VLOG Episode Two – The Banks and Upselling


Watch as I respond to recent media coverage of high pressure upselling tactics happening at Canada’s big banks and retell a story told to me by a client with experience in the matter…

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It’s a Wonderful Invention


How Joint Accounts Help Maximize Deposit Insurance

I don’t have your money. It’s in Tom’s house… and Fred’s house. [George Bailey, It’s a Wonderful Life]

i don't have your money

In order to stimulate the economy and drive new home sales and other large purchases banks have always been encouraged to lend money. When you really get down to it lending money at interest is the only way to expand the economy, otherwise the amount of money in the world is finite and simply exchanging goods and services for dollars would never amount to any kind of growth. See my archived post “How to Make Money from Thin Air”.

But what happens when everyone tries to take their money out of the bank all at once? That’s the catalytic event that forms the plot of the 1946 classic film, “It’s a Wonderful Life”.

In the 1940s there was no way to insure your deposits at a bank or credit union. In fact it wasn’t until the 1960s that the government of Canada created the Canadian Deposit Insurance Corporation (CDIC) to protect the bank deposits of its citizens. Up until then the kinds of events that drove George Bailey to consider suicide were all too common. If there were ever a run on the bank people could be ruined, in order to fund a bank run houses could be foreclosed on and personal savings wiped out in a matter of minutes for no other reason than the bank needed the cash.

Today the CDIC and other similar vehicles throughout out the world use premiums paid through bank fees and taxes to ensure that up to $100,000 of deposited money is protected from catastrophic loss and bank failure. In short, your deposits are guaranteed. But what if you have a joint bank account, as about 64 percent of married couples do?

It is not commonly known but the insurance on a bank account is individually held. What that means is that if you have a joint bank account with your spouse your deposits are doubly insured, up to $200,000. And here’s the kicker, according to information published by the CDIC in the fall 2014 issue of Forum (The Official Magazine of the Financial Planning and Life Insurance Industry), if one spouse dies and the bank records are not updated they will still insure both spouses deposits. To quote the CDIC’s own documentation;

The joint deposits would still be insured separately from any accounts registered only in the surviving spouse’s name. If the bank’s records were not updated before its failure, any payment by CDIC would still be made to the set of joint owners.

So the point here is this. Not only does it make good sense from a personal budgeting and convenience point of view for a married couple to maintain a joint bank account. It also creates a greater amount of security for your savings and when one spouse dies you should still keep their name on your accounts so that you can maximize the insurance coverage for your money.  Yes you may incur some legal fees in order to get at that extra money, it will be payable to the deceased spouse’s estate, but that’s a small price to pay for a doubling of your insurance.

George Bailey would have been a lot happier if this kind of insurance had existed in the 1940s and the movie “It’s a Wonderful Life” would have been a lot shorter. Seriously how long is that thing? It must be close to 4 hours!  I guess the downside would have been that Clarence would have had to look elsewhere to get his wings, but he was a smart guy, I’m sure he would have figured it out eventually.

The Hidden Cost of Credit (that everybody pays)


credit trap

Let me put this out there right from the start.  I don’t borrow money.

When I started out in life, like everyone else, I thought debt was a way of life so I got a credit card, and overdraft protection, and a car loan, and started to live and spend like everyone else.  The problem was that as an entrepreneur, I don’t earn like everyone else.  My income was and still is sporadic so I started to use my credit cards to bridge the gaps, before long I was over $40,000 in debt and behind on nearly every bill.  One day late in October, just before it got really cold out the gas company came and shut off the spigot.  In order to turn the heat back on I had to pay them all of the arrears I had run up and put down a new deposit.   Needless to say I didn’t have the money so I ended up borrowing nearly $1000 from a friend that I couldn’t pay back for almost a year.

Today, over 15 years later, I have zero debt with no intention of ever borrowing money again, (EV-ER!) except maybe for a piece of good undervalued real-estate.

All this to say that when I read this story in the Financial Post a few months back, it got my back up.

Credit Card Ruling Could Mean Big Changes for Banks, Consumers – if it ever comes…

Everyone knows that the primary business of banks is to lend money and charge service fees.  So the fact that it is illegal in this country to charge extra to customers who pay for goods on credit shouldn’t surprise anyone.  Banks don’t want you to use cash because they don’t make anything on it.

What’s upsetting about this story is the underlying evil here that because the banks charge the merchants such high fees to accept the cards, everything in the store is marked up.  Even if you don’t use a credit card you’re still paying a price that assumes you did.  That’s just wrong.

Furthermore, it’s illegal in this country for the government to apply a hidden tax.  That’s why sales taxes like the HST/GST are added to your bill as a separate line item and why restaurants have to give you the option of not paying a gratuity.   By hiding the merchant service charge banks are in effect applying a hidden tax to the cost of everything sold in a store that accepts their cards, regardless of the payment method chosen.  It’s high time this practise was stopped.  In a country where the average household spends 162% of its income in a given year, unbundling the merchant fee on credit cards would go a long way to helping consumers rethink the way they pay for things.

True it might hurt the economy in the short term but continuing to spend money on things we can’t afford is simply unsustainable.  Sooner or later consumer debt is going to hurt the economy anyway, better to do it intentionally, with a controlled strategy to keep the economy moving than to let it happen on its own and bring about a crisis, a-la the US Housing meltdown of 2008.

For more information on living debt free see The Meekonomist Manifesto above or write to themeekonomicsproject@gmail.com

Bank Offered Life Insurance; why that’s not really a good thing


Manos entregando una casa

So every once in a while, when speaking about the topic of Life Insurance I get this objection, or something similar.

“When I took out my mortgage the bank offered me Life Insurance too, since that’s my only debt my family will be fine.”

The fact of the matter is that under Canadian law a bank employee is actually prohibited from selling any type of insurance product, whether it be life, disability, property (such as home and auto) or casualty insurance to consumers.  What they are really selling you is not insurance for yourself but the privilege of paying premiums on behalf of the bank so that if you die (or in the case of disability insurance that they also sell, become disabled) while you still owe them money the insurance company will step in and pay off your debt.  You won’t ever see a dime of that money.   You do not actually own the policy and cannot a name beneficiary, both the owner and the beneficiary remain the bank itself.

If that’s not enough to give you pause it doesn’t end there.  There is no real underwriting on a bank owned life or disability insurance policy.  Instead they ask you about half a dozen questions and then wait until you get sick or die to do any kind of due diligence on your answers.  If you lie, forget the facts, or simply misunderstand the questions your claim could be denied right at the time when you or your loved ones are the most vulnerable.  Your family could be left holding the proverbial bag for a mortgage payment they can no longer afford.

There is also the small matter of the pay out.  Since the bank is the beneficiary and the policy is design to only pay out the balance of your mortgage it makes sense that over time, as your mortgage balance drops so too does the amount the insurance company needs to pay the bank.  With that being the case you would think that your premiums would drop as well but they don’t.  You pay a level premium for the entire time you hold the mortgage, regardless of the balance.

By contrast a true life insurance policy that you own allows you to designate any beneficiary you like, both payout and premiums remain level for the entire life of the policy and all underwriting is done prior to the policy going into force so if you have high blood pressure or forget to disclose your genetic predisposition to heart disease the insurance company will be aware of that before offering the coverage and will build the possibility into the premium you pay, resulting in far fewer instances of claims being denied.

The good news is that the bank is also legally obliged to give you the chance to opt out of their coverage.  When buying a house, as with any major purchase or life event it’s always a good idea to consult with a qualify third party financial advisor.  Independent financial advisors work for you, not the banks, and they may be able to help you identify far more than just your insurance needs.

For more information and a better explanation of the payout arrangements on bank owned life insurance check out this article from a fellow financial advisor posted a few years ago (Mortgage Insurance vs. Life Insurance) or email me at themeekonomicsproject@gmail.com

 

Meekonomics; Chapter One; A Brief History of Money, Part One


You’re just a number.

Despite what the advertising says, when you walk into a bank  today, you’re no longer human you’re nothing more than a number on a screen.

Psychologists and self help books tell us that we are more than that.  That our value is made up of our life experience, our personalities, our innate or learned skills, but when you walk into a bank, nothing matters but the number on that screen.  How that number is arrived at may have something to do with all those things but in the end it all comes down to that number.  To a banker your number means everything.  Your number determines where you get to live, what you get to eat, the car you get to drive, and the level of education you get to give your children.  To our children our number therefore has a huge impact on the things they get to experience, the formation of their personalities, and how their skills, both innate and learned get developed.  And so it goes, from generation to generation.

Numbers are easily manipulated.  They can be placed in various configurations, sorted, separated and combined, valued and devalued and they never complain about it.  Why; because numbers aren’t people.

Our society has reduced each and every person on this planet to a number on computer screen.  It’s degrading, dehumanizing and completely contrary to our psychological make-up.    By assigning value to human lives in this way those with the money get to make decisions that affect the lives of each and every other human being on earth without so much as a second thought.  We used to call it trickle-down economics and convinced ourselves that it was a good thing but with over a billion people living on less than $1 per day it’s now clear the that what was once a steady stream of money moving about the world has slowed not just to a trickle but in many of the most desperate places, it has stopped altogether.

The unequal way in which money is distributed throughout the world is staggering.  According to published statistics as recently as 2003, the top 1 percent of Americans controlled nearly 40% of all the wealth.[1]  In real numbers that is an annual income of
approximately $12.5 million dollars.  On a global scale, the average American household, who in 2003 had an annual income of $62,000, placed within the top one percent of the entire world.  We may not think in those terms here at home in the west but we are not only wealthy, we are rich beyond the wildest dreams of more than half the world and as the population continues to increase the gap is only going to widen.

As I will show in the next few pages the way in which that has happened has as much to do with the way we track and report money as it has to do with any real value we may create. In prehistoric times wealth had to do with physical possessions, the number of sheep in a heard or the size of your field. In those days everyone was on relatively equal footing because a man could only accumulate what he
himself could control.  As societies moved from trading those physical possessions, I’ll give you one of my sheep for that bushel of wheat, into the invention of currency it became easier to transport money but for the most part it still had to be tied to a physical possession, this piece of gold represents my sheep, that peace of gold represents your wheat, etc.  So long as wealth was tied to physical possessions even though it was easier for some to transfer ownership than others you were still limited to accumulating only what you could personally control.  In the last century, as governments have moved away from the so called “Gold Standard” money itself has been released from any connection to physical possessions and now flows freely.

It used to be that the controlling of assets led to the control of money, now money itself has become the most freely traded asset on
earth.  Currencies are bought and sold, speculated on and transferred around the globe in the blink of an eye and at the click of a mouse. Their value goes up and down effecting the lives and lively hoods of individuals communities and even entire countries based not on the tangible price of goods that are produced or the amount of gold reserves a country my hold but on far more subjective criteria that have little to do with true economics and more to do with the political climate.

If we are to regain an equitable distribution of money we need to remember one fundamental truth that has been lost in our world-wide frenzy to accumulate wealth.  At the end of the day money is just a number on a screen, it was invented to represent
value but it has no value on its own!  To understand true value, and true cost we have to start by rolling back the clock a few millennia and take a look at the early dawn of civilization and the invention of trade.