My column in the paper today is about a Lenten money fast, as promoted by Washington Post columnist Michelle Singletary (read her columns here).
The idea is to make yourself free of payday lending places by taking control of your home finances. Cut your spending down to the most basic of basics, you can save enough to put aside an emergency fund so, the next time you need a couple of hundred dollars for an emergency, you have it.
This ought to be a simple concept, but in America in 2010 it is anything but. Americans are addicted to credit, consider debt normal, and don’t seem to mind living on the edge.
Banks depend on us going over the edge. They need us to, and even want us to.
For example, today’s New York Times has a good article here (click) about how, with the new debit card and credit card rules, banks are going nuts trying to figure out how to keep people paying overdraft fees. Those fees, something like $20 billion a year, are now a huge part of banks’ profit, figured into future growth, necessary for their stockholders survival.
In short, banks NEED people to be foolish.
The new law requires you to specifically opt-in to the overdraft “protection” program. What this means is, if you swipe your debit card, and you don’t have enough money in your account, instead of being denied, the payment is approved and you pay a $35 overdraft fee to the bank, even if the overdraft was just a dollar or two.
Banks are sending out scare letters saying that you really really need this overdraft protection in an “emergency.” However, the vast majority of overdraft fees are paid by about 14 percent of debit card users, who pay 95 percent of all the fees.
Which means those are not emergencies, those are people who either don’t mind paying triple for their soda and crackers at 7-Eleven, or they have no clue how to manage money. Either way, for banks to seek those people out and rely on them for income is predatory.
At least one person in the comments section of this story looked at the numbers:
There are approximately 1110,000,000 households.
14% of them (1,554,000) pay 93% of these overdraft fees ($20,000,000,000) or $18,600,000,000 a year.
That is $1,197 a year for each of those households in overdraft fees!
That’s a lot of money that those families, I am guessing, can’t afford. $1,200 a year is two months rent, four car payments, three months of groceries.
Those people don’t need overdraft protection, they desperately NEED the bank to tell them no. They need the bank to tell them “You have no money, quit spending it.” They need a crisis to make them pay attention.
Banks used to do that. Telling people no protected the bank AND served as a way to educate the public. It encouraged the Republican and conservative principle of careful and conservative money management.
But now the banks allow people — nay, encourage them — to run up overdrafts and pay overdraft fees, saying “well, it is their job to manage their money, not ours. Is if our fault if their poor management enriches us?”
Yes it is. Especially if they intentionally market ways to avoid the consequences of bad management with the sole purpose of keeping profits flowing. That’s the morality of the drug dealer and no different at all from the morality of the payday loan operators.
I’m amazed the organized crime doesn’t sue for infringement of its business model.
Bottom line: Go on a money fast. Learn to manage your money. If you can’t pay off your credit card, in full, each month, quit using it. And treat your debit card like a check machine — record each charge in a check record book, do the subtraction after each charge, and when you get down to $50 in your account (a very minimal cushion) put it away and say “Sorry, out of money.”