All Sharks Don’t Live in the Ocean

In counseling with college students about managing their money, I frequently encounter some disturbing patterns, some of which can be avoided with proper planning. I’m no guru, and the advice I dispense is generally just stating the obvious, but in some cases I see bad financial behaviors repeated over time, sometimes habitually.

Two examples immediately come to mind.

The first is my favorite rant about unconscious spending. For those of you who have followed this blog for a while now, you know that I’m referring to things like bank fees of all kinds and basically any expense we incur that could be easily avoided in most cases. It’s that $3 ATM fee that becomes $5 out of our network, a $35 overdraft fee, or the $5 a month account maintenance fee that makes our savings disappear quicker than a South Park comedy sketch .

But in some cases it’s even worse.

Sometimes through a series of bad luck, poor financial decisions or a combination of the two, you find yourself quite literally living from paycheck to paycheck, living allowance to living allowance. Enter the payday lender.

Payday loans represent a loan made to you for a specified fee to allow you to access money prior to receiving your next paycheck. Although it may sound like a desperate strategy for desperate people with no other options, a recent article in Time magazine’s online “Moneyland” financial advice column notes that more than 12 million people use this service every year, hardly a limited emergency-only situation. The article goes on to say that American’s spend more than $7.4 billion dollars on payday loans every year.

When you consider the math behind a typical payday loan transaction, you may as well have the theme from Jaws playing in the background. Statistics show that the average payday loan is for $375 and the average interest – er, uh. I mean “fee” over the holding period is $520. No, you heard correctly – a $520 fee to borrow $375. Unfortunately, payday loans often roll over, such that compound interest on the unpaid principal and interest starts to work against you, creating a vicious cycle and making it more difficult to escape.

I will spare you the drug dealer analogy, but you get the picture. It’s not illegal and not coming from the heroin dealer on the street corner – this “prescription” financial remedy is perfectly legal, but powerfully addictive. Oops! I guess I didn’t spare you, after all.

The solution? (sorry) Like the anti-drug campaign from years ago: “Just say no.” The problem? When it seems like you’ve got no place else to turn, that “money dealer” loan shark will be right there at that street corner waiting for you. The real answer? Don’t get yourself in that situation in the first place. Remember: all sharks don’t live in the ocean.

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