Tuesday, February 12, 2008

Fast money---Lost Money

I have a rant of sorts: Income Tax Refund Advance Loans and the cards that go with them. Some definition for those of you unclear with what I'm talking about. For a few years now, income tax preparer companies have been offering immediate, same day tax refunds by paying you your stated refund out of their own bank accounts. In return for access to this immediate cash, they charge you a fee for the service. This year, they have gone beyond issuing cashiers checks and have included an option to place the refund onto a Debit Card issued by Visa or Mastercard.

Now that the issue has been defined, here are my problems... First, is it really so necessary to have your money immediately that you are willing to give away part of it? And second, if you choose to put the money on a card, you're throwing money away.

The argument I hear most often for people wanting their refund money NOW is that they don't want the IRS to make interest off their money. If it were true the IRS made money off my money (which isn't entirely accurate, but that would be a long post) I could strongly support that argument. But why pay someone else for it? The fees these companies charge range by how difficult your return is to prepare and how much your refund ends up being. In some cases the fee can be as high as 33% of the total refund. Yikes. Do I really want to pay a third of my money to someone else just so the gov't can't hold onto my few extra pennies? Even if you're sticking it to the man, you're still losing out on your own cash. Kinda sounds like tripping over dimes to pick up nickles.

The thing that makes the least sense is sticking the refund onto one of the Debit cards; my second problem. I have a few points to make here, first being cost of use. Sure, the cards provide convenience in that you only have to carry a card not a check or cash. But at what cost? Did you know that if you want to get a large chunk of the money, for instance by way of a cash advance at a bank, that you're charged a $10 fee? Or did you know that if you call to check the balance (or just to ask a question to a person) more than one time, you're charged a $1 fee? Or what about the fact that if you use it at an ATM more than 4 times you're charged a $3 fee every time after that? All of these fees are off the balance so the consumer never sees them on transaction slips or receipts. Quite the scam if you didn't know, huh? But the companies are saved from litigation because they stick all the info into the 16-page (no lie) disclosure packet of fine print. Sneaky devils.

Second point here is the fact that you most likely will never use the whole refund amount when you put it on a card. According to Visa gift card statistics, 99% of all cards sold have a remaining balance. Do you know where that balance goes? In the case of refund cards, if not used in twelve months the money goes back to the company that issued it. So, pick a number you think people leave on their cards because they just can't be bothered with it. Two bucks? Six maybe? Eight or nine? Whatever number you picked, multiply it by the 2.5 million H&R Block customers getting cards this year. That figure you came up with is the free money they just made by you not using your entire balance.

Third point in my second problem is pure and simple privacy. I'd rather keep the purchases I make with my refund money private and not placed onto Visa/MasterCard’s database they use to solicit sales and telemarketing. I'm not spouting off about Big Brother, but use your brains people. Your business is your business.

My final comments are on the case of practicality. I can't argue with someone who needs their money right now for car repairs, or a medical emergency, or whatever else they feel is so urgent they can't wait for the money. But I would recommend spending a few hours working on a budget so your expenses aren't so tight. In addition, if your taxes aren't uber-complicated, spend some time on IRS.GOV and enter them electronically. By doing so, in addition to having the money direct deposited, you can have your money within 7-14 days. And guess what, you didn't have to pay someone else a ridiculously-high fee to get it quickly.

Just some thoughts. I'm off to think about doing my taxes.


Blogger Sweet Peripety said...

This is a no brainer for me. I totally agree with you. If I had a card with money, I'd probably lose it. That's a FACT!

1:23 PM  
Blogger Kimmy said...

I've heard that about the gift card statistics and it absolutely amazes me. I know when I get a gift card, I use every penny, and usually pretty quickly!

2:21 PM  
Anonymous Anonymous said...

Sam, if what i just read, which - I happen to agree with completely - is not raving against "the man", then I would like your definition of said 'raving', which it appears you are pretty good at, you know, definitionsa and such.
People are selfish and have become so enamored with their microwaved dinners, instantly downloaded movies, their instant cash at an ATM or the local check cashing loan shark, and instant cell phoned communications that they truly believe it is their right to have their money instantly as well. And they really don't care how much it costs because fees are the cost of an instant society. One of the funniest things is that if they would do just a tiny bit of homework they would have access to their money all year long and wouldn't even have to deal with a tax refund because they had the right amount deducted in the first place.
You are a crusader for "wrong century" living, organic gardening and many other things "old world" and "back to nature", I have to wonder what would happen if all of a sudden, because of a rogue sun spot or some other natural phenomena, all electricity, both battery and mass produced, would be permanently disabled. No internet, no blogs, no phones, no refrigerators, no cars or planes or trains, no electric lights or billboards or coffee pots - all gone in an instant. I wonder how many would die of starvation because they have never grown a single leaf, or hunted even one rabbit or fished for one little trout. I have to wonder how thirsty they would get if their bottled water supply ran out?

3:39 PM  
Blogger Sandy said...

Well said!

8:08 PM  
Blogger Melissa Blair said...

Excellent point! I love reading your blog (I linked to you from Karin's blog several months ago). You are always telling Karin to write a book...perhaps you should take your own advice. You really do have a knack for words.


P.S. Laura has a great blog too - love the photos!

9:02 PM  
Blogger Kyle said...

i feel like its the same deal with any cash advance...

9:35 PM  
Blogger Elizabeth said...

I must say that I totally agree with you about the debit cards. I never understood the whole idea to begin with. And I am another who uses every penny and would never want it on a card where I'm charged for every little extra thing.

But what I must say is that those of us with families will tell you that every little bit of extra money counts especially when it is a fairly large amount for some. For us, I am a stay at home mom who picks up freelance work here and there but it is nothing steady. My husband works full time but still does not make near enough for the work he does. We live on a budget and still live pay check to pay check. Until we had kids we never minded waiting the 8 weeks to receive our check in the mail. But the year I had Camden, I then quit working, then had a baby, and to top it all of my husband broke his ankle 7 days after Camden was born. He was off work until the first of the year, 9 weeks. We had very little income during that time. Do to all of that we went to a small tax place to do our taxes for us. My point in all of this is that when we were offered the next day check advance we could not have heard better news. We have since done this every year following simply because of our families needs. We budget and do our best to stick to it, but in our circumstances that tax check, in most cases, is a life saver.

Sorry for my little rant. I know that our situation is not necessarily the case for everyone. I am sure there those who are just money hungry and want that money to blow.

Thanks for sharing!

10:28 PM  
Blogger Adrienne said...

Ditto Kyle - those check/cash advance places are just the same. This is ultimate rural living here in the valley - It's 45 miles to the closet department store - 200 miles to the nearest mall, slim pickin in the restaurant department, etc. But! there is a cash advance place on every corner. Once you get into these habits, how could you ever get out? Your entire check (Plus some) is owed out before you even get it.

I don't know...it's scary. We live in an awfully selfish world.

Those tax places are such a rip off anyway - I do about 20 tax returns a year - sometimes I get paid a bit, other times not, but it sure is saving a lot of money!

1:19 AM  
Blogger Sam said...

Good points Beth, and I have no basis for any argument when it comes to emergency needs. The only place I would argue an alternative approach would be in the area of budgeting and deductions.

If you altered your deductions you could have that money all year. If you get a refund of even $1500, that equates to $125 a month. $2500=$208 a month, $4500=$375 a month, I think you get the picture. I know I sure could use extra money every month.

Trust me, I understand paycheck to paycheck and I understand the wonderful help a refund check can be at what seems like the most opportune time. But if you're already living at the level of income you make, all I'm saying is that that extra $100 or $200 or $500 could go into a savings account and actually earn money on itself that you could then use at those desperate times.

The early money that seems necessary is only so because people don't take regular care of their money the way they should. And I'm not pointing at anyone in particular, because I'm in the same boat as the rest. A little planning and a little common sense go a long way. And that long way equals more money. I like more money!

9:51 AM  
Blogger Andrew said...

right........I too think America is shallow and pedantic, I also agree that the current state of affairs.....just kidding, wanted to read but I scrolled through and saw HR Block, IPR.GOV, VISA/MASTERCARD 99% and your probably right.

10:35 AM  
Blogger HennHouse said...

I didn't even know this option existed. We do our taxes online because we can download (upload?) our W2 information directly into the program, but we also submit online, which costs a little extra.

11:20 AM  
Blogger Elizabeth said...

Thank for the feedback Sam. I appreciate your opinion.

I am the first to admit that we struggle with budgeting and we do are best. We have also made our fair share of mistakes in the past that we are still trying recover from. Mistakes from even 10 years ago can be hard to overcome. My hope is that in the near future we are able to not depend so much on that tax return.

Thanks again for input. Great discussion.

3:01 PM  
Blogger 3rd string's finest said...

I still need to do my taxes from 06' thanks for reminding me! got to go!

6:43 PM  

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