FAIR MONEY

Face to Face with Inequality


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Mindful Spending (courtesy of your issuing bank)

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?


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Anatomy of Predatory Credit

Predatory lending in a nutshell

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.


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The State of Consumer Banking

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.


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Good with Money

I always thought that anybody might want financial advice, not only people with bulging money bags, but people with flat wallets. Folks with modest means might perhaps like more assistance?

Not so. It’s just the wrong way to look at things. Everybody we’ve talked to in the FAIR Money project turns out to be really good with money, no matter the state of their finances. They might be exceptionally good at getting amazing deals. Or they have spreadsheet they faithfully track their expenses in, down to the very last penny. Or they really know how to negotiate government services. Or they always, always pay their bills on time. Without a doubt, these are higher-order skills seems to have at least one.

For sure, if you zoom out a little, you might see that the spreadsheet contains some outsize purchases (such as a two-inch Tasmanian devil charm paved in diamonds and onyx). You might notice that the bills got paid with a payday loan. That the grocery savings were blown completely out of the water by a visit to the casino. All true. And it’s true that it would be really helpful to zoom out before disaster strikes and you run out of options; true that thinking about what you’re good at could act as a smokescreen for the possibility that you’re heading for a financial abyss.

Nevertheless, it’s important to pause over the fact that competence is almost a given. It’s easy to point out where there might be shortcomings, but surely it’s more useful to start with the strengths and build from there. And maybe then advice could be more sought after.


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Shopping for a Payday Loan

rates

Check Into Cash Rate Board

I’ve made two shopping trips and hit three payday loan stores and conclude that the situation is pretty straightforward. Around here, you can get up to $255 at a cost of $45 in each of the three check cashing stores I tried.  Must be a regulatory limit. The picture at left shows the whopping interest rate of 460% and peanuts. And you get to hang on to the loot for only two weeks.

All it takes is a paystub, your most recent bank statement (a printed version), a government-issued ID, and a check. In one store I was directed to cough up my social security number, for reasons unspecified. Social security number? When they are not actually checking your credit? I wonder if real customers feel ok just handing it over. (Perhaps I should hang out there for a while one Saturday and see what people do.)

If you compare this loan to taking out a mortgage, it is super-easy. But it’s actually not half as easy as I had imagined it to be. The printed statement is definitely a pain. And then you have to go back again, in person, at your next payday to hand over the entire $300. You have got to want that money.

Marijke


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Boudreaux’s Cafe

Today’s field trip to Boudreaux’s Cafe in San Francisco yielded a fascinating perspective on idealism in action.

A small part of the collection at Boudreaux's

A small part of the collection at Boudreaux’s

Bob and Tunisia both trade in collectibles and have opened a space in Bayview with a good portion of their stock on display and for sale. It’s a treasure trove made up of part thrift store, part antiques store, part performance space (for music and spoken word), and part tutoring center. With free coffee. Oh, and they’ve done a voter registration drive. Eventually they hope to turn into a full-fledged coffee shop, with a kitchen, but they have only been in operation for 11 weeks and have made themselves a fixture in the neighborhood and a drop-in center for anyone who wants a hug. It’s a great model for delivering neighborhood services, firing on so many cylinders at once.

Marijke


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If it isn’t fun, it probably won’t get done

Except perhaps by the most disciplined among us, and I have to admit that I am not one of them. The items that end up getting crossed off my depressingly long to-do list typically fall into one of two categories:
1. Urgency (defined by the potential for serious adverse consequences if left undone).
2. General appeal (defined by how much I feel like doing it).

Clearly, it’s far preferable to get stuff done under the second category than having to wait for it to escalate to the first. In keeping with that simple idea, I’ve adopted fun as my motto for the work I do for FAIR Money. And I’m proposing that it could be a good design principle for whatever product and/or service the FAIR Money collective decides to work on.

That doesn’t necessarily mean “gamification,” because we can think about fun in much broader terms than gaming–broader, deeper, more serious, and less ephemeral. But devising short-term rewards for the pursuit of long-term goals could be a very worthwhile endeavor.

Marijke


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FAIR Money’s First Project is Underway

The FAIR Money research collective has kicked off its first research project, visiting 8 participants at home and starting them off with on the diary portion of the study. The interviews were incredibly informative.

If you’d like to be considered for participation in this study, please fill out our questionnaire: http://bit.ly/fair-research

If you fit the criteria for our study, we will be in touch!