Barefoot advice to claw your way out of a financial scam

Financial scams are more common than ever, but how do you get yourself out of that situation and keep your self respect?

Scott Pape is The Barefoot Investor. Picture: Jason Edwards

Last year, while I was fanging around France in an oversized motorhome with way too many kids, the Reserve Bank of Australia (RBA) ran its first ever large-scale survey to test the general public’s understanding of economics, by way of six multiple choice questions.

The results will SHOCK you.

The RBA found that “being male, older, of higher income, having a degree, having studied economics or finance, or being engaged with economic news are associated with higher scores”.

Well, slap me with a seasonally adjusted wet lettuce leaf, Guv’nor!

Then again, my 10-year-old son aced the first five questions. (Admittedly, he’s pretty smart – when I read him bedtime stories he often corrects my pronunciation.)

In fact, he did so well on the RBA quiz that I wondered whether he’d got some financial knowledge via osmosis from his old man.

“Well, the first five questions don’t require any real financial knowledge … it’s just logic”, he said matter-of-factly, “though the final question on the RBA needed technical knowledge that I don’t have.”

No pressure – but let’s see how you go.

Are you smarter than a 10-year-old?

1. As far as you know, during a recession in an economy, there would normally be an increase in:

a) imports

b) unemployment

c) economic growth

d) business spending

2. Say wages in the economy increased by 5 per cent and prices increased by 7 per cent. As far as you know, in terms of the goods and services they can buy, a worker would be:

a) better off

b) worse off

c) neither better nor worse off

3. As far as you know, all else equal, which would usually increase total spending in the economy? An increase in:

a) tax rates

b) consumer caution

c) the savings rate

d) business investment

4. As far as you know, all else equal, a decrease in interest rates provides an incentive for people to:

a) save more and borrow more

b) save less and borrow less

c) save more and borrow less

d) save less and borrow more

5. As far as you know, which monetary policy would the RBA most likely adopt if the economy moved into recession during a period of low inflation?

a) increase income taxes

b) lower the cash rate

c) decrease purchases of government bonds

d) reduce spending on public infrastructure projects

6. As far as you know, what is the Reserve Bank of Australia’s target range for inflation?

(a) 0–1 per cent

(b) 1–2 per cent

(c) 2–3 per cent

(d) 3–4 per cent

(e) 4–5 per cent

(f) 5–6 per cent

(g) 6–7 per cent

(h) 7–8 per cent

(i) 8–9 per cent

(j) 9–10 per cent

(k) don’t know / uncertain

Answers: 1 (b), 2 (b), 3 (d), 4 (d), 5 (b), 6 (c)

And here’s a graph showing how you did compared to the great unwashed.

Now there was one thing that really caught my eye in the wash-up … while the RBA found that wealthy white dudes got the highest scores, it also revealed that “persons aged 18–24 years, unemployed persons and those without a degree had the lowest scores”.

Bingo.

Young people leave school without knowing this stuff … so they never learn it.

Given the RBA’s operating costs were $500 million last financial year, surely they could snaffle a few deniros to set up and run a program and teach all Aussie school kids basic financial life skills?

Tread Your Own Path!

Australian children need to be tough basic financial life skills, says Barefoot Investor.

Lovestruck

Hi Scott,

Last year I got caught in a romance scam and lost $240k. I was just so stupid to send money to the stranger, but I thought there were lots of signs to believe him. I haven’t told any of my family about this. I’m 56 years old, a single mother and working full time as a nurse. I didn’t have $240k, so I sold my house (making $100k profit) and then took out three loans for the rest. I also moved into my adult daughter’s house, so my current expense is the bare minimum and I am so grateful. I would appreciate it if you could give me any advice on how to pay this off quickly.

Kelly

Hey Kellym

Each week my editor wades through hundreds of questions and gives me five (or so) to look at.

He wrote a note on yours that simply read “awful”.

Indeed. You’re paying $140,000 off at high(er) interest rates, you’re living with your daughter, and you’re a dozen years from retirement.

Here’s what I’d suggest.

Barefoot advises a victim of a romance scam to see a free financial adviser.

First, don’t let them rob you again: these scammers took you for $240,000 – but don’t let them take your self-respect. The fact is that romance scams are a multibillion-dollar a year business. You’re not the first, and (sadly) you won’t be the last.

Second, don’t suffer in silence. This is too big to shoulder on your own. You owe it to your daughter to explain what’s happened.

Finally, go and see a free financial counsellor (call 1800 007 007). The banks are running a mile from all this scam business, but there may be a 1% chance that they’ve lent irresponsibly, and if I were in your situation I’d be chasing down that 1%.

Thank you for sharing.

HECS freedom for first home buyers!

Scott,

You stuffed up last week in your column on higher education. The big headline from that report was that banks should NOT be allowed to take your HECS debt into account when you’re applying for a home loan. The report blasted this practice as unfair (as a young couple with HECS debt ourselves, I’d say greedy). You should have done so too!

Louise

Hi Louise

Nah.

I read the recommendation and I thought it was … daft.

Look, I’m no friend of the banks, but I’m on their side on this one.

After all, who are a bunch of academics to dictate a bank’s lending practices?

If the banks are looking at your expenses and drawing a red line around your HECS debt, it’s because they know it’s a factor in you being able to repay them … and that it’s a non-negotiable expense that scales up the more you earn.

Au Pair? Au Contraire!

Hi Scott,

I’m 19, au pairing in the UK and preparing for a three-month backpacking trip around Europe. Living the dream, right! Except that by the time I get back to Australia I’ll have just about used up my savings. I have this little voice whispering in my ear that I should be working towards setting myself up for the future, and travelling definitely doesn’t feel like I’m doing that! I have an index fund and I save as much as possible, but I am having that classic existential crisis of what the bloody hell to do with my life now! And by ‘now’ I mean when I go back to Australia (and reality). So, what snippet of wisdom do you have for me, Scott?Mindy

Barefoot advises a 19-year-old reader to bank experiences, not dollars while they are young.

Hi Mindy,

You know that little voice whispering in your ear?

It’s a very good thing. Most broke people don’t have that voice (instead they have advertisers and influencers whispering in their ears).

However, I don’t think you should listen to it for the next year or two. Fact is, you’re only 19 once, and this is your time to go out and experience all the amazing things this world has to offer.

Case in point: I often employ backpackers to work at my farm … they camp at the shearing shed, sleep in their vans, eat on camp stoves and have cold showers. Yet they look at me with my wife and four kids, and the basketball, ballet and cricket practice … and pity me!

When you’re travelling you’re growing as a person, both from gaining a more worldly perspective and from learning how to make your money stretch, which will pay dividends throughout your life.

My view?

Don’t bank dollars, bank experiences for the next few years. Australia will still be here when you get back!

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Originally published as Barefoot advice to claw your way out of a financial scam