Payday Loans and Tom Jones

Let me share with you a quite-good Christmas cracker joke:

"Doctor! Doctor!  I keep thinking I'm Tom Jones."
"Don't worry...it's not unusual."

It's also not unusual to be skint after Christmas because it's an expensive time. 

If you are an employer, this really affects you. 

If a household is sailing close to the wind, Christmas can move it into trouble.    The person who earns the income for the household will reflect on how hard they work and how they never seem to get ahead financially.   

Their thoughts immediately turn to how much money they earn.    That's where the income comes from - so it's natural to go directly to the source.   Indeed, many well-meaning personal finance commentators advise to "negotiate a pay rise" as the first basic step to get financially sorted.

So then the next thought might be a pay rise request.    Or they may even start to look around for a better paid position elsewhere. 

If the need is a bit more immediate than that, their next thought may be to approach you for an advance on pay.    This is very, very common (i.e. it's not unusual).   The employer doesn't usually charge interest and there are no forms to fill in.

A lucrative money lending industry is booming on the back of this.  Payday loans, cash now, can'twait dot com.   On a TV ad last night,  I even heard the slogan "where to go, if the boss says no!".    I think this is unbelievably irresponsible.   Let's remember that these companies charge at least 500% a year in interest - and much, much more if repayments are missed.   Yes that does say 500%.  Five hundred per cent.

If you are an employer, this really affects you.   I know I am repeating myself - but it really does.

As an employer, you will sympathise with your employees - but a household that is in financial distress is not caused by how much you may pay them.    But you can help them.

Have a Sorted session at work about managing debt.    You can do it yourself, or I can do it for you.   

The information given at a Sorted session shows people what to do and where to go if they need some help.     Most of the time, it is getting people back on course.  Non-preachy, jargon-free and nobody is trying to sell them anything.

The sessions give people hope and show them that you are on their side.         
 

Can you lend me $100?

I promise I'll pay you back as soon as I can...

Thanks!
 
Let's fast forward several years.    You bump into me in the street.   I am dressed as a woman, I have a wig on,  I have changed my name and I am affecting a limp.    Yet you still recognise me (dammit)  and ask for the $100 back.  

In my new Jamaican accent, I deny everything because I am weaselly, oily ratbag who cannot be trusted with other people's money - and besides,  I'm called Glenda now.   I also know it will cost you a lot more than $100 to prove that I actually owe you that money.   So you give up.  One-nil to me.

Let's be under no illusions, the finance company collapses have followed this broad narrative arc.  

The good news is that there have been several successful prosecutions, and I think the regulators are winning the battles that they can win.   But when they have to walk away, there is an empty, impotent feeling of disgust that no-one is held personally accountable.

These people rely on the protection afforded by setting up entities/trusts and whatnot to legally separate and de-personalise the financial risks they take, if it all goes wrong.   When it works, it's lollies ahoy for the people involved, personally.    But when it fails, it is the entity that fails, not them personally.

Sorry for the language, but these wankers destroy successful companies, spirit away people's life savings and damage the fragile reputation of the financial services industry, which is actually full of sincere and well-meaning people. 

This feeling is bad enough when it's only about money.   How must the Pike River families feel?   

Things must change.   

Why is KiwiSaver like a big fluffy onesie?

In a week where the peccadilloes/shenanigans of public servants are in the spotlight, I am pleased to say that the more mundane work of Bill English and Craig Foss has delivered a series of sensible decisions about the future default providers of KiwiSaver.   It's all here .

This is clearly not big, exciting and sexy news to most.  When the public were asked for submissions about snapper fishing or tobacco branding, tens of thousands of people chimed in.   When it came to asset sales, a whopping 327,000 people signed up to force a citizens' referendum.

When the Government asked about KiwiSaver default provider requirements, there were 29 responses.  29.  Twenty-nine.  

But let's be positive.    When people think about KiwiSaver, is it because they are thinking wholesome, soothing thoughts?   Quite possibly.  While day to day financial challenges are frustrating and stressful, KiwiSaver members have seen their long term savings continue to build up.  

People who invest lump sums aggressively for a quick gain seem to let money run their lives.   Anxious eyes dart over streaming online numbers, hearts miss a beat due to something unfathomable happening to the markets.   If I remember my school Bible "studies" correctly, it is the love of money that is said to be the root of all evil.  

It should be simple and stress-free.    KiwiSaver is not meant to be a white knuckle ride, unless you want it to be.   This is why I am pleased that people are not going to be defaulted into high risk funds without their informed permission.

Another good development is that impartial financial education is now to be a requirement of a default KiwiSaver provider from July 2014.   Yay.

I know real people that have used KiwiSaver to help buy their first home.  Others have started to enjoy the money that they have saved.   I met a young father at a factory, who got me to look into whether he was in KiwiSaver.  He then found that he had $8,000 saved!   He - literally - jumped for joy.   It's not an idea any more, it's part of our lives and it is really working.    

It's a big, fluffy onesie and everyone should have one.



  

Regulating Financial Advisers - The Good News

Before 1 July 2011,  anyone could call themselves a financial adviser.   New Zealand's main regulator of the industry, the Financial Markets Authority (FMA) didn't know how many financial advisers there were or what exactly they did.  You could call yourself a financial adviser but actually run a cheese shop!

In fact...there's a Monty Python sketch called "Cheese Shop" where the man behind the counter eventually admits, after a painfully long time, that his shop doesn't actually sell any cheese.   

This is how the NZ version plays out in 2013:

FMA - "Are you a financial adviser?"
Financial Adviser - (brightly) "Yes!  How can I help you?"
FMA - "Do you give advice on...budgeting?"
Financial Adviser - "Er...no, not really." 
FMA - "Do you help people manage debt?"
Financial Adviser - "No...not a lot of call for it around here."
FMA -"Do you give advice on...KiwiSaver?"
Financial Adviser - "Sadly not...not a great deal of money in it, see."   
FMA - "What about tax planning?"
Financial Adviser - "Not...as...such."
FMA - "How about investments?"
Financial Adviser - "Not so much these days, no."
FMA - "Shares?...foreign exchange?...bonds?"
Financial Adviser - (shakes head silently at each) 
FMA - "Mortgages?"
Financial Adviser - "Again, not me as such...but I do know someone."
FMA -  (a long pause) "Oh. (clicks fingers) Of course! Insurance?"
Financial Adviser - (relieved) "Yes!  Yes! Insurance, yes!"
(they both laugh)
FMA - "Good! Car insurance?"
Financial Adviser - "No!  Not car insurance!" (snorts)
FMA - "House and Contents insurance?"
Financial Adviser - "No!  Well, not  me personally...but I can refer you."
FMA - (really struggling now)"... erm....Life Insurance?"
Financial Adviser - "Bingo!  Good morning, how can I help you?"

So this financial adviser only sells life insurance policies.      Most people need life insurance and having a trusted expert to help them is necessary.   There is nothing wrong with that.

A few years ago, before the regulations, the man behind the counter could have legally said "yes" to any of those questions and earned commission from providers.   That isn't true now.    


So that's good news.   These days, a financial adviser is far more upfront about what they do.   And usually they will tell you straight away without the (Spanish) inquisition.

What Means Testing Really Means

There seems to be a lot of commentary around the future affordability of superannuation in New Zealand recently.   I am not saying it's perfect,  but there's a lot to like.    For one thing, there's no "means testing".   You get to 65 and it is paid.

Means Testing is the catch-all cure-all that many people suggest.   After all, it seems unfair that everyone gets NZ Super, no matter what.   Perhaps only those who need it should get it?  

We could introduce a threshhold so that only people with assets less than (say) $500,000 will receive NZ Super.   But you know what will happen next.   The more well-off  people will arrange things in such a way that their declared assets will be exactly $499,999.  

And it will be that blatant.   There were some extreme tax breaks for superannuation some years ago and - oh yes - many of the Great and the Good marched through that loophole, twirling batons as they went.   It's called "means testing" because "mean" people "test" the boundaries. 

So...to solve that problem, in a means tested world, we would put in rules to make sure that kind of thing can't happen, right?  Yes we would.  And employ people and systems to ensure that each superannuitant doesn't have too many assets hidden away?  Absolutely.   We should also penalise those that try to rort the system?  Too right!  

So we now enter a world where senior citizens declare their assets on a regular basis to an agency like WINZ to qualify for their state pension.   

Can't we give it - and them - a rest?

Stupid Brain

For most of us, Sunday is a time for taking things a little more slowly and this allows the mind to reflect, ponder and take stock.   How relaxing.    

Or is it?   The brain's default setting often seems to be "what's going to become of me?...what am I gonna do?".   And then the brain races around trying to find something to worry about.   Stupid brain.

The brain is so stupid that, even though you are in the top 1% of the richest people that have ever lived, it seems like it will find something, anything, to make you worry.   

As a teenager, we worry about very silly things.   When we grow up, we gather information that kicks most of those worries into touch.   Wouldn't we all love to be 15 again for a day - back at school, with a confident, adult brain firing on all cylinders?    Such fun!  

So - the enemy of worry is information.  Sharks are immediately scary because they have big teeth and everything. 

But in terms of danger to you - you should be more afraid of a toaster!   If you get information,  - the worry goes away.

Money is the among the easiest things to worry about because you can quantify it.   Therefore, everyone worries about money, because the brain finds it so easy to do.  

And when we worry about money, we think about how much money we have.   Niggling doubts about whether we are being paid enough...because if we get paid a bit more these worries disappear, right?  

No.  This is the brain being stupid again.   People get promoted and get pay rises - but often they are still unhappy and they still leave.   Only for the pattern to reoccur again and again.  

So employers can help their people (and themselves) by giving their people information about money.   Particularly if they are in a spot of bother with debt.    Helping people by giving them information,  gives them the message that their employer is on their side - and not part of the problem.     
 

  

Independence Day

I feel duty-bound to write something today.    For today is July 4th, Independence Day.   It is also the day my company, Truly Independent Financial Advice NZ Ltd starts operating.   

The theme is Financial Health and Safety.

I offer fun and engaging sessions at the workplace that give people good information on how to spot financial hazards.   

I can also offer the excellent Sorted presentations.   I am accredited by (deep breath...)  the Commission for Financial Literacy and Retirement Income to present these sessions.

Have a look at my website.   I am proud to say my nephew did it.

Employers pay me for these sessions.   So there's no selling of products, no commissions and no pressure.   No, really. 

Come along with me, why don't you?