Financial Literacy for Immigrant Women

Transcription

1 Financial Literacy for Immigrant Women

2 Copyright 2014 by ANIW All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of ANIW. Funded By In partnership with 1 ANIW: Financial Literacy for Immigrant Women: 2014

3 Contents Contents... 2 Acknowledgement... 3 Alberta Network of Immigrant Women... 4 Financial Literacy Manual... 5 Module 1 Introduction to Banking in Canada... 6 Module 2 Savings Accounts...10 Module 3 Checking Accounts...10 Module 4 Budgeting...13 Module 5 Saving and Investing Your Money...18 Module 6 Living with Credit...20 Module 7 Credit Cards...29 Module 8 - Managing Your Credit...36 Module 9 - The Protection of Insurance...39 Module 10 Government and Money...44 Module 11 Consumer Rights and Money...46 Module 12 Buying or Renting a Home...48 TERMINOLOGIES...53 Filing a Consumer Complaint...58 Train the Trainers...61 Facilitation Skills...61 Train the Trainers...66 Public Speaking Skills...66 Registration & Evaluations...72 Intake Registration Form...73 Pre-Workshop Evaluation...75 Post-Workshop Evaluation...77 Trainer Session: Evaluation Form...78 Trainer Session: Participant Sign in Sheet...79 PARTICIPANT NOTES: Financial Literacy for Immigrant Women: 2014

4 Acknowledgement On behalf of all at Alberta Network of Immigrant Women, gratitude is extended to The Social and Enterprise Development Innovations (SEDI) for generously funding The Financial Literacy for Immigrant Women project and your commitment to financial literacy education. Acknowledgements are extended to Calgary Immigrant Women s Association (CIWA) for being our Fiscal partner and in believing that through our partnership, we can better achieve our goals in serving immigrant women in Calgary. Finally, we wish to thank the participants of the project who attended the workshops enthusiastically. We hope the training has provided you with new skills to manage your financial aspirations. We greatly appreciate the suggestions you have provided and as we move along to continue the program, your voices will certainly be honoured 3 Financial Literacy for Immigrant Women: 2014

5 Alberta Network of Immigrant Women With a vision to empower immigrant women play active and integrated roles as valued contributors to the community, Albert Network of Immigrant Women (ANIW) has supported initiatives that foster equality, justice and learning for immigrant women through our research, education and training programs since The Network has shared its innovative research on issues that impact the integration of immigrant women within our society and brining our recommendations to the fruition has been possible with the support that has been consistently provided by our partners and stakeholders ANIW is adaptive and evolutionary, changing its research and programming focus as needed to remain connected to the interests and needs of women who are building a new life in Canada. The definition of financial literacy is the ability to understand how money works in the world. 4 Financial Literacy for Immigrant Women: 2014

6 Financial Literacy Manual The Financial Literacy for Immigrant Women Manual was developed to assist immigrant women and men make informed financial decisions and understand the basics of spending, saving, borrowing and investing to implement in their daily lives and plan for the future. This Financial Literacy Manual was used in delivering educational workshops to immigrant women and men across Calgary as well as providing training workshops to assist participants to become trainers and share financial literacy knowledge with family friends and peers. Within this handbook, there are twelve financial literacy modules, training components in facilitation and public speaking, resources and evaluation tools. The financial literacy topics include; Introduction to banking in Canada, Savings Accounts, Checking Accounts,, Budgeting, Saving and Investing your Money, Living with Credit, Managing You Credit, The Protection of Insurance, Government and Money, Consumer Rights and Money and Buying or Renting a Home. The Train the Trainer section of this manual includes skills development in facilitation and public speaking to compliment participants knowledge of financial literacy topics and support the delivery of financial literacy round table discussions. Additional resources are included throughout this manual as well as in-depth financial literacy terminologies and evaluation forms can be found at the back of the manual. We hope that participants enjoy using this manual as a resource in their learning journey and in delivering informative financial literacy discussions. 5 Financial Literacy for Immigrant Women: 2014

7 Module 1 Introduction to Banking in Canada Objective: Understanding the structure and services of Canadian banks. What are the different types of financial institutions? What types of banking services that is available at banks? How to open a personal bank account. What do specific bank employees do in their jobs. What are the different accounts that are offered by banks? What are other kinds of financial services that are provided by private businesses? Canada is a very large country with many different types of financial institutions. Each type of bank will offer different services to you. There are also financial services available to you that are not provided by a bank or credit union. There are two different types of financial institutions in Canada Banks and Credit Unions. A Bank is an institution that will make a profit, or money, for the shareholders. A Credit Union is to serve the financial needs of the members, not necessarily to just make money. Banks: No membership requirements to open any type of bank account. There are Canadian and foreign-owned banks working in Canada. Credit Union: You must become a member of the credit union. You must buy a share, and then you can open any type of bank account. When you join, you become a member of the credit union. Once you know what type of institution you want to join, you then have to decide what kinds of services you are going to require from the bank or the credit union. To help you decide here are some questions: A. When do you want to bank? Do you want to be able to go to a bank in your neighbourhood? Do you want to be able to go to a bank that is close to your work? Do you want to be able to go to a bank that is open earlier in the morning and later at night? B. How do you want to bank? Do you want to conduct your business by going into the bank? Do you want to conduct your business on the telephone? 6 Financial Literacy for Immigrant Women: 2014

8 Do you want to conduct your business on the Internet? Do you want to conduct your business by using a debit card at an ATM or an ABM? (An ATM or an automatic teller machine gives you money. An ABM or an automatic bank machine allows you to pay bills, deposit money, transfer money between accounts, or withdraw money from the machine.) C. What kinds of services will you need from the bank or credit union? Will you need a savings account where you can deposit money that you have saved? Will you need to write cheques to pay your bills? Will you need overdraft protection on your checking account? Will you be depositing government cheques or your paycheque? Will you be withdrawing money frequently? Will you be paying bills online, by paper cheque, over the phone or in person at the branch? Will you be making preauthorized or automatic bill payments? Will you be making preauthorized or automatic transfers between different bank accounts? Will you be applying for a credit card? Will you be applying for a mortgage? Will you be taking out a student loan or a personal loan? Will you be applying for a line of credit? Will you need to send money orders to someone you know? Will you need to have a certified cheque if you are buying something? (The bank will certify or guarantee that you have the money in your bank account to pay for the item.) Does your account have additional services such as an online budgeting feature? What is the cost for personalized checks? Overdraft protection? Safety deposit box to keep valuables safe? Money orders? Money drafts? Does your bank, have employees who speak your native language and can help you if you have questions/concerns? Does your bank have written documents and signs in your native language to help you? D. What kinds of fees will you pay and what kind of interest rates will you receive? What are the monthly fees for the services that you need? Are there specific fees for the number of transactions that you complete every month? Are there different and extra fees changed for certain types of transactions? For example, do it cost for transactions made at a teller? What fees are charged if transactions go over the monthly transaction limit? 7 Financial Literacy for Immigrant Women: 2014

9 Are there minimum balances (or amounts) that must be kept in your accounts? If so, will fees be waived if these requirements are met? Are there discounts on fees available if you have more than one type of account at the bank such as a savings account and a checking account? E. What things does a bank or credit union have to tell you? A bank has to tell you, in writing, what monthly fees will be charged. If those charges are going to change, the bank has to tell you in writing in advance. A bank has to tell you, in writing, what is the interest rate on the savings account. The bank must also tell you how the interest will be calculated. If any of the conditions are going to change, the bank has to tell you in writing in advance. A bank also has to have a process in place if you have a complaint or disagreement. The bank must also tell you that in writing. Opening a Personal Bank Account. In order to open the account, you have to go to the bank in person and show the proper ID Bank Employees: There are many employees in a bank, but the two jobs described below are the most typical kinds of jobs. Bank Teller/CSR and Loans Officer Different Types of Bank Accounts: 1. Savings Account 2. Checking Account Private Businesses that offer Other Types of Financial Services Cheque-cashing Business; Payday Loans Business; Rent-to-own Business; Pawn Shops Discussion Questions 1. Why you decided to join the bank or credit union that you have. 2. What services did you like about the bank or credit union that you joined? 3. What services don t you like about the bank or credit union that you joined? 4. Have you ever used the financial services of private businesses, such as a cheque-cashing, payday loan, rent-to-own or a pawn shop? 8 Financial Literacy for Immigrant Women: 2014

10 5. Explain why you were satisfied or unsatisfied with the services that were provided? Write down your responses to the questions above: Savings & Checking Accounts 9 Financial Literacy for Immigrant Women: 2014

11 Module 2 Savings Accounts Objective: To define the structure and services of a savings account. Purpose of a savings account. How to have access to your money. When income taxes are paid on interest from a savings account. A savings account can be used to save money for short-term savings or an emergency. You can deposit or withdraw money from this account as you need. You can pay bills or buy things using your debit card. Module 3 Checking Accounts Objective: To define the structure and services of checking accounts How to use a debit card and ATM or ABM. What is a Joint account? The importance of keeping records to reconcile (balance) bank accounts. A Checking Account is different from a savings account as you will use this account for everyday banking and to pay bills. You can use paper cheques to pay bills, but the bank might charge you a set fee to process these. You most likely will be given a debit card to use for your banking. Your Banking Needs There are many things to consider when you are shopping for a checking account at a bank. One area in particular that needs your attention is the question of service fees. If you know what kinds of services you require, it is easier to find a bank that offers the services you require. Purpose of the Account A checking account is most often used for everyday banking and to pay bills. You may also be making purchases using a debit card, depositing money like paychecks or sending or receiving money transfers. You can use paper cheques to pay bills, but the bank might charge you a set fee to process these. You most likely will be given a debit card to use for your banking. A checking account will probably not pay you interest on your deposit as it is not meant to help you save money. If interest is paid, it will likely be lower than the interest paid on a savings account. Debit Cards 10 Financial Literacy for Immigrant Women: 2014

12 The banking industry has made it increasingly easy to access the money in your savings and checking accounts without having to actually go to the bank. The plastic card can be used almost everywhere. You will have a personal identification number (PIN) that will be entered into a terminal. At an automatic banking machine (ABM), you can pay bills, transfer money between accounts and withdrawal money. At an automatic teller machine (ATM), you can only withdraw money. You can also use your debit card at the checkout in a grocery or retail store. If you are going to be charged a service fee, this information will be displayed on the PIN pad screen. You must be given the choice to cancel the transaction at no cost or continue the transaction and pay this fee. You might be able to use another method of payment such as cash, check or credit card. You can save money by only using your financial institutions ABMs whenever possible. You will not be charged a service fee. You can also stay within your monthly withdrawal limit by making fewer but larger withdrawals of money. You must be very careful with the security of your debit card and PIN. You will be responsible for unauthorized transactions on your account if your PIN is not secure. Make sure that your PIN cannot be easily identified by using such things as your name, date of birth, Social Insurance Number (SIN), address, or your phone number. It is important to always be careful when entering your PIN into an ABM, ATM or merchant s terminal. If you are a victim of debit card fraud because someone uses your card without your permission, you must contact your banking institution to report it. If you report the card lost or stolen within a reasonable amount of time, you would not be held responsible for transactions that occurred. Joint Accounts The same features as a savings or checking account are offered with a joint account. The key difference is that two people can make withdrawals, deposits, payments and utilize other services 11 Financial Literacy for Immigrant Women: 2014

13 from the one account. Many couples use a joint account to manage household and common expenses. There are a number of things to consider and discuss before opening a joint account with your partner. You will both have to agree on the purpose of the account and how the money in the account will be used. It is useful to make a list, in advance, of what expenses will be paid from this account. As a joint account holder, you are also responsible for any transactions made by the other account holder. If overdraft protection on the account is used, both account holders will be responsible for repaying this overdraft. The same applies if a line of credit is attached to this joint account. It is also important to ask what would happen if one of the joint account holder dies. Often that means that the survivor cannot continue to access the funds in this account. Often a bank will suggest that you deposit money into your individual account first and then have it transferred to the joint account. You can speak to the customer service representative at the bank to make sure that the features of the joint account will work well for you and your partner Reconciling (Balancing) Bank Accounts Once a month, you will receive a written or electronic bank account statement. This statement will list all of the transactions that have occurred with your account. You should reconcile (balance) your bank account statements. That means you have kept all of your ATM or ABM receipts and compare them to your bank account statement. If there are any differences, you will have to go to the bank to discover why these exist. Reconciling your statement every month is very important. 1. Have you ever used a debit card with your checking account? If so, what have you done to make sure your PIN (Personal ID number) is secure? 2. What can you do if your debit card has been used without your knowledge? 3. What are the benefits and disadvantages of a joint account? 4. Do you reconcile (balance) your account every month after you receive your statement? If not, why not? 12 Financial Literacy for Immigrant Women: 2014

14 Module 4 Budgeting Introduction Objective: Learn the benefits of budgeting Regular monthly expenses Irregular annual expenses Budgeting resources Introduction In an ideal world, we would all have enough money to do everything that we want to do and need to do to take care of our families and ourselves. Unfortunately, that is not the case for the majority of people. Knowing what you want to achieve through the budgeting process will help you meet all of your financial obligations and take care of your loved ones. This module will provide you with the skills and tools required to successfully create and meet your budget on a monthly and yearly basis. You will also be introduced to ways that you can save money with your monthly expenses. The Benefits of Budgeting Budgeting Tip It is important to have your family involved in the creation of the budget. You could discuss each section of the budget (income and expenses) so that each family member understands certain decisions have been made. Everyone must provide food, clothing and shelter for their families, especially in this northern Canadian climate. Everyone also has monthly expenses that must be paid on time. Many people are skilled in keeping track of their incomes and expenses so that they can provide for their families. Some even manage to save money each month for a new house or holiday to another exotic place. In order to provide for their families, a great number of people have created a budget to help them. A budget is an organized estimate of the income and expenses of a person, a family or an organization, over a certain period of time. Creating a budget can be a very sobering thing to do as you itemize how you are spending your money. Many people do not realize how they are spending their money so this work is a realistic eye-opener. 1. What is a household budget? 2. Why is it important to budget your money? 3. What are regular monthly budget (Income + Expenses) items? Create a budget template on flip chart paper or a white board 13 Financial Literacy for Immigrant Women: 2014

15 How to determine your Monthly Income and Expenses Quite often, people do not realize what they are spending their money on every day or week or month. Because of that, it is not possible to think about a budget. There are steps that can be taken to help record what money is being spent and where it is being spent. Monthly Income = Salary (Paycheque), Pension, EI, Social Assistance, Pocket Money The first step in creating a budget is to figure out how much money you receive and when you receive that money. The worksheet below will help you gather that information. It lists many possible sources of money. Add in any other sources that are specific to you. These worksheets work well if your income does not change every month. Monthly Income Monthly Income Income (Salary) or (Pension) Net income NOT GROSS. This can be weekly, biweekly or semi-monthly) Other business income Employment Assistance Income support from relatives Social assistance benefits Disability benefits Canada Child Tax Credit Child support Spousal support Student loans Scholarships and bursaries Other sources Total Monthly Income Total : Amount of Money (Monthly) GST rebates Income tax rebates Total Annual Income Regular Monthly Expenses It is very important that you gather all the information that you can in regards to how you spend your money. One way to keep track of expenses is to label individual envelopes with different ways you spend your money: groceries, transportation, personal spending, rent, utilities, children s spending, etc. Complete the spending worksheet below to help you capture where you are spending your money. This worksheet (on the next page) is for expenses that you pay every month. 14 Financial Literacy for Immigrant Women: 2014

16 Housing Utilities Rent/Mortgage Yearly Taxes/Condo Fees Home/Tenant Insurance Electricity Natural Gas Water and Sewer Regular Monthly Expenses Telephone land line and cell phone Cable/satellite TV Internet Home Security System Transportation Bus Passes/Fares (per person) Car Loan Car Insurance Gas Parking Groceries Food Paper Products Personal Hygiene and Toiletries (haircuts, hair products, etc.) Child Care Day Home Provider After School Care Programs Lunch Programs at School Recreation Entertainment Eating Out Lunches Personal Allowances Children s Allowances Sports Teams/ Club Memberships Other e.g. life insurance Other Monthly Expenses Food Child/Spousal Support Medical Expenses Medical Insurance Life and Disability Insurance Irregular expenses (converted from annual to monthly) Monthly Savings Personal Loans Credit Card Payments Other e.g. Pet Care Regular Monthly Expenses Total Regular Monthly Expenses $ Amount 15 Financial Literacy for Immigrant Women: 2014

17 Irregular Annual Expenses Complete the spending worksheet below to help you capture where you are spending your money. This worksheet is for expenses that you don t pay on a monthly basis, but on an annual basis. These are expenses that are still important to capture in your budget. You simply divide the total amount by 12 months to get the monthly amount that must be saved for and then paid. Irregular Annual Expenses Irregular Annual Expenses Education Tuition/School Fees (per person) Busing Fees (per person) Books/Supplies (per person) Special Events/Field Trips (per person) Other Medical Prescriptions Dentist Eye Glasses Other Transportation Vehicle Maintenance/Repairs Registration License Clothing/Footwear (per person) Other Gifts Anniversary/Birthday/Holidays Wrapping/Postage/Cards Recreation Celebrations/Festivals/Holidays Vacation Sports Equipment Registration Fees Special Fees Subscriptions (per person) Other Home Seasonal Maintenance Renovations/Improvements/Repairs Appliances Furniture Other Expenses Income Taxes Charitable Donations Support for Extended Family Other Total Irregular Monthly Expenses $ Amount 16 Financial Literacy for Immigrant Women: 2014

18 Budgeting Resources There are many different sources of information to help you prepare a monthly budget. 1. Government of Alberta has information available on this website: 2. Financial Consumer Agency of Canada (FCAC): Canadian Bankers Association: 17 Financial Literacy for Immigrant Women: 2014

19 Module 5 Saving and Investing Your Money Objective: Various ways that you can save and invest your money. Why it is a good idea to save and invest money. The differences between various savings plans. Different Ways to Save and Invest Money There are a number of different ways to help you save and invest your hard earned money. You can make an appointment at your bank or credit union to ask all of your questions about these savings plans. 1. Canada Learning Bond This is a savings account that has been created by the federal government. It is to help low-income families save money for their children for post-secondary education programs. These are programs after high school. Each year, the government will deposit money into a Registered Education Savings Plan (RESP) for your child. The limit of money is $1,500. This bond will end when your child turns 17. You can talk to a customer service representative at your bank or credit union as there are a number of qualifications that must be met by you and your family. 2. Guaranteed Investment Certificate (GIC) This is a savings account where your money is protected or locked in for a period of time. This period can range from 30 days to five years in length. The interest rate is also locked in and does not change over time. The interest rate will be higher if you lock in your money for a longer period of time. When the time ends, the GIC has matured, and you can withdraw the money. People like to use GICs for medium and long-term financial goals. 3. High Interest Savings Account The bank will pay you interest on the money that you have in this account. The interest rate is a bit higher than the rate of a regular savings account. The interest rate is variable though which means that the rate can change over time. You can withdraw money from this account whenever you want. Lots of people use this type of an account for short, medium and long-term financial goals. 4. Registered Education Savings Plan (RESP) We all want our children and spouses to attend college or university. It is very expensive to go to school as the costs of tuition, books and supplies are very high. A two-year college diploma can cost as much as $20,000 to $30,000. A four-year university degree can cost as much as $60,000. The sooner you start to set money aside for these costs, the faster your money will grow. 18 Financial Literacy for Immigrant Women: 2014

20 Term Canada Learning Bond Guaranteed Investment Certificate (GIC) High Interest Savings Account Interest Registered Education Savings Plan (RESP) Registered Retirement Savings Plan (RRSP) Tax-Free Savings Account (TFSA) Definition This is a bond to help low-income families save money for their children s postsecondary education costs. You deposit your money for a fixed period of time and get a set rate of interest paid. This is a good savings account to use as you are paid a higher rate of interest. It is also easy to access your money. The amount of money you are paid when you lend your money to a bank or credit union to invest. The Government of Canada will help you save money to pay for your children s post-secondary education costs. This is a long-term savings plan to help you save money for your retirement. This is a good way to save money as you do not have to claim the interest that you make as income. Exercise: 1. Janet has created her monthly budget and finds that she has $200 a month for her savings. She has two children in junior high school who are always talking about wanting to help sick animals and people. What type of savings plan might work best for Sophie? Answer: An RESP would work best for Sophie as she can start putting money away for the postsecondary education costs. 2. Wan and Win has a large family with five children. He and his wife have a commercial cleaning business and work 14 to 15 hours a day. Their older children take care of the younger children. Wan and Win wants all of their children to go to college or university, but they will not be able to afford the tuition costs. What type of savings plan might work best for Wan and Win? Answer: They should look at the Canada Learning Bond. In theory, they should be eligible, depending on the cleaning business s financial information. They could also consider a Tax-Free Savings Account or a High Interest Savings Account. 3. Jay has lived in Canada for many years and still has lots of relatives in Germany. He sends his grandparents money every six months. He wants to earn as much interest as he can on his money before he sends it. What type of savings plan might work best for Jay? Answer: Jay should look at a high interest savings account or a tax-free savings account. 19 Financial Literacy for Immigrant Women: 2014

21 Module 6 Living with Credit Objective: The different forms of credit that is available. As well, realize that there are many advantages and drawbacks to using credit The steps required to apply for a personal loan. Conditions of a personal loan from a bank or a credit union. Example of a personal car loan. Requirements of a student loan. Features of a line of credit. How monthly contracts with service providers are personal loans. Disadvantages of the different forms of credit. Different services of private businesses that offer financial services. Terminology of financial literacy relating to living with credit. Introduction Over the years, it has become easier and easier to use credit to purchase things that we want and need. This is called consumer credit. We buy what we need now and promise to pay for it later. This can be a good thing as we can live more comfortably as our needs change over time. For example, as your family grows, you may need a new home or furnishings. It can be very expensive to pay for all of the school costs for your children. You might also want to take your family on a vacation and do not have all of the money saved. However, there are some serious risks to using consumer credit. Because it is so easy to be approved for credit, people can often overuse their credit. This can lead to very serious financial debt over time. This can be very risky if a person gets sick, has a family emergency or loses her job. The creditors, or people that are owed the money, do not really care about the circumstances. They just want their money to be paid back. A. Deciding When to Use Credit Lots of women and men use credit everyday for things that will bring value to his or her life. For example, getting a student loan to pay for an education will bring good value. An education will bring a higher income and more stability to your family. Borrowing money for a mortgage to buy a home for your family is also considered good debt. There are other uses of credit that create bad debt. Borrowing money to go on a vacation is an example. You enjoy the vacation at the time, but you pay for the vacation for years to come. Before you venture into the land of credit, remember that there are a number of questions that you need to ask of the money lenders. Asking the questions will allow you to fully understand all of the conditions of your loan agreement or a line of credit. 20 Financial Literacy for Immigrant Women: 2014

22 1. What is the interest rate that will be charged? Is it a fixed rate that never changes or is it variable, which will change according to when the interest rates change? 2. Does the monthly payment include the principal and interest combined or is the interest payment separate? 3. What is the term or length of the loan? 4. What is the payment date? 5. Is there a charge if payments are late? Is there a charge if only partial payments are made? 6. Is there a charge to pay off the loan early? Is there a charge if extra payments can be made? 7. What happens with the loan if you lose your job? 8. What happens with the loan if you are injured and are not able to work? B. Different Types of Credit Applying for a Personal Loan In order to apply for a personal loan, you must: Be a Canadian citizen or a permanent resident of Canada. In Alberta, you must be 18 years of age. The third condition is that you cannot have a current record of bankruptcy (unless you have been discharges from bankruptcy. The majority of applications will ask for : - Your name, address, and telephone numbers - Your bank or credit union information will need to be provided - You will also have to list who your current employer is and how long you have worked there - You will have to supply your annual income from your last income tax return. - You may be asked for your Social Insurance Number (SIN). Supplying this number is optional - You will also have to have two pieces of valid identification such as a Canadian driver s license, passport, or certificate of Canadian citizenship - You will be asked to list any other credit cards or debts that you have from banks or credit unions or department store retailers - You can apply for a personal loan by making an appointment at the bank with a loans officer. Personal Loans from a Bank or Credit Union It is a very serious decision to ask for a personal loan from your bank and credit union. You have reviewed your budget and know that you can easily pay off a loan by making monthly payments. When you get a personal loan, there is specific information that you must receive from the bank. This written information will outline all of the conditions and requirements of the loan. A loan will usually require you to have some form of collateral. 21 Financial Literacy for Immigrant Women: 2014

23 Collateral will include items of value that are promised to the lender if you cannot repay the loan. For example, if you wanted to borrow money to go on a vacation, your car might be listed as collateral. If you could not repay the vacation loan, the bank or credit union would take your car as payment for the loan. Other conditions of the loan: might include how you can pay off the loan earlier than planned. Sometimes you can do this without costing any extra money or the lender may charge a fee to do this. It is also good to know what happens if you cannot repay the loan according to the schedule that, you agreed upon. Additional interest might be charged if this is the case. The principal amount: amount of money that is being borrowed. The annual interest rate is the rate being charged on the loan. This interest rate may be fixed so that it does not change over the term or length of the loan. The rate may be variable which means that it can vary or change over the course of the loan. period of time: usually in months or years that the loan agreement is in effect. Your payment date must be specified. The payment date must also specify what the total of the payment will be. It is often broken down into the principal amount plus the amount of interest being paid. If other administration fees are to be charged, this must also be shown. Example of a Personal Loan Agreement This example includes all of the terms and descriptions that must be provided on the loan agreement so that you understand the conditions for this loan. Term: Example of a Car Loan Principal Amount $23, Annual Interest Rate 5.69% Term 72 months (6 years) Payments $ Amortization Period 6 years Other Fees e.g. Returned or refused payment due to insufficient funds: $ Total Amount of Payments $28, Total Interest Cost of Borrowing $4, Student Loans The federal and provincial governments will grant student loans to help people go to school. Many people need to apply for a student loan because the cost of a program is very high. These costs would include tuition, books, supplies, and monthly living expenses. The loan will have a lower interest rate. While you are in school, the loan does not gather any interest charges. 22 Financial Literacy for Immigrant Women: 2014

24 - Once you are finished your program and have been out of school for six months, the interest charges are applied to the loan - This gives you six months to establish yourself in a job - You will then start to repay the loan. The student loan agency will also give you all of the conditions of the loan in writing - These conditions will include information similar to the information for a personal loan - Sometimes, you are not eligible to receive a government student loan. The bank or credit union might require: You to have a parent or guardian co-sign the loan. These co-signers will be responsible for re-paying your debt if you are unable to re-pay the loan. The conditions of the loan might be a bit different. They may require you to pay only the monthly interest rate charges. However, once you are no longer a full-time student, you must start to pay the regular loan payments. Again, all of this written information must be given to you so that you understand all of the conditions of the loan. Lines of Credit Student Loan Tip Your bank or credit union will also have a student loan available to you. The interest rate will be higher than the government student loans. However, the rate will still be lower than the rate for a personal loan Financial institutions will also offer a different type of loan called a line of credit. The application process will consider the following things. This loan will let you borrow money up to a preset limit. You can access this money and spend up to this limit. The preset limit for a line of credit is based on your yearly income and your credit rating. Credit rating will be a summary of your credit history, and your history of paying your bills and paying back the money you have borrowed. This will also indicate your current levels of debt from credit cards, etc. Interest rates for a line of credit are usually lower than a credit card or a personal loan. The extra administrative costs are usually lower as well. Many people will open a line of credit and consolidate or combine all of their other debts into this one loan. Have you ever had a personal loan from a bank or credit union? What conditions did you have to met to be approved for the loan? You must be a Canadian citizen or a permanent resident of Canada. In Alberta, you must be 18 years of age. The third condition is that you cannot have a current record of bankruptcy. 23 Financial Literacy for Immigrant Women: 2014

25 The majority of applications will ask for: Your name, address, and telephone numbers Your bank or credit union information will need to be provided List of who your current employer is and how long you have worked there Your annual income from your last income tax return Your Social Insurance Number (SIN). Supplying this number is optional. Two pieces of valid identification such as a Canadian driver s license, passport, or certificate of Canadian citizenship. List any other credit cards or debts that you have from banks or credit unions or department store retailers You can apply for a personal loan by making an appointment at the bank with a loans officer. Have you ever had a student loan from the government or a bank or credit union? What are the conditions for a student loan? Government loan: The loan will have a lower interest rate. While you are in school, the loan does not gather any interest charges. Once you are finished your program and have been out of school for six months, the interest charges are applied to the loan. This gives you six months to establish yourself in a job. You will then start to repay the loan. Bank or credit union loan: The interest rate will be higher than the government student loans. However, the rate will still be lower than the rate for a personal loan. The bank or credit union might require you to have a parent or guardian co-sign the loan. These co-signers will be responsible for repaying your debt if you are unable to re-pay the loan. The conditions of the loan might be a bit different. They may require you to pay only the monthly interest rate charges. However, once you are no longer a full-time student, you must start to pay the regular loan payments. Have you ever had a line of credit from a bank or credit union? What are the conditions for a line of credit? The preset limit for a line of credit is based on your yearly income and your credit rating. A credit rating will be a summary of your credit history, and your history of paying your bills and paying back the money you have borrowed. This will also indicate your current levels of debt from credit cards, etc. 24 Financial Literacy for Immigrant Women: 2014

26 Monthly Contracts with Service Providers Many people have a budget that has monthly financial obligations. For example, you may have signed a contract with the utility (gas and electric) companies that provide natural gas, water and electricity to your home. Most people do not realize that this contract is in fact a personal loan. The company will provide you with a written agreement outlining what the monthly payment will be. It will also outline what the penalties will be if you do not pay the bill on time. The same can be said for communications providers for cable, internet, land-line and cellular telephones. Each company is obligated to provide you with a written contract stating that the cost of the monthly payments and the costs if payments are received late. For example, a cellular phone company might have a 2% late payment charge. This can add up to 26.82% per annum (year). They will also charge a $25 administration fee if there are insufficient (not enough) funds in your account to pay your monthly bill. All of these additional contracts can be very costly if you are unable to meet the conditions of the contract. These service providers will also very quickly give your name and account information to a credit collection agency. That agency will be very insistent in asking you to pay your contract. (A credit collection agency will be discussed in a separate module.) Private Businesses that Offer Financial Services There are other types of businesses that can provide services for you. You need to carefully understand what types of services can be provided to you as these businesses are often not controlled by government regulations. A. Cheque-cashing Business You do not have to have a bank account with this type of business in order to cash a cheque. These businesses are often open later at night for your convenience. - They will charge you a service fee to cash the cheque - They will also charge and keep a certain percentage of your cheque - For example, you get your paycheck when you get off work late. You know your bank is closed, and you forgot your debit card at home. You have to buy some groceries on your way home as you need breakfast for your family You stop at Liberty Check Cashing Shop. Is it worth it to pay that much when you could have deposited $2,000 in your bank account? Cheque Amount to be 5% Convenience Fee for Service Fee Amount You Have Cashed Cashing Cheque Left $2000 $100 $10 $1, Financial Literacy for Immigrant Women: 2014

27 B. Payday Loans Businesses If you need money between paychecks, this type of business will give you a short-term loan. Usually you can borrow up to 50% of your next paycheck. - You will have to show pay stubs for a few months to prove that you have a steady income - You will also have to give the lender a post-dated cheque so that the lender can cash it and get the money back - Sometimes the lender asks for permission to withdraw the money from your bank account. Using this kind of business can be very expensive as the owners will charge very high service fees and high interest charges if you do not pay the loan back in time - In Alberta, for example, one of these businesses charges up to $23 for every $100 that you borrow - That amount needs to be clearly marked on your loan agreement and must be clearly explained to you - Also, make sure that you keep a copy of this agreement in a safe place. That is for your protection in case someone questions whether you repaid the loan on time Your car broke down, and you have no other way of getting your children to school on time. You need to borrow $ to pay for the car repairs. Loan Amount to be Service Rate Total Service Rate Loan Amount to be Borrowed Repaid $1000 $23 per $100 $230 ($23 X 10) $1,230 C. Rent-to-own Businesses Many businesses will allow you to rent furniture or appliances or electronic equipment by paying for it weekly or monthly. - You could be charged the rental fee, a damage deposit, a cancellation fee, an early buy-back fee and insurance coverage - You could also be charged a late payment fee. This can add up very quickly. You might end up paying twice or three times the value of the rental when you are finished. Cancellation Fee: $200 Early Buy-Back Fee: $200 Cost of Rental Agreement: Leather Couch and Chair Damage Deposit Insurance Coverage Interest Charged (20%) Total Cost of Rental Agreement $ $ $50.00 $ $1, Financial Literacy for Immigrant Women: 2014

28 That amount needs to be clearly marked on your loan agreement and must be clearly explained to you. Make sure you read the loan agreement very carefully so that you know all of the conditions. Also, make sure that you keep a copy of this agreement in a safe place. That is for your protection in case someone questions whether you repaid the loan on time. D. Pawn Shops The owners of a pawnshop will loan cash in exchange for keeping valuable things such as electronic equipment like cameras or computers and jewelry. These valuables, called collateral, will be returned when you repay the loan. If you do not repay the loan, the owner will sell those valuables or your collateral to someone else. Pawn shop owners must be very careful that they are not buying stolen items, so they may ask you for the receipt to prove that you bought it. Pawn shop owners will also charge you very high interest rates. Cost of Loan: Computer and Printer Interest Charged (30%) Total Cost of Loan $ $ $1, Collateral for the loan: digital camera worth $ That amount needs to be clearly marked on your loan agreement and must be clearly explained to you. Make sure you read the loan agreement very carefully so that you know all of the conditions. Also, make sure that you keep a copy of this agreement in a safe place. That is for your protection in case someone questions whether you repaid the loan on time. E. Buy Now Pay Later Businesses These companies offer many incentives such as the buy now pay later opportunities. These mean that you can buy it now and then pay for it one to five years later. Many people like this feature as they do not have to save money over time and delay their purchase. When it is time to pay for the purchase, the service fees and interest rate can accumulate very quickly if you have not saved the money to pay for the purchase on the due date. For example, you purchase new furniture for your family. The bill comes to $ You sign the agreement that states that the interest rate is 30% for the year. One year and one day later, your credit card bill arrives. It is for $6, The interest being charged is $1, The interest is applied from the day you purchased the furniture, 366 days ago. It is not applied on the day that you start to repay the loan. You are very surprised by this and re-read the fine print of the sales agreement. You find that this is indeed how the sales agreement was written. Cost of Loan: New Length of Loan Interest Charged (30%) Total Cost of Loan Furniture $ days $1, $5, $ = day $1, from date of purchase $6, Financial Literacy for Immigrant Women: 2014

29 Terminology of Financial Literacy Relating to Living With Credit Term Definition Amortization Period This is the length of time that it will take to pay the loan in full. Annual Interest Rate This is a fixed rate for the year. The rate does not change. The interest rate is compounded twice per year but is charged monthly. Buy Now Pay Later These businesses offer a loan with very high interest rates, administration fees and Businesses penalties if you do not pay on time. Cheque Cashing Business You do not have to have a bank account with this type of business in order to cash a cheque. They will charge you a service fee to cash the cheque. They will also charge and keep a certain percentage of your cheque. Collateral Items of value that are promised to the lender in case the conditions of the loan are not met. Credit Collection Agency This is a business that will work with you to repay your debts either to a bank or utility company. Credit Rating A history of your credit and how quickly you pay off your debts. Fixed Interest Rate The rate does not change over the term or length of the loan. Pawn Shops The owners of a pawn shop will loan cash in exchange for keeping valuable things such as electronic equipment like cameras or computers and jewelry. Payback Loan Business If you need money between paychecks, this type of business will give you a short term loan. Payment Date This date must be specified and state to what the total payment will be. It is often broken down into the principal amount plus the amount of interest being paid. Principal Amount This is the amount of money that is being borrowed. Rent-to-own Business You can rent furniture or appliances or electronic equipment by paying for it weekly or monthly. Student Loan This is a loan for a post-secondary educational program. The government or a financial institution can issue this type of loan. Term This is a period of time, usually in months or years that the loan agreement is in effect. Variable Interest Rate The rate can vary or change over the course of the loan. Calculations for a 5 Year Loan at 10% Year Loan at Start Interest Loan at End 0 (Now) $1, ($1, % = ) $ $1, $1, ($1, % = ) $ $1, $1, ($1, % = ) $ $1, $1, ($1, % = ) $ $1, $1, ($1, % = ) $ $1, Living with Credit 1. Have you ever used the financial services of private businesses, such as a cheque-cashing, payday loan, rent-to-own, pawn shop or a buy now pay later? 2. Explain why you were satisfied or unsatisfied with the services that were provided? Very high service and administrative fees. Did not have the conditions of the contract explained fully. Did not receive a written copy of the contract. 28 Financial Literacy for Immigrant Women: 2014

30 Module 7 Credit Cards Objective: Understanding the different features of credit cards Eligibility requirements to apply for a credit card. The different features of a credit card. Features of a credit card from banks or credit unions. Features of a credit card from department store retailers. Features between the two types of credit cards. Terminology of financial literacy relating to credit cards. Introduction Over time, our society has come to use credit more and more frequently. There are some advantages as you do not have to carry large amounts of cash with you to purchase things like groceries. It is very common for people to have many different credit cards available to use. It is very easy to use them all and then have difficulty paying off the balances on each card every month. There are eligibility requirements to receive a credit card. The different features of credit cards will be discussed. There are also key differences between credit cards from financial institutions and those from department store retailers. 1. Applying for a Credit Card In order to apply for a credit card, you must: 1. be a Canadian citizen or a permanent resident of Canada 2. In Alberta, you must be 18 years of age 3. The third condition is that you cannot have a current record of bankruptcy (unless discharged) - The majority of applications will ask for your name, address, and telephone numbers - Your bank or credit union information will need to be provided - You will also have to list who your current employer is and how long you have worked there. - You will have to supply your annual income from your last income tax return - You may be asked for your Social Insurance Number (SIN). Supplying this number is optional. The credit card company will use it to identify you with a credit collections agency if required. You will also have to have two pieces of valid identification such as Canadian driver s license, passport, or certificate of Canadian citizenship. You will be asked to list any other credit cards that you have from banks or credit unions or department store retailers. You can apply for a credit card by completing the paperwork and 29 Financial Literacy for Immigrant Women: 2014