Holiday shopping secret you need to know

Black Friday looms around the corner, and the retailers are ramping up inventory and advertising, trying to make the most out of what has been a rough year (or two, or seven). Before working for the Credit Union, I spent a number of years as a retail sales manager. Like a sports player who has been traded to a rival team, I am going to share a secret that I learned while sitting in dark, smoky rooms with guys named Guido and Nick the Neck.

Retail marketers and advertisers spend millions of dollars and significant resources trying to figure out what compels you to buy. Packaging, product placement, color, price, the font and size of the price, sometimes even the phrases the employee uses to describe the product are all meticulously planned so that when you see the product, you put absolutely zero effort into the buying decision.

I’m not saying that if you find something you need at a good price, you shouldn’t buy it. I am saying that you should be aware that someone else has been paid to do your thinking for you. Are they overpaid, or underpaid?

Low home mortgage rates

Okay, I’m generally not using this blog as marketing tool to prop up specific products. That’s what the credit union website is for. This is a pretty significant deal, though. Home rates have dropped to 4.75% for a 30 year fixed mortgage. If you haven’t yet, you may want to look into refinancing options. That’s what I’m doing, anyway.

If you’re a Georgia Florida United Methodist Credit Union member, fill out an application here.

Ecclesiastes 11 and personal finance

You know those times when you read a passage of Scripture you have always read before, and all of a sudden it takes on a new, deeper understanding? Shortly after I began working for Georgia Florida United Methodist FCU, I read through Ecclesiastes 11. Now that my head was filled with thoughts of finance and money, the verses suddenly made sense in a new way, and I was surprised that Solomon spent the time to put together such a complete view of personal finance, investing and work in such a short segment.

“Cast your bread upon the waters, and after many days you will find it again.” In Solomon’s day, sea trade would have been an integral part of a successful economy and government. If you have a loaf of bread, you can a) eat it, or b) sell it for profit, therefore increasing your ability to make more bread.

“Give portions to seven, yes to eight, for you do not know what disaster may come upon the land.” A pretty clear argument for diversification.

“If clouds are full of water, they pour rain upon the earth. Whether a tree falls to the south or to the north, in the place where it falls, there will it lie.” A bit cryptic. Rain on the earth would be a good thing for an agricultural economy. Trees falling I presume would be bad, either because of damage caused or fruit lost. We must remember that fortune or misfortune can strike at any moment, and planning and preparation are critical elements of success.

“Whoever watches the wind will not plant; whoever looks at the clouds will not reap.” Planning and preparation are great, but at some point action must be taken or the potential for gain will never be realized.

“As you do not know the path of the wind, or how the body is formed in a mother’s womb, so you cannot understand the work of God, the Maker of all things.” We do not know why things work the way that they do. Sometimes we may do everything right and things still go bad, while another remains lazy and wins the lottery. Sometimes we just need to rely on God’s wisdom.

“Sow your seed in the morning and at evening let not your hands be idle, for you do not know which will succeed, whether this or that, or whether both will do equally well.” No additional commentary needed.

To summarize:

• Allow your resources to work for you
• Diversify
• Prepare for good and bad times
• Act timely
• Be humble
• Don’t be lazy

People have written entire books about this, yet it is brilliant in its simplicity

My Thoughts on Overdraft Protection, part 3

In my previous two posts on the matter, I tried to present some brief arguments as to why OD protection is useful and member-friendly, yet can become abusive and oppressive if the industry is not carefully watching consumer trends. Senator Dodd is proposing legislation to counter the abuses. These are the proposed changes.

• Requiring the customer to opt-in: I’m okay with this. I like the idea of allowing a consumer to make their own decision.
• Limit the number of fees a bank can charge to one charge per month and six per year: I’m not okay with this. Let’s not forget we are talking about people exchange money for goods on faith that they have the money. They walk away with the goods, and someone else is having to pay the bill on their behalf until they get their act together and make restitution. I think punitive measures should be in place to discourage such behavior. If the maximum annual penalty is $150-200 per year, set by the highest legislative body in the land, I fear the behavior will only be encouraged.
• Require that the fees be proportional to the cost of processing the overdraft. I’m suspicious of this measure. I don’t have any hard data, but I know that productivity costs don’t play fair. It may cost $5 in productivity for a bank to process one overdraft, but $250 to process 100. The higher the customer base, the lower the individual’s liability is. If this measure is introduced, no one makes any profit, but the operating expense of the smaller FI’s is proportionally increased.
• Require that customer be notified by text, email, or regular mail when they overdraft. This is redundant and useless. Redundant because I would submit most FI’s do this already, probably by snail mail. Useless because how are you helped by getting a letter in the mail two or three days after you overdrafted your account.
• Require that customers be warned if an ATM or teller transaction will overdraw their account. This is fine. This takes away the “avoid the embarrassment” part of the service, but leaves the most helpful parts intact. Like the first point, it empowers the customer to make a more informed decision. Even more, it removes the “accidental” nature of overdrafts. If someone knew they were overdrafting and bought the coffee anyway, would we be outraged because they were hit with a hefty fee? What if they did that 15 times? This measure, if passed, is a game changer to me, because the other proposals end up specifically rewarding dubious behavior. (e.g. Your overdrafting on purpose, but we are congressionally mandated to charge you $150 or so in fees. Really?)
• Banks are barred from reporting negative behavior to credit agencies if an OD fee is paid under the terms of the program. Again, if this is an intentional overdraft, as identified by the last point, why shouldn’t they?

So, out of six proposals, only two of them really make sense to me. I’m sorry, but I don’t really trust that Congress would keep the bill limited to these six measures; if the main six points can be challenged, what is the rest of the jumble going to look like? I wonder what would happen if Senator Dodd and company came out of committee and told the American public, “There isn’t enough reason to legislate this matter. Vote with your pocketbook. If you don’t like your bank’s practices, find another bank.” Before the consumers had time to do anything, FI’s would bend over backward to make sure they looked shinier and more virtuous than their competitors. I think that would do a lot to improve the situation without adding another cumbersome regulation.

They like us! They really, really like us!

The kind folks at www.LoveMyCreditUnion.org  sent me a Twitter update to let me know one of our members was featured on their site. I follow the link and …Voila!

Thanks again for helping me build my financial skills“  – Nate, Georgia Federal United Methodist Federal Credit Union

No, Nate. Thank you for being a member and for telling other people about it.

My Thoughts on Overdraft Protection, Part 2

Overdraft Protection and its uses and abuses have become the latest issue to hit Congress, and part of me hesitates to add my voice to the overall din that the cause is creating…

Okay, I’m done hesitating. As I wrote in an earlier post, there is a compelling reason to assume Overdraft Protection exists for the benefit of the individual. After all, there are three entities at every non-cash transaction: the consumer, the merchant, and the institution that is moving money from one to the other. If the consumer overdraws, both the FI and the merchant are justifiably put out. OD protection at least limits the liability to only one of those entities (the financial institution)

However, the last decade or so has added a new wrinkle to consumer behavior that is changing the game, no matter how noble the idea was at the start. When I was a brand-new independent consumer, I would visit the ATM machine much more frequently than I do now. Why? Because I used cash for most of my discretionary, periodic purchases. Coffee, fast food, gas, movie tickets were all funded out of the ATM machine. Groceries and bills were paid by check.

Now, debit cards are the new cash. $3 for Starbucks? $8 at McD’s? Fill up the car on the way home? For those that don’t use their credit card, virtually all of that is paid for by check card. What happens if that consumer overdraws without knowing? He or she may have a dozen purchases for less than $10 each, yet each resulting in an  OD fees of $25, or more before finally realizing what happened. [UPDATE: No sooner do I post this and Consumerist  reports on a Bank of America customer, who was charged $525 for 15 overdrafts.]

Other industries have had to deal with it. The music and film industry is dealing with it right now. Changes in technology lead to changes in consumer behavior, which can turn the best product schemes into failures (at best) or oppressive injustices (at worst). Is Overdraft Protection at this point? Should it be kicked to the curb? Legislated? Legislation has its hidden costs. Are we prepared to absorb those?

My final thoughts in part 3.

Why RETHINK?

The current financial crisis has left many people and businesses reeling from the aftershocks. In large and small ways, we have had to take a fresh look at budgets, our buying decisions and our lifestyle, trying to make them square with what may be a new era of cautious cynicism. Of the market. Of government. Of business. Politicians struggle as jubilant cheers of “Yes We Can!” morph into outraged cries of “This Won’t Do!”, and the pressure to find solutions before next month or next year or certainly by next election grow daily. The time has come to RETHINK.

As I look around the credit union industry, I see similar soul searching. The credit union movement was designed to thrive in such an environment. But I see large credit unions wondering if they are part of the problems instead of the solution. I see small credit unions wondering if the problems are too vast for them to provide a viable solution. There is disagreement; but more importantly, there is conversation, and conversation is a critical first step as we RETHINK.

Here at Georgia Florida United Methodist FCU, we are also watching the United Methodist Church RETHINK the way they do church. To see a church defined and protected not by the four walls of their building, but by their community, limited only by their creativity and their willingness to look beyond themselves.

It is a fascinating process to watch, and there may yet be a part for us to play. The purpose of RETHINK is to keep this conversation going in as many places as we can. I will discuss issues relating to our credit union, to our church, to our financial picture and to the story we find ourselves in. Thanks for joining.

My thoughts on Overdraft Protection, part 1

Let me take you back to a time gone by, when most consumer business was transacted by check. It was during this time that I moved out of the house and into my first apartment and began the time-honored American tradition of making avoidable and damaging financial decisions due to lack of planning and budgeting. Hey, I was an artist-musician, and enjoyed improvisation and lack of boundaries, even the self-imposed kind.

Here is a scenario that probably happened more than once. I send a utility bill for $25 on Monday that is due Thursday, which is good because payday is on Wednesday and I can’t cover it otherwise. The bill takes a couple days to get through the USPS, then they have to process all of their payments, and the check goes through another day after that. Mostly it works out fine, but this time the post office is incredibly efficient or the payment processor works really fast because he’s taking a half day and needs to be done by lunch. Anyway, the check goes through earlier than I expected and hits the NSF monster on Wednesday before I have had a chance to deposit my paycheck.

Fee #1: $25

Being gracious service reps, the company runs the check through again in the afternoon (but still too early) and it gets declined again.

Fee #2: $25 (total $50)

Having tried twice and failed, they send the check back to me with a polite letter of annoyance. Oh, they also add a returned check fee of their own since I have cost productivity and they still haven’t gotten a dime from me.

Fee #3: $30 (total $80)

The post office finally gets the letter and returned check back to me on Saturday. By now, of course, I’m well past payday and I have an account full of money. So I rewrite another check and send it off on Monday. It finally arrives on Thursday but now the payment is past due by a week. Uh, oh… late fee.

Fee #4: $2o (total $100)

My $25 utility bill cost me $125 because it arrived a few hours early. Okay, my irresponsibility played no small part in the drama, but that’s part of the point.  Overdraft Protection is supposed to mitigate the expense caused by occasional lapses in focus, planning or fortune. As a former retail employee, I can assure you it also alleviates embarrassing situations at the cashier line.

A lot of people and the U.S. Congress are treating Overdraft Protection like some sort of immoral fleece job by the financial industry. In general, I disagree. In my scenario above, OD protection would have cost me a single fee of $20-30; instead, I paid $100 extra, which you can probably tell I couldn’t afford to lose. The returned check and the ensuing late payment took a toll on my credit-worthiness, leaving me in danger if and when I needed a loan later down the road. That’s a significant expense comparatively and worthy of at least some appreciation. After all, the financial institutions can just go back to declining checks. Are two NSF fees cheaper than one OD fee? If you’re at the cashier line with a crowd behind you, a full cart and crying kids, is it worth it to pay and be done, or do you want the overly chipper cashier saying, “I’m sorry. The machine says your check is, like, declined or something?”

Now, I’m not saying that those who are pushing for legislation are entirely misguided. In fact, there have been specific changes in the way consumers spend money over the last decade that has taken a good service and turned into something more sinister all on its own. I’ll get into that in Part 2. [Hint: the difference is alluded to in the first sentence of this post]

Icebreaker

Tell us your name, where you lived on your 8th birthday, and your favorite TV character.

“Hello, everyone, my name is Jonathan. On my 8th birthday, I was living in Garland, TX. Of course, I don’t live there anymore [unnecessary, nervous chuckle]. Favorite TV character… well, gosh… there are so many great ones… righ now I would have to go with Jeff from Community.”

Next?