Canadian Personal Finance Blog

Quicken is a useful tool for me, to track my family’s spending habits, but last week was an interesting week for me.

I started working full time in 1986, so some might say more than a generation ago (depending on how you count), and when I was first hired, I was paid a reasonable wage (not an exorbitant one, but reasonable). My wife and I lived on this income in a reasonable apartment, and we lived a frugal but reasonable life.

Flashback to last week, where in two purchases I eclipsed my yearly gross income for 1988 (2 years after I had started working full time). What did I buy? A house? A yacht? Nope, our orgy of spending was on:

• A used Toyota Sienna (stop snickering, it doesn’t have the accelerator pedal issue (at least not yet)).
• A knee brace for my daughter who has damaged both her MCL and ACL

That’s it, yes a fairly big expenditure, but remember this is more than I made gross (before the CRA got a hold of a lot of my income). The knee brace is actually about the price of 3 months rent from back then, but it is a necessary purchase (and I will be reimbursed (I hope) in some way from my health plan).

Other interesting factoids from these purchases:

• The van cost about 43% less than our last van which we purchased new (and paid off, with 0% financing over 5 l-o-n-g years).
• We were offered “financing” from Toyota of 6.5% annually, I pointed out that my bank would give me a rate of nearly half that, they didn’t seem to care.
• The purchase was not financed, and if I assume a 4.0% financing rate I have saved in the neighbourhood of about $4000 in interest charges (assuming a pay back over 4 years or so).
• The knee brace comes in many interesting colours and styles (colour styles), including: Snakeskin, Butterflies and Star Spangled Banner. My daughter chose metallic black (I think Black is the new Black this year).
• Didn’t get any car matts from Toyota, but given the recall issues about the placement of their car matts, maybe it’s a good thing I bought some replacement matts at Canadian Tire
• Believe we got a full tank of gas with the Van (given gas prices that’s about $100 added in)
• Got a reasonable trade in for the my GM Montana (that had a distinct odour of Anti-Freeze), so no complaints there
• Toyota spelled backwards is Atoyot, surprised there isn’t a car called that now.
• Knee Braces should never be worn backwards, or your knee will end up bending like an Ostrich’s knee, which is bad.
• Certified cheques cost more to get from my bank, than a bank draft, so I saved $2.50 by getting a bank draft.
• What is undercoating for, and why does it cost so darn much?

Lots of interesting factoids (where factoid means things interesting to me, and most likely me alone).

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.

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 .

For a while, Mrs. C8j and I have been hunting for a new family vehicle. We have had many arguments discussions about what type of vehicle we wished to purchase. I think we will not need a van for much longer and she sort of agrees but thinks we still need one for the short term so we should get one, and after a great deal of consternation consultation I we agreed that a van would be the best way to go. I must admit that we did try a few SUKs SUVs and while they felt OK, they did feel a bit “truck-ish” for my liking.

We have been dealing with a smaller dealership who had in stock the van we were hoping to get (used) a Sienna from Toyota (please don’t treat this as me endorsing this model, or that I have received any compensation for this story). The salesman at the dealership seemed a nice personable chap, although maybe a bit slick for my liking, but we thought that might be where we wanted to make our deal.

We had decided before we got too far into this process, that we would purchase a used vehicle this time (we purchased new last time, but I decided a used vehicle was the way to go). We borrowed from the Ottawa Library the Lemon-Aid books and saw that in fact the Sienna from ‘07 on seemed to be a good choice. If we were going to buy a used car, I was going to have my mechanic who I trust in these situations, to have a look at whatever we might choose to buy (I simply do not trust dealerships that much).

I mentioned to the salesperson we were dealing with that we wanted to take whatever vehicle we were thinking of buying to my mechanic to have a look at it, and the sales guy kind of got twitchy (i.e. tried to dissuade us), but eventually relented, figuring that he might lose a sale if he didn’t agree (smart guy).

I then called my mechanic and said I would like him to have a look at a vehicle and he said he would, and he asked who I was thinking of buying from, and when I mentioned the name of the dealership my mechanic hesitated. After a short pause he said he had had some dealings with the dealership and gave me some advice about possible issues getting the van off the lot and to his garage. When my mechanic makes that kind of statement the hair on the back of my neck starts to raise up. I thanked my mechanic and said I’d call back when I had decided on a specific van.

Time passed and eventually we decided (after consulting CarFax on line) on a specific Sienna that our original salesman had on his lot. My wife called up to talk to our salesman, but he wasn’t around, so she spoke to the “Owner” of the dealership.

Now this is Chutzpah

My wife asked the question, “What do we need to do to take a van to our mechanic to have him inspect it before we buy the van?”.

After a short pause the Owner’s answer was classic chutzpah, “First you buy the van, and then take it to your mechanic and whatever he may find that needs fixing, we’ll fix.”. This is most definitely not what had been discussed previously (we had been told no worries, it should be fine, you can have the car inspected BEFORE you buy it).

Let’s analyze this amazing piece of chutzpah, you want me to give you a large amount of money, have the car licensed into my name, and then once I am owner of the vehicle and my mechanic finds something, I should trust you that you will fix these problems? I do realize that in Ontario a bunch of new rules are in place dealing with used vehicles, but I am also not naive enough to believe that they will somehow protect me in this situation.

I guess it all comes down to who(m) do I trust, a car dealership that I have never dealt with (that I have heard some odd stories about), or do I trust my mechanic, who has fixed my cars for 20 years? As you can guess, we did not call back this dealership.

We have since found a similar vehicle with a larger dealership, which may cost a bit more, but they are fine with us taking the van to my mechanic (if I leave a deposit, and my current vehicle) and will abide by whatever my mechanic says (and will find another van if my mechanic finds an issue with the van). The CarFax report on the van suggests there should not be a problem.

Financial Moral of the Story?

None really, just that I am a very untrusting person and that if you try to sell me things, it doesn’t take much to get me to go elsewhere, or completely walk away from the purchase.