If financial education tops the list for why a significant gap remains, I believe our attitude and mindset towards money and wealth creation vies for a close second. Ultimately, however, lack in both areas and unprecedented exposure to the predatory practices which plague our community are what keeps us engaged in anti-wealth building behavior.
Here are 5 financial scams I wish Black folk would just stop allowing to flourish off of our financial demise. If not for our generation, perhaps for the next.
1. Check Cashing Centers – We have allowed check cashing services to thrive on every corner in every ‘hood across our nation. Why? Because somewhere along the way we were told that they were more “convenient” than opening a bank account. Maybe the convenience comes from the fact that most centers double as the neighborhood corner store, as well. Nevertheless, the astronomical fees charged at check cashing centers cannot truly be beneficial for anyone.
For example, cashing a $1000 dollar check might incur a 3-5% fee, regardless of the origin of the check. That is an average of $40 in fees. Even a 1.5% fee would be $15, while most banks that charge monthly service fees, charge an average of $10 per month and allow unlimited check cashing privileges or better yet, direct deposit.
Even for those that would argue that a negative banking history prohibits them from enjoying a traditional bank account, there are sites like http://www.getsecondchancechecking.com/ that offer second chance solutions for those that have been added to ChexSystems.
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2. Pay Day Loans – I know we all trusted Montel Williams in the 90s and want desperately to believe that he could do us no wrong, but those commercials assuring that pay day loans are the most trust worthy way to handle emergencies are a death sentence waiting to happen! Why would it ever make sense for someone who earns $800 per month to be eligible to borrow $1500? So when you’re paying off this $1500 in 30 days how are you supposed to survive in the mean time? Once you give them all of your next paycheck, not only will you still have a balance, but you will incur additional interest, penalties and fees daily while still having your normal expenses to worry about. Is that really peace of mind?
3. Title Pawn Loans – I’m not sure how long the title pawn business has been around, but my have we allowed them to blow up substantially since this recession. These businesses have taken root in every urban shopping center across the country. But do we even realize that car title loan companies are known for having interest rates that would make a loan shark blush? While the average interest rate on a so-so credit card may be in the mid to high teens, the APR on title loans can reach triple digits. A past client of mine had an agreement which showed a 250% APR. (Don’t see the monthly APR of 20% and think you’re ahead of the game. Look at the total life of the loan to get realistic numbers.)
In addition to high interest, these car title loans usually include a number of “mandatory” fees that add up quickly. They include processing fees, document fees, late fees, origination fees and lien fees. The cost of all these fees can be anywhere from $80 to $115, even for just a $500 loan. I once read a report that shared one woman’s horror story. She paid $400 a month for seven months on an interest-only payment term for a $3,000 loan. After paying $2,800 in interest, she still owed nearly $3,000 in the eighth month.
If you find yourself contemplating a car title loan, check out these alternative options and read the information for yourself at www.responsiblelending.org or www.consumerfed.org
4. Foreclosure Rescue - According to the US Government Accountability Office, the two main types of foreclosure rescue and loan modification scams are advance-fee loan modification schemes and sales-leaseback schemes that promise the world for a fraction of your monthly mortgage. In either case, victims desperate to save their home fall prey to those that have set up shop only to step on the backs of people who are already lying face down. Unfortunately, this again is where financial education comes in. Although I wholeheartedly sympathize with many who have undergone mortgage default and foreclosure, many of us truly bought homes we could not possibly afford in the first place because we trusted someone else’s word and did not perform our own due diligence. When times got tough, again, we were so busy calling on the Lord, it’s been estimated that more than 50% of us didn’t pick up the phone to even discuss our circumstances with our lender. The Lord provided customer service representatives to help us, but we instead trusted someone else’s word and allowed scoundrels to make a bad situation worse.
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.5. State Lottery – There are very few ways that you will get rich quick unless your name is Cam Newton and you just won the Heisman, yet 15% of Americans believe their retirement will come from “hitting the lotto.” Most of us will have to work diligently and plan efficiently. I know more people who spend $20/week or more on the state lottery and swear they don’t have $25 a month to put toward their toddler’s college education. The notion that if you hit the lottery, everything will be fine is crazy at best! If the average lottery addict put that money into a mutual fund or even into pursuing their own hustle, they could get a much better return. The small high that comes each time a $1 scratch off produces a $5 win is ridiculous when you think about the $80 that probably went into getting that one “lucky ticket.” And, no, I’m not buying the “I’m supporting the school system” theory through playing the lottery either! How about you read to the kids and support the school system that way OR better yet, pay your property taxes!
Understand that I am not insensitive to the daily grind and struggle that goes on in the ‘hood. How could I be when I’m grinding with you? We all have been caught in a jam at one point or another and face tough choices, but at what point do we stop falling for the okie doke? Yes, the circumstances suck, but we can no longer continue to pass the buck. At some point, we must take responsibility for our actions and what we’ve allowed to take place in our community. Are we exposed to these schemes disproportionately? Yes. But, can they only stay in business because we single-handedly remain their number one consumers? Absolutely.
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Until Next Time,
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