My First Credit Card
I needed credit in my life. But I needed to learn how to use credit right.
Around 1980, credit cards were making there way into society, and as a young couple fixing up our house, we were drawn to them. We wanted to buy a food freezer that was about $300. and we did not have the money.
The salesman at Eatons, a large Canadian Store chain suggested we apply for a credit card. We did not have a credit card at that point, so we applied for it. But we were turned down because we did not have another credit card.
A few weeks later we were shopping at Zellers and a clerk asked us if we would like to apply for a credit card, and we said yes. They approved a credit card for us.
More Credit Cards
Once we had that credit card, over time we were able to obtain other credit cards, mainly because Zellers took a chance on us first, and we were now building up a credit payment history.
Owning an old house that needed renovation work, we went almost weekly to the Beaver Lumber store to buy materials for the house. A lot of these items were purchased on a credit card.
Credit Cards Over-Extended
A few years later, we had a large credit card bill on a few different credit cards, and not able to pay it back. It became a large overpriced loan with a high interest rate. We struggled for a couple of years, trying to pay that credit card bills off. The credit card interest was high around 20%, so it was a slow process trying to pay it off, as a lot of our payment would go to interest.
A Credit Line
Eventually I obtained a credit line from our bank, with a significantly lower interest rate than the credit card interest rate. The interest rate was prie plus two percent. So whatever the Bank of Canada interst rate was, the bank would add 2% to that.
I never again allowed a credit card bill to collect high interest from us, because I would finance it on my credit line. I have used this method for the last thirty years or so. I still have the credit line to this day, although there is little borrowing on it these days.
Hold Onto Your Wallet
Over the years I have noticed how finance companies try to sell higher interest rate plans First, because it is more profitable to them.
I knew a young family man trying to buy a large four door used car for $5000 at a new car dealership. He did not have a good enough credit rating to get a loan at the bank for the $5000, and the dealership financing department was not interested in giving him a loan on a used car.
But, the dealership gave him a ride in a brand new small car priced at $20,000 and said they could finance that ! Talk about burying the customer in debt. The customer wanted a $5000 loan for a $5000 car which the dealership will not provide, but the dealership will give him a $20,000 loan on a brand new car.
Buying the new car could be financial suicide for the customer, if things go badly. The customer had a family member finance the $5000 at a low interest rate on their credit line, and things worked out fine.
High Profit or Less Profit
I have heard similar stories about major Canadian banks. People want a small loan of $3000, but the bank says we have a minimum loan amount of $5000 or some higher number.
The bank says, we can’t give you a $3000 loan, but we will give you a credit card ( with a high interest rate ) for that $3000 amount.
It seems that the customer is offered the high priced products first. If the customer thinks this is the only option available to them, some will take the high interest rate credit card. Some customers will refuse the loan, and search elsewhere for a loan on better terms.
Financial Literacy ?
What I see as a bigger issue is a lack of financial education. My Dad tried to teach me what he knew, but I did not listen to him as a young family guy.
I started working in the life insurance industry at age 23, and over time the industry gave me a financial education from their point of view.
As I progressed to being self employed, I learned more about bank financing rules used to finance loans and mortgages.
I think that experience of financial learning was common back in the 70s and 80s. I feel I stumbled into the financial literacy I had, but I feel a number of people in my high school class would not have stumbled into as much financial literacy as I had.
What I See Today
Today, I feel that young people ( and all of us ), are subjected to a lot more advertising, because of our smart phones and the internet, and most every website selling something to you.
With online purchasing on the rise, I wonder if young people have a better or worse understanding of money and finances ?
Financial Health of the Next Generation ?
The Canadian government reports that Canadians are carrying more debt than in past years. They say that the higher level of debt is not healthy.
I’m sure there are a few possible causes for this higher debt. My guesses would be a lack of financial literacy, and the advertising & selling pressure people are subjected to.
We are never to old to learn, especially about money and finances. So keep learning.