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FINA11092020TutorialQuestions

WeekFive Readings:Chp.3“YourMoneyMilestones” ThetextreferstoUSdataonborrowing.Asshowninthelecture,theAustraliandataissimilar.Sowhilethe discussionreferstoAmericanhouseholdsthesameappliesinAustralia.(Youcanskipfrom“TheBorrowing SweetSpot:Age53”andstartagainat“ConcludingThoughts”.Whatisinbetweenisinterestingbutnot directlyrelevanttous.(thecalculatorsreferredtointhetextunfortunatelyaregone.AnalternativeExcel calculatorforHumanCapitalisprovidedinthefolderforthisweekonLMS) Thefollowingarebackgroundreadingsparticularlyforshort‐termcreditwhichcanbeusefulforQ8.

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“HardshipFactSheet”;“PaydayLendersVultures”;“PercentageofHouseholdwithTypeofDebt”. “Perthmotherondisabilitypensioncharged$760for$175loanbyshort‐termcreditagentCigno”;

Thefollowingarebackgroundinformation HECS/HELPinformation:abbreviatedversionofwhathappensovertimeisat https://www.ato.gov.au/Rates/Study‐and‐training‐loan‐indexation‐rates/ Ifyouarereallyintothemechanicsofindexation(wedon’tcover)seethelegislationat http://www.austlii.edu.au/au/legis/cth/consol_act/hesa2003271/s140.10.html

1.Inthelecturewedistinguishedcreditasmoneythatismadeavailableforyoutoborrowanddebt whichishowmuchyouactuallyborrow.FromaregulationperspectiveinAustraliawhatisimportantis whetheryouarebeingprovidedwitha“creditcontract”becausethatiswhatdetermineswhetherthe CreditActappliesandwhetherthecreditprovider(lender)mustcomplywith“responsiblelending”.A keypartofresponsiblelendingobligationsisthatthecreditprovidermustassesswhetherthecredit beingofferedissuitableforyou(actuallythatitis“notunsuitable”).Foreachofthefollowingassess whetheryoutheyarecreditandsubjecttoresponsiblelendinglaws–thatisdotheyhavetodoa creditcheckonyouandassessyoursuitability: a)CreditCard,b)Afterpay(Buy‐Now‐Pay‐Later),c)HECs‐HELP,d)Mortgage.  2.Let’sgobacktoJofromlastweek’stutequestions.Johadamortgageof$255,000. Let’ssayherloanrateis3.42%p.a.(thisistherateon19/7/2020fromBankwestforastandard variablehomeloanrate). a)Ifyouhave$0monthlyfeeswhatmonthlyrepaymentisneededifthereare20yearsleftonthe loan?Usethecalculatorat https://moneysmart.gov.au/home‐loans/mortgage‐calculator#!how‐much‐will‐my‐repayments‐be Also,whatisthetotalamountpaidontheloan?(Youcanseethetotalrepaidonthetopofthegraph) b)Let’ssayJowaspaying$1,600permonth.Howlongwillittaketorepayherloan?Usethecalculator https://moneysmart.gov.au/home‐loans/mortgage‐calculator#howlong thesame$255,000loanand3.42%.Howlongwillittaketorepaytheloan.Howmuchispaidintotal? c)Jogetspaideverytwoweeks(fortnightly).Whatifshesplitsthe$1,600andpays$800every fortnightinstead?Usingthesamerate,howlongwilltheloanbetopayoff?Howmuchintotalispaid? Whydoesitchange?  3.Anattractivefeatureofcreditcardscanalsobecomeaproblem.Creditcardproviderssetaverylow minimum monthly repayment, generally about 2% though there is a minimum dollar value if your balanceislow(e.g.$25minimum ifyouowe$500). Youmayhavenoproblem meetingtheminimum 7 

FINA11092020TutorialQuestions

butthatmeans98%ofthebalanceisgettingrolledovereachmonthataveryhighrateofinterest.And itmeansashorttermdebtisbecomingamediumtolong‐termdebt–BIGproblem. Let’ssayanemergencyariseswhichwillcostyou$2,500andbecauseyouhaveacreditcardyouuseit topayforit.Yourcardhasaninterestrateof20.24%(that’stherateforexamplefora“ANZFirst”and it’snotthemostexpensive).Gotothecalculatorat https://www.moneysmart.gov.au/tools‐and‐resources/calculators‐and‐apps/credit‐card‐calculator

andcomparethetotalrepaymentsandhowlongittakestopayitoffif: a)Youmakeaminimum2.5%repaymentofthebalance(clickthe ribbontochange therepaymentrateandusea$20minimumpayment) b)Youmake$120permonthrepayments(clickthe“higherrepayments”buttontodothis) c)Bigdifference? 4.Chapterthreeofthetextistitled“Howmuchdebtistoomuchandhowmuchistoolittle?” Istherereallysuchathingas“toolittle”?Whatisthepointthetextmakesaboutusingdebt? 5.Thetextalsoreferstotheideaof“good”and“bad”debt.Whatdothosetermsgenerallyreferto andwhatisthetextviewofthis?Referlastparagraphp.67.IsthisconsistentwiththeanswertoQ.5? 6.Thetextreferstotwoanomalies.Thefirstisthefactthatindividuals/householdshavemultipletypes ofdebts(e.g.creditcard,carloan,mortgage)whichislabelledas“Debtdiversificationacrossspace silos”.AsshowninthelecturetheAustraliandatamatchestheUSdata(refertheslidesinthelecture‐ andit’sinthisweek’sreadingsonLMS“PercentageofHouseholdwithTypeofDebt”.Notethatyou arenotexpectedtorecallthesespecificnumbers).Whatisthis? 7.Theotheraspectofpoordebtmanagementdiscussedinthetextislabelledas“debtdiversification acrosstime”.WhatisthisandwhyisitNOTasensibledebtmanagementapproach?  8.Thereareanumberofshort‐termcreditoptionsavailablewhichdonotchargeinterest.Howisit possiblethatyoucanborrowmoneyforfree?Explainthisfor: a)PayDayloan(LMShasreadingsof(bad)storiesaboutPayDayloans) b)Buy‐Now‐Pay‐Later c)No‐deposit‐no‐interestterms(e.g.JB‐HiFihttps://www.jbhifi.com.au/pages/interest‐free‐finance)  9.Doyouknow yourcreditscore?Haveyouchecked yourcreditreport?Howmuchshouldyou payto findout?Compare what isaskedbyExperianathttp://www.experian.com.au/consumer‐reportsand http://www.experian.com.au/order‐credit‐report/ with what MoneySmart advises https://www.moneysmart.gov.au/borrowing‐and‐credit/borrowing‐basics/credit‐reports Whathappenstoyourcreditreportandcreditscoreifyou: a)Areoneweekorthreeweekslateonaloanrepayment. b)Areamonthlateona$160Utility(e.g.Synergy,Telstra)bill c)Arethreemonthslateona$160Utilitybillandthedebthasbeenplacedwithadebtcollector. d)Repayyourloanontime.

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FINA11092020TutorialQuestions

  Somethingforyoutodo–notcoveredinTutorial A.Thetextsuggeststhebenefitsofdebtconsolidation.Thereisnoshortageofcompaniesofferingto consolidateyourdebt–aquicksearchonlinewillturnupplenty.BUT,thereisneedtobecautiousfora numberofreasonstoensurethatyoudon’tenduprepayingmorethanoriginally.Thegeneralcaution aboutdebtconsolidationis–dothemaths,orgetsomefreeadviceaboutthemaths.Doesconsolidation resultinyoupayingbackless?Notnecessarily Why‐refertohttps://www.moneysmart.gov.au/managing‐your‐money/managing‐debts/consolidating‐and‐refinancing‐ debts. a)Whatissuggestedyoushoulddobeforeconsolidatingorrefinancing?What’sthedifferencebetween consolidatingandrefinancing? b)Whatissuggestedaboutwhatcangowrongwithdebtconsolidation? c)Whatarethethreepointsofthechecklist? (Ifyouareinterestedinmoredetailsofformerinvestigationssee: https://asic.gov.au/about‐asic/news‐centre/find‐a‐media‐release/2018‐releases/18‐163mr‐asic‐warns‐consumers‐ about‐paying‐high‐fees‐for‐credit‐repair‐and‐debt‐advice‐services/ https://download.asic.gov.au/media/3515432/rep465‐published‐21‐january‐2016.pdf)  B.Sometimesthingsdon’tgowell–doesn’thavetobeanyone’sfault.Howcana“HardshipVariation”canhelphere? ReferthefactsheetonLMStofindoutmoreaboutthisandhowitcanhelpyou.  ANDIFYOUNEEDHELP‐IFYOUAREHAVINGPROBLEMSWITHDEBT(ORKNOWSOMEBODYWHODOES) Seeafinancialcounsellor:https://financialcounsellors.org/public/  Seetheguild–http://www.uwastudentguild.com/assist/financial/uwa‐financial‐services/  NationalDebtHelplinehttp://www.ndh.org.au/‐itisanot‐for‐profitwebsiteorphone1800007007  Getsomefreelegaladvice: ConsumerCreditLegalServiceWA0892217066orLegalAidWesternAustralia1300650579 

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