The Brookings Institution just released a report showing a 64% increase in poverty in suburban America between 2000 and 2011. (While the headline focuses on the suburbs, the cities saw a 29% rise in poverty, which by any reckoning is newsworthy in itself.) An infographic offers a quick synopsis, which talks about implications in terms of policy (mentioning schools and transit). The implications for the people in question undoubtedly are much more complex than that.
The Huffington Post reports some jaw-dropping numbers for projected profits from student loans in May 14 article entitled Obama Student Loan Policy Reaping $51 Billion Profit: ”The Obama administration is forecast to turn a record $51 billion profit this year from student loan borrowers, a sum greater than the earnings of the nation’s most profitable companies and roughly equal to the combined net income of the four largest U.S. banks by assets.” The whole article is a must-read
A.O. Scott has an article about recent movies celebrating luxury goods, which offers an explanation of some of the behaviors we have seen in our research. Scott doesn’t offer any of the knee-jerk judgments about materialism that we are all prone to, at the same time that we feel the lure of beautiful things. Holding back the judgment is undoubtedly key to defining and building structure around what we want and may not be able to afford. The piece also reminded me of the work of Daniel Miller, who has studied the meanings of our stuff for a long time and concludes that the ability to find meaning in things is strongly connected to our ability to find meaning in relationships to other people. In The Comfort of Things, he writes “All my academic studies have shown that the people who successfully forge meaningful relationships to things are often the same as those who forge meaningful relationships with people, while those who fail at one usually also fail at the other, because the two are much more akin and entwined than is commonly appreciated.”
The New York Times has an article about “pension advances,” which may carry interest rates as high as 106 %. Here’s a little extract: ”A review by The New York Times of more than two dozen contracts for pension-based loans found that after factoring in various fees, the effective interest rates ranged from 27 percent to 106 percent — information not disclosed in the ads or in the contracts themselves. Furthermore, to qualify for one of the loans, borrowers are sometimes required to take out a life insurance policy that names the lender as the sole beneficiary.“
Here’s the website of the most polished one I could find. The company is mentioned in the NYT article. They seem to go to some length to make it appear not to be a loan–possibly because a loan is associated with an interest rate, and people might make uncomfortable inquiries when they realize they are taking out a loan. If you visit the website, a rep will attempt to chat with you after a few seconds. Maybe we should try it and see what they have to say for themselves.
Chase has launched the Resource Center for Mindful Spending in connection with their new “Blueprint” tool, which encourages you to pay more than the monthly minimum on your credit card bill. Kai Rysdal of the radio program Marketplace asked if we could take such a thing seriously. Good question.
But the resource center does have an interesting paper called “Born to Spend: How Nature and Nurture Impact Spending and Borrowing Habits,” which looks at contributing factors to “poor” financial habits. It’s an interesting read and makes some high-level recommendations that resonate with FAIR Money’s general outlook, including “smart nurturing,” technology solutions, and turning finances into fun. But behind all that good sense lurks another question–if so many people are so bad at managing money, does that mean that people are inadequate or that money (under current conditions) is just too hard to manage?
Predatory lending in a nutshell
The Pew Research Center’s payday loan infographic is helpful, but it doesn’t quite show what sort of a trap you fall into when you borrow the same $375 loan over and over again without ever paying off principal. Their latest study on the payday loan industry reports that only 14% of typical payday loan borrowers have room enough in their budget to pay off the loan in full. Another interesting finding from the same report is that 27% of payday borrowers also end up with overdraft fees from the bank when the payday lender withdraws the full amount of the loan. That would mean you pay $85 or more for the privilege of disposing of $375 for the duration of two weeks.
The New York Times has a report on banks colluding with online loan sharks to defraud their low-end customers:
1. The banks charge overdraught fees when the loan sharks’ automatic withdrawals cause the borrower to be overdrawn.
2. They will let the loan sharks take only the interest on the loan even when the borrower wants to pay it back in full, so that the loan is rolled over and another round of fees can be levied.
3. When people try to stop the automatic withdrawals, the banks do not honor their requests.
4. When the borrower tries to close the bank account against which automatic withdrawals are being made, the bank will keep it open and charge fees every time the loan sharks come for a withdrawal.
Yet another incentive to stop patronizing regular banks and find a local credit union instead.
