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Provision Newsletter

Monetary Policy Decision – Statement by Philip Lowe, RBA Governor, March, 2019

Posted On:Mar 06th, 2019     Posted In:Rss-feed-market    Posted By:Provision Wealth

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The global economy grew above trend in 2018, although it slowed in the second half of the year. The slower pace of growth has continued into 2019. The outlook for the global economy remains reasonable, although downside risks have increased. The trade tensions remain a source

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At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The global economy grew above trend in 2018, although it slowed in the second half of the year. The slower pace of growth has continued into 2019. The outlook for the global economy remains reasonable, although downside risks have increased. The trade tensions remain a source of uncertainty. In China, the authorities have taken further steps to ease financing conditions, partly in response to slower growth in the economy. Globally, headline inflation rates have moved lower following the earlier decline in oil prices, although core inflation has picked up in a number of economies. In most advanced economies, unemployment rates are low and wages growth has picked up.

Overall, global financial conditions remain accommodative. They have eased recently after tightening around the turn of year. Long-term bond yields have declined, consistent with the subdued outlook for inflation and lower expectations for future policy rates in a number of advanced economies. Also, equity markets have risen, supported by growth in corporate earnings. In Australia, short-term bank funding costs have moderated, although they remain a little higher than a few years ago. The Australian dollar has remained within the narrow range of recent times. While the terms of trade have increased over the past couple of years, they are expected to decline over time.

The Australian labour market remains strong. There has been a significant increase in employment and the unemployment rate is at 5 per cent. A further decline in the unemployment rate to 4¾ per cent is expected over the next couple of years. The vacancy rate is high and there are reports of skills shortages in some areas. The stronger labour market has led to some pick-up in wages growth, which is a welcome development. The improvement in the labour market should see some further lift in wages growth over time, although this is still expected to be a gradual process.

Other indicators suggest growth in the Australian economy slowed over the second half of 2018. The central scenario is still for the Australian economy to grow by around 3 per cent this year. The growth outlook is being supported by rising business investment, higher levels of spending on public infrastructure and increased employment. The main domestic uncertainty continues to be the strength of household consumption in the context of weak growth in household income and falling housing prices in some cities. A pick-up in growth in household income is nonetheless expected to support household spending over the next year.

The adjustment in the Sydney and Melbourne housing markets is continuing, after the earlier large run-up in prices. Conditions remain soft in both markets and rent inflation remains low. Credit conditions for some borrowers have tightened a little further over the past year or so. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased further. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.

Inflation remains low and stable. Underlying inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual and to take a little longer than earlier expected. The central scenario is for underlying inflation to be 2 per cent this year and 2¼ per cent in 2020. Headline inflation is expected to decline in the near term because of lower petrol prices.

The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Source: Reserve Bank of Australia, March 5th, 2019

Enquiries

Media and Communications
Secretary’s Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 9720
Fax: +61 2 9551 8033

Email: rbainfo@rba.gov.au

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Why I still love dividends and you should love them too

Posted On:Feb 28th, 2019     Posted In:Rss-feed-oliver    Posted By:Provision Wealth

Prior to the 1960s most share investors were long-term investors who bought stocks for their dividend income. Investors then started to focus more on capital growth as bond yields rose relative to dividend yields on the back of rising inflation. However, thanks to an increased focus on investment income as baby boomers retire, interest in dividends has returned. This is

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Prior to the 1960s most share investors were long-term investors who bought stocks for their dividend income. Investors then started to focus more on capital growth as bond yields rose relative to dividend yields on the back of rising inflation. However, thanks to an increased focus on investment income as baby boomers retire, interest in dividends has returned. This is a good thing because dividends are good for investors in more ways than just the income they provide.

Australian companies pay out a high proportion of earnings as dividends. This is currently around 65% compared to around 45% for global shares. However, some argue that dividends don’t matter – as investors should be indifferent as to whether a company pays a dividend or retains earnings that are reinvested to drive growth. Or worse still, some argue that high dividend pay outs are a sign of poor long-term growth prospects, that they are distraction from business investment or that they are often not sustainable. And of course, some just see dividends as boring relative to speculating on moves in share values. My assessment is far more favourable.

Seven reasons why dividends are cool

First, dividends do matter in terms of returns from shares. For the US share market, it has been found that higher dividend payouts lead to higher earnings growth1. This is illustrated in the next chart, which shows that for the period since 1946 when US companies paid out a high proportion of earnings as dividends (the horizontal axis) this has tended to be associated with higher growth in profits (after inflation) over the subsequent 10 years (vertical axis). And higher profit growth drives higher returns from shares. So dividends do matter and the higher the better (within reason). There are several reasons why this is the case: when companies retain a high proportion of earnings there is a tendency for poor hubris driven investments; high dividend payouts are indicative of corporate confidence about future earnings; and high payouts indicate earnings are real.


Source: Global Financial Data, Thomson Reuters, AMP Capital

Second, dividends provide a stable contribution to the total return from shares, compared to the year-to-year volatility in capital gains. Of the 11.7% pa total return from Australian shares since 1900, just over half has been from dividends.


Source: Global Financial Data, AMP Capital Investors

Third, the flow of dividend income from a well-diversified pool of companies is relatively smooth. As can be seen below, dividends move in line with earnings but are smoother.


Source: Thomson Reuters, RBA, AMP Capital

Companies like to manage dividend expectations smoothly. They rarely raise the level of dividends if they think it will be unsustainable. Sure, some companies do cut their dividends at times, but the key is to have a well-diversified portfolio of sustainable and decent dividend paying shares.

Fourth, investor demand for stocks paying decent dividends will be supported as the ranks of retirees swell.

Fifth, with the scope for capital growth from shares diminished thanks to relatively high price to earnings ratios compared to say 40 years ago, dividends will comprise a much higher proportion of total equity returns. More than half of the total medium-term return from Australian shares is likely to come from dividends, once allowance is made for franking credits.

Sixth, dividends provide good income. Grossed up for franking credits the annual income flow from dividends on Australian shares is around 5.7%. That’s $5700 a year on a $100,000 investment in shares compared to $2150 a year in term deposits (assuming a term deposit rate of 2.15%).


Source: Bloomberg, RBA, AMP Capital

Finally, while Australian shares are still 10% below their 2007 high, once reinvested dividends are allowed for (ie looking at the ASX 200 accumulation index) the market is well above it.


Source: Bloomberg, AMP Capital

Another way to look at dividend income

How powerful investing for dividend income can be relative to investing for income from interest is illustrated in the next chart. It compares initial $100,000 investments in Australian shares and one-year term deposits in December 1979.


Source: RBA, Bloomberg, AMP Capital

The term deposit would still be worth $100,000 (red line) and last year would have paid $2,200 in interest (red bars). By contrast the $100,000 invested in shares would have grown to $1,111,435 as at December last year (blue line) and would have paid $47,792 in dividends last year (blue bars). Or around $62,240 if franking credits are allowed for. Over time an investment in shares can rise but a term deposit is fixed.

But don’t dividends crimp capex?

This issue has been wheeled out repeatedly since the GFC. But it’s ridiculous. First the rise in dividends this decade has mainly come from cashed up miners and it’s hard to argue they should invest more after the mining investment boom. Second the dividend payout ratio is not high historically. Third the reasons for poor business investment lie in: business sector caution after the GFC & the rise in the $A above parity, which squeezed competitiveness; the fall back to more normal levels in mining investment; and the shift to a capital lite economy based around IT and services. Don’t blame dividends for poor capex.


Source: Thomson Reuters, RBA, AMP Capital

Why dividend imputation is so important

Dividend imputation was introduced in the 1980s and allows Australians to claim a credit against their tax liability for tax already paid on their dividends in the hands of companies as profits and boosts the effective dividend yield on Australian shares by around 1.3 percentage points. However, over the years it has been subject to claims that it creates a bias to invest in domestic equities, that it biases companies to pay dividends and not invest and that it benefits the rich. This is all nonsensical as dividend imputation simply corrects a bias by removing the double taxation of company earnings – once in the hands of companies and again in the hands of investors. The removal of dividend imputation would not only reintroduce a bias against equities but would also substantially cut into the retirement savings and income of Australians, discourage savings and lead to lower returns from Australian shares.

Labor’s proposal to make franking credits in excess of a taxpayer’s tax liability non-refundable could be argued to remove an anomaly in the tax system as dividend imputation was designed to prevent the double taxation of dividends, not to stop them being taxed at all. But a problem is that many Australians have planned their retirement around receiving such refunds. This is a subject for another note. But it is worth noting that Labor’s proposal does not affect at least 92% of taxpayers who will continue receiving franking credits as they have a sufficient income tax liability (as will pensioners who will be exempted). If it sets off a broader wind back of franking credits, then it would be a bigger concern.

Concluding comments

Dividends provide a great contribution to returns, a degree of protection during bear markets and a great income flow. For investors needing income the trick is to have a well-diversified portfolio of companies paying high sustainable dividends.

 

1See R.D.Arnott and C.S.Asness, “Surprise! Higher Dividends = Higher Earnings Growth”, Financial Analysts Journal, Jan/Feb 2003. Of course, it’s a bit complicated in the US as the tax system encourages buy backs.

 

Source: AMP Capital 27 Feb 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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Employer not paying your super? How to find out & what you can do

Posted On:Feb 25th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Billions of dollars in super contributions go unpaid every year, so if you’ve never checked your super account before, now might be a good time.

Recently a girlfriend posted on social media that she was owed over $10,000 in super from a former boss, who had since shut up shop (money she may never see when she does eventually retire).

Responses from

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Billions of dollars in super contributions go unpaid every year, so if you’ve never checked your super account before, now might be a good time.

Recently a girlfriend posted on social media that she was owed over $10,000 in super from a former boss, who had since shut up shop (money she may never see when she does eventually retire).

Responses from her circle of mates revealed she wasn’t alone, with one person commenting that, like her, they still hadn’t received their unpaid super money, with situations where an employer goes out of business sometimes harder to chase up.

Good news – the last analysis by the Australian Taxation Office (ATO) revealed about 95% of super contributions were being paid by employers. The bad news – that left $2.79 billion in unpaid super1!

If you want to make sure you’re getting paid what you’re owed, here’s what you need to know and what you can do if something doesn’t look right (keeping in mind, the sooner you act, the better).

Who’s most at risk?

The ATO previously indicated that about 50% of super debts it deals with relate to insolvency (in other words, companies that don’t have the cash to meet their obligations)2.

On top of that, data from the Australian Securities and Investments Commission indicated non-payment of super was more likely to happen in certain industries (hospitality, construction and retail to name a few)3.

What your employer should be paying you

If you’re earning over $450 (before tax) a month, no less than 9.5% of your before-tax salary should generally be going into your super under the Superannuation Guarantee scheme.

If you’d like help crunching the numbers, give the ATO’s Estimate my super tool a go. It can provide you with an estimate of how much super your employer should have paid into your super account.

How can I check if I’m getting paid the super I’m owed?

  1. Start by looking at your payslips and know that while super contributions may be listed on your payslip, this doesn’t always mean money has been deposited into your super account.

  2. With that in mind, also check your super statements, call your super fund or log into your online account to see exactly what has been paid into your super. Note, super contributions are paid quarterly (at a minimum) even if your wages are paid weekly, fortnightly or monthly, which means super contributions paid by your employer might only be deposited into your account four times a year.

What should I do if something doesn’t look right?

  1. If it looks like you haven’t been paid what you should’ve, speak to the person who handles the payroll at your work, as there may be a simple explanation.

  2. If you’re not satisfied with what they tell you, you can lodge an unpaid super enquiry with the ATO. You’ll need to give your personal details, including your tax file number, the period relating to your enquiry and your employer’s details. You can also call the ATO on 13 10 20.

  3. It’s worth contacting your super fund too, as your employer may have a contractual arrangement with your super fund, which means your super fund may be able to follow up any unpaid super on your behalf.

Please contact us on |PHONE|if you seek further assistance.

Australian Taxation Office (ATO) – Superannuation guarantee gap (figures related to 2015-16)
2, 3 The Association of Superannuation Funds of Australia (ASFA) media release – Unpaid super – workers deserve better

Source: AMP February 2019 

This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions,  before deciding what’s right for you. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.

 Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page

 

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What financial records you need to keep and how to organise them

Posted On:Feb 25th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

A quick guide to organising your financial paperwork

With Marie Kondo’s books and TV shows riding high in the charts, it feels as though everyone’s talking about the joys of decluttering and tidying up.

But when you’re drowning in a sea of old bank statements, utility bills and receipts, it can be difficult to know where to make a start.

The good news

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A quick guide to organising your financial paperwork

With Marie Kondo’s books and TV shows riding high in the charts, it feels as though everyone’s talking about the joys of decluttering and tidying up.

But when you’re drowning in a sea of old bank statements, utility bills and receipts, it can be difficult to know where to make a start.

The good news is that you don’t have to be a global lifestyle guru to make a positive change. Even making some simple changes can put you on track to taming your paperwork and:

  • make it easier to find what you need at tax time

  • help your loved ones find documents easily if something happens

  • find important documents in an emergency.

What financial records and paperwork do you need to keep?

This is the fun bit…it’s time to start throwing stuff away.

So be ruthless. But there are some bits of paper that you should hang on to. 

Anything you need for your tax return…

  • Payments you’ve received such as wages, interest, dividends and rental income

  • Expenses related to income such as work-related outgoings or rental repairs

  • Sale or purchase of assets such as property or shares

  • Donations, contributions or gifts to charities

  • Private health insurance

  • Medical expenses, both your own and those of any dependants.

You need to keep these documents for five years after you lodge your tax return in case you’re asked to substantiate your claims. And it’s a good idea to keep your Notice of Tax Assessments for five years as well.

…anything related to property you own…

  • Property deeds

  • Mortgage papers

  • Renovation approvals

  • Warranties relating to work undertaken. 

…and some other important bits of paper

  • Wills

  • Tax file numbers

  • Powers of attorney

  • Birth certificates

  • Death certificates

  • Marriage certificates

  • Immunisation records

  • Passports

  • Current insurance policies

  • Current superannuation documents

  • Loan documents

  • Vehicle registration

  • Vehicle service history

  • Business registrations

  • Qualifications.

What financial records and paperwork can you throw away?

There are some documents you can toss. As a rule, once a document has been replaced by a newer version, it’s safe to dispose of the older copy. And let’s face it, do you really need that electricity bill from your old house back in 2014?

There’s also no need to hang on to credit card receipts once you’ve reconciled them against your bank statements, unless they’re needed for warranties.

You should probably keep hold of credit card and bank statements for a year but you can throw away other household paperwork like utility bills.

Four quick steps to organising your paperwork

Congratulations! You’ve finally taken a wrecking ball to the mountain of paperwork, the shredder bin is full and you’re feeling pretty good.

But you’re only halfway there. You need to put a system in place to avoid creating yet another mountain.

1. Protect yourself

Financial documents can contain sensitive personal information so it’s not a good idea to simply throw them in the bin. Buying a shredder or using a document disposal company should keep your details safe against identity theft.

2. Go digital

Many companies are moving towards electronic statements to help you reduce your paperwork and give the environment a boost at the same time! You can also make electronic versions of your old documents with a scanning app such as CamScanner, Genius Scan or Scannable.

3. Think files and folders

Whether you choose to keep paper or electronic copies, it’s a good idea to have a filing system with physical or electronic folders and labels to remind you how long to keep them for. Record-keeping apps like Evernote or Sign-N-Send can help.

4. Back it up

Think about storing important documents in a fireproof safe or offsite in a safety deposit box. For extra security, you can back up online files on an external hard drive or a cloud-based solution.

While you’re at it…

Organising your paperwork also presents the ideal opportunity to review your financial commitments.

So why not take a look at your budget, check you have enough insurance cover and shop around for a better deal on your utilities?

Please contact us on |PHONE| we can help you find ways to get on top of your finances.

Source : AMP February 2019 

This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page

 

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Getting married – starting on the right foot

Posted On:Feb 22nd, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Getting married is an exciting time but, with so many things to think about, it can be easy to put off thinking about how you will manage your money together after your wedding day.  Taking time before you say “I do” to agree on how you will deal with your finances as a married couple will pay off in the

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Getting married is an exciting time but, with so many things to think about, it can be easy to put off thinking about how you will manage your money together after your wedding day.  Taking time before you say “I do” to agree on how you will deal with your finances as a married couple will pay off in the long run.

Plan your wedding

Weddings can be very expensive. Our wedding infographic shows the average Australian wedding costs over $36,000. But there are lots of ways to keeps the costs of your wedding down without spoiling the magic of the day.

Follow these steps to keep the wedding costs under control:

  • Work out how much money you need – decide how much you want to spend on each item – including food and drinks, venue, cake, cars and music – and come up with a total cost.

  • Start saving for your wedding now – open a savings account or a term deposit to earn a high interest rate on your savings. Use the savings goals calculator to work out how much you’ll need to save each week.

  • Look for ways to cut costs – research online or ask around and find out how other people have saved money on their weddings.

  • Avoid using your credit card wherever possible – try to pay for big items, like the wedding dress or reception venue, in instalments so you aren’t left with huge debts that can take years to pay off.

    Organise your finances

Relationships can run into trouble if people have different saving and spending habits, so it’s important to decide whether you want to share a joint account, keep separate accounts, or have both.

Having a joint account can make it easier to pay shared bills, but there are risks with pooling all of your money into one account.

Smart tip

Work out who is going to pay which bills. Being clear about this means you won’t incur late fees or accidentally pay the same bill twice.

Some couples prefer to keep their own separate bank accounts and transfer a set amount each payday into a joint account to cover shared bills. This can be a good option if you have very different incomes or if you just want your own spending money.

Some people simply keep their own separate bank accounts and work out who is responsible for each type of payment, rather than setting up a joint account. Every couple is different, so talk to each other about which system will work best for you.

See our page on joint bank accounts for more information.

 

Discuss your financial goals

People sometimes don’t realise that their partner has completely different financial goals. For example, one person may think paying off the mortgage as soon as possible is the most important goal, while the other wants to save money for an overseas holiday.

The best thing to do is sit down and work out the goals you want to save for together. Whatever your plans are for the future, talk about them with your partner so you are both clear on what you want and when. Then you can work together to achieve your goals.

Organise your will, insurance and superannuation

Now that you’re officially a family, anything that happens to you will directly affect your partner. So it is important to update your will, insurance policies and superannuation to reflect your new married status.

The single best thing you can do to keep your finances on track as a couple is to keep talking to each other. By having regular conversations about your bills and your savings, you will both know whether you’re on track to achieve your goals, or if you need to adjust your plans.

Please contact us on |PHONE| if you seek further assistance on this topic .

Source : ASIC’s Moneysmart February 2019 

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://www.moneysmart.gov.au/life-events-and-you/life-events/getting-married
Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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Buy now pay later services

Posted On:Feb 22nd, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

What you need to know about buy now pay later services

Buy now pay later payment services allow you to delay payment or pay by instalments (often fortnightly) over a period of time. Here we explain how these payment services work, what fees you’ll pay and how to avoid getting into financial trouble if you’re using these services.

What is buy now

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What you need to know about buy now pay later services

Buy now pay later payment services allow you to delay payment or pay by instalments (often fortnightly) over a period of time. Here we explain how these payment services work, what fees you’ll pay and how to avoid getting into financial trouble if you’re using these services.

What is buy now pay later?

Buy now pay later services are offered by providers such as:

  • Afterpay

  • Certegy Ezi-Pay

  • zipPay

  • Oxipay

  • BrightePay

  • Openpay.

Buy now pay later services are offered by retailers and service providers so you can buy a product immediately and delay payment. You then pay off the product in instalments over several weeks or, with some high-value purchases, over a longer period of time.

Buy now pay later isn’t only offered for low-value purchases, like clothes and beauty products. Solar panels and health services can also be bought using buy now pay later.

How do these payment services work?

Buy now pay later services are offered when you shop online or in-store as another payment option at the time of checkout.

You can apply for and set up a purchase plan through the provider’s app or website when shopping online.

If you’re shopping in-store, a shop assistant will set up the buy now pay later application on your behalf. The buy now pay later provider will contact you when your application is approved. This is usually a quick process.   

You will need to provide your bank or credit card details the first time you use these services so your payments can be deducted. You may also be required to pay either a deposit or the first instalment up-front.

Refunds and returns

If you have a problem with the product or service you’ve bought, the shop or service provider’s returns policy will apply, so contact them first. 

Are buy now pay later services worth it?

Buy now pay later services are often advertised as ‘interest-free’ or ‘0% interest’, but the cost will add up if you can’t make the repayments on time.

Smart tip

Always check the terms and conditions before you sign up, as they can be different for each buy now pay later service.

Here are some things to look out for before using these services.

  • Late fees – There’s usually a late fee every time you miss a payment or pay late. These fees can add up over time.

  • Monthly account-keeping fees – Some of these services charge you a fixed amount for every month you continue to use their service.

  • Payment processing fees – You may be required to pay a fee for each payment, on top of your set repayment.

 

Case study: Mai struggles to make ends meet after using buy now pay later services

In the lead-up to Christmas, Mai decided to take advantage of some markdowns by buying a couple of items online.

She found a new pair of designer sneakers worth $150. As Mai was a bit tight on money, she signed up to a buy now pay later service to split her repayments. She then found a hair straightener at a reduced price of $300 at another online store. Mai used a different buy now pay later service to buy the hair straightener and stretch out her repayments.

A fortnight later, Mai discovered that her bank account was overdrawn. She then realised she had not checked before buying the items if she would have enough money in her account to make both repayments.

Mai was not only charged default fees by both buy now pay later providers, but her bank also charged her an overdrawn fee.

Is your credit history or ability to repay checked?

Most buy now pay later providers do not check your ability to make repayments or your credit history. This means you could end up taking on more credit than you can afford and could have trouble making your repayments.

This can affect your credit score as some providers report late payments to credit reporting agencies

Managing your buy now pay later payments

Stay in control when you use a buy now pay later service by following these tips: 

  • Plan ahead: Make sure you can afford the full price and that the repayments fit into your budget. Consider any other bills or financial commitments due at the same time as your buy now pay later payments.

  • Don’t get into debt: Consider linking your buy now pay later account to your debit card instead of your credit card. That way you’re using your own money and avoid credit card interest.

  • Don’t overcommit: Stick to a limit and aim to have only one buy now pay later at a time.

  • Ask for help: If you’re having trouble making repayments, contact your provider straight away. 

 

Taking on too much debt?

An ASIC review of the buy now pay later industry found that 1 in 6 users had become overdrawn, delayed other bill payments or borrowed money so they could make their buy now pay later payments.

Making a complaint about buy now pay later services

Most buy now pay later providers have dedicated complaints and hardship services. Contact your provider to discuss your complaint, or if you are having difficulty making repayments. 

A free financial counsellor can also help if you’re struggling financially.

Using buy now pay later when you shop can be a convenient way to pay for things, but you need to be careful not to overcommit financially or buy more expensive items than you usually would. 

Please contact us on |PHONE| if you seek further assistance .

Source : ASIC’s Moneysmart February 2019 

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://www.moneysmart.gov.au/borrowing-and-credit/other-types-of-credit/buy-now-pay-later-services
Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

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