Below are two articles that look at non-credit card money systems. The Wired article ends up talking mostly about PayPal and other digital currency, while the Yes! article examines local and regional currencies like BerkShares. Some of the comments on the Wired article bring up interesting points about the potential inflation of digital currency and the difficulty of maintaining a stable value. BerkShares offers the opposite of PayPal: physical currency that is only accepted in a limited region. Between these two articles, questions arise about convenience of exchange, the role of money in society, and how to chip away at the credit card dynasties.
The Wired article includes a short history of the current credit card system: "Until the late 1950s, each card was usually tied to a single bank or merchant, limiting its usefulness and resulting in a walletload of unique cards. But when BankAmericard — later renamed Visa — offered to split its fees with other banks, those banks began to offer Visa cards to their customers, and merchants began accepting Visa as a way to drive sales." And so on. You've probably used alternative currencies and systems - did you have a college ID card with declining balance points or meals on it? That's just a checking account (that you can't withdraw from) and a debit card, and Visa is not involved. Sure, it's a limited economy, but it is similar to pre-credit cards when each bank had its own card. Anyway, check out the articles:
The Future of Money: It's Flexible, Fast, and (Almost) Free
by Daniel Roth, Wired Magazine March 2010
"An army of engineers and entrepreneurs is rushing in, hoping to do to the payment world what has already been done to the music, movie, and publishing businesses — unseat a legacy industry built on access and distribution, drive the costs to zero, undercut the traditional middlemen, and unleash a wave of innovation."
A Day in the Life of a Berkshare: How a Regional Currency Works
by Bill McKibben, Yes! Magazine Oct. 18 2010
"The currency is literally teaching people to think more carefully about how their habits build or erode community. It's about creating trust in a world where economists have taught us that we're self-interested individuals and nothing more."
Friday, October 22, 2010
Monday, October 18, 2010
Predatory Lending
People who don't have bank accounts (and even some who do) pay exorbitant premiums when they access their money through check cashing, payday loans, and cash advances.
Check cashing
Say you just did 10 hours of yardwork for someone and she gives you a $100 check. You don't have a bank account and you need the money now, so you bring it to a check-cashing place and pay a 5% fee to get cash. Basically, you spent 30 minutes working to earn the $5 that will give you access to the other $95.
Payday loans and cash advances
The Center for Responsible Lending has an excellent glossary, which explains that a payday loan is "marketed as a cash advance on the borrower's next paycheck. The terms are typically as follows: a loan amount of about $300, a two-week term, and a fee of at least $15 per $100 borrowed, which amounts to an annual percentage rate of about 400%. The borrower's personal check or debit authorization is held as collateral. Most payday borrowers get caught in a debt trap, unable to pay off the loan in the two-week term, and so are compelled to avoid default by paying repeated high fees for no new money."
According to DeNeen Brown (below), the DC government passed a law capping the annual percentage rates of these loans at 24%, so many of these establishments have closed or relocated. Sure, predatory lender will find other ways, but this is a solid move in the right direction. Check out your state's restrictions on payday loans.
Why don't people just get bank accounts? In short, because not having bank accounts gives them the feeling of more control over their money. People who have been slammed with minimum balance fees and overdraft fees at banks may feel like money in a bank is always disappearing. When they use check cashing, at least they know the exact fee that will be assessed. Perhaps language is a barrier, or lack of documentation. The Patriot Act requires proof of address, like a utility bill, which is hard to get if you're subletting or living in any other informal arrangement.
Below are two articles that explore how these predatory lending "services" work in practice.
"Living without a bank: Fees and confusion galore" Candace Choi, Oct. 3, 2010
A reporter in NYC abandons her credit and debit cards for a month to see how difficult it is to access her own money without banking services. She accumulates $93 in fees during the month by using prepaid cards, check cashing, and money orders.
"The High Cost of Poverty: Why the Poor Pay More" DeNeen L. Brown, May 18, 2009
"The poorer you are, the more things cost. More in money, time, hassle, exhaustion, menace." This article looks at high-priced food stores in low-income areas, check cashing and payday loan services, and substituting time for money.
My answer to this problem is to get people accounts at credit unions. When we the Cheapions were volunteering at an Earned Income Tax Clinic in DC, people without bank accounts considered taking their tax refunds to check cashing places which could potentially eat up hundreds of dollars. Generally, we told them to find a credit union and sign up for a basic, free checking account with no minimum balance. Credit unions are not always secret clubs. I use the NIH Federal Credit Union, which has limited eligibility, but Laura uses Philadelphia Federal Credit Union, which is open to anyone who lives, works, worships, or studies in Philadelphia.
Anyway, predatory lending is bad and traps people in a cycle of debt. Credit unions are fabulous.
Check cashing
Say you just did 10 hours of yardwork for someone and she gives you a $100 check. You don't have a bank account and you need the money now, so you bring it to a check-cashing place and pay a 5% fee to get cash. Basically, you spent 30 minutes working to earn the $5 that will give you access to the other $95.
Payday loans and cash advances
The Center for Responsible Lending has an excellent glossary, which explains that a payday loan is "marketed as a cash advance on the borrower's next paycheck. The terms are typically as follows: a loan amount of about $300, a two-week term, and a fee of at least $15 per $100 borrowed, which amounts to an annual percentage rate of about 400%. The borrower's personal check or debit authorization is held as collateral. Most payday borrowers get caught in a debt trap, unable to pay off the loan in the two-week term, and so are compelled to avoid default by paying repeated high fees for no new money."
 |
| (source: wikipedia) |
Why don't people just get bank accounts? In short, because not having bank accounts gives them the feeling of more control over their money. People who have been slammed with minimum balance fees and overdraft fees at banks may feel like money in a bank is always disappearing. When they use check cashing, at least they know the exact fee that will be assessed. Perhaps language is a barrier, or lack of documentation. The Patriot Act requires proof of address, like a utility bill, which is hard to get if you're subletting or living in any other informal arrangement.
Below are two articles that explore how these predatory lending "services" work in practice.
"Living without a bank: Fees and confusion galore" Candace Choi, Oct. 3, 2010
A reporter in NYC abandons her credit and debit cards for a month to see how difficult it is to access her own money without banking services. She accumulates $93 in fees during the month by using prepaid cards, check cashing, and money orders.
"The High Cost of Poverty: Why the Poor Pay More" DeNeen L. Brown, May 18, 2009
"The poorer you are, the more things cost. More in money, time, hassle, exhaustion, menace." This article looks at high-priced food stores in low-income areas, check cashing and payday loan services, and substituting time for money.
My answer to this problem is to get people accounts at credit unions. When we the Cheapions were volunteering at an Earned Income Tax Clinic in DC, people without bank accounts considered taking their tax refunds to check cashing places which could potentially eat up hundreds of dollars. Generally, we told them to find a credit union and sign up for a basic, free checking account with no minimum balance. Credit unions are not always secret clubs. I use the NIH Federal Credit Union, which has limited eligibility, but Laura uses Philadelphia Federal Credit Union, which is open to anyone who lives, works, worships, or studies in Philadelphia.
Anyway, predatory lending is bad and traps people in a cycle of debt. Credit unions are fabulous.
Thursday, October 14, 2010
You CAN maybe Afford Pricey Grad Schools
This is a decent video that explains how the Public Loan Forgiveness Program (PSLF) and the Income-based Repayment Plan (IBR) can work in tandem to reduce your school loans.
In their example, Lee takes out $150,000 in loans to go to law school. He graduates and gets a job making $40,000 a year in some nonprofit. Without PSLF and income-based repayment plan, he'd pay $1,742 a month for 10 years, or 52% of his annual income. But with PSLF/IBR, he'd pay $297 a month for 10 years, only 9% of his annual income, and when he makes 120 payments, he's done. I hadn't realized in my previous post that income-based repayment would apply to a salary like $40,000. Instead of paying back $150,000, he only pays back $35,640! That's more than 75% off! Let's ALL go to law school! Because we can't find jobs.
If you don't work in public service but don't get paid much anyway, you pay into IBR for 20 or 25 years and then the rest is forgiven. Much longer.
Again,"PSLF only works on federal "Direct" student loans. These are loans with the federal government as a lender. To participate in this program, you will need to consolidate your loans from Sallie Mae or other loan companies into Direct Loans. See http://loanconsolidation.ed.gov/ to learn more about Direct Loans. It doesn't work on Perkins or parent PLUS loans."
For more number crunching good times: finaid.org loan calculators.
In their example, Lee takes out $150,000 in loans to go to law school. He graduates and gets a job making $40,000 a year in some nonprofit. Without PSLF and income-based repayment plan, he'd pay $1,742 a month for 10 years, or 52% of his annual income. But with PSLF/IBR, he'd pay $297 a month for 10 years, only 9% of his annual income, and when he makes 120 payments, he's done. I hadn't realized in my previous post that income-based repayment would apply to a salary like $40,000. Instead of paying back $150,000, he only pays back $35,640! That's more than 75% off! Let's ALL go to law school! Because we can't find jobs.
If you don't work in public service but don't get paid much anyway, you pay into IBR for 20 or 25 years and then the rest is forgiven. Much longer.
Again,"PSLF only works on federal "Direct" student loans. These are loans with the federal government as a lender. To participate in this program, you will need to consolidate your loans from Sallie Mae or other loan companies into Direct Loans. See http://loanconsolidation.ed.gov/ to learn more about Direct Loans. It doesn't work on Perkins or parent PLUS loans."
For more number crunching good times: finaid.org loan calculators.
Monday, October 11, 2010
Dumpster Diving FAQ
We've been receiving some feedback here at Cheapions HQ that readers are yearning for more nitty-gritty posts. So I thought we might explore dumpster diving for food, an activity that is both nitty and gritty. Turns out nitty is not a word on its own. Some FAQs about dumpster diving follow...
Q: Are you seriously so cheap that you will trashpick for food?
A: Personally, we don't dumpster dive because we're starving. We are not starving, or even hungry. You might think rooting around in dumpsters is disgusting. Sure, it can be gross. But you know what's more disgusting? Perfectly good food being thrown out and heaped on landfills when there are people who are starving. According to sources in this Culinate article by Jonathan Bloom, more than 40 percent of all food produced in America is not eaten and 25% of the food that enters our homes is not eaten. For me, dumpster diving is less about saving money and more about keeping edible, nutritious food from rotting in a landfill. Too many resources go into producing and transporting food in the first place for it to just get thrown away at the end.
Q: Isn't dumpster diving super sketchy?
A: Trying to reclaim some of the food that ends up in dumpsters is risky. It's illegal in many places. Find out what the law is where you are. You have to go after the store is closed or at least at a time when there's likely to be food in the dumpster, so it might be dark and creepy. The worst case scenario is that a store employee sees you and calls the police for trespassing, I guess. Store employees practice very varied levels of turning a blind eye. Mostly their problem is their liability for dumpster divers getting hurt in/around the dumpster or getting sick from bad food.
Q: Eh, so, where might one dumpster dive?
A: Grocery stores, supermarkets, specialty stores...you're gonna need open dumpsters, not locked trash compactors. A great place to go is a store that sounds like Schrader Moe's, because their over-packaged foodstuffs make it easy to reclaim items. In this post I'm focusing on food, but obviously there are many non-foods to be saved from dumpsters too.
Q: Isn't the food in dumpsters bad/expired/rotten?
A: Sure, sometimes. But expiration dates are just numbers that lawyers make up to cover their asses, and usually food is totally fine for a bit of time after that date. They can't legally sell it, but that doesn't mean it's not worth anything. With Schrader Moe's overpackaging, if one pepper out of four in a container is weird, they throw out the whole container.
Q: What treasures have you found in dumpsters?
A: Dumpstering is inconsistent. Sometimes you will be overwhelmed with how MUCH there is. And many times you will walk away with empty, dirty hands. Here is part of a good haul from Schrader Moe's:
Does that look like good food to you? Damn straight it does. We ate roasted red peppers for weeks.
Q: Can you give me any tips on how to dumpster dive?
A: Lots of people are much more experienced at this than I am. But my tips are: wear closed-toe shoes, bring a headlamp/flashlight, and don't make a mess. Do it discreetly and do it often.
Q: Are you seriously so cheap that you will trashpick for food?
A: Personally, we don't dumpster dive because we're starving. We are not starving, or even hungry. You might think rooting around in dumpsters is disgusting. Sure, it can be gross. But you know what's more disgusting? Perfectly good food being thrown out and heaped on landfills when there are people who are starving. According to sources in this Culinate article by Jonathan Bloom, more than 40 percent of all food produced in America is not eaten and 25% of the food that enters our homes is not eaten. For me, dumpster diving is less about saving money and more about keeping edible, nutritious food from rotting in a landfill. Too many resources go into producing and transporting food in the first place for it to just get thrown away at the end.
Q: Isn't dumpster diving super sketchy?
A: Trying to reclaim some of the food that ends up in dumpsters is risky. It's illegal in many places. Find out what the law is where you are. You have to go after the store is closed or at least at a time when there's likely to be food in the dumpster, so it might be dark and creepy. The worst case scenario is that a store employee sees you and calls the police for trespassing, I guess. Store employees practice very varied levels of turning a blind eye. Mostly their problem is their liability for dumpster divers getting hurt in/around the dumpster or getting sick from bad food.
Q: Eh, so, where might one dumpster dive?
A: Grocery stores, supermarkets, specialty stores...you're gonna need open dumpsters, not locked trash compactors. A great place to go is a store that sounds like Schrader Moe's, because their over-packaged foodstuffs make it easy to reclaim items. In this post I'm focusing on food, but obviously there are many non-foods to be saved from dumpsters too.
Q: Isn't the food in dumpsters bad/expired/rotten?
A: Sure, sometimes. But expiration dates are just numbers that lawyers make up to cover their asses, and usually food is totally fine for a bit of time after that date. They can't legally sell it, but that doesn't mean it's not worth anything. With Schrader Moe's overpackaging, if one pepper out of four in a container is weird, they throw out the whole container.
Q: What treasures have you found in dumpsters?
A: Dumpstering is inconsistent. Sometimes you will be overwhelmed with how MUCH there is. And many times you will walk away with empty, dirty hands. Here is part of a good haul from Schrader Moe's:
Does that look like good food to you? Damn straight it does. We ate roasted red peppers for weeks.
Q: Can you give me any tips on how to dumpster dive?
A: Lots of people are much more experienced at this than I am. But my tips are: wear closed-toe shoes, bring a headlamp/flashlight, and don't make a mess. Do it discreetly and do it often.
Thursday, October 7, 2010
Socially Responsible Investing
If you're a bold little saver, you're probably taking advantage of your employer's 401(k) or IRA plans. Yay saving and investing! But wait, a dark cloud looms. "Investors - if unconsciously - silently provide the fuel that keeps the world economy moving, unaware for the most part of the companies that use their savings" (Landier & Nair). Having a retirement fund like a 401(k) or IRA means you own shares in the stock market. Maybe you have an index fund. Here's a fun task: check out your fund's top ten holdings - the ten companies that your fund owns the most shares of.
Here are the top ten holdings for my Roth IRA, which holds shares of the Vanguard 500 index fund:
AHHHHHHH!! I am a tiny shareholder of ExxonMobil? This news was unacceptable to me, but I guess it shouldn't be surprising. I began to research options for "socially responsible" investing, or SRI. First I looked at Vanguard's Social Index fund, which "invests primarily in larger U.S. companies independently screened to meet stringent social and environmental criteria." these are its top ten holdings:
Um, seriously? Trading big oil for big banks isn't exactly the kind of responsible I meant. Also, any hurdle set low enough for lardass McDonald's to jump over is not high enough for me. So from I started researching. I read some books. Amy Domini, who started Domini Investments, wrote Socially Responsible Investing: Making a Difference and Making Money in 2001. She outlines that "three basic aspects to socially responsible investing are screening portfolios, direct dialogue with corporations, and investments in community development financial institutions." Vanguard's Social Index Fund is a screened portfolio, meaning that it just takes out really "bad" companies like oil, weapons, tobacco, gambling, etc. Direct dialogue involves writing letters to Boards of Directors and trying to convince a companies to move towards more responsible choices. That is time consuming. Community investing is very cool and I will write about that in a separate post, but for now I want to focus on more mutual fundy things.
The best book I read on this subject was Investing for Change: Profit from Responsible Investment (Oxford University Press, 2008) by Augustin Landier and Vinay B. Nair. They posit that "acting as a shareholder might be faster and more effective than acting as a citizen." Their approach is pretty economic/academic - they're out to prove that SRI isn't just a whimsical hippie thing, and that it can be just as profitable as non-SRI. This counters the widely-held belief that in order to make ethical investments, you have to forgo big profits. Augustin and Vinay say that ain't true.
They also bring up some good questions. Is your investment helping a smaller, more responsible company compete? Is it showing big companies that they can be more profitable by being socially responsible? This is a good point because so many of the screened portfolios, like Vanguard, are full of companies that aren't ExxonMobil, but aren't impressive at all. And I've got to be impressed, dammit. So I started focusing on renewable energy funds, because I'm willing to gamble that small geothermal, wind, and solar companies will grow in the future. And now I'm entering a world of pain, full of 100-page prospectus PDFs and acronym glossaries as I compare the various funds and options. Coming soon: I will publish a post on what I've learned so far about evaluating mutual funds. The most useful research site for this is socialinvest.org. Anyway, the point is, be aware of where your money is and what you are supporting. Creepy closing fact from Augustin & Vinay: "in 2007, of the 100 largest economic entities in the world, 32 are companies, not countries."
Here are the top ten holdings for my Roth IRA, which holds shares of the Vanguard 500 index fund:
| 1 | Exxon Mobil Corp. | |
| 2 | Apple Inc. | |
| 3 | Microsoft Corp. | |
| 4 | Procter & Gamble Co. | |
| 5 | General Electric Co. | |
| 6 | International Business Machines Corp. | |
| 7 | JPMorgan Chase & Co. | |
| 8 | Johnson & Johnson | |
| 9 | AT&T Inc. | |
| 10 | Chevron Corp. |
AHHHHHHH!! I am a tiny shareholder of ExxonMobil? This news was unacceptable to me, but I guess it shouldn't be surprising. I began to research options for "socially responsible" investing, or SRI. First I looked at Vanguard's Social Index fund, which "invests primarily in larger U.S. companies independently screened to meet stringent social and environmental criteria." these are its top ten holdings:
| 1 | Apple Inc. | |
| 2 | Procter & Gamble Co. | |
| 3 | JPMorgan Chase & Co. | |
| 4 | Wells Fargo & Co. | |
| 5 | Bank of America Corp. | |
| 6 | Cisco Systems Inc. | |
| 7 | Oracle Corp. | |
| 8 | Google Inc. Class A | |
| 9 | Intel Corp. | |
| 10 | McDonald's Corp. |
Um, seriously? Trading big oil for big banks isn't exactly the kind of responsible I meant. Also, any hurdle set low enough for lardass McDonald's to jump over is not high enough for me. So from I started researching. I read some books. Amy Domini, who started Domini Investments, wrote Socially Responsible Investing: Making a Difference and Making Money in 2001. She outlines that "three basic aspects to socially responsible investing are screening portfolios, direct dialogue with corporations, and investments in community development financial institutions." Vanguard's Social Index Fund is a screened portfolio, meaning that it just takes out really "bad" companies like oil, weapons, tobacco, gambling, etc. Direct dialogue involves writing letters to Boards of Directors and trying to convince a companies to move towards more responsible choices. That is time consuming. Community investing is very cool and I will write about that in a separate post, but for now I want to focus on more mutual fundy things.
The best book I read on this subject was Investing for Change: Profit from Responsible Investment (Oxford University Press, 2008) by Augustin Landier and Vinay B. Nair. They posit that "acting as a shareholder might be faster and more effective than acting as a citizen." Their approach is pretty economic/academic - they're out to prove that SRI isn't just a whimsical hippie thing, and that it can be just as profitable as non-SRI. This counters the widely-held belief that in order to make ethical investments, you have to forgo big profits. Augustin and Vinay say that ain't true.
They also bring up some good questions. Is your investment helping a smaller, more responsible company compete? Is it showing big companies that they can be more profitable by being socially responsible? This is a good point because so many of the screened portfolios, like Vanguard, are full of companies that aren't ExxonMobil, but aren't impressive at all. And I've got to be impressed, dammit. So I started focusing on renewable energy funds, because I'm willing to gamble that small geothermal, wind, and solar companies will grow in the future. And now I'm entering a world of pain, full of 100-page prospectus PDFs and acronym glossaries as I compare the various funds and options. Coming soon: I will publish a post on what I've learned so far about evaluating mutual funds. The most useful research site for this is socialinvest.org. Anyway, the point is, be aware of where your money is and what you are supporting. Creepy closing fact from Augustin & Vinay: "in 2007, of the 100 largest economic entities in the world, 32 are companies, not countries."
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