27 May



Posted by: Valerie J Cavers

Home foreclosures don’t add up

Andrew Allentuck, Financial Post 

Why do people default on mortgage and other loans? It turns out that it’s not so much the amounts they owe, but that they are unable to do the math that tells them exactly what their financial situation looks like. Lack of ability to add turns out to be a cause of many consumer insolvencies.

The damage caused by failure to do sums becomes evident when people find themselves in credit counselling.

“The common characteristic of people in serious debt is that they don’t know how to budget or track expenses,” says Sandra Sherk, executive director of the Credit Counselling Service of Ontario’s Durham Region. “They let what they owe and incidentals get ahead of them.”

The problem is not limited to Canada.

In a Federal Reserve Bank of Atlanta working paper published in April 2010, economists Kristopher Gerardi, Lorenz Goette and Stephan Meier found, “a large and statistically significant negative correlation between financial literacy and measures of mortgage delinquency and default.”

Translation – folks who can’t add up their obligations are more likely to default on them than those who can do their sums.

The researchers asked a series of questions to test responders’ financial fluency.

For example: “a second hand car dealer is selling a car for $6,000. This is two-thirds of what it cost new. How much did the car cost new?”

Gerardi and his Fed colleagues connect lack of financial fluency to the U.S. mortgage meltdown. Their argument – soaring house and condo prices in 2004 to 2008 led some people to think that finance cost did not matter and therefore did not need to be tracked or even understood. All that followed is history, but as Gerardi noted, low levels of saving are correlated with inability to do simple calculations. When income, which is correlated with education, is statistically removed from the analysis, the conclusion remains – if you can’t add up what you owe, you can be in big trouble. And that’s how innumeracy, the lack of ability to cope with numbers, became one of the causes of the mortgage meltdown.

What happened to arithmetic? In many schools, the three Rs – readin’, ‘writin’ and ‘rithmetic – have had to make way for the teaching of social skills and community values. According to Statistics Canada, high school dropout rates, 12.2% for young men and 7.2% for young women in 2004-2005, have declined from the level in 1990-1991 when the rates were 19.2% and 14.0%, respectively. The dramatic improvement in school retention rate reflects students’ awareness that education is the ticket to employment and a good income. It also reflects grading standards that allow those with poor academic skills to advance rather than be stigmatized by flunking out. The consequence of this shows up when graduates can’t handle questions such as another asked in the Atlanta Fed survey:

“In a sale, a shop is selling all items at half price. Before the sale, a sofa cost $300. How much will it cost in the sale?”

Lack of basic arithmetic skill compounds a serious and growing problem. The days of a farmer or shopkeeper with one debt to one bank are long gone. As Brock Cordes, a lecturer in marketing at the Asper School of Business at the University of Manitoba notes, “people are baffled by the many credit obligations they may have. A few decades ago, a person might have one credit card and one mortgage. Today, he may have seven credit cards, a few lines of credit, and a mortgage. There are different payment options. And there is ever more fine print on credit card disclosures and other documents. People have lost the ability to add. They let little calculators do it for them. It is no wonder that innumeracy is a problem.”

Inability to add shows up in Canadian bankruptcy data. Bill Courage, a Chartered Insolvency Restructuring Professional in the Owen Sound, Ont., office of BDO Canada LLP says, “lack of numeracy is a contributing factor in personal bankruptcy. People don’t keep track of what they are doing. ‘No money down and $27.95 per month starting next year, is something that they can understand, but they don’t use their common sense. Many people just don’t add up what they owe.”

This casual attitude toward debt shows up when snowballing debts become an avalanche of obligations. “People who get into credit trouble don’t watch the cost of loans They go from 5% on a mortgage to 15% to 19% on standard credit cards like Visa, then they load up on credit on store plastic that may have 28% interest rates, then borrow from payday loan stores at rates that may work out to 58% per year,” Ms. Sherk explains. These rates, to which they agree, trap them in debt forever, she explains. “If you owe $3,000 on a major credit card and you pay $60 per month, which is a minimum, and the interest rate is 17%, it will take 7 years and 4 months to pay if off.”

What to do? “We prepare people for budgeting, even if we turn them down for a loan,” says Laura Parsons, area manager for specialized sales at the BMO Financial Group in Calgary. “It is not so much that people don’t know that they should sharpen their pencils, it’s not knowing what to do with them.”
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/story.html?id=3068447#ixzz0p81lNaoP

12 May

Feds want tighter rules to GROUND FLY BY NIGHT MOVERS


Posted by: Valerie J Cavers

Feds want tighter rules to ground fly-by-night movers

  •   By Dean Beeby, The Canadian Press

OTTAWA – The federal government is putting the moves on movers.

Industry Canada wants to tighten the rules for moving companies after a deluge of complaints from consumers who say they’ve been ripped off by crooked operators.

Armed with a cellphone and a Kijiji or Craigslist ad on the Internet, scam artists are preying on Canadians looking for cheap moving help, says the department.

“Complaints include holding furniture hostage at the destination until consumers pay more than the original estimate and producing new hidden costs such as packaging,” says an internal document.

“In some cases, the belongings are not delivered but are dumped or remain in warehouses and storage facilities. Consumers in this market are particularly vulnerable to such practices because of the ability of movers to confiscate or ransom their belongings.”

The Consumer Measures Committee, a federal-provincial group run by Industry Canada, launched a project last July to better monitor the household moving sector by analyzing consumer complaints.

“This work is in the very early stages of development and findings are not yet available,” department spokesman Michael Hammond said.

Regulation of the moving sector is largely a provincial responsibility, even though some moves cross provincial boundaries. Eight provinces have highway traffic legislation that governs the household-goods moving trade, with Prince Edward Island and Newfoundland and Labrador the exceptions.

Many provinces also have consumer protection laws, as does the federal government.

But industry players contacted by the committee in the last few months say officials want to end that patchwork coverage by harmonizing laws, regulations and practices across the country.

The 2006 census of Canada found that 1.2 million households had moved in the last five years. Some estimates say Canadians change addresses an average of 13 times through their lifetimes.

And the Canadian Council of Better Business Bureaus says complaints about movers were No. 7 on its Top 10 list of consumer beefs in 2009. Just over half of the 636 formal complaints about moving firms last year were settled.

An Industry Canada briefing note, obtained under the Access to Information Act, suggests about one of every four moves generates a consumer complaint.

The head of Canada’s largest industry group, the Canadian Association of Movers, supports harmonization but says the best protection for consumers is education.

“You have people having all their life possessions destroyed, stolen, rifled through, held for ransom, overcharged,” president John Levi said in an interview from the group’s Mississauga, Ont., headquarters.

But even with tougher regulations “there’s no government agency out there that can help you in a timely fashion.”

Consumers are understandably intimidated by large men suddenly demanding more cash before unloading the truck, Levi said.

“There’s sufficient legislation and regulation in place — if it were enforced.”

The best defence is to do some research, he said.

The mover’s association — with about 200 members, including big operators like Atlas, Allied, Mayflower, United, North American — certifies its firms after checking their standards and reputations, and having them sign a code of ethics.

The Better Business Bureau as well as Industry Canada posts consumer checklists and advice on moving on their websites. A joint consumer tips release is also planned shortly by the movers’ association and the business bureau.

Better Business Bureaus across Canada fielded almost 98,000 inquiries about moving companies last year, the second-most common query after consumer questions about roofing contractors.