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:
- carefully track your balance; sign up for low-balance alerts
- check your balance when making a debit card purchase; also consider other checks that may not yet cleared
- 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
- link your checking account to a savings account to cover overdrafts
- contact your financial institution to determine if you are eligible for a line of credit or a linked credit card to cover overdrafts
- 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.
- 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.
- Describe situations that might result in overdraft fees.
- What are methods to take to avoid overdraft fees?
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.
- 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.
- What are benefits and drawbacks of payback loans?
- What alternatives might be considered instead of a payday loan?
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:
- 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.
- What financial problems might be encountered by people with limited English-language skills?
- 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: financial services, payments, wise money management
With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:
- lower costs for obtaining advice and conducting transactions.
- an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
- an easier investment approach for younger clients with less-complicated financial lives.
Some will be concerned about automated portfolio management. Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.
For additional information on robo advice, click on the following articles:
- Have students ask people to describe the process they use to select investments.
- Have students create a framework to analyze when using robo advice might be appropriate for an investor.
- What are benefits and drawbacks of robo advice?
- What factors might be considered when using robo advice for investment decisions?
Categories: Bonds, Chapter_11, Chapter_12, Chapter_13, Financial Services, Investments, Mutual Funds, Stocks
Tags: bonds, financial services, Investing, mutual funds, stocks
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.
- Have students talk with others about their experiences using banking apps.
- Have students locate online information about the latest security features fof banking apps.
- What are benefits of costs of banking apps?
- How might banking apps be improved for increased financial security?
“. . . Financial coaching initiatives that target the working poor have sprung up in communities across the country.”
For low-income wage earners, the idea of paying hundreds of dollars for professional financial help can seem about as far-fetched as buying a winning lotto ticket. And yet, help is available in a number of the nation’s larger cities including Chicago and New York. In most cases, the financial coaches volunteer their time and have a background in personal finance or have received financial and investment training. The participants receive specific suggestions geared to their individual situation that are designed to improve their credit score and help them build a sound financial future. According to Richard Cordray, the director of the Consumer Financial Protection Bureau, “Having a trusted, well-informed financial coach can increase your odds of financial success.”
For more information, click here.
Note: There is a short video that accompanies this article.
You may want to use the information in this blog post and the original article to
- Point out that often low wage earners don’t have the money to pay a financial coach to help them manage their finances.
- Describe different situations where the advice from a financial coach could make a difference in someone’s financial future. For example, a coach’s suggestions on how to improve someone’s credit score could lead to obtaining a credit card for emergencies or a short-term loan to bridge the gap between unemployment and employment.
- Assume you are unemployed and have exhausted your emergency fund. You are behind on monthly payments including your rent and utilities. What steps can you take to improve your financial situation?
- In the above situation, what suggestions do you think a financial coach could provide that would help you work through this difficult situation?
Brian Page, a teacher in Reading Ohio, wants his students to understand the drawbacks of check-cashing services, pawnshops, rent-to-own stores, payday loans, and other shadow banking services. As a result, he scheduled a field trip for his students to visit these sources of high-cost financial services in their community, which are used by many unbanked consumers.
At LoanMax, they observed people getting loans with their auto titles serving as collateral. One missed payment could lead to repossession of the vehicle. Next, at CheckSmart, students learned about payday lending and tax refund anticipation loans.
At CashAmerica people were making loan payments on money borrowed, which used jewelry, electronics, and sports memorabilia as collateral. Finally, the visit to the Rent-A-Center store demonstrated the exorbitant costs of furniture, appliances, and electronics when using a rent-to-own payment program.
For additional information on teaching about high-cost financial services, go to:
- Have students talk with someone who has used one of these high-cost financial services. Obtain information about their experiences.
- If appropriate, have students visit a high-cost financial service provider to obtain information about their services and fees.
- Have students create a video presentation with suggestions on how to avoid using costly sources of financial services.
- Why are an increasing number of people using high-cost financial services such as pawnshop loans, payday loans, and rent-to-own programs?
- What alternatives might used by consumers instead of these high-cost financial services?
- What actions might a person take to avoid these high-cost financial services?
Loans with annual interest rates exceeding 400 percent continue to occur in our society. Payday loans are often used to bridge a cash-flow shortage between paychecks. Also known as “cash advances” or “check loans,” they are usually expensive, small-dollar loans, of generally $500 or less. They offer quick and easy access to funds for consumers who may not qualify for other credit.
A recent Consumer Financial Protection Bureau (CFPB) study revealed that four out of five payday loans are rolled over or renewed within 14 days. The majority of payday-loan borrowers renew their loans so many times that they end up paying more in fees than the amount of money they originally borrowed. This study also reported that:
- only 15 percent of borrowers repay all of their payday debts when due without borrowing again within 14 days.
- 20 percent default on a loan at some point, and
- 64 percent renew at least one loan one or more times.
These actions often create exorbitant fees and charges, and keep the consumer in perpetual debt.
For additional information and a complete copy of the payday loan report go to http://files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf
- Why does the market for payday loans exist?
- What actions might be taken to avoid using payday loans?
- Recommend actions for people who are caught in the trap of payday loans.
- Have students visit a payday loan office or an online payday loan provider to gain additional insight into this high-cost financial service.
- Have students make a short presentation with a summary of actions that might be taken to avoid payday loans.