaction Limits
Slide 1 - Chequing Account Terms
Lesson Reference: Basic Banking Services, Activity 3 – Handout 1
SHOPPING
AROUND
(THINGS TO
ASK ABOUT
WHEN
OPENING A
CHEQUING
ACCOUNT)
28
SERVICES
Location of bank
Location of ABMs
Banking hours
Minimum balance required
Minimum transactions or limits
Interest-bearing accounts?
Other
COSTS
Non-primary bank ABM transactions
In-branch transaction fees
Per-cheque fees
Other chequing fees
Overdraft protection
Printing of cheques
Slide 2 - Shopping Around
Lesson Reference: Basic Banking Services, Activity 3 - Handout 2
ACTIVITY 4
Opening a
Chequing Account
Overview
•
•
•
•
29
Chequing Account Application Process
The Application
Acceptable Forms of ID
The Signature Authorization Card
Basic Banking Services - Activity 4
OPENING A CHEQUING ACCOUNT
30
Slide 1 – Opening a Chequing Account
Lesson Reference: Basic Banking Services, Activity 4 – Handout 1
COMMONLY ACCEPTED FORMS OF ID
Primary ID*
• Driver’s Licence issued in Canada
• Old Age Security card
• Canadian passport
• Certificate of Indian Status
• Certificate of Canadian
Citizenship
• Provincial health insurance card
(except Ontario, Manitoba,
and PEI)
• Permanent Resident card or
Citizenship and Immigration
Canada Form IMM 1000, IMM
1442, or IMM 5292
• Birth certificate issued in Canada
• Social Insurance card
• 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.
* Financial institutions' ID requirements may differ; check with the institution first before
applying for an account.
31
Slide 2 - Commonly Accepted Forms of ID
Lesson Reference: Basic Banking Services, Activity 4 – Handout 2
COMMONLY ACCEPTED FORMS OF ID
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.
32
Slide 3 - Commonly Accepted Forms of ID
Lesson Reference: Basic Banking Services, Activity 4 – Handout 2
SIGNATURE AUTHORIZATION CARD
33
Slide 4 – Signature Authorization Card
Lesson Reference: Basic Banking Services, Activity 4 – Handout 3
ACTIVITY 5
How to Write a Cheque
34
Basic Banking Services - Activity 5
WRITING A CHEQUE
35
Slide 1 - Writing a Cheque
Lesson Reference: Basic Banking Services, Activity 5 – Handout 1
ACTIVITY 6
Maintaining a
Chequing Account
Overview
•
•
•
•
•
36
Keeping a cheque register
Making a deposit into a chequing account
Reconciling a bank statement
Maintaining a chequing account
Avoiding overdrafts
Basic Banking Services - Activity 6
KEEPING A CHEQUE REGISTER
37
Slide 1 - Keeping a Cheque Register
Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
MAKING A DEPOSIT - ENDORSING A CHEQUE
The Back Side of a Cheque
38
Slide 2 - Making a Deposit - Endorsing a Cheque
Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
MAKING A DEPOSIT COMPLETING A DEPOSIT SLIP
39
Slide 3 - Making a Deposit - Completing a Deposit Slip
Lesson Reference: Basic Banking Services, Activity 6 – Handout 1
RECONCILING A BANK STATEMENT
40
Slide 4 - Reconciling a Bank Statement
Lesson Reference: Basic Banking Services, Activity 6 – Handout1
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.
41
Slide 5 – Overdrafts and Bounced Cheques
Lesson Reference: Basic Banking Services, Activity 6 – Overhead 1
ACTIVITY 7
The ABCs of a
Savings Account
Overview
•
•
•
•
42
Purpose of a savings account
Shopping for a savings account
Applying for a savings account
Monthly bank statement checkup
Basic Banking Services - Activity 7
REASONS TO SAVE
• Emergencies
• Future Purchases
• Future Investments
43
Slide 1 - Reasons to Save
Lesson Reference: Basic Banking Services, Activity 7 – Overhead 1
SHOPPING FOR A
SAVINGS ACCOUNT
Factors to consider:
•
•
•
•
•
•
•
•
•
44
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 2
OPENING A SAVINGS ACCOUNT
45
Slide 3 – Opening a Savings Account
Lesson Reference: Basic Banking Services, Activity 7 – Overhead 3
BANK STATEMENT
46
Slide 4 – Bank Statement
Lesson Reference: Basic Banking Services, Activity 7 – Overhead 4
•
•
•
•
Activity
Activity
Activity
Activity
1………………Saving vs. Investing
2……….….Saving for a Rainy Day
3……………………..1 + 1 = Saving
4…..Investing for the Long Term
ACTIVITY 1
Saving vs. Investing
Overview
•
•
•
•
48
Saving vs. investing
Information on a paycheque
Making a financial plan
Budgeting
Money Management - Activity 1
DO YOU SAVE?
DO YOU INVEST?
49
Slide 1 - Do You Save? Do You Invest?
Lesson Reference: Money Management, Activity 1 – 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.
50
Slide 2 - Saving vs. Investing
Lesson Reference: Money Management, Activity 1 – Overhead 2
TAKE A GOOD LOOK AT A PAYCHEQUE
51
Slide 3 – Paycheque
Lesson Reference: Money Management, Activity 1 – Handout 1
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 4 – Making a Successful Financial Plan
Lesson Reference: Money Management, Activity 1 – Handout 2
FINANCIAL PLAN ASSISTANCE
• Bankers
• Certified Financial Planners
• Schools and Courses
• Peer Groups and Investment Clubs
• The Media
• The Internet
53
Slide 5 - Financial Plan Assistance
Lesson Reference: Money Management, Activity 1 – Overhead 3
BUILDING MY
MONTHLY BUDGET
• Savings & Investments
• Fixed Expenses
• Periodic Fixed Expenses
• Variable Expenses
• Debts
54
Slide 6 – Building my Monthly Budget
Lesson Reference: Money Management, Activity 1 – Handout 4
ACTIVITY 2
Saving for a
Rainy Day
Overview
• Reasons to save
• Concerns and issues with saving
• Where to save
55
Money Management - Activity 2
SAVING FOR A RAINY DAY
56
Slide 1 - Saving for a Rainy Day
Lesson Reference: Money Management, Activity 2 – Overhead 1
REASONS TO SAVE
• Provide for unexpected emergencies.
• Purchase expensive items in the future.
• Ensure retirement.
• Plan for investment opportunities.
57
Slide 2 - Reasons to Save
Lesson Reference: Money Management, Activity 2 – Overhead 2
CONCERNS AND ISSUES
WHEN SAVING
•
•
•
•
•
58
Safety
Restrictions
Liquidity
Earnings
Taxes
Slide 3 – Concerns and Issues When Saving
Lesson Reference: Money Management, Activity 2 – Handout 1
PLACES TO SAVE
• Savings Accounts
• Money Market Accounts
• Guaranteed Investment
Certificates
• Registered Savings Accounts
• Savings Bonds
• Insurance
59
Slide 4 – Places to Save
Lesson Reference: Money Management, Activity 2 – Handout 2
LOOKING AT PLACES TO SAVE
On 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
Slide 5 - Looking at Places to Save
Lesson Reference: Money Management, Activity 2 – Overhead 3
ACTIVITY 3
1 + 1 = Saving
Overview
• Types of interest
• The impact of saving
• Savings regulations
61
Money Management - Activity 3
TYPES OF
INTEREST
Which type of return on
your money would you
prefer?
What’s the difference?
62
Slide 1 - Types of Interest
Lesson Reference: Money Management, Activity 3 – Overhead 1
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 2 – Returns on Savings
Lesson Reference: Money Management, Activity 3 – Handout 2
SAVINGS REGULATIONS
Federal Government Insurance
CDIC (Canada Deposit Insurance Corporation): Deposits are potentially
insured up to $100,000.
Provincial Government Insurance
Stabilization funds or deposit insurance programs for Credit Unions and
Caisse Populaires (vary by province)
64
Disclosure provisions in Bank Act
Financial institutions must disclose the following information about their
consumer savings accounts:
• Fees on accounts
• Interest rate
• General terms and conditions
Defines the year as 365 days for purposes of determining the annual
percentage rate of interest.
Slide 3 - Savings Regulations
Lesson Reference: Money Management, Activity 3 – Overhead 2
ACTIVITY 4
Investing for the
Long Term
Overview
• Historical Performance of the S&P/TSX
• Reasons to Invest
• Investing Considerations
Investment Concerns
Places to Invest
• Online Money Management
65
Money Management - Activity 4
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 1 - Savings vs. Investing
Lesson Reference: Money Management, Activity 4 – Overhead 1
SAVING VS. INVESTING, HISTORICALLY
67
Slide 2 - Saving vs. Investing, Historically
Lesson Reference: Money Management, Activity 4 – Overhead 2
PLACES TO INVEST
• Stocks
• Bonds
• Mutual Funds
• Retirement Plans/RRSPs
• Real Estate
• Collectibles/Valuables
68
Slide 3 - Places to Invest
Lesson Reference: Money Management, Activity 4 – Overhead 3
QUESTIONS TO ASK BEFORE
MAKING AN INVESTMENT
1.
2.
3.
4.
How safe is the investment?
What types of returns can I expect?
What kind of risk is involved?
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)?
69
Slide 4 – Questions to Ask
Lesson Reference: Money Management, Activity 4 – Handout 2
INTERNET PRIVACY & SECURITY
•
•
•
•
•
•
70
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
•
•
•
•
•
•
•
•
•
•
Activity
Activity
Activity
Activity
Activity
Activity
Activity
Activity
Activity
Activity
1………….…………The ABCs of Credit
2……………….……………Credit Scores
3………….…………Establishing Credit
4………….…Maintaining Good Credit
5………….………………….Credit Cards
6……….Managing Credit Challenges
7……………..…………….Identity Theft
8………Prime and Subprime Lending
9……………………..Predatory Lending
10……………………………..Bankruptcy
ACTIVITY 1
The ABCs of Credit
Overview
•
•
•
•
72
What is credit?
The five Cs of credit
Pros and cons of using credit
The big decision—Should I use credit?
Credit - Activity 1
CREDIT DEFINITIONS
Credit
Trust given to another person for future
payment of a loan, credit card balance, etc.
Creditor
A person or company to whom a debt is
owed.
73
Slide 1 – Credit Definitions
Lesson Reference: Credit, Activity 1 – Handout 1
THE FIVE Cs OF CREDIT
C = Capacity
C = Capital
C = Collateral
C = Conditions
C = Character
74
Slide 2 - The Five Cs of Credit
Lesson Reference: Credit, Activity 1 – Overhead 1
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?
75
Slide 3 – When to Use Credit
Lesson Reference: Credit, Activity 1 – Handout 2
QUESTIONS TO ASK
BEFORE USING CREDIT
1.
2.
3.
4.
5.
6.
7.
76
Slide 4 – Questions to Ask
Lesson Reference: Credit, Activity 1 – Handout 3
ACTIVITY 2
Credit Scores
Overview
• Credit scores and their impact
• The factors that make up a credit score
• Strategies to improve your credit score
77
Credit - Activity 2
WHAT IS A CREDIT SCORE?
78
•
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 1
WHAT MAKES
UP A
TYPICAL
CREDIT
SCORE?
Source: Fair Isaac and Consumer
Federation of America, 2005
79
Slide 2 – What Makes Up a Typical Credit Score?
Lesson Reference: Credit, Activity 2 – Overhead 2
IMPROVING YOUR CREDIT SCORE
80
•
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 2
ACTIVITY 3
Establishing Credit
Overview
•
•
•
•
81
Types and sources of credit
Credit safeguards
Applying for credit
Questions to ask when applying for credit
Credit - Activity 3
TYPES OF CREDIT
82
Cash Credit
I.O.U.
Sales Credit
Single Payment Credit
Secured Credit
Installment Credit
Revolving Credit
Other Types of Credit
Slide 1 – Types of Credit
Lesson Reference: Credit, Activity 3 – Handout 1
SOURCES OF CREDIT
Banks
Mortgage
& Loan
Companies
Retail
Stores
Finance
Companies
Credit Unions &
Caisses
Populaires
Internet Stores
What are other sources of credit?
What sources of credit should be avoided? Why?
83
Slide 2 - Sources of Credit
Lesson Reference: Credit, Activity 3 – Overhead 1
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?
84
Slide 3 – Avoiding Abusive Lending
Lesson Reference: Credit, Activity 3 – Handout 2
COMMON PARTS OF A
CREDIT APPLICATION
•
•
•
•
•
•
•
•
•
•
85
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
Slide 4 – Parts of a Credit Application
Lesson Reference: Credit, Activity 3 – Handout 3
SAMPLE CREDIT APPLICATION
86
Slide 5 – Sample Credit Application
Lesson Reference: Credit, Activity 3 – Handout 3
QUESTIONS TO ASK WHEN
APPLYING FOR CREDIT
1.
2.
3.
What is the annual fee?
What is the annual percentage rate (APR)?
When are payments due?
4.
5.
6.
What is the minimum payment required each month?
Is there a grace period?
Are there other fees associated with the credit, such as
minimum finance charges?
What is the credit limit?
7.
8.
9.
87
What are the penalties for late or missed payments?
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 5
ACTIVITY 4
Maintaining
Good 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
Credit - Activity 4
DEBT-TO-INCOME THERMOMETER
89
Slide 1 – Debt-to-Income Thermometer
Lesson Reference: Credit, Activity 4 – Overhead 1
THE CREDIT PROCESS
CREDIT HISTORY
•
CREDIT BUREAU
•
CREDIT REPORT
•
CREDIT SCORE
•
CREDIT RATING
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Slide 2 - The Credit Process
Lesson Reference: Credit, Activity 4 – Overhead 2
SAMPLE CREDIT REPORT
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Slide 3 – Sample Credit Report
Lesson Reference: Credit, Activity 4 – Handout 2
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
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Slide 4 - Credit Safeguards for Consumers
Lesson Reference: Credit, Activity 4 – Handout 3
THINGS TO DO TO ESTABLISH
AND 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.
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Slide 5 - Things to Establish Good Credit
Lesson Reference: Credit, Activity 4 – Overhead 3
ACTIVITY 5
Credit Cards
Overview
• Types of credit cards
• Shopping for a credit card
• Costs of credit
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Credit - Activity 5
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 Card
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Slide 1 - Types of Credit Cards
Lesson Reference: Credit, Activity 5 – Overhead 1
SHOPPING FOR A CREDIT CARD
DECISIONS, DECISIONS...
ANNUAL FEE?
APR?
COMPUTATION METHOD?
GRACE PERIOD?
FINANCE CHARGE?
CREDIT LIMIT?
CARD INCENTIVES?
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Slide 2 - Shopping for a Credit Card
Lesson Reference: Credit, Activity 5 – Overhead 2
QUESTIONS TO ASK WHEN
SHOPPING FOR A CREDIT CARD
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•
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 1
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.
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Slide 4 – Costs of Credit
Lesson Reference: Credit, Activity 5 – Handout 2
ACTIVITY 6
Managing Credit
Challenges
Overview
•
•
•
•
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Warning signs of credit abuse
Credit card reductions
Correcting credit errors
Resources and assistance
Credit - Activity 6
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
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•
•
•
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Delinquent Payments
Default Notices
Repossessions
Collection Agencies
• Lien
• Garnishment
• Others?
Slide 1 – Rating Trouble Signs
Lesson Reference: Credit, Activity 6 – Handout 1
WARNING SIGNS OF DEBT PROBLEMS
1. Delinquent Payments
2. Default Notices
3.
4.
5.
6.
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Repossessions
Collection Agencies
Judgment Lien
Garnishment
Slide 2 – Warning Signs
Lesson Reference: Credit, Activity 6 – Handout 2
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.
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Slide 3 – Credit Card Reductions
Lesson Reference: Credit, Activity 6 – Handout 3
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.
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Slide 4 – Correcting Credit Errors
Lesson Reference: Credit, Activity 6 – Handout 4
CORRECTING CREDIT PROBLEMS
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Take responsibility for actions.
Communicate with creditors.
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•
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Debt Consolidation
Credit Counseling
Bankruptcy
Slide 5 – Correcting Credit Problems
Lesson Reference: Credit, Activity 6 – Handout 5
ACTIVITY 7
Identity Theft
Overview
• 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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Credit - Activity 7
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
• Mother’s maiden name
• Passwords
• Address
• Date of birth
• PINs
Slide 1 – Identity Theft
Lesson Reference: Credit, Activity 7 – Overhead 1
HOW TO AVOID IDENTITY THEFT
1.
2.
3.
4.
5.
6.
7.
8.
9.
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Monitor your credit report.
Don’t give out personal information to unknown persons
or companies.
Protect your credit and debit cards.
Protect your mailbox.
Protect your wallet.
Use passwords and PINs that can’t be easily guessed.
Use anti-virus software on your computer.
Notify your bank when you change your address or
phone number.
Other suggestions?
Slide 2 – How to Avoid Identity Theft
Lesson Reference: Credit, Activity 7 – Handout 2
WHAT TO DO IF YOUR IDENTITY
HAS BEEN STOLEN
If you think your identity has been stolen, take
the following steps:
• 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.
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Slide 3 – What to Do
Lesson Reference: Credit, Activity 7 – Overhead 2
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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Credit - Activity 8
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.
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Slide 1 – Prime and Subprime Lending
Lesson Reference: Credit, Activity 8 – Overhead 1
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.
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Slide 2 – The Price of Subprime Lending
Lesson Reference: Credit, Activity 8 – Handout 1
MOVING FROM
SUBPRIME TO PRIME
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.
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•
•
•
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 2
ACTIVITY 9
Predatory Lending
Overview
• 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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Credit - Activity 9
PREDATORY LENDING
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:
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•
•
•
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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 1
IDENTIFYING
PREDATORY LENDING
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:
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•
•
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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 1
TEN WARNING SIGNS OF
PREDATORY MORTGAGES
1.
2.
3.
Unreasonably high interest rates
Multiple refinancing
Unnecessary debt consolidation
4.
5.
6.
7.
Balloon payment
Negative amortization
Door-to-door solicitation
Back-dating of documents
8. Large loan broker fees
9. Kickbacks between lender and broker
10. Single-premium credit life insurance
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Slide 3 – Ten Warning Signs
Lesson Reference: Credit, Activity 9 – Handout 1
COMMON SCAMS
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Advance fee schemes
The prize that will cost you
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Online auctions
Fraud jobs
Moneymaking schemes
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Bogus charities
Scam schools
Slide 4 – Common Scams
Lesson Reference: Credit, Activity 9 – Handout 2
TOP STRATEGIES TO AVOID SCAMS
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•
•
•
Don’t become a victim.
Investigate strangers who have deals too good to be true.
Always stay in charge of your money.
•
•
•
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Don’t be fooled by appearances.
Watch out for salespeople who prey on fears.
Monitor your investments.
Report fraud or abuse.
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Do your homework.
Be wary of door-to-door solicitations.
Slide 5 – Top Strategies to Avoid Scams
Lesson Reference: Credit, Activity 9 – Handout 2
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.
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Slide 6 – Additional Resources
Lesson Reference: Credit, Activity 9 – Handout 3
ACTIVITY 10
Bankruptcy
Overview
• Personal bankruptcy and consumer proposal
• Provisions of the new bankruptcy legislation
• Strategies to avoid bankruptcy
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Credit - Activity 10
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.
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Slide 1 – Bankruptcy
Lesson Reference: Credit, Activity 10 – Overhead 1
PROVISIONS OF THE CANADIAN
BANKRUPTCY REFORM
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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 1
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.
•
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Slide 3 – Things to Consider
Lesson Reference: Credit, Activity 10 – Overhead 2
THINGS TO DO BEFORE DECIDING
TO FILE BANKRUPTCY, CONT.
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Reduce your spending
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Talk with your creditors.
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Talk with a nonprofit counseling agency.
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Talk with an attorney and understand the
consequences of declaring bankruptcy.
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Consider consolidation carefully.
Slide 4 – Things to Do
Lesson Reference: Credit, Activity 10 – Handout 2
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.
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Slide 5 – Tips to Remember
Lesson Reference: Credit, Activity 10 – Handout 2