Sometimes I write about general issues of personal finance. These are the kind of things that never really go out of style.

Please Note: I wrote this piece for financial advisors working in credit unions. But the advice applies to everyone. Feel free to use the advice accordingly.

Questions Asked – Answers Provided

When financial consumers and credit union members want to discuss financial literacy, I think they are really looking for financial wellness.

While you might get questions about contribution limits for RRSPs and TFSAs, the answer you give should probably offer needs to include information about emergency funds and insurance.

It’s a bit like asking your doctor about LDL and HDL in a cholesterol test when you should be figuring out how to change your diet or get more exercise.

Give them the information that will make a real difference

So, while members can benefit from understanding key concepts and terms about their personal finance, their lives will be improved when they put a plan in place that gives them the financial security they need and desire.

This is an important conversation to have with members, as we all try to sort through the physical and financial consequences of the greatest public health crisis in a century. And as we have witnessed, that health crisis became so much more.

COVID put all of us to the test. Now it’s time to move on and prepare for an uncertain future.

After all, hasn’t this whole episode reminded us that stuff happens? And we need to prepare, as individuals and as a society, for the possibility of chaos? Let’s help our members properly prepare for a future we cannot predict in detail.

Defining Financial Wellness

Let me really get this conversation started by sharing a definition of financial wellness I found from Fortune magazine.

Financial wellness, put simply, is the ability to have a healthy financial life. It means your debts are payable and you have ample emergency, college and retirement funds. You’re well prepared to handle any financial crisis.
John F. Wasik, [link=”ext-6876a811-cdc3-40b5-a183-772a553cf1e6″], October 11, 2019

In a nutshell, isn’t that what members are really looking for?

Answering the underlying question

While they might be asking questions about how to invest their RRSP money or whether they should buy term or whole life insurance, their real goal is financial peace of mind and a decent night’s sleep.

And we can help members achieve financial wellness by presenting them with the building blocks they need to put their financial house in order. And those building blocks include:

  • insurance for emergency needs
  • a nest egg for financial potholes and uncertainty
  • money for homeownership, college or university education, and eventually, retirement
  • a personal will and plan for one’s passing that has been shared with those responsible for its implementation

Preparing for the Unexpected – Insurance

Everyone “knows” they need insurance. To:

  • Cover medical costs, including hospital care, dental services, related personal benefits, and lost wages due to illness or accident
  • Replace their home and the things in it
  • Safeguard their families in the event of their death

While insurance is often a topic that members want to avoid (especially life insurance), it is essential to their family’s financial well-being.

Health and Disability Insurance

Many of your members have health and disability insurance with their employers, but some don’t. Maybe they’re a small business owner or a budding entrepreneur. Or their employer doesn’t offer that benefit.

And there are many aspects to health and disability insurance you can help them understand.

Go ahead. Take the time. Or at least introduce the topic. They’ll appreciate it.

Home and Tenant Insurance

Yes, families with a mortgage generally need home insurance, but families without a mortgage need protection too. This includes families who own their home without a mortgage and families who rent – tenants.

Even members without a mortgage will benefit from a good home or tenant policy’s security and confidence.

You know that. And you can help members of your credit union who don’t have that basic tentpole in their financial framework understand it too.

Life insurance

Maybe members don’t want to think about the prospect of their own death, but they still need to make sure their families are financially cared for if they die unexpectedly.

According to [link=”ext-1c10177f-7a3c-429a-a198-aafb51bebd63″], 49% of Canadians have never purchased their own life insurance. While many of these families have insurance through their employee benefits plan at work, that is not an effective solution in the event of job loss or career change.

This leaves far too many Canadians in a dangerous financial situation – one we can help them fix.

Financial wellness means making sure you have enough insurance to cover your family’s needs.

Financial literacy means that you understand the difference between term and whole life insurance and then decide what is best for you and your family.

You can help your members achieve both of these goals. You can have “the conversation” that starts them thinking about their family’s life insurance needs. Then you can help them understand their options and decide how to prepare.

Make insurance part of your next member update conversation. You might find they appreciate it.

Preparing for the Rough Spots – Putting Together a Nest Egg

I suspect that none of the items in this list are unusual or unexpected. The idea of having emergency funds – a nest egg – available to help during possible difficult times like job loss or significant injury or illness – is certainly not new.

And it is probably the easiest one for members to understand and accept.

But even so, many Canadians report that they are living paycheque to paycheque, without the financial resources to cover hardship. And [link=”ext-f4b36e91-4bdb-417a-aedf-ba6be42adfd3″], published in 2020 by the Canadian government, shows that issues such as family or marital status, homeownership and income have a distinct impact on savings levels.

Helping members to establish savings accounts and regularly transfer money to those accounts is probably the first step in helping them to achieve financial wellness.

Preparing to Meet Your Goals – Home Ownership, College, and Retirement

After you cover your necessities, it’s nice to start planning for long-term goals. Many members probably only start talking to financial advisors at their credit union when they address one of these goals. Maybe:

  • A young couple starting a family approaches you about and looking for an ideal starter home and needs mortgage advice.
  • Parents and grandparents have figured out that they need your advice about saving money for their children’s education
  • Parents have watched their kids grow up and begin to establish a life of their own. Now those members have come in asking for detailed advice as they prepare for their retirement

I suspect this is when members truly believe they need to improve their financial literacy. You can help them become financially literate, but you can also implement those plans and improve their financial wellness.

Mortgages and Home Ownership

Owning a home is often the single largest purchase a family will ever make. Finding a mortgage, finding a home, and putting all the pieces in place can be confusing and terrifying. Members will come to you to help make that process less stressful.

Post-Secondary Education

As kids get older, parents will likely start thinking about how they can help their kids with college and university expenses. Your help with understanding Registered Education Savings Plans and maybe even scholarship options will be appreciated.

Retirement – Entering One’s “Golden Years”

As your members prepare to retire, they have many things to consider. Personal savings, work-related pensions, and government programs all have their own rules. There is a whole set of acronyms that many of them are going to find confusing. More information and advice will be appreciated.

Whether members are trying to:

  • Understand their options for the Canada Pension Plan (CPP)
  • Decide on the benefits of Retirement Investment Fund (RIF) or annuities, or
  • Figure out how to handle a work pension plan – buyout of indexed plan

You can help them understand and act on their options.

Preparing for the Inevitable – Death and Taxes

Nothing is more predictable when talking about financial planning than hearing the phrase “death and taxes.” Death and taxes will almost certainly come to mind when people develop their financial literacy or improve their financial wellness.

Wills

While you may have already discussed life insurance, talking to your clients about having a will is also an important part of any financial wellness plan. You can certainly help introduce that conversation, begin a review of their needs and even discuss how to proceed.

There are plenty of options for getting a will prepared – online options and local estate lawyers who can help with this necessary though discomforting process.

Taxes

Ideally, part of tax preparation should be retirement preparation. Many of the decisions about a Registered Retirement Savings Plan (RRSP) versus a Tax-Free Savings Account (TFSA) are based on their impact on a member’s tax status, both now and when the member hopes to retire.
And although we already reviewed topics to discuss during the preparation for retirement, the conversations about how to save for it obviously must come first.

Many members will list this as a topic of confusion in their “quest” for financial literacy. You can help them understand enough to achieve financial well-being – by actually investing in their retirement.

And as you know, this is a perennial issue. The best day to start doing any of these things – improving their own and their family’s financial wellbeing — is the day you sit down to start the conversation.

 

by Todd Race

My credit score? What’s that?

Quick, what’s your credit score? And when is the last time you checked it?

If you’re like most consumers, you don’t know what your credit score is, what it means, or even how to find out about it.

And yet, your credit score determines so much about your financial life. A good credit score can help you get the car loan you want, the mortgage you need, or the extension on your line of credit you are hoping to get. A bad credit score could do just the opposite.

Credit scores are calculated and maintained by credit bureaus who collect information about your credit and financial history. What they find in your financial history will determine your credit score. Companies you want to borrow from will use that score to help decide if you are a good credit risk. It will be part of what they use to decide whether to grant you credit and what kind of interest to charge.

Who are these credit bureaus?

There are two main credit bureaus in Canada:

  • TransUnion
  • Equifax

Lenders use the information they get from the credit bureaus. But they can only do this after they get your permission. And they aren’t the only ones who can also ask for the information that has been collected about you.

Why do I want to know my credit rating?

You may want to contact these credit bureaus to:

  • find out what your credit score is
  • make sure the information they have on you is accurate, and
  • decide how to maintain or even improve your credit score going forward

We’ll talk about how to get a copy of your own credit report a little later on.

It’s not just one number, and it changes – what good is that?

It’s sort of like your IQ. Stay with me on this…

In fact, your credit score is a lot like your IQ score, another number assigned to you that you may not be sure of or what it means. You know that a higher IQ is better.

According to Alan S. Kaufman, clinical professor of psychology at the Yale University School of Medicine, if you:

“Take different IQ test(s), then the range is even wider because different IQ tests measure slightly different things.”

and

“(W)hile there is no single IQ – it’s a range of IQs – you can still pretty much determine whether a person is going to score roughly at a low level, or an average level, or a high level.”

5 Experts Answer: Can Your IQ Change?

Sound familiar?

So your credit rating can change, and it’s important, but it *isn’t* everything

When a lender considers your credit risk, your credit score is just one part of their consideration. So, while it’s important, it isn’t everything. And minor differences between scores will probably not have any impact on your application. Your lender, your credit unions representative (you are a credit union member, right?), and your financial advisor can all help you with that.

Okay, so I want my own credit report. Now what?

There are lots of ways to get your credit report and find out what your credit score is. And as you can see, it’s a good thing to know.

And because it could be different at each credit bureau and can change over time, you will want to keep an eye on it – see if and how it changes.

TransUnion and Equifax each give you the option to get your report (and your score) by mail, in person, or on the phone. Just make sure to include the identification they need to verify your identity.

If you’re interested, you can even ask for monthly updates on your credit score and your credit report at both Equifax and TransUnion. Just be prepared to pay for it. While occasional inquiries are free, monthly updates are not.

The federal government recommends that you first ask one bureau for a credit report and the other six months later. You can do this on an annual, ongoing basis. This way, you can keep updated on how your credit score is holding up and how each bureau is handling your information. And this way it’s free.

I got my credit report. Why should I ask again?

You might find out when you ask for your credit report that someone else is trying to use your identity or that there is a mistake in it somewhere. By checking regularly, you can catch and fix things early. Both Equifax and TransUnion allow you to fix mistakes and stop fraud identified in your report.

What does the credit score tell me?

Credit scores are used to quickly indicate how good a credit risk you are. These scores are set anywhere between 300 and 900. Generally, a credit score of 660 or higher indicates that you are a good credit risk to the lender.
This score is determined by looking over your past credit history. If you already have credit cards, lines of credit, or loans that you are handling well, help boost your credit rating. Paying regularly and not missing payments are two major ways to keep your credit score in good shape.
If you apply for credit frequently, this can bring your credit rating down. So, only apply for credit when you really need it. Applying for another credit card while you’re in the grocery store is not always a good thing. Trust me…
This is where you can get in trouble if somewhen else is using your identity. Even if you aren’t being made responsible for debts other people are collecting, they are using your identity even to apply will drive down your score.

How can I keep my credit score or make it even better?

Now that you know what your credit score is, you can do things depending on how you feel about it.

If there are problems with or errors in your report, ask to get it fixed.

If you’re pleased with your credit score, you probably need to keep doing what you’re doing. And check on it every once in a while. Done annually, six months apart for each agency, is probably a good rule of thumb.

If you’re not pleased with your credit score, then you may need to start paying down and consolidating your debts. This may not be easy, but your credit union representative or financial advisor can probably help.

Okay, now what should I do?

Your credit report and your financial well-being are ongoing concerns. Take them seriously. Get informed. Stay informed.

And, if you aren’t already a credit union member, look for a credit union in your community. They can help you with all your financial needs – credit, insurance, savings, loans, mortgages, and retirement planning. Besides, they’re amiable people and members of your community.

And a credit union is the kind of place where you’ll soon figure out that “everybody knows your name.”

by Todd Race

In Canada about half of all renters have tenant insurance. So, there is a 50/50 chance that you don’t have any coverage. If you don’t have it, get it. Having it is not expensive. Not having any when you need it, is!!!

Some people seem to think their landlord’s insurance will cover them, if when something bad happens. Your landlord will have their own insurance to cover structural damage but that doesn’t cover your things. And content insurance (coverage for your things) is only one part of a tenant insurance policy. Tenant insurance covers:

  • Contents: Things you own
  • Liability: Things that happen to other people
  • Living Expenses: Things you need while they fix your place

Content insurance

This is the type of coverage most people think of when they think of personal insurance, either as a home owner or as a renter or tenant. This is also the part of the policy whose value is most easily understood. You can think of the things in your home and come up with some idea of how much it all costs.

When you work out your policy you will need to figure out how much you think it would cost to start all over. You can make a couple of decisions about your coverage. You can decide whether you want to cover the added value of specific items, like your grandmother’s diamond engagement ring or the series of first edition Pokémon cards you have in the bottom drawer of your desk.

To be safe you probably should choose all risks. Otherwise, you can choose named perils, covering just those things you list in the policy. The last option could be to simply list items you want excluded.

Your final choice when choosing the details of your content insurance will be whether you choose cash value or replacement value. You are probably better off asking for replacement value. After all, you may have furniture left over from your college dorm room and its cash value is fairly low. But when you need a new couch for the living room, you will need to be able to pay the full price.

Liability insurance

Liability insurance covers things you might think of as being outside your control. If someone slips and falls on your sidewalk, liability insurance can cover damages assigned by the court and even pay to defend you in court.

And don’t think that if you live in an apartment tower that you don’t need liability coverage. You want to be covered if the fire marshal figures out that your toaster oven caused the fire or the unit below you is water damaged because of a broken dishwasher or leaky toilet.

Typical liability coverage is set at $1million. While this should be enough for most people, you may want to increase that limit to $2 million. The difference in cost will be negligible.

Additional Living Expenses

The third part of your tenant policy will be to cover additional living expenses while your home is being repaired. This can include the cost of a hotel, restaurant food and even moving expenses as you wait for things to return to normal. There are limits to these expenses. Check your policy to see what those limits might be – hopefully before you need to use it.