It has been said that nature abhors a vacuum. There is a vacuum in mortgage financial literacy and it is being filled by incompetent people! The Federal government and the Canadian Banking Association cannot seem to get their act together.
Nancy Hughes Anthony, CEO of the Canadian Bankers Association (CBA), FINANCIAL LITERACY, National Post, Feb 16, 2011 is upset and takes exception to Jonathan Chevreau’s blunt and accurate article, READ BETWEEN THE LITERACY LINES, Feb 12 National Post.
Nancy states the CBA’s, YOUR MONEY PROGRAM was developed in partnership with the Federal Governments Financial Consumer Agency of Canada (FCAC). According to Nancy they have taught nearly 200,000 senior high school students financial literacy education. I question what they are “teaching” our students?
It would be interesting to see an outline of the CBA’s seminars given to students. I am not interested in the extremely complicated, high level, mathematical concept of budgeting (tongue in cheek). I am interested in the mundane concept of borrowing money.
For example; if one uses the mortgage calculator provided on the FCAC web site and calculates the interest savings by going to an accelerated weekly payment plan, for a $300,000 mortgage at current rates, instead of a monthly payment plan there is approximately a $1,500 difference in savings in the Banks favour. The weekly interest factor on the FCAC calculator is not the same weekly interest factor that is used by the major Banks in Canada. To be fair the government web site points out that this is for guidance only. My point is the two groups should be communicating with each other in a more intelligent manner! Who and what is a mathematical novice to believe? This is not rocket science! The mathematics of loans and mortgages has been around since 1202 AD in Fibonacci’s book of calculations.
The calculation of weekly payments via weekly interest factors was standardized by de facto standard in 1984 when weekly payment mortgages first were introduced in Canada. If misinformation and lack of communication concerning established weekly payment calculations is happening today just imagine if the CBA attempted to explain and justify why the interest rate differential “penalty” (IRD) is not standardized. Anyone that has prematurely exited a Canadian mortgage term can relate to this confusing and EXPENSIVE fiasco!
Or why a CEO of one of the Banks investment arms writes in a column about compound interest working against you with debt. The implication in that at last sentence is misleading and sheer stupidity!!! If you make all loan or mortgage payments on time and do not miss any payments, YOU ARE NOT paying compound interest!!!
Perhaps some of the 30 recommendations in the recently released report by the Federal governments Financial Literacy Committee (“Canadians and their money”, 102 pages) will solve these communication problems? We can only hope.