Canadian Personal Finance Blog

As my regular readers see, sometimes my mind wanders to weird places and I must admit I am not sure where most of this came from. On Sunday night at 5:00 PM I had nothing to write for Monday, but looked at the GPS I had just received from Christmas, started writing about a Financial GPS and from their we got to Financial Shock Collars and here we are Friday with a whole week of very odd postings by me.

I empathize with those in dire financial quandaries, but in some cases the Financial Shock Collar may be the only answer. As Mrs. C8j pointed out in a comment she made, a lot of issues with money in couples comes from lack of communication, so maybe it’s time to start talking to your spouse about money? Just an idea.

Random Shocking Thoughts

This week other Personal Finance Bloggers found more solid issues to write about, and some are well worth checking out in this weeks Random Thoughts:

• Given the C.D. Howe institute put out a very good e-brief Saver’s Choice: Comparing the Marginal Effetive Tax Burdens which has caused many bloggers to discuss this interesting point.
• Michael James spoke of this in his post RRSP versus TFSA where he discusses various scenarios about putting your money in either savings vehicle.
• The Canadian Capitalist also posted talking about the C.D. Howe’s take on TFSA versus RRSP where he talks about the Howe findings specifically.
• Canadian Financial DIY also comments on the Howe findings in New Data on TFSA vs RRSP and Canada’s Rube Goldberg Tax System.
• On a related topic, Larry MacDonald talks about RRSPs and business owners and how business owners might want to think about setting up RRSPs for their retirement, or perhaps even TFSAs?
• Preet wraps up his expose with Severing the Link Between Price and Weight Part IV.
• Million Dollar Journey talks about where they might get the money to put into their RRSP or TFSA with a the post How I saved 70% on my grocery bill, remember 50% off meat should be eaten the day you buy it too!
• Gail Vaz-Oxlade writes an important spiritual posting about Keeping Focus, which is important in this day and age, don’t get distracted from your goals.
• Let’s stop the madness is a very good rant by Ellen Roseman about the dirty tricks being played on some consumers, read this and be warned!
• I hadn’t noticed but Dave over a Investing Intelligently Got Laid Off, now it looks like he has found something, but does bring home that the alleged “recovery” may not be fully entrenched yet!

Enjoy your weekend, and remember, if you think you need a Financial Shock Collar, please get some help!

On Monday, Labor numbers which are out today!

It has been pointed out that my post yesterday about a Real Service for Chronic Over Spenders is at best naive at worst unlikely to ever happen. Why wouldn’t a bank run a service like this? The answer is simple, it does not make them any money.

Banks make money on:

• Customers who carry balances on their credit cards.
• Customers that use the over-draft service available to them.
• Folks with bad credit that don’t get preferential interest rates.
• Consumers who do not carry the minimum balances in their bank accounts to get free banking (and thus pay $25 a month in service fees)
• Debtors who do not pay back their loans quickly (i.e. they do not make over payments)

This is an interesting paradigm for the Banks.

They must portray themselves as being helpful, trustworthy and someone who wants you to succeed in your financial journey, when in fact anyone who does succeed, does not make the bank a lot of money. I have friends who have paid off their mortgages in 5 years instead of 25 years, saving themselves tens of thousands of dollars (but in turn costing the bank tens of thousands of dollars in lost interest earnings), yet the bank must publicly say that this is a good customer, even though they are bad for their business.

A good bank customer makes minimum payments on their debts (especially their credit cards), incurs many service fees (or penalties) and rarely if ever talks to anyone in the bank about their issues. Reading that sentence it seems to be an oxymoron, in that it seems to be a description for a bad client, but if all you look at is the bottom line banks will fight over getting these customers.

How do they fight over them? They offer interest free credit cards (for the first six months), and lower interest rates on loans (for the first year), and other interesting marketing gimmicks (free iPods even). These customers make banks much more money than someone who is careful about their debt load, and that keep meticulous records of every purchase and pay things off quickly.

Conclusions

This week I have let my imagination run a little wild, on the problem of how to help people who spend too much or that are chronically in debt, but at the end of it the answers are evident:

God helps those that helps themselves –Anonymous

The banks will help you, but be careful of the help you get –Big Cajun Man

It is kind of like the guns don’t kill people, people kill people argument the NRA uses, in an obtuse way of thinking. People get into debt trouble because they can’t control their spending, and try to fix their spending issues with more debt, which the bank gladly obliges, and the financial death spiral (TM) begins.

Final conclusion:Getting out of debt is hard work, choose your tools to get out of debt carefully (unless you would like to try out a prototype Financial Shock Collar, then contact me).

I have had some fun with a few over the top ideas for folks who cannot control their spending (i.e. their internal shock collars seem to have gone off line), but I have thought about a service that banks might offer that would be worth their exorbitant monthly service charges.

Think of a system that:

• Sends spending alerts to your cell phone when you make the purchase. Sends your spouse an alert of what you have spent and an itemized bill of what you bought.
• Sends you updates to your PC or Cell phone warning you that you are close to over-spending on a specific budget areas.
• Causes your credit card to explode if over used. OK, it disables the credit card and forces the user to call with a specific pass code to have this overridden (and they have to give a reason for this override, which is noted).
• Allows you to set up a “budget” for the month on line which you can easily monitor, or get daily and weekly reports on how your progress works
• Sends a large wrestler or MMA fighter to your house to go over your monthly spending habits, and if they feel you are not following the plan, put you in the sleeper hold, or use a guillotine choke hold on you, to stop you from doing this in the future. Maybe they send over a financial advisor the first time, to discuss these points, and show you a picture of the wrestler, pointing out what might happen if they don’t follow the plan.
• Rewards the consumer with a higher interest rate on their savings, or a lower service charge for each month that the consumer follows the financial plan (I realize that you must give positive feedback some time).
• Offer a points reward system that you can redeem for various rewards like Air Miles or such, thus creating a Rewards system for people who save instead of a system to reward spending that are currently in place.

If a bank offered this or a service similar to this, I might view that as a good use of my money if I had to pay for the service. I don’t think I’d use this service (although I might try it out for a while), but this might be what some folks might need, almost a Financial Nanny or Money Conscience concept (both terms copyrighted by me).

Do most people need these kind of services? Maybe not, but it is evident that some folks might benefit from this kind of helpful concept.

Some banks already offer parts of the service, by giving their customers access to cheaper or free copies of Quicken to help track their spending, but the financial feedback loop needs to be much tighter than the control that Quicken puts out (and maybe needs to be a little more severe in it’s ramifications as well).

Is this kind of interventionist methodology needed? My opinion is, in some instances, yes because there is a shocking lack of financial training for consumers. Money and manipulating it is one of the top skills any adult needs to survive in this world, yet the amount of training given to teenagers and young adults is negligible.

After yesterday’s epiphany of the Financial GPS, I think I have streamlined the concept and gone to exactly what might be needed with today’s chronic over spender, the Financial Shock Collar.

This device, will look like a fashionable necklace for the ladies or simply a gold chain around the neck for men, and when it is activated 10,000 volts are instantly activated from a small power source (at milli-amperage levels) causing sudden and excruciating pain for its’ wearers, until they stop the spending which activated the collar (yes I borrowed this idea from a Star Trek episode, but aren’t all the best ideas from Star Trek?).

Is this a severe and dangerous tool to use? You are darn right that this is a ludicrously severe tool, but given some folks ability to completely lose their minds when it comes to:

• Financial Decision
• Overspending
• Use of money they don’t have
• Live now pay later thinking

This may be a useful “last hope” type of device.

Self-Destructing Debit/Credit Card

Don’t like my shock collar idea? A much less severe idea (depending on how you look at it) would be the self-destructing debit/credit card. Given most new cards come with a great deal of “smart card” technologies this one may be simpler to implement (and much more fun to watch).

The concept is quite simple, if the consumer attempts to use the card by either swiping it or “tapping” it, the card receives a simple message destruct and the card emits a high pitched alarm sound and 5 seconds later the card explodes, with a small charge embedded in it, when it was manufactured.

This makes the whole scenario of the credit card company rejecting a purchase and asking the vendor to seize the card a much simpler scenario, and it makes stolen cards that much more lethal for the thieves as well. If a card is stolen, it will automatically self-destruct when it gets near ANY credit card terminal.

Sure, there will be occasional glitches where cards may self-destruct without warning, but those small glitches and maiming of their owners are assumable risks for those who wish to have the privilege of carrying a credit card.

An added side-effect might be less people wanting to carry around credit cards with them, for fear of the occasional random self-destruction as well. Think of someone carrying around 6-8 credit cards, what might happen if one goes off accidentally? The chain-effect might well be complete destruction of the owner.

More interesting new “outside of the box” (unless the box is a coffin) ideas for financial safety may come, as I think of them.

For Christmas my in-laws gave me a GPS (not sure the exact reason, might be that they think I get lost a lot, or they think I need someone to tell me when I am going the wrong way (I guess they forgot I already had my wife to do that)). I haven’t had a lot of chances to use the GPS, as I mostly have been going to places which I had already been to before, but I have been trying it out just to see how the device actually works and how it deals with various issues, like when I decide to take different routes.

I enjoy having this technological marvel, but it got me thinking: I wish there was something like this for financial decisions and spending follies.

Just think of how great it would be to have something that would announce to you, “Because you went out to dinner and spent $135.67 you will now only be able to retire in 37 years 3 months and 2 days” or even better, “You have just spent $400 more than your budgeted amount for discretionary spending this month, and there are still 17 days left in this month“.

Wouldn’t that just be astoundingly cool?

In some ways Quicken is kind of like that, but it doesn’t have the instantaneous feedback that this kind of tool would need.

My guess is that  if you had a stern voice in this contraption (my GPS has a Female English accent, so it sounds a lot like my Mother), might it stop folks from impulse buying? Might it stop them from squandering money if they were afraid of how the device would react to it? Maybe, but just think how embarrassed they might be standing in line at a store and have a voice boom out, “You do not have enough money to buy that, put it back on the shelf!“?

If anyone does invent such a device, I have put in a patent claim on it already, so you will owe me royalties, or simply pay me a lump sum and you can use the idea .