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WHAT IS BAIT ADVERTISING?

Simply put, bait advertising is when a company attracts customers with the offer of products that they can not actually supply. As the name suggests, the customers are lured by the bait in the hope that they will purchase other products.

Using an example, let’s say a company places an ad for 5c ice-creams, but when the customer arrives at the store they are told that there are not any 5c ice-creams, but there are other more expensive ice-creams available for sale. Since the customer wants ice-cream and has made the effort to get to the store, there is a good chance they will make a purchase.

Bait advertising is not limited to blatant lying and also covers incidences where there is no reasonable expectation of the product being supplied. For example, the ice-cream store may have only had enough supply to sell five 5c ice-creams, so technically they haven’t lied. But in reality, they full well know that they can not service all the expected customers and this is a deception which they are accountable for.

The Trade Practices Act 1974 requires businesses to have enough stock to meet demand on advertised products. Honest mistakes caused by unpredictable consumer demand are not penalised, but if a business knowingly does not have enough stock then they are subject to the law.

If there is limited stock or a limited time period for the sale, this must be displayed in the advertisement. Statements such as ‘while stocks last’ or ‘limited offer’ could attract scrutiny if demand is not met, and businesses found guilty of breaking ‘bait advertising’ laws could be facing a maximum $50,000 penalty from the ACCC.

CASE STUDIES

The majority of bait advertising convictions have been against retail outlets, although there have been a few in other areas. Breaches of ‘bait advertising’ laws are generally much easier to identify if the business is in the retail industry, since their operations involve the supply of physical products to consumers.

In 2005, the ACCC investigated Repco for breaches of the trade practices act. They had advertised five products in their sales catalogue at discounts of up to 92% when more than 1/3^rd of stores across the country did not have any of the products stocked. Plus almost all of the remaining stores that did stock the product had sold out within the first day.

Repco was severely punished over the incident, being forced to publicly apologise and publish an article in an Australia motor magazine. They also entered into a trade practices compliance program and were made to alternative stock or a $100 discount voucher to customers who made written complaints to either Repco or the ACCC.

Harvery Norman is another big company to face the wrath of the ACCC over bait advertising claims. They were consumed in a four year legal battle that cost them over $1 million when they failed to remove sold out stock from their catalogues and continued to advertise them for sale although they could not supply the product.

CREDIT CARD TRICKS

Proving that a company selling credit cards is involved in bait advertising is far more difficult. Besides the plastic card they send in the mail, the credit card is more of a service than a product. It is impossible not to be able to supply the credit card and in the rare case that they have run out of the plastic cards to send, they can escape the ‘bait advertising’ laws by promising to send the card when they have more stock.

The credit card terms and conditions state that the card provider can change interest rates, points programs, rewards and fees at any time. This provides an easy avenue for banks and other credit card providers to change the contract terms if they do not want to meet the original deal that the credit card was promoted with.

With the credit card providers able to change terms and conditions at any time, they are seemingly able to promote a card with all sorts of special deals or low rates and then immediately change the terms once the customer has accepted the card. Unfortunately for the Australian public, these credit card schemes are becoming all too common.

ILLEGAL ACTIVITY

This sort of activity is now being investigated, as it has been deemed to be bait advertising. Credit card providers fall under the jurisdiction of ASIC, which has its own legislation prohibiting bait advertising, specifically Section 12DG of the Australian Securities and Investments Commission Act 2001.

Aussie Credit Cards recently came under the ASIC microscope when they advertised a low ongoing rate of 9.99% on their credit card. The advertisement started in early May and continued until late June, although they had made a decision in early June to increase the rate of the card to 13.99% in early August. Knowing full-well that customers would only receive the low rate for less than a month, Aussie continued to advertise the cards.

Aussie had not misled or failed to disclose the facts in their advertising, rather ASIC had a problem with the timeframe and the fact that the customers would only receive the low rate for less than a month. Aussie has now agreed to write to all affected customers and to keep them on the low rate for at least six months.

Having regard to the nature of the market and the nature of the advertisement, Section 12DG of the Australian Securities and Investments Commission Act 2001 requires that an advertised financial service at a specified price should be offered at that price for a sufficiently reasonable period.

The legislation is clearly meant to provide protection for consumers from these bait advertising tactics. What is unclear though is what timeframe is considered ‘sufficiently reasonable’. The legislation is deliberately vague incase a massive economic change requires a prompt change in the terms and conditions on credit cards, but a minimum time frame should still be set to protect consumers.

Does the Aussie decision mean that ASIC feels that six months is the minimum time before a credit card company may change their rates and terms? With all of the hassles associated with changing a credit card provider, there are calls for credit card providers to be forced to meet their advertising claims for a minimum of one year.

Continued from Teaching financial education to your children – Part 1

ADVANCED LESSONS

The simple lessons mentioned previously will provide the perfect start in life for young children. However, the world is far more complex than that and as the children get older, some more advanced financial lessons should be given.

Probably the perfect time for the introduction of further lessons would be as soon as the children reach high school. At this stage, their spending demands increase, as they want mobile phones, iPods and a wardrobe full of label clothing. What better time can there be to teach them that they can’t always have everything they want in life.

BORROWING ON INTEREST

Quite possibly the reason behind all of the world’s problems, interest lending is a danger that children must become aware of. It has been responsible for the financial ruin of millions of people worldwide, and some countries and empires too.

Without being warned about the dangers of borrowing of interest, your children are likely to rush out and get a credit card or car loan as soon as they turn 18. This is where many of them come unstuck, as they are unable to meet small payments such as these and their debts balloon out of control.

Highly successful personal coach Tony Robbins tells a great story about how his parents turned him off alcohol. Growing up and watching his dad drink beer every night, Tony was keen to be like his dad and start drinking alcohol as well.

When he was around 12 or 13 years old, his parents gave him a beer on the condition that he would keep drinking even if he didn’t like it. Wow, that seemed like a great deal. But the taste disgusted him and his parents wouldn’t let him break the deal. The end result – he vomited everywhere and this bad experience turned him off alcohol for life.

Similar to this example, parents should expose their children to interest by lending them money to buy the items they want. The interest rate could be set at 10% per week, meaning a $100 loan would have to be paid back by the end of the week with $110. If the loan remains unpaid, the 10% interest rate per week will ensure that it quickly rises in value and they pay a lot more for their $100 purchase.

Each loan should be tallied separately for the calculation of penalties. If a particular loan spirals out of control and reaches double its original value, a penalty should be introduced to teach them what a debt collector could be like when they repossess your goods.

If the child has a number of personal possessions, these can be taken until they get the loan back under control. Taking away their television, video game console, computer, iPod or mobile phone will have a great effect and ensure that they work hard to pay off the debt. If personal possessions are lacking, they could be grounded from going out to movies or playing sports, or even sent to bed early and prevented from watching TV.

Whatever system you choose to implement, remember to set the interest rate high enough to have a real effect and teach them the bad points of interest based borrowing. Also make sure that the penalties are tough enough to scare them from defaulting on their loan payments. Hopefully these lessons will teach them to save for the items they desire, rather than rushing out and borrowing instead.

SUPPLY AND DEMAND IN THE WORKPLACE

In the case where there are multiple children, it is quite possible that there are not enough household jobs to spread around between them. This is a perfect opportunity to teach some basic economics and allow them to learn about supply and demand.

Each household job should be put into the open market and allow your children to bid for each job, trying to secure the work for the lowest amount ahead of their siblings. Just like the real world, if they demand a wage that is too high, they might find that the prospective employer finds someone else of equal ability who is willing to work for far less.

Of course, they will also learn not to bid so low that they are working for peanuts, with it highly unlikely that they bid doing the dishes down to 5c. However, when desperate times strike, some of the children may try and take all of the work by bidding very low amounts. This shouldn’t be discouraged, as it will provide a good lesson to the others that sometimes the jobs in western countries are given to people in emerging economies.

BUSINESS INVESTMENT

Apart from the standard business opportunities mentioned previously such as raising chickens or growing vegetables, the children should be encouraged to think of and start their own small businesses.

Every now and then we hear of a young child who has started a business at home and has become very successful. It is certainly possible that your children can do the same thing with a bit of encouragement and assistance.

One area you can help is in providing the finance to get a potential small business off the ground. Unlike the interest lending mentioned above, the loan should be interest and risk free, similar to how an investor will invest into a business.

When providing the funds, a percentage of business profits should be agreed upon as your payment. If the child wants you to play a role in the business and help with a particular aspect, the percentage of profits you receive should be increased. Plus, if you ever want your money back, allow the children to buy your percentage share in the business.

CONCLUSION

The introduction of these life lessons are of critical importance and will teach essential skills for coping in the real world after school. Your children will surely thank you in the future for providing them with these valuable life skills and giving them a head start in life over their peers.

THE NEED FOR FINANCIAL EDUCATION

One thought on every parents mind throughout their lives is the wellbeing of their children. They wish and hope for them to enjoy a happy and successful life, whilst avoiding all the potential pitfalls that stand in their way.

In days gone by, teaching and moulding the children to survive the world ahead of them was considered a natural duty of the parents. However, that responsibility has been passed on to the governments and their education systems. Sadly, even if most parents wanted to take that responsibility back, they would find they are unqualified to perform the task.

The education system is designed to teach a broad range of subjects and skills, in an effort to provide a base from which the child can launch into adulthood. Unfortunately, it is heavily loaded with useless information that will most likely never provide any benefit to the child whatsoever.

Undoubtedly, the two most important skills that schools fail to teach are financial and legal skills. The world is full of laws, regulations and contracts, of which we all have to deal with multiple times every year. Providing a sound education in this area will be extremely helpful to all Australians, as many are completely overwhelmed when receiving a document of a legal nature.

The lack of financial education in society has clearly been evident in Australia over the last few years. Consumer and household debt levels have peaked, which indicates the poor ability of Australians to manage their finances. The peaks and troughs of the economy need to be managed and allowed for, instead of the carefree and reckless consumption attitude which has been prevalent for as long as anyone can remember.

With the governments and schools failing to take any initiative in this area since the global financial crisis arrived, it is clear that the parents must take responsibility for their children’s financial education.

HOW DO I TEACH THEM?

Considering that the vast majority of parents have little or no financial skills to pass on, the need for a strong financial lesson plan to become available has never been more evident.

We can draw lessons from the example of billionaire John D. Rockefeller Jr. Although his children would most likely never need to worry about money in their lifetime, John knew the tremendous value in giving them a financial education.

Apart from their 25c per week allowance, they had to earn the rest of their money themselves. For this reason John raised vegetables and rabbits, giving his five boys an opportunity to work and earn for themselves.

In addition to making them work for their money, he also made them keep personal account books of their money and record every transaction. 10% of their earnings had to be donated to charity, with a further requirement that 10% was saved.

These few lessons are of great importance, but they can be taken further and developed into a modern manual. The financial lessons for children in this century must teach the value of money, the dangers of borrowing on interest, as well as the benefits of saving. Here is one such example:

PLAN OUTLINE

Borrowing some of the points from Mr. Rockefeller, I agree that 10% of all income should be saved and 10% donated to charity. With the children starting young, it will be hard for them to donate $1 each week to charity, so this amount should be accumulated over time and paid in a lump sum, possibly every 6 months.

Children should be encouraged to keep all of their money in cash. Feeling and touching the money develops a sense of importance around cash that can not be gained from using a bank account. Plus trying to juggle three separate accounts for spending, saving and charity over internet banking would prove difficult for youngsters. Two piggybanks and a wallet or purse are much more suitable.

Just as the Rockefellers did, getting the children to work in the backyard is a great idea. Its fun, keeps them busy and the money will surely motivate them as well. Most importantly, it will develop a sense of enjoyment around working. Something simple like keeping some chickens in the backyard and selling eggs, or raising pet rabbits, birds or fish and selling the babies are both suitable.

If there is sufficient room, setting up a veggie patch is highly recommended. If space is limited, try growing herbs in pot plants instead. Even eco conscious activities such as recycling can be done to generate some cash, or helping the neighbours with simple jobs they hate to do, such as gardening or washing the car. Haggling over the pay rate to secure the work will be a valuable life lesson.

Most parents pay their children a weekly allowance. This should be stopped as it promotes reliance on others and paves the way for the path to the dole. But instead of scrapping it altogether, convert it into a paid allowance, where they must complete a certain number of odd jobs around the house to earn the money. No doubt they would be doing these jobs anyway, so give them a sense of fulfilment while they are helping.

Each household task should be assigned a set wage. Doing the dishes, sweeping and mopping the floor, or cleaning the toilet could be set at $2 each time. Bigger jobs such as washing the car or mowing the lawn could be $5 each. It’s up to you to set amounts for each job according to what you can afford. Each week set a job list and let the children earn their keep for the week.

At the end of each week, pay each child their wages. Encourage and help them to keep their accounts and make sure that 10% of their wages are allocated to charity and 10% to saving. Allow them to spend the rest of their money and enjoy themselves. If you’re lucky, they will save their whole life and be able to afford their own university expenses.

Continued at Teaching financial education to your children – Part 2

Just like cereal and milk for breakfast and sandwiches for lunch, credit cards have become a natural part of our lives. It is very rare in this day and age to find an adult without at least one credit card to their name. Often they may have five or six cards, with some individuals possessing more than ten cards.

The credit card is originally thought of as a convenient way to spend and earn rewards points, while at the same time acting as a source of backup cash when the bank account runs dry. That impression never sticks around for long and the credit card debt grows and grows until the owner realises that they are actually carrying around a debt trap.

It is unreasonable to expect a cake placed in front of a group of people to remain uneaten for a long period of time. Similarly, the lure of shopping with the available balance on the credit card is irresistible.

Once someone takes the bait and signs up for a credit card, the banks brilliant marketing team specialise in raising your limit and making you spend more. Just as the card seems to be maxed out every year at Christmas, a magical letter appears in the mailbox advising you that you have been pre-approved for a credit limit increase.

The ease of receiving the credit limit raises is one area currently unregulated by authorities. Presently the banks are obliged to ensure you can meet the payments on the original credit card application, but checking that you can afford payments on a larger limit is not enforced by law.

The price to pay for this consumer convenience and source of cash is a hefty one. The interest rates on credit cards are outrageous, often hovering around the 20% mark. It’s a high price to pay to spend above your means.

Even at their lofty heights, you would expect the rates to remain in line with other interest rates influenced by market forces. Unfortunately this is not the case. The Reserve Bank of Australia slashed interest rates dramatically at the end of last year. The fall in mortgage lending rates was around 3% but surprisingly credit card rates remained at practically the same levels, as the banks refused to pass on the interest rate cuts.

In addition to the financial pitfalls of owning a credit card, they also pose a major risk in the form of identity theft. While obtaining the credit card details is just one stage in the identity theft process, credit card users can also be affected by having their account cleaned out.

A range of sophisticated machines have been designed by identity thieves to obtain your credit card details. A growing number of Australians are being affected, as the cards are used to make numerous illegal purchases. As long as the bank is informed, they will normally refund the money, but the process can be a long one and there may be a lengthy wait before available funds are returned to your account.

One of the most popular excuses for owning a credit card is having the ability to earn rewards points. Yes, it is true that receiving points by purchasing with your credit card is better than receiving nothing when spending cash, but you must ensure that the balance is paid off before the interest free period expires or the benefit of the points will evaporate. .

While many people consistently pay off their balances within the required timeframes, they become obsessed with the points system and in the majority of cases make useless and unnecessary purchases just to receive points. So any financial advantage the points offer is offset by increased spending levels, rendering the benefits of the rewards system worthless.

Another pitfall of owning a credit card is the minimum balance requirements. The minimums are set ridiculously low, meaning that if you were to only pay the minimum balance each month, the card would never be paid off. This is a trap which most card owners fall into, ensuring that the bank receives a stream of income from interest payments for a lengthy number of years.

The only way to escape the credit card trap is cut up your credit card and throw it away. The bank should also be contacted and the card cancelled just to make sure that no additional purchases are made.

The next step is to put a stop to the interest being added to your account. There are numerous credit card providers offering an interest free period for balance transfers, with some giving a generous six months worth. To take maximum advantage these offers, you should switch your balance to a new provider every six months to guarantee that no interest charges are added to your balance.

The balance transfer has a hidden catch though, as payments are deducted from the transferred balance before new purchases. The problem with this is that when new purchases are made, they can not be paid for until the old balance is cleared, with card providers charging non-payment fees for not reducing the new balance. So remember to not make any additional purchases if using the balance transfer tactic to avoid interest charges.

For those Australians unable to get approval for a balance transfer credit card, there is another solution at their disposal to dodge the interest additions and pay off the card sooner. If they fail to make payments for three consecutive months, the debt is usually registered with debt agency Baycorp Advantage. When this occurs, the credit card debt can not have interest added to it, which will ensure that all payments come directly off the balance.

Unfortunately, the danger of owning a credit card only becomes evident once a consumer has become a frequent credit card user. What appears like a harmless card and in many cases a symbol of raised status will almost certainly lead to financial problems at some stage in the user’s lifetime. All Australians please heed the warnings and apply for credit cards at your own peril.

Views by Adam Roth