If you were walking down the street and you saw a check cashing store, a corner store loaded with pre-debit cards for sale, a Rent-A-Center, a payday loan facility, or a tax shop pushing refund anticipation loans, would you think you were in Beverly Hills, California? Of course not! The question is, "Why aren't these types of businesses located in Beverly Hills?" Or better yet, "Why is there a positive correlation between the increase in numbers of low income families in neighborhoods and the presence of those types of businesses?"
The answers to these questions lie in the basic premise of capitalism -- go where you can "capitalize" on opportunity. These types of businesses see a tremendous amount of opportunity in communities where low income families exist. Let's take a quick peek at the business models of each to learn how they are able to take advantage of the economic problems that exist in low income areas.
Check Cashing Businesses
Need: Many people in many communities wrongfully perceive that they are not able to open accounts at banks.
Opportunity: Check cashing facilities move in to provide a business that can charge between 1-5 percent of the total amount of the check just to cash it. Yes, they have created a business that allows them to make money by giving you access to your money.
Solution: With secured cards, credit unions, second chance bank accounts, the Jointbankon.org, and organizations like National Foundation of Credit Counseling where we can get free assistance there is never a reason to go without a bank account. It doesn't matter how many checks you have bounced, how many years you have been homeless or in prison, or how bad your credit is. I have seen all situations and I have helped them all to acquire a bank account with no fees.
Prepaid Debit Cards
Need: Just as with check cashing facilities, people wrongfully perceive they will not be able to open a bank account.
Opportunity: Some institutions and celebrity individuals create prepaid debit cards for the unbanked which anybody can apply for. These individuals and institutions take advantage of the lack of financial literacy knowledge by making the community feel that they have no other option but to use this prepaid card which is loaded with fees. Yes... they have convinced families in low income communities that they have to spend money to use their own money.
Solution: (See check cashing solutions above.)
Need: Many people in these communities can't afford to purchase certain high cost items such as big screen TVs, leather sofas, or computers but still have the desire to own these items.
Opportunity: Rent-A-Center sets up stores in these areas and entices families to rent these luxury items. They even state that a family can rent to own these items for a "minimal" weekly rate. However, what they don't say is that this weekly rate can equate to interest as high as 200 percent in order for you to own the item. However, because they see a tremendous opportunity in taking advantage of our need for instant gratification within low income family households, they have created a multi-billion dollar business.
Solution: It is time to practice some financial discipline, or better described as delayed gratification, and give a higher priority on having a stable financial future than on owning high ticket items. I remember watching an old black and white television set, with no channel knobs (needed to use pliers to change the station), and wire hangers to get reception for years before we got a color television. I know for a fact they sell sofas at places such as the Goodwill, the Salvation Army, or even Craigslist.org. The library has free computers to use in most communities and they are always selling used computers online at multiple outlets. All these and more are easy solutions that save crucial dollars which can go towards more important financial goals for low income families such as savings, college, or other critical household expenses.
Need: Some people in urban communities believe they don't earn enough to save money for rainy days.
Opportunity: Payday loans move into these communities to capitalize on the financial hardships in low income communities when these rainy days occur. Having many financial challenges can be stressful at times; however, the added stress of a financial emergency will result in a sense of desperation in the household. This desperation will cause many families to panic and be willing to pay interest rates as high as 300 percent just to take out a loan and meet their financial obligation.
Solution: We must begin to address these problems before they happen. I want you to change your mindset from, "I don't make enough to save" to "It is a NECESSITY for me to find additional dollars that I can save to prepare for times of financial emergencies/hardships that could occur in my life."
Yes... saving money for some families can seem like squeezing water out of a rock, but with added discipline and hard work there could be a few drops of water that will come from that rock if you squeeze hard enough.
Refund Anticipation Loans
Need: Some families may find themselves in need of additional cash to meet short term budget shortfalls.
Opportunity: Tax providers that offer these services know that these families can often be impatient and therefore, they offer a "rapid refund." Instead of waiting for 10 days for a refund check, one can immediately get a refund on that same date. However, the providers of these services neglect to mention the down falls of these services which include the following:
• With fees included the interest rates on this loan can be as high as 300 percent.
• The rapid refund is given based upon an estimate of the actual refund. If the actual refund awarded is less the customer is still on the hook for the entire amount plus interest.
Solution: With electronic deposit and other technology it is possible to get a tax return as soon as 8-10 days after filing. It makes little sense to pay 300 percent interest on a loan when all one has to do is wait for a little over a week to get the actual return.
If you tune into Black Entertainment Television you will constantly see Russell Simmons and Kimora Simmons in a commercial advertising their RushCard (don't forget the BET Control Card which is another form of a prepaid debit card). If you are at home in the middle of the day or up late at night, when most people who are unemployed are watching TV, you will see Montel Williams pop up in a commercial promoting his payday loan Money Mutual. At first one would think that celebrities are used to promote these products only to Black audiences. However color doesn't really matter -- you may see Hulk Hogan and Troy Aikman pushing Rent-A-Center, or George Lopez pushing his Mango prepaid debit card. Audiences must fit the demographic of not having much money and being uneducated about other more responsible ways of fiscal responsibility.
There is nothing wrong with being ignorant. We all can use more knowledge about something in life. However, as long as we are remain ignorant about the important matters of financial literacy there will be businesses like those mentioned above who try to capitalize on our ignorance. In short, simply being ignorant isn't the problem; staying ignorant is the problem.
These businesses would not exist if all in the community were educated about the proper ways to manage our finances. Education and avoidance are the best ways to put these financial predators out of business. So don't get mad at them... take tangible action and let's learn the proper routes to economic empowerment and all of us will benefit!
Follow Ryan Mack on Twitter: www.twitter.com/ryancmack