Postponement Of Dreams Not The Same As A Loss (But It Can Feel Like One!)

Dear Tazi:

I will be graduating high school in a few months, but am no longer looking forward to it. Even though I was accepted by my first-choice school, I did not receive any offers of scholarship money to help me pay for it. My parents are middle class, but are not about to start taking out loans to pay for my tuition and do not want me to do that either.

I would rather skip college and work full-time to save money until I can afford to go to my first-choice school, but then I would feel like a complete tool watching all of my friends go off to school while I am stuck here working full-time. My parents would prefer that I get my degree at the state college (my safety school) and apply again to my dream school for my graduate degree. I want to leave this state, not set down roots here, which is what I am afraid would happen if I went to the state university.

Tazi, these last few months of high school should be some of the happiest, most care-free of my life (if I am to believe my teachers), so I would like to figure out my direction now so I can enjoy all of the cool stuff planned for my senior class - especially my senior prom. Should I just give up on my dream of leaving this state and go to the state university? Work for a year or two to save money to go to my dream school? Throw caution to the wind and take out a mortgage sized loan to pay for it all?

Signed,
Disappointed Senior

Dear Disappointed Senior:

How about none of the above? While you have my sympathies for the devastation you must be feeling, this is not the end of the world. As my Mommie's mentor likes to say, when you receive bad news you should "cry about it for 10 minutes and move on with your life". He says this with a smile, so you can see that he is trying to tell you not to wallow in hurt while other opportunities pass you by.

Did I mention that my Mommie's mentor is a Chemist? 

Signing up for a few hundred thousand dollars in loans at the age of 18 is never a good idea. I realize that will be the only way you would be able to go to your dream college right now, but is it really worth the cost? If your dream school really, really wanted you they would find a way to make sure it happened. Don't be the desperate young woman trying to get a man's attention by doing anything it takes; like her, you are only selling yourself short. Let them chase after you by improving what you have to offer academically.

The way to improve your chances of making your dream school financially feasible will not be to go to work full-time for a few years. Once you have started working full-time it is very difficult to give up that paycheck - and the wonderful things it can buy - to return to school and pay for something that you will not be able to use for three or four years, while all the while you must concentrate on studying and sacrifice to attain it. My Mommie wanted to return to school for 10 years before a twist of fate pushed her into doing it. Can you see yourself waiting 10 years to return to school, by which time you may be married with children? The more complicated your life gets, the tougher getting an education becomes.

Now that my lecture is over, I will advise a compromise between you and your parents and your dream school:

First, ask your dream school if they will postpone your acceptance for two years while you attend your state college to complete your general education credits, and then accept you as a transfer student. Colleges - especially those big, brand name ones - love accepting transfer students because they help boost the school's retention rate. By junior year, the year most students transfer, the original freshman class has lost a large percentage of its members; transfer students help to fill this gap and make it appear that the school is retaining more students. Furthermore, transfer students have proven that they are capable of doing college level work, something colleges discover only after students start at their school; sometimes, they are disappointed to discover that the brilliant high school student is an abysmal college student.

Second, talk to your parents about paying tuition at your state university. Will they be willing to assist with the bill so you can work less and concentrate on your studies more? Studies have shown that students who work more than 20 hours a week show less engagement in campus activities, which can adversely effect their grades. (Students who worked 10 - 19 hours a week excelled, presumably due to a stronger sense of responsibility). Between a part-time job and some financial help from Mom and Dad you should be able to make the Dean's List every semester which will lead to scholarship monies, along with invitations to join academic honor societies (which can lead to even more scholarships).

Third, lose the impression that "all" of your friends will be leaving the state to go to college. While some of them may be attending out of state schools, a lot of them will be at the state university with you, as will other students from high schools around your state who will become new - and probably lifelong - friends. Remember that the nest the bird flies away from sits in a tree that is well-rooted. Wherever you fly to in life, your roots will remain, so try not to pour weed-killer on them.

I will leave the last word on the matter to the great poet, Langston Hughes:

Snuggles,
Tazi

Ask Tazi! is ghostwritten by a human with a Bachelors of Arts in Communications. Tazi-Kat is not really a talking feline.

Tazi's Corner #79 - Thoughts On Payday Lending Services Revisited

Dear Readers,

I am re-running this popular column because once again the Rhode Island General Assembly has introduced legislation to cap the interest rate that payday lenders can charge. What are your thoughts on these services?

--TK


I think we have all heard the commercials and seen the stores for Check ‘n’ Go, Advance America, and other payday cash advance services. I have read the commentaries on such services, which have been both praised and vilified as God Sent or the financial version of Dante’s Ninth Circle of Hell. One thing I have never done though is pay much attention to them since I never had a use for such a service.

This past week I was reviewing the activity of my state legislature (reading over my Mommie's shoulder, because contrary to common belief, college students and cats are both politically aware) when I noticed a bill regarding the interest rates charged by these payday advance services. Although happy with the nature of the bill, the need for it my left me with a bitter taste in my mouth. It turns out that Rhode Island is the only state in New England that allows payday advance services to charge a greater than 36% APR – much greater. In Rhode Island, the maximum allowable annual percentage rate for a payday loan is 260%. No, there is not a missing decimal in that figure; 260% APR is the rate for a payday loan in Rhode Island. I find the exorbitant interest rates allowed by law quite ironic, considering that loan-sharking is illegal.

For those who are not familiar with how a payday advance works, it is pretty simple: The borrower writes a check for the amount of money borrowed, plus the interest charge, which in Rhode Island is 5% of the total borrowed per week, or $10 on a two-week, $100 loan. The borrower has two weeks or until their next payday to repay the loan plus interest charges, whichever comes second. If the borrower fails to pay on time, the lender will cash their check. If the borrower’s cash is elsewhere committed when the loan comes due, they can pay the lender in full – including the interest charge – and take out a new loan, essentially revolving the debt. However, because the original loan was paid in full after only two weeks the additional interest charges to the borrower are not reflected on the lender’s books, just in the borrower’s wallet. Ergo, the interest is not capitalized, a selling point these lenders like to highlight. This all sounds pretty simple, but even the simplest things can quickly become complicated.

Payday advance services make money on high finance charges. The lender is not going to get rich off of the person who is borrowing $50 to cover the week’s groceries due to an unexpected car repair biting into their budget. This is why the lender does his or her best to up-sell the borrower into taking out a larger loan, explaining how the borrower can revolve the loan by paying only the interest. Most people who use payday lending services do not have good credit, otherwise they would be using a credit card; nor do they have anything of value to secure a loan through pawn. In short, they have little, and have little chance of changing that anytime soon. Their financial outlook is depressing and here is someone offering to help them improve their credit by offering them a loan in excess of what they need! So the cycle of madness begins…

Through vice; bad choices; poor planning; bad luck; or a combination of all of the above, many who use payday cash advance services do not have enough money each week or each month to pay for their basic needs, and have come to depend on payday advances as a way of extending their income. Loans are taken for an amount equal to half or more of their next paycheck – but when their next paycheck comes around, they need most or all of it to pay the rest of their bills and living expenses. The only immediate solution is to pay just the interest on the advance, revolve the loan, and hope that things will improve over the next two weeks. Rarely do these hoped for improvements occur, and the cycle continues, with borrowers paying double, triple, or more in interest on a loan that will never truly be paid-in-full, regardless of what the lender’s books say. The fact that the interest rate is horrifically high only helps to perpetrate this cycle.

One way out of this vicious cycle would be to put aside monies – even as little as $20 a week – to put towards the principle on the micro-loan. Give up coffee shop coffee, cable, or the mobile phone and the money will be there; it will add up rather quickly, allowing the principle of a $100 loan to be paid in only a few weeks as opposed to never. I realize this is something people who get caught up in these schemes do not want to hear – they want to hear words of sympathy of how they were victims of easy credit rip-offs (okay, all together now "Ain't we lucky we got 'em, Good Times!") and how the government should do something about these legal loan sharks (which legislators are attempting to do here in Rhode Island). These legal loan sharks, in turn, argue that they are loaning money to high risk creditors and therefore need to charge 250%+ in interest to stay in business, pointing to their default rate as proof of their losses. Which came first, the chicken or the egg? Either way, the situation is a scrambled mess.

I do not disagree that the interest rates charged by these businesses is positively criminal, and that it should be drastically lowered and legally capped to, say, 52% APR which would be approximately 2% every two weeks on a short-term micro-loan – low enough to be manageable but high enough to create a profit. I also believe that there needs to be a certain level of personal responsibility involved on the part of the borrower. In other words, don’t borrow money that you cannot afford to repay; don’t commit yourself to contracts that aren’t in your budget to cover. I am amazed at how many “poor” people are walking around with smart phones, insisting that they “need” one (to the cost of $100 or more a month) in order to get by in life. I have received letters from the unemployed questioning why people do not understand that they “need a smart phone for work”. My little kitten mind is baffled at such logic!


Payday advance loans: A necessary part of our American economy; a necessary evil; or just plain evil? Discuss!

Snuggles,
Tazi

Ask Tazi! is ghostwritten by a human with Bachelors degrees in Communications and in Gender and Women's Studies. Tazi-Kat is not really a talking feline.

Responsible Teenager...Is Still A Teenager!

Dear Tazi:

I am 18 years old and I have worked since I was 16; part-time during the school year and full-time during vacations. I work as a waitress at a very popular diner, and because I work hard to turn my tables and keep a pleasant personality with all of my customers I earn quite a bit of money in tips (especially from my regulars). Now that I have finished high school I have decided to attend college part-time while I try to figure out what I want to do with my life and work full-time at the diner. I truly love waitressing, but I know that I cannot make it my life’s work. I think I would like to one day own my own diner; my boss says that he cannot do it forever, and his kids don’t want to take over the business so maybe someday I will. Again, I am not certain that I want to do this, but I am taking a class in business and a class in basic accounting at the local campus of my state college while I think things through. My Mom is okay with all of this, so long as I continue my education. You are probably wondering why I am writing to you!

I have almost $30,000 cash saved from work (I told you I do well with tips!) and I would like to buy a new truck. My Mom is flipping out over the idea of putting all my money into a vehicle, but I do not want to take a loan. Because of my age I have no credit history so I would be paying a high interest rate. Mom can’t co-sign because she is not creditworthy (her divorce left her credit in the dumpster a few years ago and she hasn’t completely rebuilt it yet). I pay rent and board every month (have been since I started working), and continue to live at home in order to help out my Mom and I have never missed a payment. This is my money that I have earned through my own hard work, and I think I should be able to spend it as I want, so long as I am responsible with it. It’s not like I am taking it to the riverboat casino and gambling it away!

My Mom has always been good to me, but I am an adult now and I think I should have some say in my own financial matters. Her Mom, my Granny, has taken my side and told Mom that she can’t control me forever, but that just made Mom angry; she doesn't get along very well with Granny. Mom suggested I ask someone impartial for advice and she agreed to “seriously consider” their opinion. I know I could take the money and buy a truck without her leave, but she is my Mom and I would like to respect her. We both love cats, so I have decided to ask you for your impartial opinion.

Signed,

Truck Girl

Dear Truck Girl:

You sound like a very mature and responsible young woman and I admire the respect you have for your mother. It can be very hard for a Mom to let go and to allow her child to grow up, and buying a vehicle – and paying cash for it – is a very grown up decision. You have managed to save quite a bit of money in a very short time. This represents a great deal of hard work and sacrifice on your part, as well as a financial safety net for the future. I can understand why your mother would want you to save some of it for emergencies, but I can also understand why you do not want to pay high finances charges due to your age and a lack of credit history. I am going to suggest a compromise:

Put 50% of the cost down in cash and finance the remainder over 24 – 36 months (the optimal amount of time for the lowest finance charges). In order to establish initial credit, apply for a credit card in your name only and use it to pay for things you would normally pay for with cash. Pay off the balance in its entirety at the end of every month. This way you are building a credit history and avoiding finance charges. After five or six months you will have enough of a credit history to bring your interest rate down to a reasonable level. Check out various financing offers through Lendingtree.com or any other clearinghouse that will send your information to multiple banks that will compete for your business (due to credit reform legislation, inquiries will not affect your credit rating). This compromise will allow you to build a solid credit history just in case you need a bank loan sometime down the road because you want to buy your own diner! It will also leave you with money in the bank to pay for emergencies or even allow you to support yourself should you decide to go to school full-time.

I know waiting to buy your dream truck is not what you would prefer to do, but February is a notoriously slow month for auto sales, so it is a good time to get a good price on a car or a truck, especially since manufacturers are usually offering cash back rebates to the customer and bonus money to the dealer for each sale made; the combination of these two incentives can save you a good chunk of money on a truck!

Snuggles,

Tazi

Ask Tazi! is ghostwritten by a human with a Bachelors of Arts in Communications. Tazi-Kat is not really a talking feline.

Balancing The Books Made Easy With These Tips!

Dear Tazi:

My wife cannot balance a checkbook to save her life. Have you ever seen that episode of Everybody Loves Raymond where Ray tries to balance the checkbook and ends up creating an entire new one because the screwed up the first one so bad? That's my wife!

"Shirley" has a terrible habit of losing receipts before she can record them, forgets to record them, and simply "refreshes" the balance when the statement comes in - she doesn't even try to balance it anymore! I would take over the duty of balancing the books myself but I am a long-distance truck driver and am not home every day to handle this. I have suggested to Shirley that she pay cash for everything, but she feels that I am trying to control her when I am not around. Tazi, I work hard for our money and am sick of seeing it go to overdraft fees! Any ideas on how to take care of this?

Signed,
Buffalo Bill

Dear Buffalo Bill:

Finances are one of the biggest issues between couples, especially when one person is more responsible than the other. Since paying cash for everything can be a royal pain (because you don't always know how much cash you will need) I can understand your wife's resistance to this.

Since you are on the road much of the time, I can also understand why it would be difficult for you to take on this responsibility yourself. I have a few suggestions for you from friends who are or are married to long-distance truck drivers:

1. Pre-paid debit cards for stores you frequent regularly. Rather than charge a few dollars for a coffee several times a day, load a pre-paid card once a week. This results in one charge as opposed to several to try and keep track of and record. This would work well for both you and your wife.

2. Online bill payments. These can be scheduled ahead of time so you are never late and since the amount clears immediately you do not have to worry about the "float" period that comes with writing a check, reducing the possibility of bouncing a check. (Just be sure to check your bank account balance before making a payment!).

3. Balance Inquiry at the ATM. Before withdrawing money from the ATM, do a balance inquiry to see how much you have in the account. By doing this, you will be able to calculate your remaining balance before you take money out of the bank (because what is the likelihood that you will re-deposit the money you just withdrew?).

4. Putting receipts into the checkbook. Since getting into the habit of immediately recording all receipts can be difficult, an easier way to handle this is to put the receipts into the checkbook.

5. Use a designated credit card for all day-to-day purchases and pay it off at the end of every month. No more bounced check fees!

Snuggles,
Tazi

Ask Tazi! is ghostwritten by a human with a Bachelors of Arts in Communications. Tazi-Kat is not really a talking feline.