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.
Back to School, Back to Small Business
Patsy and her daughter, Yanique, at Expressions Education Center
With the end of summer upon us, our minds turn to fall, when kids (and some adults) return to school and the rest of us return to work from our late-summer vacations. Patsy and Yanique, of Expressions Education Center, have already been thinking about and preparing for back-to-school season for the last few months. As they wrap up their summer camp session, they are registering elementary-school students for the fall term of their after-school tutoring program.
Patsy, a native of Jamaica and a teacher by trade, started Expressions out of her Brooklyn home fifteen years ago when she saw that her students needed more one-on-one help with their schoolwork. Soon after, Patsy’s business grew to occupy a building in Flatbush, and her daughter Yanique joined to help her mother develop business strategy. They hired additional teachers to meet their community’s growing interest.
Having no luck with local banks, Patsy had to rely on expensive credit cards to finance her initial business investment. She received a loan from ACCION USA last year in order to make some renovations required by the city government, and used part of the loan to begin paying down her expensive debt. For small business owners like Patsy, who have to rely on credit cards for large investments, ACCION USA provides one of the only low-cost options available.
Patsy and Yanique’s business is much more than just an after-school day care center for kids with working parents. They have created a fun environment for holistic academic and nutritional learning that kids are excited to come to after school. Patsy and Yanique have even begun expanding their music class options from piano and flute to more unique instruments like trumpets and drums. They also plan to continue their popular baking contests – in addition to being a good way to teach kids the valuable lesson of how to follow directions, there aren’t any complaints about consuming the resulting sweets.
For the Fall schedule, check out the events page of Expressions’ website!
Tags: education, expressions, success story