Untouched credit can be travel aidSave
By Mary Holm
Your recent letters regarding bank lending make interesting reading.
Years ago, when I lived overseas, my bank regularly advised that my card limit had been increased. If I did not want the increase, I could write to them. Needless to say I was too lazy to do so. Thus, today, I still have a very large limit on its credit card, which I never go close to borrowing on.
But I am very pleased that I have that limit because it could prove of great value overseas.
Prudent readers will ensure that they have unlimited medical insurance when going abroad. This is a vital move. Unfortunately, it is not enough. There are some locations where they demand money up front before they will treat or even examine you. If you have a low limit on your card or you have maxed it out, you may be in difficulty.
I heard recently of someone who suffered a facial injury and did not get treatment until she arranged for funds here to be deposited to her card. It was not an expensive treatment, either.
Not long ago I heard that a friend visiting the US was taken ill and went to a major hospital where they did a series of tests.
The tests were all done in a day and she was examined as an outpatient. The bill came to about NZ$40,000. Fortunately, she had unlimited medical cover from an international card company.
So I say get as high a limit on your credit card as possible. Just avoid temptation, reserve it for an emergency and try to stay healthy.
A: This a personality thing. If some people have a high limit, they'll be tempted to spend up large, and should therefore keep their limit low.
But, for others, you make a good point about medical emergencies -- and other situations in which you need cash in a hurry.
All of which will just add to the annoyance of readers who wrote saying they were unable to raise their credit card limits.
Crooked and dishonest
I am 63, retired, with no mortgage on my Devonport harbour-front home. Because of illness I was forced into retirement early.
I am a classic asset-rich, cash-poor person. It's a First World problem that I'll work out. The process will include a demonstrably aggressive attitude towards the banks.
The incumbent for 25 years has just been sacked after I went to Penrose to meet them and was presented with a "boy" who didn't have any idea about my history with the bank. No one above him would talk to me and they claimed they didn't have any records of my involvement with the bank. Amazing. Five hospitality businesses turning over between $750,000 and $2.5 million over the years, and three properties bought and sold.
I finally managed to speak to the person above the boy, and informed him that the bank would lose my business "forever" very shortly.
They didn't seem to care, despite fighting tooth and nail for my business less than two years earlier, when I bought a business.
I routinely keep my credit card maximum at $5000. I have done so for about 30 years now. This infuriates the bank. As the balance is always cleared immediately, it makes no interest out of me.
I received a letter congratulating me on my application for an extension to $10,000 being accepted, and my new limit was now available. I hadn't made any application.
I walked down to the Devonport branch, summoned the manager, and said I would be back in three days, wherein I wanted to see my application physically. Further I wanted my credit limit returned to $5000. That took six weeks and some anger, but it was done.
No physical application was produced, and of course they "couldn't understand what happened".
This scenario was repeated two years later.
My two bob's worth.
A: And presumably that two bob came out of your new bank.
I want to challenge you on a couple of points:
• You're being ageist about the young man who dealt with you in Penrose. Would it have made any difference if he were 60? Still, you might respond that the bank is being ageist with you -- apparently losing interest now that you're retired and no longer running your businesses.
• If the bank was infuriated by making no interest on your credit card, why would they be so keen to extend your credit limit? Perhaps you would argue that they hope you will then overspend and not make all your payments in full?
• But that seems a bit unlikely given your history. Then again, they don't know your history!It must be really annoying about the "lost" history.
And the bank shouldn't have twice pushed more credit at you when you didn't want it.
I hope your new bank is proving that assessment can be unfair.
Over the years the phrase "shop around" appears. Though I have no issue with the concept -- to get the best deal, etc -- I am, by nature, a loyal customer.
I have been with the ASB since commencing work and the ASB has supported me through the financial stages of my life. I am now retired. I have no intention of shopping around as I believe loyalty works both ways.
A: What a contrast to our previous correspondent.
Your attitude is fair enough.
But it wouldn't hurt to occasionally check out websites like www.interest.co.nz to see if you are getting the best interest rate on your accounts and term deposits.
People say that when they point out they could do better elsewhere, their bank sometimes lifts their rate.
Merits of managed funds
I see you are a big fan of managed funds. Why not just buy the shares directly?
There's no point in paying a man to do what is not hard. And if you make a mistake, at least you didn't pay someone else to make it.
A: You're right, it's not hard to buy shares directly. And if you use managed funds you do pay fees, which can make quite a difference to your returns over the years.
That's why I strongly suggest you choose managed funds that charge low fees.
However, the fees are to some extent offset by the fact that a fund manager buys much bigger parcels of shares than you would.
So he -- or she (please note that it's not always a man) -- will pay much less in brokerage per share.
Still, direct investing in shares is cheaper. But here's why I think managed funds work better for most people:
• Diversification. This is the big one. Unless you have $100,000 or more to invest, it's not really viable to buy more than 10 or 12 different shares. And if you buy a small number, you don't benefit from diversification, which gives you the same average return but lower risk.
• In most managed share funds you invest in scores or even thousands of different shares in a wide range of industries and sometimes countries.
• It's easier. The fund manager takes care of dividends, stock splits, takeovers and all the other complications of share ownership.
• Your transactions are often simpler. In a fund, you can often deposit or withdraw small amounts, make regular deposits or withdrawals, or move your money to a lower-risk fund that holds bonds and cash as well as shares.
Rest home subsidy
As an add on to your lead correspondent last week about a person's financial situation when they enter a rest home, can I also mention that not only does the state take most of your loved one's pension, and all of their assets above the current threshold of some $219,000, but once this is depleted to belc6ow this level, all interest earned on the remaining $219,000 except the first $1000 a year is also appropriated by the state and must be paid directly to the rest home concerned.
To add insult to injury, it doesn't matter that you may have invested with, say, the interest accrued until the end of the investment term. The state demands that you pay the interest that you haven't even got yet back to the rest home on a monthly basis.
As my sister's attorney, I really feel like making little further effort in re-investing her remaining assets well to simply give the state the "finger". A bad attitude, I know, but ...
A: Gosh, you make it sound as if we're living in a totalitarian state, with the Government "taking" this and "appropriating" that.
What happens is that the person or couple have to spend their own money on their long-term residential care -- in a rest home or private hospital -- until their assets get down to a certain level.
Then the subsidy kicks in.
After that, they have to pay a portion of their income from NZ Super and from investments -- including interest, dividends or rental income -- towards the costs of the care.
The Government pays the rest.
With NZ Super, most of the money goes towards the person's care, but they still receive $86.90 a fortnight for personal care.
With investment income, "There are annual 'income from asset' exemptions that apply," says a Ministry of Social Development spokesperson.
The exemptions are: $964 a year for a single person, "and for couples $1928 if the partner is also in care and $2892 if they are not. It is an annual exemption for income generated by a client's assets."
"People are often surprised at how low the policy settings on the exempt amounts are, but this is a deliberate policy and legislative decision," says the spokesperson.
So what's the basic idea behind all this?
"Before 2005, the asset threshold for Residential Care Subsidy was $15,000 for a single person, $30,000 for couples and $45,000 for couples with one in care. Fewer people qualified for Residential Care Subsidy back then," she says.
"In 2005, the asset thresholds increased significantly -- that is, $150,000 for a single person (now $219,889 for a single person).
"Along with those changes, the income assessment changed so that more people contributed towards the cost from their income.
"The basic idea was to ensure more people had access to Residential Care Subsidy, but that where applicable, those same people contributed a portion of their available income towards the cost of their care. There is a presumption that people will contribute towards their cost of care."
All this obviously makes you angry.
But, as I asked last week, should taxpayers pay more for the care of fairly well off people?
One detail that might help you a bit -- about having to pay the rest home monthly. The spokesperson says, "The frequency of payment is determined by the rest home or private hospital."
Perhaps you could make a different arrangement with them.
For info about "income from assets", including exemptions, see www.tinyurl.com/NZResCareSubsidy
Watch for more on this topic next week, including a clarification of what was in the column last week.Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to firstname.lastname@example.org or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.