Ignorance is not always bliss

I prowl online forums related to money and finance and encounter time and time again how the typical consumer gets himself into situations where he does not understand and becomes exploited by the financial institution.

There is no free lunch
One encounter was this parent who applied for a "free cheque book" from one of our local banks. He thought that this was a normal chequing account but it was actually one of those personal credit lines where a "free" cheque book was provided. He wrote out a cheque without making payment from his bank account savings into this personal credit line account and when the cheque was cleared, he was hit with an interest charge of $5.

I replied to this forummer and the first question I asked was, "Do you know that this product that comes with a cheque book is a personal credit line and NOT an normal chequing account?" It appears that he was totally unaware of what he had signed up for!

[If you are savvy operator, the trick with using such free chequebooks is tight management of cashflow. I.e. always pay your personal credit line amount first before issuing the cheque. This way, you really get a free cheque book but it only lasts for the first year because the bank will typically auto-charge your personal credit line account with the annual fees after the first year! So be alert to that!]

Whose fault is it anyway?
Is it the bank's fault for not educating their consumers about the nature of the product? Is it the consumer's fault for not asking the right questions and finding out about what the free cheque book was about? Is it the regulator's fault for not providing minimum disclosure rules to safeguard clueless consumers about such products?

In short, who can we blame?

The reality is that we should blame ourselves. Just as we would not operate a motor vehicle without a proper licence and would have to put on our seatbelts before we start the vehicle, we need to learn to drive carefully and safely in order to navigate successfully through the pitfalls and pain waiting for us by the financial institutions eager to squeeze every ounce of profit if we are not fully aware of what products are suitable for us depending on our needs.

We need to equip ourselves with financial literacy, to know what questions to ask before we take on a new financial product or service. What are the risks? Will I lose my shirt, pants and underwear by investing my money in this product. Would you as the financial advisor buy this product you are pushing to me?

In Singapore, people tend to be non-confrontational and we want to be pleasant and affable to everyone. However, in our quest for financial freedom, we must fight for our financial rights and demand to have access to the critical information required for us before we sign on the dotted line for that "free" cheque book, investment product or bank account. Read up on the fees and charges that the banks are required to disclose on their websites. Read up about the general and specific information about a product or service. When in doubt, delay your decision as the product/service will still be there if it is bonafide and good. In short, arm yourself with the seeds of financial literacy that will grow every day as your brain gets used to asking those questions BEFORE and not AFTER you sign on the dotted line.

Pay for your own lunches
Above all, adopt a healthy dose of scepticism for the next new-fangled free product or service because in this modern world that we live in, there really IS NO FREE LUNCH.

Be well and prosper.