The Incredible, Shrinking Tax Refund!
ACCION USA provides taxpayers with the financial education and resources they need to make smart, informed decisions about RALs.
And so it begins. Tax season. The time of year when tax prep software commercials sandwich prime time TV shows and your friends in the tax prep industry sleep on office couches. For many like myself, it’s another opportunity to procrastinate for four months and then spend my entire refund on priority mail.
Unfortunately, this time of year is also notorious for coercion and scheming, and the latest trend is in refund anticipation loans (RALs). A tax preparer may advertise these loans as “instant loans” or “instant refunds” – in reality, the only instant thing about them is the speed with which your real refund will shrink.
Here’s how it works: your tax preparer offers you a RAL; you accept the offer and sign a document, which is essentially a loan agreement authorizing the preparer to use your refund as a guarantee, with interest rates as high as 50-500% a year; the loan is (instantly!) approved; you walk away with fast cash but actually receive a significantly smaller refund; and the tax preparer makes one hefty profit.
Certainly, the tax prep industry provides a highly-demanded service for many, many people. But according to the Woodstock Institute, 8.67 million taxpayers received RALs in 2007. A RAL may very well have been an appropriate solution for some of these individuals, but I will venture to guess that they comprise only a small portion of that 8.67 million. What about the millions who are essentially handing over their hard-earned money? I believe the answer lies in education and empowerment.
ACCION USA’s financial education team is on top of this. We have already distributed an article addressing RALs, and we are featuring RALs in our online tip of the month. In addition to educating clients on the implications of refund anticipation loans, we also provide them with valuable resources, including smart alternatives to RALs, lists of free tax preparation locations (including our Miami, FL office), and helpful websites. These resources not only have the power to produce more informed taxpayers; but they also have the potential to mold a new generation of educated, responsible, and empowered consumers.
This type of generational change may not be instant – but in terms of the return, the investment is surely worth the wait.
Tags: accion, accion usa, anticipation, education, eitc, financial, Financial Education, literacy, loan, microfinance, prep, preparation, RAL, refund, tax, tax season
Is ACCION USA More Than a Microlender?
For Margarita Amador, ACCIÓN USA served as more than just a lender; “ACCIÓN USA has helped me tremendously because I received a lot of advice not only on how to continue with my business, but on how to improve and manage my personal credit.”
Knowledge is power. What a simple but empowering phrase. It resonates with me on so many levels: as a recent college graduate, as a woman, and as a voter. So, when the latest FDIC white paper, Financial Education and the Future, outlined the startling state of financial education in the United States, it prompted me to consider ACCION USA’s role as not only a microlender but also as an educator.
The FDIC paper reported that an estimated 10-20 million individuals are unbanked – that is, they have no relationship with a bank. Moreover, this trend appears most acutely among new immigrants and members of minority communities. A staggering 35% of our county’s Latino population is unbanked, due equally in part to cultural differences, language barriers, and institutional distrust. This unbanked trend continues to lead these individuals to expensive alternative banking sources, such as predatory payday lenders.
Some advocate regulating these alternative sources, but rate caps only go so far. And more importantly, they don’t directly target the financial illiteracy that frequently lies at the root of this problem.
ACCION USA targets this root. We’re in the asset-building business, and education is an asset that adds value for generations to come. Our interactive workshops show individuals that saving is important – if only $5 a month. Our personalized technical assistance explains why good credit is crucial in this country, and why debt must be managed and not ignored. Our one-to-one business counseling demonstrates that planning and cash flow and recordkeeping are essential for business survival.
For some, these things might be common sense. But consider the perspective of a recent immigrant or of someone whose parents immediately cashed each paycheck just to put dinner on the table. Just as your home environment will influence your knowledge of sports, music, or any other activity, it can also predict your future money management skills and those of your children and of your children’s children.
Instead of allowing financial illiteracy to perpetuate, ACCION USA takes the initiative to educate and instill in individuals the education and tools they need to succeed in this country.
And by doing so, we’re seeing every day that knowledge really is power.
Delicious Caribbean Dishes, As Seen Online!
On Sunday an authentic Caribbean eatery in Manhattan serves up Bintou’s Famous Pepper Soup and on Monday, try Sauce Arachide (Peanut Butter Stew w/ Beef), each for just ten dollars. Unless you lived near or strolled by ‘New Ivoire Restaurante’, you probably wouldn’t have ever visited the delicious spot… until now! With the help of a volunteer and Yola.com, restaurant owner and ACCION USA client Cheick Cisse has a website that he hopes will bring in some extra business.
ACCION USA has a diverse base of clients ranging from small local restaurants like Cheik’s to small, tech saavy media companies like Maureen’s, Moped Productions. But for many microloan clients at ACCION USA, a business website has often seemed too advanced, too expensive, or even unnecessary. Busy restaurant owners like Cheick simply don’t have time or the extra money to invest in web development.
ACCION USA struck an immediate partnership with Yola when we learned about the free web building tools that they were offering. And we began to think of simple and creative ways to introduce this service to our clients.
Lauren, an ACCION USA volunteer met with Cheick at his restaurant and was able to put together a simple and useful website. “I’m delighted I’ve been able to spend my free time volunteering at ACCION USA. It’s very rewarding to help clients at an organization that works so hard to empower people financially,” she says of the experience.
Now Cheick just needs a lesson on optimizing the searchability of his website on search engines like Google. Have SEO experience and interested in volunteering? Contact Erica Dorn edorn@accionusa.org, but first check out ‘ New Ivoire Restaurant‘ for a true taste of the Caribbean.
Over the Limit? Checking in on the “Plastic Safety Net”
It seems like every day that we witness the impact of changing credit card terms and conditions on small business owners at ACCION USA. This shifting
How safe are small business owners 'plastic safety nets'?
revolving debt landscape is particularly dangerous, given that credit cards have become a “plastic safety net” for many low- and middle-income households, as a new study by non-partisan public policy research group Demos found.
In Demos’ survey of 1,205 low- and middle-income adults, 15% cited small business expenses as a factor in accumulating credit card debt. In June, the New York Times reported that 59% of small business owners rely on credit cards to help finance their day-to-day operations. That’s up from 44% at the end of last year and 16% in 1993. The numbers are enough to generate a growing concern about the so-called ‘plastic safety net.’
Safety net or not, the plastic in these business owners’ wallets is certainly troublesome, as 75% of credit card-dependent small businesses have seen a cut in credit card limits over the last six months. Along with slashed limits, rising interest rates pose an additional challenge for today’s small business owner.
It’s no wonder then that there’s a lot of buzz surrounding the Credit Card Accountability Responsibility and Disclosure Act of 2009, signed into law by President Barack Obama in May. The Act seeks to address many of the challenges faced by entrepreneurs who use their personal credit cards for business purposes. Some of the changes include: delayed onset of penalty interest rates, a longer notice period for changes in terms and conditions, and incentives for timely payments.
Today, many in Congress are working to extend the legislation’s protections to business lines of credit. In the meantime, a word of caution to small business owners who continue to use credit cards to finance small business expenses!
For more information, check out ACCION USA’s overview on the new credit card legislation for more information.