Things I've Learned from the Federal Reserve part II
I'm guessing not everyone is hearing the buzz about the dangers of predatory lending, also known as Payday loans. Another wonderful speaker I had the pleasure of hearing spoke of an successful alternative to such practices, Eugene (Jack) F. Webb, President of the South Region of BankPlus. But first things first, why are Payday loans bad?
According to
A Study of the Payday Loan Industry in Missouri, "in the past few years the payday loan industry...has grown significantly, both nationally and in Missouri. In 1996 there were an estimated 2,00 payday loan outlets nationally, and by 2008, that number grew to an estimated 22,000."
I recently attended a public hearing because in the state of Kentucky, because Kentuckians have paid upwards of 400 percent interest on more than four million loans for an estimated $158 million in predatory payday loan fees in 2008. Proponents if payday loans often state that they are useful as an occasional source of short term credit. The thing is many customers use these services multiple times in a year.
According to KCRL County Data Report, the U.S. Department of Defense recognized the problems associated with these loans and sought and won federal legislation capping the annual interest rate that can be charged to military families at 36 percent. This was defined as a matter of national security because payday loans were causing the disintegration of family finances and impairing military readiness. People feel that this should apply to everyone.
Payday loans are also known as deferred deposit transactions, allowing people to borrow money against future earnings, by writing a postdated check for the amount due. The problem lies in that many people just can't pay it all back because of the high interest rates. Basically the entire system relies on the consumer's failure to repay and result in repeat borrowing.
For example say your car broke down and because your hours were cut you do not have the money for the repairs at the moment, but you have to get the car fixed asap so not to miss any work. You decide to go to a payday lender for a $250.00 loan. It cost more than you had anticipated to fix your car and now your rent, credit card and phone bills are due. Unable to repay the loan you end up paying $54.00 in interest every two weeks. Let's say this continues, and 18 months later you pay off the loan.
The total loan cost would be $1944 with $1695 in interest (452% APR). So where are people turn when you don't have family or a saving account? The program offered at Mr. Webb's bank. At BankPlus you can get a $500 or $1000 loan based on your credit score with a fixed interest rate at 5% for 12 or 24 months. There is a required 3 hour financial literacy class and half of the proceeds go to pay down debt while the other half go into a savings account. There are no fees other than the interest rate. While the bank really doesn't make any profit initially it does create customers, ones that so far appear to stick around.
Who Knew I Could Learn So Much From the Federal Reserve
More and more I find myself headed into the corporate offices of the banking world. Me, dressed in my blue jeans or cheap slacks next men and women in designer suits all enter the elevators together but it seems that only I exit on the Federal Reserve floor. Needless to say, I find that I am usually the youngest and often the only person representing a non-profit at many of these seminars and meetings. But it is great! At first I thought so because of the free lunches and breakfast, but they honestly bring great speakers that don't just talk about change but actually doing something to make it happen.
The first really great speaker I saw a couple of weeks ago was Saundra Davis. She is a nationally recognized financial coach, educator and consultant. As President and CEO of Sage Financial Solutions, she provides financial coaching for individuals, small business owners and community based organizations and is also a co-founder of EARN'S Wealthcare Financial Coaching Project.
A lot of what she covered had to do with what the difference is between financial counseling, planning and education can be. It the end they can over lap and compliment each other but the main focus was on coaching. This is because it is rooted in behavior change and trying to empower the client rather than simply telling them what to do. A financial coach is to help the clients identify their specific financial and life goals through motivation, accountability, resources and help. This is done by asking questions such as: what about this is important to you? What next? What else? Finding this information can be accomplished several ways but the one that caught my attention the most is through the Wheel of Life.
The Wheel of Life is an exercise that cuts a circle into eight sections that, together, represent one way of describing a whole life. The exercise measures your client's level of satisfaction in these areas and is meant to be a snapshot of the moment. The categories can be changed but the ones given are Fun and Recreation, Physical Environment, Career, Money, Health, Friends and Family, Significant Other/Romance and Personal Growth. Then the you rate the way you feel about these areas from one to ten. Ten being the best and the outer part of the wheel and one the worst, closer to the inside of the wheel. The goal is to make your wheel whole.
To use my life as an example, I feel that in the Fun area I'm at about a 7, Physical Environment is a 4, Career 6, Money 5, Health 4, Friends and Family 7, Significant Other 9, Personal Growth 6. Now why do I feel this way? I know that I have an extreme amount of fun- concerts galore, beer, parties, etc. So how could I improve this or is it important to me to improve it? Yes, I would like to have even more fun because who doesn't. Often I cannot go out because I live too far away and don't feel as if I should spend the gas money nor do my friends want to drive out to see me.
This leads to the Physical Environment topic. I currently live with my boyfriend and his family. I am very grateful for everything they have given me and for all that they continue to do for me. But as I near the age of 30 I want to have things of my own. Seriously, about the only thing that is mine at the moment are clothes that are mostly too small for me and my bicycle. If my boyfriend and I were to suddenly develop problems and break up, I would have no where to live and no car. I have lived for almost the last five years with my belongings in storage because I just do not have any where else to place them. I have no place of my own. Again, since this topic is ranked as one of my lowest I would love to improve it. My boyfriend and I are hoping to move out next month so I feel that my desire to both be closer to town and the ability to walk around naked will increase my mood and my need for more independence.
On to Career and Money. I ranked my career at 6 because I am finally making progress in that area, though I still have further to go but for the moment I'm very happy where I am at this time. This ties into the Money category because as an AmeriCorp VISTA I am to live at the poverty level. I actually make less than minimum wage. This fact weighs heavy on my mind and on my plans to move out. I have to budget and stick to it! I cannot see how can achieve my goal without it. I am eligible for food stamps and know that this will save me money and I have applied to defer my student loans as well.
So... you can see how the Wheel of Life works. It forces you to think about your life at this moment and decide what you want to change, how it relates to other parts of your life (because they too can be improved) and makes you analyze how to change it.
