What you’re about to read has been inspired by a scene from the TV show Silicon Valley, where a painful, very successful IT executive described himself as “ridiculously candid” and tried to rescue people described as “ruinously empathetic” from themselves.
With the Royal Commission due to restart its finger pointing today to expose bad business loan practices, I though I’d be “ridiculously candid” and blame the real enemies of our bank accounts and wealth in the financial sector.
My favourite money cartoon has always been a Larson one, where he depicted a dinner party with a whole lot of bored dogs and cats with their heads on their hands, as if contemplating sleep. The caption said: “Everyone was having a great time until Sally brought up the subject of superannuation!”
Money and what you can do with it is really exciting. Why is it that we really find it so boring that we endure Test cricket, play golf or watch The English Patient?
There’s something wrong with us Aussies. I know that because I bet most of us spent more time watching Meghan and Harry over the weekend than thinking about our money, our wealth, our future and the future of the people we love, who might have a better life if we were money smarter.
As you can see, I’m trying to guilt-trip you into being grown up about your money. Please stick with me because I am trying to rescue you from yourself!
The motivation for this story (one designed with you in mind) came up when I was talking to a friend about getting the best home loan interest rates. I’ve explained this idea about advertised interest rates and comparison rates at least five times before to him over the last 20 years.
The reason why we were talking about interest rates over a Sunday breakfast was because I had a crazy email during the week, where a radio listener thanked me for my ‘advice’. She’d called my radio program and asked for some advice about her loan.
I told her to find out from her bank what her advertised rate of interest was and the comparison rate, which throws in fees and other charges. When she knew what she was really paying, I said she should ring Adrian, who works for my Switzer Home Loans, where our rates are generally at the lower end, especially on a comparison rate basis.
She did that and Adrian offered her one of our low rates. Then she did what I recommended (stupidly, yet honestly). She went back to her bank to see if they’d match it. And yep, they did and she accepted it!
That was a win, win, loss outcome. The caller won. The bank won. But I lost out.
Being an accommodating type, I was happy that my caller got a good bottom line outcome, though I would’ve liked it if she had gone with us. My friend then asked, “I wonder why she didn’t go with you rather than the lender that had been overcharging her for years, until you showed her the way?”
Fairfax media has run a story on why we don’t easily switch our loans to get the best deal.
“A CoreData survey of 1,500 mortgage holders suggests about one in two suspect they're not getting a good deal on their home loan but won’t switch because of laziness, loyalty to their lender or the fear of someone looking at their finances,” the press release tells us.
The first two reasons (laziness and misplaced loyalty) didn’t surprise me but the fear of being exposed as a money moron or mistake maker is an understandable concern.
That said, it has been one of my greatest life discoveries that the best intrusion into our lives is when someone does an objective test on you and then honestly shares its insights. Doctors advising you that your lifestyle will kill you, accountants telling business owners they’ll go broke unless things change and teachers warning you that your kid is going off the rails at school are all big motivations to change the way you do things.
I’ve always loved Jim Rohn’s take on self-improvement and success. He counselled that “just about everything we want in life is just outside our comfort zone.”
You have to get uncomfortable to make progress but it also helps if you have good knowledge. Even well meaning journalists can leave some important info out.
In the story about why we don’t switch loans, the very low rate of Easy Street Home Loans at 3.39% was featured. When I checked out the comparison rate for this loan, I found it was 4.13%. This means with fees, the loan is actually dearer. If someone compared it to the Switzer Home Loan at 3.89% (for both advertised and comparison rates because there are no added fees), then they’d know the true story on which loan has the lowest rate.
A couple of weeks ago I went to one of the loan comparison websites as I was writing a piece on whether it was time to fix. I found the lowest advertised rate in the market for three-year fixed, which looked good. But when I checked out the comparison rate, our loan was actually the lowest!
That even shocked me, so the lesson is always this: ask what the comparison rate is for the amount you’re borrowing. Lenders do show the comparison rate with their ads (they have to by law) but most people don't know what it means.
There is a fine print explanation on ads but most people don’t read it. It says the comparison rate is worked out on a given size of loan but when you borrow, you should ask the lender what the comparison rate is for your size of loan.
I’ve blown up the fine print explanation about the comparison rate, so you’ll partly know what you are getting into when you borrow. This is a typical example: “The comparison rate is based on a secured loan of $150,000 and a term of 25 years. WARNING: The comparison rate applies only to the example given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan.”
After reading the above and my story today, I hope you can motivate yourself to do the best you can to give yourself the best possible deal available.
Let’s face it, if you’re prepared to rip yourself off by being lazy, loyal or afraid of showing someone the truth about your money madness, then how can you be so damning of the banks? Many Aussies have been accessories before the fact to financial felonies!