The things that tick you off
A few weeks ago I wrote a column about some of the things that make me mad when it comes to money and finance. I invited readers to send me their pet peeves and, as it turns out, you have a lot of them. Let’s start with a lady who is fed up with what she feels are unrealistic growth projections:
“My pet peeve in the wonderful fairyland of financial ‘service’ is the rate of return projections in the financial planning programs used by most of the banks. This is a crucial piece of information for the accuracy of the results. The programs churn out rates of return the consumer hasn’t seen in years and has almost no hope of seeing for many more years to come.
“The last time I used a bank financial planner the projected rate of return used was 8 per cent. Even in the market you were lucky to see 5 per cent at the time. If you question the staff on it the reply will be that it is pre-programmed in the system. That is only partly true. I used to work for one of the big banks and even back then you could go in and input a more realistic figure. Thanks for the chance to rant!” – Mary M-P
This reader is also annoyed with the banks but for a different reason:
“I don’t like the bank teaser interest rates for savings accounts over short terms. RBC ran a teaser rate of over 2 per cent for a period of about four months in 2015 but only for new accounts — those with existing accounts were not eligible. Tangerine was another participant. It is just a Scotiabank clone now and the time has come to jump ship.” – Ted T.
This reader thinks the media should focus more on helping people earn a better income:
“The biggest thing that makes me mad when it comes to money and investing is there seems to be more written about spending and investing money than making money. Many resort to credit because they can’t earn cash fast enough for expenses that continue to rise. Try talking to someone who was unemployed for a period of time, experienced medical challenges or a death in the family, or was too financially illiterate to decline credit card offers while in school or new to the country. The conversation needs to change and become more balanced.” – Sherine O.
Several readers shared this complaint about the income tax return:
“You asked what investors are mad about. I have two company pensions that add up to very little. I have been forced to create my own pension by buying dividend-paying stocks.
“My Old Age Security pension will be reduced or wiped out for my retirement years because of the clawback. One major factor in cheating me of my OAS is line 120 of the tax return (the dividend gross-up). I am being penalized due to this entirely fictitious number. I did not get the dividends on line 120. What I really got much less than that number since taxable dividends are calculated at 1.38 times real dividends. Line 120 contributes to the number used for the OAS clawback. I would like you to bring this unfair practice to light and if possible suggest a way around the problem.” – Doug L.
I’ve actually written about the use of “phantom income” in relation to the OAS clawback on several occasions in the past. At one point, the late finance minister Jim Flaherty offered an explanation of the government’s rationale for maintaining the policy. He said not using the formula would distort the system because “a taxpayer’s after-tax income from a dollar of dividend income is generally higher than it would be from a dollar from other sources.” Therefore, he went on, “it is appropriate that the measure of income used to determine income-tested benefits takes this into account.”
So how do you get around it? It is possible for one spouse to claim all the dividends received by a couple if by doing so he or she will be able to claim or increase the claim for the spouse or common-law partner amount at line 303. This could reduce or eliminate the negative effect of the gross-up on the OAS clawback calculation in certain cases.
Finally, a number of readers shared my indignation about high credit card interest rates. Here’s one comment:
“I wanted to write and also add my support to your dislike of high credit card interest charges. It is criminal the rate they are charging. How is it when you go to the bank they offer you 1 per cent for your savings, yet charge you 20 per cent for a basic credit card?
“It is criminal and one of the ugly facets of capitalism.” – Sam R.
I also received a note from a media relations specialist at the Canadian Bankers Association that offered a rationale for high credit card rates:
“Credit card interest rates tend to be higher than other loans because there is no collateral involved so there is a higher risk for the issuer,” she wrote. “When someone borrows money for a car or home, the item purchased is collateral. When a customer does not pay their credit card balance there is no collateral for the financial institution to use to cover their losses. Since a credit card is both a payment tool and a credit product, the cost of funds is only a small part of the costs incurred by financial institutions issuing credit card products.
“There are many factors that go into the fees and the interest rates for the convenience that consumers enjoy with credit cards. These can include an interest-free period of up to 51 days from purchase to payment, depending on the card, as long as the balance is paid in full when owing.
“There is also the cost of operating a convenient and efficient payment system. These can include processing a large volume of transactions, technology required to support transactions, preparing and mailing statements and collecting payments, providing value-added rewards programs, and fraud losses and protection.”
So there you have the official explanation for those 20 per cent rates. You be the judge. My advice is never carry a balance so you don’t have to pay them. Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. His website is BuildingWealth.ca Follow Gordon Pape on Twitter @GPUpdates