Monthly Archives: January 2009

Use your cash wisely

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In a time of recession such as we are all undergoing, it is important to use whatever limited cash resources you have in the wisest way possible.  It may be that things will go even worse.  It also may last longer than the experts are predicting.  The wise course is to be ready for whatever comes.

An important factor is to make sure that you are getting the maximum bang for your buck.  It is worth looking carefully at even small improvements.  An old British saying is relevant here:

Take care of the pence and the pounds will take care of themselves.

The same sentiment is expressed in a Scottish version:

Many a mickle maks a muckle.

A CNN article this week is worth reviewing since it offers 20 money-savers that add up.  They are all worth considering but here are four that particularly caught my eye:

  • The leak: Paying bills by snail mail.
  • The fix: Save time and money by signing up with the billers’ customer-service departments to have your bills paid by credit card or automatic debit; payments will be documented on your monthly bank statement.
  • The leak: Paying the minimum on credit cards.
  • The fix: Savings accounts earn little to no interest, so dip into them to pay off your balance. If you don’t have savings, pay double the minimum and slowly increase your payments each month.  Pay off higher-interest credit cards first, and never skip a payment, which can result in a late fee of $35 or more and an increased rate on all your credit cards.
  • The leak: A cell-phone plan that doesn’t match your needs.
  • The fix: On average, according to the consumer research firm J.D. Power & Associates, cell-phone subscribers use only 64 percent of the minutes they pay for.  If you’re still under contract, call your cell-phone company and ask it to analyze your usage.
  • The leak: Letting the water run.
  • The fix: Turn off the tap while you’re brushing your teeth or shaving — every minute the water flows wastes up to 2 1/2 gallons, according to the Environmental Protection Agency.  Run full loads in washing machines and dishwashers.

Perhaps you should do a similar review of what you do each day to make sure that you are not inadvertently allowing dollars to leak away without you getting appropriate value for them.  It is not a question of being a Scrooge.  It is just avoiding needless ways your money may be working less effectively than it could.

By the way, if you are a student then we would recommend Use Your Cash Wisely: 10 Major Money Tips.  It’s another good check list of what is important in handling your cash resources well.

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Job Loss Everywhere

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If your family is not directly affected by a job loss, then you can count yourselves lucky. In the US, CNN reports that Job cuts exceed 100,000 for the week.

Pfizer, the leading drugmaker in terms of annual pharma sales, and Caterpillar, a heavy equipment manufacturer based in Peoria, Ill., each said they would cut 20,000 jobs. These are the biggest reported eliminations among U.S.-based companies.

Boeing said 10,000 workers, including 4,500 previously announced reductions, would lose their jobs. The company blamed this on dwindling demand for its aircraft.

As the Globe and Mail asked, Large-scale layoffs have started. How bad is it going to get?

This is not the end of the story, because the unemployment would likely not be distributed equally across the globe. Rich countries will try to have less, making the poor countries (starting already from a higher base) face more.

Such policies are bound to increase international friction and conflicts, which of course won’t help economic recovery. As for tyrannies that rely on oil income to bribe their population – Venezuela, Russia, Iran, Saudi Arabia – all saw their income decimated, and many resorted to desperate measures.

That is why at  the World Economic Forum  in Davos, Switzerland protectionism fears dominate.  British Prime Minister Gordon Brown cautioned:

The global economic crisis is no reason to shun free trade.  This is not like the 1930s. The world can come together. I believe we’re in a global economy. You cannot now do without the global institutions that are necessary to make that global economy work.

We can only hope that these major players do take decisions that help all economies to recover, although undoubtedly it will take some considerable time until the recession has abated.

In the meantime, careful attention to the family budget is essential.  Perhaps you may wish to check out books on family budgeting.

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The Global Financial Crisis And Corruption

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The Global Financial Crisis was described by Russian Prime Minister Vladimir Putin at the World Economic Forum in Switzerland as the ‘perfect storm’

Russian Prime Minister Vladimir Putin and Chinese Premier Wen Jiabao called Wednesday for the complete reform of the world’s financial systems during keynote speeches at the World Economic Forum. Putin said it was time to “do away with virtual money” and establish an “economy of real values” grounded in a “just and efficient global economic architecture.”  Premier Wen warned that further action was needed internationally to “restore market confidence” and protect world economic growth.

You might get the impression from the language used that we are talking about natural processes that the world leaders must in some way correct. .. A little bit like the weather or global warming.

However Daniel Kaufmann has quite a different take on the situation in linking Corruption And The Global Financial Crisis.

Corruption is not unique to developing countries, nor has it declined on average. Some developing countries, such as Chile and Botswana, exhibit lower levels of corruption than some fully industrialized nations. And countries like Colombia and Liberia have made gains in recent years, while others, such as Zimbabwe, have deteriorated. Bribery remains rife in many countries, totaling about $1 trillion globally every year.

In truth, anti corruption commissions, revised laws and awareness-raising campaigns have had limited success. Focus on petty or administrative bribery has been misplaced at the expense of high-level political corruption.

The examples discussed in his article require much tougher standards and much greater levels of vigilance.  The Internet may well have made the world more open but that alone will not curb corruption.

He certainly knows what he is talking about. Daniel Kaufmann is a Chilean citizen, a senior fellow at the Brookings Institution, and formerly was director of governance at the World Bank.   A longer article is to be found on his blog where he discusses the lessons to be drawn from the US financial crisis.

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Cash For Clunkers From Uncle Sam

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Apparently Uncle Sam wants to sell you a car. Given auto sales are at crisis levels, Washington is working on ideas to get Americans buying cars again.

The proposal receiving the most interest would give rebates to Americans with old cars to help them buy new ones, in other words “cash for clunkers.”

Under a bill introduced by Sen. Dianne Feinstein, D.-Calif., owners of older cars would get vouchers worth thousands of dollars toward the purchase of newer, more fuel-efficient vehicle. For the costumer to get that cash, the car dealer would have to certify that the trade-in was getting scrapped and not resold. The car’s vehicle identification number (VIN) would be tracked to make sure it never shows up on a vehicle registration again.

Crushing the old car has two benefits. First, it ensures that the consumer’s purchase of a more efficient vehicle actually has a net environmental benefit. Second, it prevents a glut of used cars on the market, which would reduce trade-in values for new car buyers, which would cut into the sales incentive effect.

Many like Tyler Hamilton find the “Cash for Clunkers” program is a good, sensible idea.  However it’s not new and several States have been offering cash for clunkers.

This approach was running in BC as far back as 1996.

The first Canadian vehicle scrappage program aimed at retiring old, “live” (licensed, insured, and in running condition) vehicles was the Scrap-It program, launched in lower mainland British Columbia in 1996. Since then, other initiatives run by not-for-profit organizations have been introduced across Canada.

An example of the current program from Kelowna, Canada is the Scrap It Program

The Scrap-It Program is working to reduce greenhouse gas emissions and improve air quality by getting older vehicles off the road.  The Program offers qualifying vehicle owners incentives to scrap their older vehicle. The incentive values are based on the greenhouse gas reduction that occurs when an old vehicle is scrapped and an incentive is used as a replacement.  Incentives offered at $2000 or more are offered for the incentives with the highest greenhouse benefit. These incentives include very low emission vehicles, transit passes, or the transit pass / bicycle combination.

The BC initiative has several prominent provincial sponsors.

If you know of earlier Cash For Clunkers programs, why not mention them in the Comments.

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Money Talks – ‘Erminegate’

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House of Lords

Money talks and sometimes it should not be allowed to do so.  This story concerns some of the most eminent seniors in the UK. 

According to the Guardian, four Labour members of the House of Lords were offered cash to encourage them to use their influence to help amend legislation.

The Sunday Times reported that Lord Taylor of Blackburn and Lord Truscott had admitted influencing legislation on behalf of clients. Their alleged comments were made to undercover reporters who claimed two other peers – Lords Moonie and Snape – were also allegedly willing to use their influence. All four peers deny wrongdoing.

As the Washington Post points out this scandal has clearly damaged the somewhat shaky reputation of the House of Lords.  Although some see it as a bastion of British tradition, others find it to be an elitist club that is long overdue for modernization.

The scandal is being called Erminegate to reflect the traditional robes trimmed with ermine that are sometimes worn in the House of Lords.

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Smaller cars, bigger car insurance rates

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Downsizing is a natural reaction for seniors as they budget more carefully in times of recession such as this.  Switching to a smaller car seems an obvious choice, particularly with the higher gas prices we are all becoming accustomed to.  However as CNN points out, smaller cars are not smaller in every respect.  Smaller cars can mean higher car insurance rates.

This is hardly news but it bears repeating.  Last year the the Wall Street Journal pointed out that Higher Insurance Costs Erode Fuel Savings on Small Cars.

MSN Money had the same message and showed the following data.

2009 model automobile

Average 6-month premium

Honda Civic

$835.11

Toyota Prius

$691.13

Toyota Camry

$651.07

Toyota Sienna

$632.97

Honda CR-V

$629.20

Ford F-Series

$597.13

The insurance rates for smaller cars are higher because in a collision you will be closer to the point of impact.  Nowadays they also tend to be used for longer journeys to work, often in more dangerous urban locations.

It would have been great if the initiative of Norwich Union had worked out:

Their ‘Pay-As-You-Go’ car insurance initiative was reliant on GPS systems installed in drivers cars. Monthly, their driving would be assessed based on the time of day the car was used and the mileage and a bill sent according to their results. So, if a motorist did fewer miles at off peak travel times, they would be less likely to have an accident, therefore lower risk and should pay less for their car insurance.
..
They saw a 30 per cent fall in accident rates as people thought about their car use. They hoped that the car manufacturers would start offering the GPS boxes as standard but this did not occur.

Perhaps with time this idea will see the light of day again.

Certainly given the crushing weight of some automobile insurance rates, any way of reducing these will be greeted warmly by those drivers who are affected.

Footnote: If you are interested in books on Insurance, then why not visit the Insurance section of the Money Bookstore.

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Data Privacy To Protect Against Bank Fraud

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Today is Data Privacy Day 2009.  On January 28, the United States, Canada, and 27 European countries celebrate Data Privacy Day together for only the second time. The Office of the Privacy Commissioner to show its support for Data Privacy Day offers The Top 10 Ways Your Privacy is Threatened.

The Fraud Prevention Tips e-mail newsletter for January from the Canadian Bankers Association came out this week.  Data Privacy is a big part of that message too. The Newsletter provides a useful reminder of the constant vigilance we all need to exercise in our financial affairs.  If you do not receive the Newsletter, you might wish to sign on.

It’s not difficult to find information on what you need to do to avoid such bank fraud attempts.   For example, the State of Illinois has a short and useful checklist on how to Protect yourself against bank fraud.

The website for the Canadian Bankers Association is another useful resource with a wealth of information on how you can protect yourself against bank fraud.  The website covers many of the issues you need to be concerned about:

  • Credit Card Fraud
  • Debit Card Fraud
  • Identity Theft
  • E-mail Fraud/Phishing
  • Vishing
  • Staying Safe at the ABM
  • Real Estate Fraud
  • Avoiding Counterfeit Bills
  • Protecting Your Personal Information
  • Stay Safe Online

Did you recognize all of those?  What about vishing?  Apparently it is a word that has been around some time since an FBI webpage on vishing dates back to the early 2007. 

Here is a short description of Vishing.

Vishing stands for “voice phishing” and is a new twist on the phishing e-mails that you may have received, but now the criminals are using the phone as well to trick consumers into revealing personal information.

Vishers will send out an e-mail to thousands of people which looks like it is from a reputable organization, such as a credit card company, online retailer, bank or government agency. The e-mail may warn of a security alert and ask you to call a local or toll-free number where an automated attendant will ask you to punch in personal information, such as your credit card number, social insurance number or online banking password. After you do that you may be disconnected without speaking to anyone, but the criminals will have your information.

Perhaps you would not fall for a vishing telephone call, but you should make sure that you have checked out all the other ways someone might be trying to catch you out with some type of bank fraud.  Given the current state of the economy, such schemes are even more prevalent.  So watch your Data Privacy not only today but throughout the year.

Footnote: If you are interested in books on Banking, then why not visit the Banks section of the Money Bookstore.

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Have Home Prices Hit Bottom?

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Today’s BBC headline, US home sales see surprise rise, might make you feel optimistic about the house market.  However this unexpected rise in sales in December was triggered as buyers took advantage of much lower house prices.

There are many more headlines on that aspect of the market.  CNN tells us that home prices are falling at a record pace:

The S&P Case-Shiller Home Price Index, a sampling of 20 cities from across the nation, fell a record 18.2% over the 12 months ended Nov. 30. That brought the index to its lowest point since February 2004. From its peak in mid-2006, the index has plunged a whopping 25.1%.  Eleven of the 20 cities showed record declines, and the 12-month price drop for 14 of the cities was a double-digit percentage.

It is the same story in the UK where house prices fell 8.6% year-over-year in November according to the Department for Communities and Local Government (DCLG).

A similar picture is occurring in Canada particularly in the West.  Statistics Canada reported that the year-over-year decrease recorded in Edmonton (7.9%) was the largest since May 1985, while the drop in Calgary (2.5%) was the largest since November 1991.   Across the country, only Vancouver (2.3 %) and Victoria (2.4 %) also registered year-over-year declines.

The bad news is continuing.  Vancouver house prices fell 6% in the fourth quarter according to a survey released by Royal LePage Real Estate Services.

With such big declines you might wonder whether the market is close to bottoming out.  However economists seem to be agreeing that further declines are still in the cards.  Neal Soss, chief economist at Credit Suisse Holdings in New York, opines, “The housing market has not yet reached its bottom.  People have to be in a position where they are not afraid of their most significant asset.”  Joe Schapiro, chief economist of MFR Inc. suggests it is unlikely that we are anywhere near the bottom in nationwide home prices.

Given that governments are only now doing what may be needed to turn the recession around, there is no reason for any quick reversal in home prices.  Unless you are one of those snapping up bargains with available cash, the best advice is undoubtedly to sit tight.

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Coping With Recession

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Economists expect an already deep recession to get even worse in 2009 according to CNN.  Companies will lay off more workers and hoard more cash during the next 12 months, according to the National Association for Business Economics survey, a quarterly take from a panel of economists at private-sector companies in various industries. A vast majority of the 105 economists polled believe the country’s gross domestic product will continue to sink in 2009.

That deeper recession is probably what is facing us all around the world, including Canada and the UK.   The BBC has a large compendium of ways to help you better cope during the recession.   It covers:

  • Savings
  • Mortgages and Repossessions
  • Redundancy
  • Debt
  • Pensions
  • Looking for a job

Here in Canada another study by a leading expert in balancing work and family life emphasizes that employers and the government must repair the work-life balance.  Linda Duxbury, a business professor at Carleton University’s Sprott School of Business, points out that Canada may not pull out of an economic slump unless governments and employers deal with the crushing workloads that are forcing a growing number of Canadians to delay or have fewer children.

Hopefully the Canadian Budget that is revealed by the Conservatives tomorrow will include policies that support working families in getting the economy rolling again.

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Predatory Lending And Seniors

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Predatory lending is a term more often heard in the US, frequently in connection with predatory lending practices in the student loan industry.  However it can affect seniors even more disastrously.

Predatory lending comes in a number of different forms:

It is the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against. In addition to predatory mortgage loans, other types of lending sometimes referred to as predatory include payday loans, credit cards or other forms of consumer debt, and overdraft loans, when the interest rates are considered unreasonably high.

Seniors often bear the brunt of such predatory lending practices.  The reason why seniors are put at risk is that they are often the targets of predatory mortgage lending.

A particularly ugly aspect of predatory lending is the high incidence of foreclosure on the homes of senior citizens. While at first glance this might seem particularly egregious simply because senior citizens are more vulnerable, have fewer options for rebuilding after losses, and may be losing what they’ve worked all their lives for, a closer look reveals something even more disturbing.

First, few senior citizens are purchasing their first homes with these adjustable rate or other sub-prime mortgage loans. While younger people may enter into questionable mortgage loans in order to be able to purchase a home they would not otherwise be able to finance, senior citizens are much more likely to be refinancing homes they’ve made payments on for years. That means they’re not only losing long-time homes, but that existing equity is being stripped out of the home by the mortgage lender.

According to Consumer Affairs, senior citizens are disproportionately targeted by predatory lenders, and often convinced to take out loans much larger than they need-in some cases, loans in excess of the equity in the home, or even of its total value. With no remaining equity, any minor setback can leave the homeowner without options.

In Canada, the British Columbia Law Institute has a current project on predatory lending issues in Canada.

Predatory lending is closely tied to the concept of subprime mortgage lending, which is the practice of making loans to borrowers who do not qualify for the best market interest rates. In the United States, the expansion in subprime mortgage lending led to a rise in predatory lending. This project examines whether this pattern could repeat itself in Canada and, if it did, whether our laws would be able to assist victims of predatory lending.

The Canadian Center for Elder Law, which is part of the British Columbia Law Institute, may well eventually have useful outputs on predatory lending as it affects seniors.

It may be expected that predatory lending is having an even more damaging effect now given the general state of the economy.  One hopes that the current laws are sufficiently strong to prevent the worst excesses.

Footnote: If you are interested in books on Mortgages, then why not visit the Mortgages section of the Money Bookstore.

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