Six things a brutally honest banker would tell you about mortgages, HELOCs and market-linked GICs

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One reason why this country needs a financial literacy month is, well, Financial Literacy Month itself.

November is the month of the year dedicated to helping people be smarter about money, and who can say a word against this tradition? Financial literacy is among the top life skills. Money may not bring happiness, but misadventures with money are a leading cause of unhappiness.

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The problem with Financial Literacy Month is that it allows the conversation about smart money habits to be co-opted by the very companies that effectively force us to raise our financial literacy game. Mostly, the big banks. This month, you’ll see them pumping out polls, interviews, videos and other content designed to have their brands and their people associated with empowering Canadians to make smarter money decisions.

This mercenary side of Financial Literacy Month helps create a fictional idea of banks and their clients working harmoniously toward the client’s personal success.

We should not rule out the possibility of people in banking selling and advising in a way that puts customers first. But the top priority of a bank is to continually increase revenues, profits and dividends paid to shareholders. A proven way to gloss over this reality is to build an image of banks as cheerful helpers.

Banks offering budgeting tips distracts us from looking at how they push debt on customers via credit lines and other borrowing products. Banks talking about how to save money distracts from the subatomic interest levels paid on many savings accounts. Banks talking about the dream of home ownership papers over the fact that they will happily mortgage you to the eyelids.

To mark Financial Literacy Month 2021, here’s a list of six things a brutally honest banker would tell you:

1. Our savings accounts are terrible products

Billions of dollars saved by households locked down in the pandemic are sitting in big bank savings accounts that, according to Cannex.com, pay between 0.05 per cent and 0.5 per cent. Keeping your savings in these accounts is like renting your money for almost nothing to banks that lend it out at rates of 3 per cent, 4 per cent, 5 per cent and more. Alternative banks pay as much as 1.35 per cent on savings, with deposit insurance, handy apps for your smartphone and easy transfers to other institutions.

2. We will gouge you if you have to break your mortgage

Banks are competitive on rates these days – they have to be with so much comparative rate information available online. But if you need to break a mortgage before it matures, you’ll find banks often charge staggeringly high penalties that exceed those of alternative lenders. Compare rates, compare breakage penalties.

3. We can’t be trusted to tell you how much you can safely borrow for a mortgage

Banks assess affordability by comparing your income with your housing costs and total debt. If you come down on the right side of their thresholds, it simply means you are not considered a default risk. In no way is a mortgage thumbs up from your banker an assurance that you can carry a mortgage plus daycare, savings and other expenses of everyday life. Our Real Life Ratio calculator offers a real world view of mortgage affordability.

4. Assume the term ‘adviser’ means nothing in our branches, unless shown otherwise

Banks are trying to evolve into holistic advice providers from sellers of financial products and they’re using the terms “advice” and “adviser” more often. These terms mean zero unless the person you’re talking to has, ideally, a certified financial planner (CFP) designation, or personal financial planner (PFP). Otherwise, adviser means salesperson with no financial planning background.

5. Our home equity lines of credit are designed to let you stay in debt indefinitely

Unlike a loan, where each payment covers both interest and repayment of principal, HELOCs allow a minimum payment of interest only each month. Make that interest-only payment regularly and you might carry your HELOC debt right through your working years and into retirement.

6. We are addicted to a junk product called market-linked GICs

Market-linked guaranteed investment certificates offer returns connected to stocks or stock indexes with no risk of losing money. They are financially engineered to produce profit for the bank while paying investors returns that could easily be worse than a regular GIC. The latest spin on this product is GICs linked to the performance of socially responsible companies. Socially responsible banks would kill these products dead.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to the Globe’s award-winning Stress Test podcast.