Chapter 4

Instant Pay for Millennials

Can you imagine getting paid each day that you work? That’s the idea behind Instant Financial’s app, which puts cash in the hands of workers on the same day they work. This program attempts to reduce absenteeism and employee turnover for restaurant chains.

At the end of each workday, employees may take 50 per cent of their pay for that day and transfer it to an instant account; the other half is paid at the end of the regular pay period. Funds in the Instant account may be accessed with a debit card or transferred to a bank account.

The app can reduce the use of payday loans, with exorbitant borrowing rates, as workers have access to funds between pay periods. Instant Financial makes money from fees charged employers and merchants when debit cards are used; although employees may pay ATM fees.

A major concern of the app is that it might discourage long-term financial planning. Poor budgeting habits could result in increased use of debt due to a lack of funds at the end of the month. Employees who use the app are encouraged to practice wise money management, including creating and building an emergency fund and other savings.

For additional information on instant pay, click here.

Teaching Suggestions

  • Have students talk with others about the benefits and drawbacks of an instant account.
  • Have students describe two situations: (1) a person who used the instant account wisely, and (2) someone who mismanaged their money as a result of using the instant account.

Discussion Questions 

  1. What factors might be considered when deciding whether or not to use an instant account?
  2. Describe how an instant account might result in improved money management and in weakened money management activities.
Categories: Bank Fees, Chapter 2, Chapter 4, Financial Planning | Tags: , , , | Leave a comment

Overdraft Opt-in or Opt-out?

Most financial institutions offer overdraft programs for checking accounts, which for a fee covers a transaction where there is not enough in the account.  However, this service can result in several fees before the next deposit is made.  For debit cards, an overdraft fee cannot be charged unless you have agreed (“opted in”) to these fees.

To reduce or eliminate overdraft fees, these actions are suggested:

  1. carefully track your balance; sign up for low-balance alerts
  2. check your balance when making a debit card purchase; also consider other checks that may not yet cleared
  3. do not opt-in to an overdraft program for your debit card, or opt-out if you are currently opted in; while your debit/ATM may be declined, you will avoid high fees
  4. link your checking account to a savings account to cover overdrafts
  5. contact your financial institution to determine if you are eligible for a line of credit or a linked credit card to cover overdrafts
  6. compare account fees at other financial institutions

Complaints related to overdraft fees or other financial services may be submitted at   http://www.consumerfinance.gov/complaint/ or by calling 855-411-2372.

For additional information on overdraft programs, click here.

Teaching Suggestions

  • Have students search online or contact the costs associated with overdraft fees at various financial institutions.
  • Have students prepare a creative presentation describing actions to take to avoid overdraft fees.

Discussion Questions 

  1. Describe situations that might result in overdraft fees.
  2. What are methods to take to avoid overdraft fees?
Categories: Chapter 4, Debit Cards, Financial Services | Tags: , | Leave a comment

Avoiding Payday Loans

Payday lenders see borrowers as prey, people floundering in financial difficulty.

The Consumer Financial Protection Bureau is planning to release proposed rules related to loans and other short-term borrowing, such as auto title loans.  These efforts will include requirements that payday lenders make sure borrowers are able to repay the loans.

Payday loans are usually viewed as a temporary financial solution.  However, quite often borrowers need more time.  As a result, consumers get trapped in rolling over their debt and may be charged as high as 700 percent on an annual basis.  According to the Pew Charitable Trusts, 12 million Americans use payday loans each year, resulting in $7 billion of interest and fees.

For additional information on payday loans, click here.

Teaching Suggestions

  • Have students ask people to describe situations in which a person might use a payday loan.
  • Have students create a list of methods that might be used to inform others of alternatives to payday loans.

Discussion Questions 

  1. What are benefits and drawbacks of payback loans?
  2. What alternatives might be considered instead of a payday loan?
Categories: Chapter 4, Financial Services | Tags: | Leave a comment

Newcomer Money Guides

While beneficiary, collateral, and fair market value are familiar to many, these terms can be especially confusing to those with limited English-language skills. In an attempt to assist various people, the Consumer Financial Protection Bureau has created the Newcomer’s Guides to Managing Money to provide recent immigrants with information about basic money decisions.  These guides offer brief suggestions to those who are new to the U.S. banking system.  The guides also include guidance for submitting and resolving problems with a financial product or service.

The Newcomer Guides include these topics:

  • Ways to receive your money, comparing cash, check, direct deposit, and debit cards.
  • Checklist for opening an account, to assist with starting a bank or credit union account.
  • Ways to pay your bills, providing guidance on whether to pay by check, debit card, credit card, or online.
  • Selecting financial products and services, providing assistance on deciding which financial services are right for various household situations.

Print copies of the guides can be ordered or downloaded. These publications are available to English and Spanish with additional languages to be offered in the future.

For additional information on money guides for newcomers:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to create a list of financial planning terms that people find confusing.
  • Have students suggest methods to have people learn about confusing financial planning terms.

Discussion Questions 

  1. What financial problems might be encountered by people with limited English-language skills?
  2. What actions might be taken to assist various groups to better understand banking services and money management activities?
Categories: Bank Fees, Budget, Chapter 2, Chapter 4, Credit Cards, Debit Cards, Debt, Financial Services, Savings | Tags: , , | Leave a comment

Avoiding Banking App Errors

While smartphone apps have made banking easier than ever, threats to financial security continue to grow.  However, some simple actions can be taken to avoid banking app mistakes.

1.    Don’t conduct banking transactions on public Wi-Fi networks since they are vulnerable to hackers. Use a virtual private network (VPN), which provides added security and encryption.
2.    Log out after your session to prevent a thief from getting access to your bank account.
3.    Select a not-so-obvious username. Create password recovery questions with responses that are difficult to obtain from public records.
4.    Update your app when a new version is available to take advantage new security features.
5.    Create a strong password with special characters, and it should be at least 12 characters long. Change your password every 90 days.

For additional information on banking app errors, click here.

Teaching Suggestions

  • Have students talk with others about their experiences using banking apps.
  • Have students locate online information about the latest security features fof banking apps.

Discussion Questions 

  1. What are benefits of costs of banking apps?
  2. How might banking apps be improved for increased financial security?
Categories: Chapter 4, Financial Services, Frauds and Scams, Identity Theft | Tags: , , | Leave a comment

Bitcoins or a Credit Card?

Do you shop online?  Have you seen websites that allow you to pay with bitcoins?

Beware of the Bitcoin (virtual currency) risks!!

  • Values go up and down based on demand.
  • Payments made with virtual currencies aren’t reversible.
  • You do not have the same legal protections as more traditional payment methods.

For more information, click here.

Teaching Suggestions

  • Ask students if they have purchased products or services with bitcoins and what has been their experience.
  • Ask students if they check out the seller’s reputation before a purchase with bitcoins.

Discussion Questions

  1. Should the payment with bitcoins go directly to the seller or a payment processor?
  2. Does a payment through a payment processor offer any protections?
  3. If you receive damaged merchandise, will you get a refund in virtual currency, U.S. dollars, or store credit?
  4. If you have a problem with bitcoin-related product or service, where should you file a complaint?
Categories: Chapter 4, Chapter 5, Wise Shopping | Tags: , , | Leave a comment

Saver Survey

Each year, America Saves (www.americasaves.org) conducts a survey or its program participants to determine the attitudes and behaviors of savers.  The most recent study reports that:

  • People save mainly for their emergency fund, retirement, or repaying debt.
  • People in formal savings programs, such as America Saves, report saving larger amounts.
  • Married respondents saved much more than single respondents.
  • Females and males have different saving purposes; females favored saving for an emergency fund, males favored retirement saving.
  • Savers involved in America Saves are saving more, are more confident in their ability to manage their money, and are managing their debt better while feeling more optimistic about their financial situation.

The complete Savers Survey report is available here.

Teaching Suggestions

  • Have students talk to others about their savings habits and goals.
  • Have students prepare a graph to monitor their savings activities.

Discussion Questions 

  1. What actions can help encourage a person to have more effective savings habits?
  2. Why does being involved in an organized savings program result in more savings and better money management activities?
Categories: Chapter 1, Chapter 4, Financial Planning, Savings | Tags: , | Leave a comment

Saving Your Tax Refund

The average federal income refund for this year was nearly $2,900, resulting in tens of billions of dollars ready for use. Instead of spending those funds, financial advisors recommend saving for an emergency fund, retirement, or other household goals.  Currently, these refunds represent an amount larger than the average annual personal savings rate of most Americans. Spending the refund on things you don’t need often results in reduced future financial security.

Also, consider reducing your withholding throughout the year.  The refund you receive is only getting back money you lent the government over the past year at zero per cent interest.  Instead, have an automatic withdrawal sent to your savings each month.

For additional information on saving your tax refund, click here.

Teaching Suggestions

  • Have students conduct a survey of people to determine how tax refunds are used..
  • Have students prepare an analysis of lost interest/earnings by taxpayers who received a large refund each year.

Discussion Questions 

  1. What are the benefits of receiving a large tax refund?
  2. What are the drawbacks of receiving a large tax refund?
Categories: Chapter 4, Chapter 5, Savings, Taxes | Tags: , | Leave a comment

Prepaid Industry Scorecard

Millions of consumers use prepaid cards for spending, saving, and managing their money. Card issuers offer diverse products to meet the needs of users and prepaid cards vary immensely across the industry. Such diversity is beneficial to consumers, provided that the overall quality of products is high and that providers continually strive to meet the needs of consumers.

At the same time, it is important at this point in the industry’s development to take stock of the quality of products in the marketplace and to encourage prepaid card issuers to pursue policies that actively improve consumers’ financial lives. Drawing upon the framework of CFSI’s Compass Principles and the definitions of quality articulated in the Compass Guide to Prepaid, this report assesses the level of quality in the current prepaid card marketplace and provides a set of benchmarks against which future progress can be measured.

Eighteen General Purpose Reloadable (GPR) cards are analyzed in this report. These cards collectively represent approximately 90% of the total GPR card marketplace and include the largest players in the industry, as well as a sampling of smaller programs with particularly innovative cards. To develop scores for the industry as a whole, these eighteen cards were assessed against the recommendations outlined in the Compass Guide to Prepaid. Quantitative and qualitative methods of analysis were employed to generate scores that accurately capture the quality of products in the prepaid card marketplace.

For additional information on the Prepaid Card Industry Scorecard, click here:

Teaching Suggestions

  • Have students research various fees associated with prepaid debit cards.
  • Have students create a short video that communicates actions to avoid fees for prepaid debit cards.

Discussion Questions 

  1. What are the main differences between traditional and prepaid debit cards?
  2. Explain situations when people might use a prepaid debit card.
  3. Are there certain age demographics that would use prepaid debit cards more?
Categories: Chapter 4, Debit Cards | Tags: , | Leave a comment

What is your Personal Savings Rate?

The average personal savings, as a percentage of income, in the United States, has averaged about five percent.  To calculate your own personal savings rate, take these steps:

  1.  Total your savings for the year, including non-retirement savings, personal retirement contributions, and employer retirement contributions. The amount could be negative if you took on more debt than the total of your savings.
  1. Determine your total income by adding your take-home pay (after subtracting income taxes) to the amount your employer contributed to your retirement account.
  1. Calculate the personal savings rate by dividing (1) by (2).

For additional information on personal savings rates, click here.

Also, to see information about savings rates and other statistics, click here.

Teaching Suggestions

  • Have students calculate their person savings rate.
  • Have students interview several people to determine actions that are commonly taken to increase a person’s savings rate. 

Discussion Questions 

  1. What actions might be taken to increase savings?
  2. Describe financial difficulties that may occur when a person has inadequate savings.
Categories: Chapter 2, Chapter 4, Financial Planning, Savings | Tags: , | Leave a comment

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