Top 5 Financial Tips for African-Americans
by Shannon Nash, Esq., C.P.A.

Remember those New Year resolutions where you pledged to get your financial house in order – like, “I will get rid of those credit cards,” or “I’m going to pay that car note off early?” Well, it's now September and you’re probably operating exactly on schedule, right?

Okay, maybe not and to quote one the most popular songs from the 80’s “Back to Life, Back to Reality,” here are 10 financial tips to get you back on track.

Tip 1: No Pay Day Loans

Just got paid
Friday night
Party hoppin’
Feeling’s right
Booty shakin’
All around
Pump that jam
While I’m gettin’ down

“Just Got Paid,” Johnny Kemp, 1988

Remember the character in your favorite black exploitation movie. You know the one with the long leather coat, the big Afro, the sharp goatie and the serious attitude? Everyone revered and perhaps feared him, but at some point in time they found themselves going to him for a “little bit of cash” to hold them over to next week. Sound familiar? He was known as a "loan shark;" and in most places his profession was illegal because he charged an interest rate that was so high that it had to be a crime.

Now fast forward to 2004. Welcome to the era of the “pay-day loan,” “check advance,” “early deposit,” “title loan,” and “tax-refund advances or anticipation loans.” True these “loan” programs are legal. You borrow the money with the promise of giving the lender an asset like your pay-check a few weeks later. But the fee charged for this ‘favor’ is typically very high and borderline highway robbery. According to a report issued by the National Consumer Law Center and the Consumer Federation of America, consumers paid an extra $2 billion just to get their refund checks faster.

“You wouldn’t borrow money from a loan shark but in effect you are doing so with these pay-day type loans because of their outrageous fees,” said O’Sumby Kuti, a certified public accountant from Upper Marlboro, Maryland. These fees can be as high as 15-20% of your check or tax refund. In fact, the Consumer Federation of America calls these loans “legal loan sharking.”

So, Tip 1 is don’t get payday loans. Just don’t use them! Start Friday night with all of your paycheck intact. If you find yourself in a financial bind, look for other cheaper ways to borrow the money and get in the discipline of looking at interest rates – the lower the better. Easyaccessclub.com, offers many articles and resources on avoiding pay-day loans, including some of the following alternatives:

• Borrow from personal contacts -- friends, family or others in the community
• Get in the habit of making and sticking to a budget
• Decrease your expenses or increase your revenue to match your life style
• Change your life style so you can afford it

Tip 2: Check Cashing Joints are NOT Bank Accounts

Wake up, wake up, wake up
It’s the 1st of tha month
To get up, get up, get up
So cash your checks and get up

“1st of Tha Month,” Bones, Thugs N Harmony, 1995

It’s that time again. You see the lines at the checking cashing place on first on the month. Millions or people use these check cashing establishments over banks – estimates by the National Consumer Law Center put the number at some 10 million families without a bank account. But Wayne Hamilton, an attorney in Ft. Lauderdale doesn’t understand the popularity of check cashing establishments over banks. Even the highest bank fees are usually significantly less on an annual basis then fees charged at check cashing establishments.

As with most of the tips in this article, mathematically it doesn’t make sound financial sense to use check-cashing establishments as bank accounts. Take a $1,000 check. Assume you cash the check by depositing it into a new checking account that charges as monthly fee of $5.00 as long as you keep a $100.00 monthly balance. Your net from this is $895 ($1,000-$100-$5). Cashing that same check at your favorite cash checking establishment will cost you $28, leaving you with $972.

So far the check-cashing route seems like the winner. However, you must also consider that after cashing this same $1,000 check every two weeks, very soon you will have paid more in fees at the check cashing establishment then by using your bank account – it only take 4 pay periods or 2 months. In fact after one year, you will have paid overpaid by almost $500 by using the check-cashing establishment. Although this is a very simple example, the point is crystal clear -- you’re out of pocket.

Why not open a bank account instead? “People have a lot of reasons for not opening a bank account such as, bad credit history, fear that the bank may share their information with people like the IRS, or the want to hide the money from a spouse or even just plain fear of not trusting the bank to remain solvent.” Hamilton said. But in his experience many of these reasons come down to people being “uninformed and unaware of the total cost for using check cashing establishments.”

However, for some people bad credit is a real barrier to opening a bank account. “If you have bounced checks or overdrawn you bank account in the past, eventually your bank will close your account and then your bad history is reported in a database, called ChexSystems, which will probably prevent you from opening a new bank account,” Kuti said. An estimated 19 million people have accounts listed in ChexSystems. In fact bounced checks and bank overdrawals that are reported to ChexSystems last some five years on the database.

There are banks and credit unions that will allow you to open an account even with bad credit information in ChexSystems. However, you should be wary of any bank that purports to let you open an account while you still have a debt in ChexSystems and where the bank fees “are so high that you might as well stay with a check cashing establishment,” Hamilton warned. “First try and repay any amounts reported on the ChexSystems and then get an account with a reputable bank,” he added.

Tip 2 is simply, shop around and get a bank checking account with reasonable fees. For help on comparing bank fees in your area, visit www.bankrate.com, checking account search engine. Stop using check-cashing joints. For help on repairing bad debts reported on ChexSystems, see these websites:

• www.chexhelp.com (run by eFunds, the operators of ChexSystems)
• www.chexhelper.com
• www.icreditsolution.com
• www.newcheckingaccount.com
• www.badcreditalliance.com


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