What does that mean for the unsuspecting user of these “convenient” credit card cheques? First, interest starts to accumulate immediately since there is no grace period on cash advances. Second, cash advances often come with a much higher interest rate than normal retail purchases made on a credit card. With a higher interest rate, costs go up and the time it takes to get to debt-free forever lengthens, both of which make the folks who fall prey to these cheques extremely profitable.

The federal government has been promising to stop these credit card cheques from being sent to customers if they haven’t specifically been requested. And yet they keep arriving. Have the feds dropped the ball? Or are credit card companies simply not following the rules? Or is it a case where the feds dragging their feet serves the special interest groups that would like to see this proposed new legislation take a long time to become law?

The promise to regulate a ban on credit card companies sending unsolicited cheques to customers came in the 2011 federal budget. How long can it possibly take to implement? Is the government being lobbied so hard that it’s using delay tactics to let credit card companies get their last licks in? Perhaps.

According to the Department of Finance website (as seen on May 13, 2012):

“The Government proposes to ban the distribution of unsolicited credit card cheques by federal financial institutions… These proposed regulations will be published for consultation in the coming weeks.”

What’s to consult? Either they are going to ban the suckers or they’re not. Of course, every time they get a little closer to the actual ban, the media picks up the story and talks about what progress this is, and the feds get more positive airtime. Meanwhile, I’m still getting those damn cheques.

Of course, the industry has developed these ratios to assess your ability to carry a mortgage: they’re not concerned about your ability to save. But if you adopt a strategy where a fixed percentage of your income goes to either the mortgage or savings, then the difference doesn’t matter.

The most important ratio goes by the arcane title of gross debt service (GDS) ratio. It measures mortgage payments plus property taxes and heating costs in relation to your gross (pre-tax) income. Most lenders will allow you to take on a mortgage with a GDS ratio up to 32%. But that will likely stretch your finances to the limit: many borrowers prefer to go up to only 27% or 28%. That leaves a little bit more room for other costs like raising kids, saving for university costs, or just a more comfortable lifestyle.

The part of the GDS ratio taken up by property taxes and heating can vary quite a bit, but a rule of thumb is 7%. So if you strip those factors out of the ratio, the proportion of your income that you can apply just to the mortgage is around 25% if you want to stretch a bit, or 20% if you want to keep the load more comfortable.

This is all money that you can convert to savings after your mortgage is gone. After all, you showed you could manage it when paying off your home, so you should be able to do just as well when you’re paying yourself.

Another industry yardstick called the total debt service (TDS) ratio includes other forms of debt payments, like personal loans and car leases. Most lenders allow you to have a TDS ratio up to 40%. But even if you don’t take on debt for cars and other consumer purchases, you will need to earmark part of your income to save for those things. So most people shouldn’t figure on tapping any of this capacity for retirement savings. However, in special circumstances—one example is a couple in their 50s with no debt whose kids are financially self-sufficient and who only buy a small, reliable car once every 10 years—then you can probably push your savings rate quite a bit above 25%. But most people probably shouldn’t count on it.

There’s a bonus here once you start applying the money to savings instead of your home loan. Mortgage payments don’t enjoy tax breaks, but RRSP contributions will get you a juicy tax rebate. (Granted, you have to pay tax on this money when you withdraw it in retirement.) Your effective savings can also be quite a bit higher if you salt away the rebate as well, particularly if you’re in a high tax bracket.

If you’re a frugal, mortgage-free Canadian with an average income or higher who has paid off your mortgage and other debts, and you’re willing to salt away your RRSP rebates, then chances are you can save a total of 30% to 40% of your income.

1. The markets are in the crapper. What’s the point? Hey, an RRSP isn’t an investment; it’s a registered savings account. You put your money into the RRSP and the taxman treats it with kid gloves. How you choose to invest is a completely different subject. You can choose from the safety of a savings account, to mutual funds, indices and individual stocks. And current market gyrations shouldn’t be a huge issue if you’re saving for retirement that’s 20, 30 or 40 years down the road. Of course the markets are going to go up and down; that’s what markets do. If you don’t have the stomach for the slips and sides, stick to fixed-income investments. Which leads to objection #2.

2. Interest rates suck. What’s the point? The point is to set something aside for your future. The point is to not spend all the money today, so you have some money for when you’re no longer taking home a paycheque. The point is to even the playing field between all the folks with access to company pension plans and those without. Besides, interest rates won’t always suck (just like markets will not always go up.) If you’re not happy with interest rates, learn more about investing so you can take advantage of alternatives with potentially higher returns.

3. You’re double-taxed on RRSPs. No you’re not. When you put money into an RRSP, you get a tax deferral on the amount you’ve contributed. You’re only taxed once, when you take the money back out. People who focus on all the tax they’ll have to pay when they start making withdrawals from their RRSPs or RRIFs are losing sight of the fact that for all the time the money was inside the RRSP it was growing on a tax deferred basis.
According to the Investor Education Fund website calculator (link: http://www.getsmarteraboutmoney.ca/tools-and-calculators/sheltered-investment-calculator/) a single $5,000 investment, assuming a marginal tax rate of 35%, would grow to $10,799 outside an RRSP over 30 years at just 4%. Inside an RRSP you’d have $16,217. That’s $5,418 more inside the plan than outside the plan. Contribute the $1,820 in tax savings to the RRSP, and in 30 years, you’d have an additional $11,094.

People come up with all kinds or reasons for not using RRSPs to plan for retirement. Maybe that’s why only about 1/3 of us make an RRSP contribution every year. Such a shame. A wasted opportunity really.

1. Goods not satisfactory?

Your first stop in any dispute over credit card charges must be at the store or service you dealt with in the first place. Your credit card company will usually abide by the return policy of the merchant in question: if a store only allows returns within one week, for example, you’re unlikely to get a refund from a credit card company 60 days later. Remember, it is the merchant’s responsibility to provide paperwork or other proof that you got the goods or services you’ve been charged for, even if it’s a disputed day on the Mexican Riviera. Your odds of winning your dispute will improve significantly if you have all your original receipts.

2. Thirty days and counting

If the merchant doesn’t solve the problem, your next stop is the credit card company. “People really need to check their credit card statement carefully every month,” advises Andy MacPherson, VP MasterCard at President’s Choice Financial. You have 30 days to complain about a problem. However, for items that were never received, down payments on custom orders and online purchases, the clock typically starts from the expected delivery date. Where there’s an obvious explanation for your problem, the credit card company may fix it over the phone. Detailed investigations may take four to six weeks to resolve. Keep records of all interactions with customer service agents, as this will help if things get complicated.

3. Escalation

If you still don’t have results, it’s time to escalate your case. “Keep in mind that it may be the job of the first person you talk to on the phone to say ‘no,’” says Stephanie Holmes-Winton, a financial adviser and blogger at themoneyfinder.ca. “If that’s the case, you need to talk to a supervisor.” Holmes-Winton recommends being polite but forceful as you pursue your complaint up the ladder. In a lengthy dispute with a credit card company over travel insurance, she demanded the firm listen to the tape of her initial phone call. Her claim was immediately vindicated, and she received a $1,000 refund cheque by courier. Preparation and confidence pay off.

4. Final solutions

If the regular chain of command can’t solve your dispute, you still have several options left. First, check your credit card company’s ombudsman policy. The Ombudsman for Banking Services and Investments represents many credit cards and can arbitrate settlements up to $350,000. You can also complain to the federal government’s Financial Consumer Agency of Canada. Another great way to motivate the credit card company to solve your issue, according to Holmes-Winton, is to make your case using Facebook or Twitter. “I’ve found many companies will respond a lot quicker to an online posting than if you just phone to complain,” she says.

Phil Edmonston, author of the Lemon-Aid car guides, says it’s too soon to tell if Unhaggle can give consumers lower prices than they can get on their own, but he says the service could be useful for certain types of buyers. “This should appeal to consumers who don’t have time to do research, as well as people buying more expensive vehicles where there’s more room to negotiate on price.”

The first thing Kewin suggests parent and child do is use personal experience to discuss the differences between needs and wants. Here’s mine:

Because of the weather, the new jacket I bought this winter may sound like a need, but there’s more to it. It was a replacement for a jacket I bought two years prior but whose brown finish was marred after it got washed along with a red blanket. It was covered in red fuzz. But was it unwearable? No. I could have sat for several hours and used a lint brush to remove the fuzz. Instead I got a new jacket—a pricey down jacket suited for extreme cold. But despite having spent a previous winter in frigid northern Alberta, did I really need a winter jacket made for the Arctic? Definitely not—I just convinced myself that I was sick of being cold in the winter. What initially sounded like a need was really a want.

Kewin notes that kids typically say everything they want is a need. “That conversation … to get them to make that distinction [between wants and needs] is a fun game for parents to play with their kids.”  The parent is also learning about their spending habits and she’s heard times where the child corrects the parent, she adds.

Another way to see whether the child genuinely understands the difference is by letting them experience handling money themselves. Let your child prepare his/her own budget, Kewin says, adding that she tried this with her son and found that it worked.

Children don’t learn how to save money by themselves and even if parents are afraid of teaching them the wrong thing, it’s better that parents discuss the topic, she says.

“The most important thing for parents helping their kids learn about credit cards [and money] is to remember to give it to them in little chunks, not big,” Kewin says. “It’s like anything in life, the teachable moments are when the child or the teen is speaking about something that they want.

“Open the conversation. Don’t tell, ask. How would you go about getting that money for that iPad?”

The number of pieces of pie you get depends on how many years you’ve lived in Canada after the age of 18. From here the formula gets really complicated. If you were born before 1952 special rules apply:

• You must have lived in Canada in 1977 or had a residence in Canada for some period,
• You must have had a valid immigration visa, AND
• You must have lived in Canada for the 10 years prior to your OAS approval, unless you didn’t (see what I mean about complicated) in which case:
  - You must have lived in Canada for the entire year before your approval AND
  - You must have lived in Canada since the age of 18 for three years for every year you were away during these last 10 years.

If there is one thing in your favour as a new Canadian it is that you already know how important it is to be self-reliant. You know life changes. You know you must have the foresight to plan for the unexpected. After all, that’s likely how you ended up in Canada to begin with. Something changed and life won’t stop changing now that you’re here.

You must save. You must take control of your future by setting aside a little piece of everything you earn for the future. You will likely have competing priorities, most of us do. You want to make sure you give your family a nice place to live. You want to travel back to your homeland to maintain your connections with family and friends. You want to send money home to help those you’ve left behind.

You must also take care of YOU. Canada may offer more opportunity, but it is also a sad place if you are old and poor. If you are planning to return to your land of origin when you retire, you can take that into account in your planning. But keep in mind that any government pension you receive may be affected. If you’re planning to stay in Canada, you must ensure you have a stash of cash so you are able to take care of yourself.

The biggest mistake you can make financially as a new Canadian is to jump into something you don’t understand simply because it’s the way everyone else is going. While seeing the opportunities and making them work for you makes good sense, adopting bad habits does not.

You also can’t assume that the universal benefits you hear about will apply to you. Everything has a rule, and if you don’t fit the rule, you don’t get to play in the game. Our government pensions are a good example of this. You can’t assume you’re going to get the maximum amount talked about in the media and in financial brochures. There are specific rules for qualifying for the maximum and anyone who has lived in Canada less than 40 years likely won’t get the maximum amount available from Old Age Security (OAS). (See my next blog for more on this.) Since the Canada Pension Plan is a contributory system—what you take out is based on what you put into the plan—you might not get the maximum from that plan either.

If you come from a tradition where children take care of their elders and your family maintains that tradition, then you’re very lucky. However, know that life for your children in Canada will be very different than you might now imagine. They will experience their own struggles to make a home for their family. If they marry out of your culture, that may create tension if you try to move in later. And if they must relocate for work—and relocation is a way of life in North America—will you want to move away from everything you have to live with your immediate family? If not, you better have enough money to take care of yourself.