05/13/2008 (By Jere Ebert)

Guest Post: Jere answers your banking questions

Have you ever had a question regarding banking that you were nervous to ask? Well, here is a list of questions that were asked by a group of students who attended the Youth Entrepreneurship Conference in Provost on May 6th. The students ranged in age from 15 to 18 and it was interesting to see how comfortable some were with their finances and how others didn’t really pay much attention.

Take a look at the questions below and maybe some of your questions will be answered.

When can you start saving for retirement and how?

When it comes to saving for retirement, the earlier you start the better. For example:

Starting Age	Contribution	Interest Rate	Worth at Age 55
20	$100 monthly	5%	$111,000.00
30	$100 monthly	5%	$58,000.00

By starting in your late teens or early twenties you will likely ensure you have thousands more come retirement. Through the power of compounding interest, your money works for you. Meaning the interest you earn continues to earn you more interest. The easiest way to get started is to set up a monthly contribution of $25 (usually the minimum) for most savings accounts. Set it up so that it is automatically debited from your account. One of the most common forms of saving for retirement is a Registered Retirement Savings Plan or RRSP. As long as you have worked and have had to file a tax return, you should be able to purchase an RRSP. Your investments grow tax free and better yet, you receive a tax deduction.

At what age can you take out a loan?

A person needs to be the age of 18 to apply for a loan on his/her own. Should a person under the age of 18 apply for a loan, they need a co-signer to “back them up.” Normally a parent or older sibling would agree to co-sign for them and this person takes on the responsibility to ensure the loan payments are made.

By federal government law, a document signed by a “minor” (person under the age of 18) does not hold up in court.

What kind of things do you take a loan out for?

Student loans—education
Purchasing a vehicle
Buy a house—mortgage
Buy investments such as RRSP’s
Home improvements
Sometimes to pay off accumulated debts. (debt consolidations are not considered a good thing if done continuously)

How do they decide who handles the money in the vault?

Vault money is always handled by 2 staff members every time you go in. The 2 people entering must have opposite combinations. These staff members have been approved by the managers.

What does GIC mean?

GIC stands for Guaranteed Investment Certificate. They are usually offered in terms of 1-5 years. They can also be offered in shorter terms starting at 30 days and going to 180 days, these are known as term deposits. The rate that is paid will vary with the length of the term and whether the GIC is redeemable prior to the maturity date. GIC’s through the Credit Union are guaranteed 100% by the Credit Union Deposit Guarantee Corporation.

How does a lender decide who gets approved for a loan? Also, how do you improve your chances of getting a loan?

When considering an application for a consumer loan, the lender considers the 5 C’s of Credit. The 5 C’s are: Character, Conditions, Capital, Collateral and Capacity.

The lender considers the applicants willingness to pay, based on previous credit history (credit bureau) and their ability to pay (can the applicant service all of their payments). If these two criteria are met, the lender then considers the security requirements to secure the loan. If the applicant is creditworthy, the loan may be considered without security. If the applicant has previous credit history, and has maintained their payments, this will increase their odds of obtaining a loan. It is very important the applicant meet all of their financial commitments, as poor credit history will diminish the likelihood of receiving a loan.

What makes interest rates fluctuate?

Interest rates fluctuate due to ongoing changes in economic data such as retail sales, gasoline prices, food prices, housing starts and unemployment data. A fellow by the name of Mark Carney, who just happens to be the Governor of the Bank of Canada, examines this data and then announces a key interest rate eight times a year that is designed to promote the economic and financial welfare of Canada. For example, all chartered banks and credit unions lowered their prime lending rates by 0.50% in accordance with the latest Bank of Canada announcement on April 22nd. The next rate announcement is scheduled for June 10th.

How much work does it take to get a loan?

Not a lot. The member is required to bring in Income & Employment verification and we take down his/her personal information, eg: birth date, SIN, assets/liabilities, etc. Then we complete a credit check and look at security for the loan (what the member owns or is purchasing). The member would have to debt service, which means all their debts can only use up to 40% of there income. If there is no beacon score (Credit Score) a co-borrower would be needed.

Can people under the age of 18 invest in stocks or bonds?

Anyone that is not legal age (18 yrs old) cannot purchase stocks or bonds in their own name. If they had wanted to purchase these types of securities they would have to be set up in their parents name “In Trust” to the child’s name.

Jere

Comments

1) Larissa - 05/13/2008

http://www.youngfreealberta.com

Awesome blog post today, Jere! It will undoubtedly be a huge help to anyone with similar questions!

2) Sandy - 05/13/2008

Nice post Jere. Words used by financial institutions can be intimidating to people of all ages, and you've found some good language here that I'm sure will be helpful to all!

3) Shelley - 06/11/2008

Wow - I just found this post. I didn't know how banks figure out how to lend money (5 c's). Thanks for the post! I was helpful.