Revenge of the Dollarmite?

Hi Scott
 
I recently found out that the bank signed up my 18-year-old son for an $8,000 credit card. He was so excited to be a grown-up, to have a job making enough to earn spending money, and to cross the line of being an adult by being given a credit card. I don’t for the life of me understand why the banks feel $8,000 is a good starting amount for someone who has never had to prove they can pay it back!
 
Sadly our story ends with me finding out about the credit card via the post when the default notice arrived. In six months my son had spent all the large balance and kept it secret – he is 18 after all – but has no skills to be able to understand the outcome he has created. We are working with him now to resolve his debt, but it’s clear the banks are setting up young adults for failure by allowing this amount of credit.
 
Kate
 
Hi Kate,
 
I agree with you – eight grand is a lot of credit to start him off with.
 
Now I’m showing my age, but back in my day the banks had a student package that came with a credit card with a $500 limit. Then they ramped up the limit from there (kind of like a meth dealer does).
 
The real danger of getting a credit card when you’re a kid (and, post the COVID lockdown, 18 is the new 13) is that they’re effectively teaching him to view his available credit balance as his money. It’s not, of course, but that’s how they can effectively impose a 20% tax on everything he spends, hopefully for the rest of his life.
 
Yet thankfully your son screwed up … and as a result he was booted out of the brainwashing.
 
This is a very good thing, Kate.
 
Please keep the parental helicopter on the helipad and do not bail him out under any circumstances.
 
This is a life-changing, teachable moment.
 
First, explain the seriousness of a default notice: the bank could take legal action against him, and he now has a black mark on his credit file.
 
Second, have him calculate how much the credit card has actually cost him in interest. That’ll make him feel sick. Then jump on ASIC MoneySmart’s website and show him the bank’s plan for that $8,000 credit card. Making the minimum payments would take 61 years to pay off and $44,168 in interest.
 
Finally, when you’ve scared the living bejeezus out of him, have him call the bank and negotiate a payment plan to pay off every last cent of the debt.
 
Play your cards right and this may just be the best financial thing that ever happens to him.

Scott

Revenge of the Bong-Smoking Boyfriend

Hi Barefoot,
 
Before I read your book I made the mistake of getting a Latitude credit card for a TV. Now I’m a smidge away from paying it off, thanks to you! But I just received an email letting me know that Latitude has been hacked! I have followed all of your suggestions up until now, such as locking my credit file through Credit Savvy. I have spent a long time getting my credit score to a respectable place from 273 to now where it is well over 800. I’m concerned this hack could affect or undo all of my hard work! Is there anything else I can do to protect myself?
 
Linda

Hi Linda,
 
Oh, no!
 
Latitude is the financial equivalent of that dirtbag boyfriend you’re planning on breaking up with because he spends too much time sitting on the sofa getting stoned and playing Xbox. And now you find out he’s been cheating on you as well!
 
Latitude’s consumer debt products suck almost as much as their cybersecurity … which the Director of the Australian Computer Society (ACS), Mr Louay Ghashash, described as “dismal … they have failed on all fronts”.
 
Now to your actual question:
 
The truth is that if you’ve shut down your credit file then you’ve done all you can. And I’d give even less latitude to credit scores – to me they’re the financial equivalent of a horoscope.
 
However, if you’re one of the 330,000 customers of Latitude reading this and you haven’t locked down your file, do it now. And from now on choose your financial boyfriends wisely!

Scott.

I Want A Credit Card Too!

Dear Scott,

I wish to make a complaint. I am currently working through the ‘Domino Your Debts’ section of your book, and I feel I am missing out. I have never had a credit card, and the only debt I currently have is my HECS-HELP loan. I want to experience the joyful fulfilment of cutting up a credit card and burning a final statement but, alas, it is not to be. Should I sign up for a credit card just so that I can cut it up?

Linda

Hi Linda,

Yes, you should. But only for the rewards points. (Just kidding.)

You Got This!

What’s the deal with zero interest credit cards?

When you’re doing my job, you just never know who’s going to walk through the door.

One day a woman in her sixties sat down in front of me ... and totally blew me away.

“Let’s start with your debts”, I said, pulling out a piece of paper.

“Well, I have a credit card”, she said.

“And how long have you had it?” I asked, biro in one hand, fingers poised on my calculator.

“Forty-four years”, she replied.

“You mean four years”, I said, correcting her.

“No, I mean forty-four years. My mum gave it to me when I turned eighteen ... and I’ve had it ever since.”

Pluck-a-duck!

She’d been paying interest on the balance longer than I’d been alive.

This woman was from another era … the Bankcard era.

In 1974, banks kicked off Australia’s first credit card, Bankcard, with greedy gusto, mass-mailing cards to customers without them even asking for it. For the poor, it was a revelation. Free money from the bank!

Times change.

Today, credit cards are viewed like cigarettes: expensive, unnecessary, and lethal if you get hooked.

Sure, there are still some poor bastards who can’t quit and continue smoking (and paying credit card debt), but the majority of people avoid them, especially young people.

Why?

Two reasons:

First, like smoking, we now know the truth. Credit cards are a rort; the majority of cards haven’t budged from charging nosebleed 20% rates despite interest rates being basically zero.

Second, as a consequence of this, young people have moved on to alternatives like Afterpay, which to me are the equivalent of vaping. 

(And, like vaping, Afterpay claims it’s (financially) much healthier for you — which explains how they’ve managed to slip through the responsible lending provisions — yet where there’s smoke, there’s financial fire.)

And that brings us to today, with two old bankers, NAB and Commbank, recently launching ‘zero-interest’ products in a last-ditch effort to make credit cards cool again.

CommBank called theirs the ‘Neo MasterCard’ (hey, the kids like that Matrix film, right?).

NAB called theirs ‘StraightUp Card’. 

Really? 

This from a company that admitted to the Royal Commission that its customers’ money all too often accidently fell into NAB’s pockets.  

Straight up.

Both cards promise “no interest payments, no late payments, no foreign currency fees, ever”.

So what’s the catch?

Well, these cards only offer small amounts of credit, up to $3,000.

And they charge a monthly fee, from $10 for a $1,000 limit up to $22 for a $3,000 limit.

The rub is that the banks charge the monthly fee regardless of how much you spend (unless you don’t use your card at all — in which case you don’t pay the fee that month).

Yet in some cases the monthly fees can often work out to be … almost as much as a regular credit card.

So what do I think?

I think we should view all of these products as coming from cigarette salesmen.

Here’s the rub: all of these products train young people to spend money they don’t have.

And that is a terrible way to live your life long term, and often leads to disastrous consequences.

Case in point: my sixty-something client.

She’d spent the last four decades working two jobs … just to pay some banker’s bonus. (Bonuses.)

I looked at the budget we’d just written out, which showed about half her pay was going in interest.

“I just don’t see how this works”, I said bluntly, leaning back in my chair.

She pursed her lips, looked down at the floor, and said nothing for a long while.

And then, in almost a whisper, she said: “Well … sometimes I don’t eat … eating is expensive.”

Tread Your Own Path!