I’ve been around a lot of people lately who’ve been trying to justify to me their bad financial choices. They tell me the normal excuses. You’ve heard most of those and maybe even used them yourself – excuses like: “I deserve it,” “I work hard,” “I can afford the payments,” etc. I don’t want to beat you up, but as a financial counselor, those excuses to me are a lot like, “the dog ate my homework,” to the experienced school teacher. I just don’t buy it. I may believe you work hard and I may believe the payments for whatever you’re pining after won’t send you into bankruptcy, but I KNOW there is a better way to go about personal finance than the way the average American (read “broke person”) does it.
I want to help you develop long-term thinking and avoid ending up in the poor house. Today I want to do that by showing you some of the real-life places out there that are designed specifically as traps for poor people. Remember, as I wrote previously, poor is a state of mind…and so is rich! Poor doesn’t mean you don’t have money – it means you have given up on succeeding financially (whether consciously or unconsciously). In most cases, I believe people ultimately choose to be poor. …And now that I’ve offended almost everybody, let me make sure not to miss anyone by offering my list of five real-life financial traps that are likely in your town.
Check Cashing/Payday Loan/Title Loan Places
The concept is simple enough – walk into a storefront, write a check or sign a few papers, then walk out with cash. The problem – what did it COST to get that cash? In their simplest form, check cashing agencies cash your check just like a bank would. What’s the catch? Service fees, averaging 1-3% of the amount of your check, are charged for you to get your money. Cashing your $785 disability check? It could cost you roughly $25 in fees on average. Most of these agencies target those who don’t have bank accounts because admittedly, it can be tough to get a check cashed without a bank account.
Payday Loan places are a little different – they allow you to get the funds from your paycheck before payday, and you promise to give them your paycheck when it comes in, along with their fees and interest. This is a highly-regulated industry because there is constant abuse and fraud. Depending on your state, you can end up paying 500% interest or more. How? They don’t explain the math. If you pay $15 for $100 borrowed on a 2-week loan (pretty standard stuff at these joints), that’s 390% APR. And that’s assuming you can afford to pay them back on time. Let’s not even get into what happens if/when you can’t! Title Loan companies are pretty much the same deal, except you get a little lower interest rate simply because you hand them your car title as your collateral. SCARY.
Rent to Own Store
I wrote about RTO places a while back and explained in some detail how they work. To boil it down, they ask you to pay smaller weekly or monthly payments on an item you would generally just go buy (bed, appliance, TV, etc.) and charge a VERY high interest rate for the convenience. If you save up and buy an item vs. getting it RTO, you can save 40% plus – and that’s if you don’t even look for the item used or on sale! Paying way too much for something out of ignorance or desperation is what poor people do.
When you finish filling up your tank, please venture inside to enjoy the sights, sounds and smells that all scream, “welcome to the land of beer, cigarettes and lottery tickets!” And if those three don’t tickle your fancy, you can still get a can of overpriced soda, stale (and yet still overpriced) snack foods, or even “personal products” handily dispensed individually in the restroom. I had an Economics Professor once tell us that the lottery is, “a voluntary tax on the poor.” If there are any out there who have played the lottery and won their life’s fortune doing so, simultaneously increasing their life span, personal happiness and spiritual walk by smoking and drinking away their paycheck, please contact me and I’ll have a slice of humble pie and apologize to you directly. For everyone else, please think about it before you walk in and plunk down a hunk of change on what the convenience store is peddling. There is always a price to pay for convenience – be careful the “convenience” is worth the price.
Before all car salesmen hiss at me for listing this one, keep reading for a moment. Most car dealerships are legitimate businesses that offer a decent service. But some are a place to guard your wallet. The phrase “buy here, pay here” should send shivers down your spine. In the dictionary, that phrase means, “No one else in their right mind will give you a loan, but we’ll do it on an overpriced, sub-standard automobile and charge you 25% interest because our primary goal is to repossess that car, sue you and ensure we sell that same car again to the next person willing to walk in here desperate for transportation.” …or something like that. The average millionaire doesn’t pay car payments. He doesn’t lease, and he doesn’t buy new…or if he does, he keeps that “new” car for 20 years or so. Don’t let your need for transportation make you believe your wish for a car you can’t afford is anything other than a wish. Act like a millionaire.
Last, but not least, let’s look at the lovely hub of commerce known as the shopping mall. Before you call me crazy for claiming this as a trap, consider this brief exercise: list the items you would go to a mall to purchase that you could not find elsewhere at a cheaper price for equal or higher quality. There may be a few items on your list and that’s cool. Now, list for me how many stores pushing overpriced, low-quality merchandise you must pass and say “no” to before you will reach the place that sells the one reasonably-priced, decent-quality item.
Now that there are plenty of free-standing Chick-Fil-A’s in our area, I think I’ll let the mall walkers claim the mall as their exercise domain and I’ll stay away.
In summary, the places I’ve listed offer way too many dangers for people who are ignorant and/or desperate. While I don’t think you need to stay away from every gas station, mall or car dealership (I would say that about the first two), be careful of the traps that lie in wait to steal your wallet if/when you visit any of these places. Don’t be desperate – desperation breeds bad choices.