Nest Egg or Debt Reduction?
For two reasons, I don’t think new credit card (“card”) regulations in USA and Canada will stop imprudent card use. First, rapid product upgrades demand speedy inventory turns, pressuring merchants to extend seductive financing. Second, easy credit leads to debt-filled lifestyles, frustrating folks confused with lifestyle choices affecting regular budgets, major non-routine buys, home ownership, saving for retirement, and investments.
New Credit Card Regulations
Introduced in 2009 in USA, and September 2010 in Canada, regulations demand greater transparency from card issuers to “protect” users. My favorite edict requires that monthly statements show the repayment period if consumers made minimum monthly payments only.
With constant pressure from Governments and merchants to spend, how do folks stop using cards as loan instruments and start living debt-free lifestyles? Consumers must want change and appreciate this decision could lower living standards; they must yearn to stop carrying monthly card balances.
Credit Card Alternative
Over 15 years, I taught and practiced the Capital Fund (Fund) as the credit card alternative. In The New Managing God’s Money-The Basics I wrote: the Fund is an account maintained to finance major buys and large maintenance expenses to eliminate crises from annual budgets. It allows systematic planning and scheduling of needed major maintenance and major buys. It’s savings targeted for specific items with lives beyond one year--the first step in a three-part savings and investing journey. In Canada, the TFSA (tax free savings account) is the ideal vehicle.
A precursor to the first step is repaying consumer debt, potentially your best return on investment. After, start the Fund using this worksheet to calculate monthly saving amounts. Your child needs a Fund to enter adulthood with a lifestyle of paying cash for all buys except a home. His savings could target engagement and wedding rings, car, post secondary education, or other relevant major expenses. Parents: start your child's Fund soon after birth; stick with it, teach and model effective use, and hand it over to her in her pre- or early teen years. Deposit at least 50% of monies received for her from Government, relatives and friends, and encourage her to do likewise with her income.Continued on the next page