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Money

The www.FedPrimeRate.com Personal Finance Blog and Magazine

Thursday, March 20, 2008

Check Writing Habits That Can Get You Prosecuted

I think that almost everyone who has a checkbook has written at least one check in their lifetime that they knew they could not cover at the time the check was written. Because there is usually a time lapse before the actual redemption of your check, sometimes people write checks for amounts they do not currently have in their accounts, knowing that by the time the check makes it to the bank, the money will be there.

This is not a good practice; my good friend found out the hard way.

Times got a little tight, and my friend found himself needing groceries before he received his regular paycheck. So, he went to his local grocery store and wrote a check that he couldn’t cover at the time, knowing that by the time the check was cashed, the funds would be available. The problem with this plan was that you must always expect the unexpected; some other bill payments that went through the same week maxed him out, and by the time the grocery check was processed, there were insufficient funds to cover that amount. My friend took care of the overdraft fees soon after the incident, but somehow managed to let a period of time go by without actually repaying the store for the bounced check.

Well, the huge regional grocery store chain did not forget.

By the time he returned to the store to settle the debt, they had sent him to collections. Who knew that grocery stores had collections departments? Collections had sent his information to the county prosecutor’s office, and my friend received a friendly notice in the mail stating that he had to attend and pass a class for check fraud offenders, or legal action would be taken against him!

The class, he told me, was an eye opener. Through group interaction, he learned that there were lots of people taking the class with him for a myriad of reasons. Little old ladies, young men and women, working class and professionals; all were there because of one bad check. Some were there because they were irresponsible, and some were there because they were so financially strapped that they had to pass a bad check to eat. Others, like my friend, just took a seemingly small risk and ended up on the losing side of the bet. The four-hour course was on money management and educated the attendees on the risks and legal ramifications of committing check fraud, which all of them were guilty of, whether intentionally or not.

My friend walked away from the experience having learned a lot about the importance of managing money meticulously when you are on a budget. Not only did this hard knock teach him a thing or two, but the class itself was actually very valuable, he says. Although his intentions were not malicious, what he did was still illegal. Otherwise honest people can participate in criminal activity because of a lack of prior planning and proper accounting.

Go figure...

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Saturday, March 15, 2008

Does Aging Affect Financial Prudence?

During a recent phone conversation with my mother, I realized something that I apparently had been oblivious to – she really is getting older. My mother is swiftly approaching 70 years old, but is just as lively and sassy as ever. Now that I am a wife and mother, too, we talk all the time, and I lose sight of our age difference because our relationship has expanded into a genuine friendship. She will never be my peer, but she is timeless to me now.

Well, she was until she told me that somehow, while paying her monthly bills, she had miscalculated something somewhere and her bank account was slightly overdrawn.

My mom, who has always been a shrewd money manager, doesn’t go through these kinds of things. She harshly scolded me in my early twenties as I discovered the joys of the VISA check card and the pains of overspending because I had swiped my card too carelessly. Growing up, she always had bank books full of deposit and withdrawal notations – I thought that she was an accountant!

Simply put, my mom doesn’t ever, ever overspend. EVER.

So, when she told me that she had made this kind of error, it was a little rattling. What really made my heart sink was that she was so upset about it. It wasn’t because she was worried about money; she has good credit and still works, so she simply planned to charge her purchases to her VISA until her next payday. No problem. My mother’s worry was that she might be falling into the same kind of diminished financial prudence that many seniors her age experience.

Financial Advisor Magazine reports that “More than 14% of Americans—5.4 million senior men and women—have some form of dementia or Alzheimer’s disease by age 70, according to a 2007 NIH study,” and that “The AARP says that half a million folks 50 years of age or older already need assistance with their finances.” I’m sure that many of my mother’s friends need assistance in managing their finances due to diminished capacity. It’s easy, however, to dissociate yourself from others who need help with something when you are so good at it. Now, the queen o’ the balanced checkbook had fallen from her throne. I’m sure it was quite unsettling, and I hurried to assure her that everyone makes mistakes sometimes, so that she wouldn’t continue to worry.

I really do believe that this snafu was a one-time mishap for her. I may just be a loyal daughter. But it would be wise for both of us to remain open to the idea that my mother may not be the invincible Superwoman after all.

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Tuesday, March 11, 2008

"Aspire" For Good Credit, Not Fast Cash

The credit card industry has some of the most effective marketing I have ever seen. Albeit sleazy most of the time and misleading at best, people actually apply for the cards that are advertised with little to no caution or due diligence. The marketing messages grab them and compel them to act – that’s what “good” marketing does.

One of the best examples of this that I have ever seen was the Aspire VISA card. I even remember the first time I saw the commercial. The spokesperson is an average looking woman with a child in an urban area. She calmly describes how hard she works and what not, letting the viewer know that she is a salt-of-the-earth, working class American, just like them. After she convinces you that she is non-threatening and sympathetic to you, she begins to convey the heart of the marketing message – she tells you how you “deserve” to have a credit card.

I was instantly turned off and angered.

I know that I said this was “good” marketing, and technically, it is. It achieves all of the goals of a “good” marketing campaign. My problem with it was that it was an absolute lie.

Most people with bad credit have it because they were (and oftentimes still are) irresponsible and or ignorant concerning proper credit usage and the importance of creditworthiness. If you spend more than you make and you do not absolutely have to (some individuals do have extenuating circumstances), you don’t “deserve” a credit card until you clean up the mess you’ve made, period. If someone gives you a second chance, then it’s a blessing, not something you’re entitled to. Unfortunately, however, most people are so self absorbed that they don’t stop to think about the predatory nature of advertisers who appeal to their vanity instead of their rationale. As I watched the commercial, unable myself to get a credit card at that time because my credit was bad, I was still offended at how this company was obviously trying to take advantage of me and my situation.

Soon after I first saw this commercial, I got into a conversation about credit with a good friend of mine. We usually call each other to rant and rave, so I was sure that I would get a chance to tell her about this horrible commercial I had seen so that we could laugh at how obvious their ploy was. She, however, got the head start, going on about how she had just gotten the screws put to her with a credit card she had. She was on the phone with customer service all day for the second day in a row, trying to resolve issues concerning her credit limit. She was promised a limit of about $500, and when she tried to make a purchase over $300, her card was declined. It turned out that because the card she had acquired was a “bad credit” credit card, there were fees tacked on right at the very beginning, totaling about $250. She owed them $250 before she had spent a dime! What a rip-off! She had gotten the card because she wanted to rebuild her credit, and she was prepared to pay more than the minimum balance each month and everything, but now she was steamed and ready to pop. I was appalled. Because I had recently seen the horrible Aspire commercial, I asked, with more than a hint of sarcasm, “It isn’t that Aspire card, is it?”

She gasped and replied, “How did you know?”

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Thursday, March 06, 2008

Why I Tend To Overspend

I am currently in credit card rehab – my loving husband, who admitted me, is also the chief of staff. We are in the process of getting out of debt for good, so there has been absolutely no credit card usage allowed, period. It’s been like this for quite some time now, and I have to say, I didn’t think that I would make it this long. Paying off debt while ceasing from creating new debt seems like an obvious solution, but putting such theory into practice is harder than it seems. When we abruptly stopped charging purchases, I began to show withdrawal symptoms, which is why I am here, cleaning up my act.

Although I went down kicking and screaming, I always understood that my husband was right for putting a halt to all credit card spending until we were ready to be responsible users. We did what many newlyweds do – we got a joint card almost as soon as we got married and bought things that we thought we needed for our new life together. The problem was that we didn’t have the money to get those things outright; thus, the use of credit. This kind of spending put us in a vice that really began to squeeze when unexpected situations arose, pinching our finances so hard that accounts became delinquent.

How did that happen?

I believe that, at least for me, the problem began when the foundation was laid for my conceptual understanding of credit. Besides the fact that my teacher was an eighteen year old girlfriend, there were negative influences and temptations on every side. College campuses are now lairs for predatory lenders with magic plastic cards, giving you a free t-shirt or tote bag for books in exchange for your credit application. Hip, trendy boutiques make it all too easy for young people to obtain store credit. So, my belief system concerning the purpose for and availability of consumer credit was corrupted from the very start.

I bought into the idea that credit was a pipeline as opposed to a lifeline. From what I had gathered from my friends and the credit card companies, consumer credit was there so that I could purchase things I couldn’t afford and simply pay for them later. As long as I made small monthly payments, I could buy whatever I wanted, up to my credit limit. Credit was a money pipeline, creating cash flow in the present based upon resources from the future. I could keep the pipeline going, so long as I put a little cash into it on a regular basis.

While that sounds good, it’s a shame that it’s completely untrue!

Consumer credit was originally developed as a lifeline, primarily for the well-to-do and business owners in order to purchase necessary equipment or other assets that would either appreciate in value or help them turn a profit. That’s a far cry from getting some new clothes (that I really can’t afford) this week, even though I don’t get paid until two weeks from now.

Well, after living a while with this “pipeline mentality”, I soon came face to face with the realities involved with racking up debts that I couldn’t pay, and then being denied the help I really did need in the future because of past indiscretions. Then, I turned around and started fresh again when I got married. Apparently, I hadn’t learned my lesson in college.

I sure did learn it during my stay in credit card rehab, though. It’s actually been a couple of years now. I honestly believe that I have been rehabilitated. But, just to be sure, we don’t plan on getting another credit card until we know exactly what we will use it for and that we will pay the balance off every month that we use it.

The pipeline is officially closed.

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