Category Financial Services

May 27 2023

“Buy Now, Pay Later” Users

The Consumer Financial Protection Bureau (www.consumerfinance.gov) recently conducted a study of Buy Now, Pay Later (BNPL) users.  While many of the respondents did not encounter significant financial stress, BNPL users were much more likely to:

  • be highly indebted; have lower credit scores.
  • have high credit card utilization rates and revolve the balance on their credit cards.
  • have delinquencies with traditional credit products.
  • use high-interest financial services such as payday, pawn, and overdraft compared to non-BNPL borrowers.

BNPL borrowers generally have access to traditional forms of credit, using credit and retail cards, personal loans, student debt, and auto loans. The report estimates that a majority of BNPL borrowers would encounter annual credit card interest rates between 19 and 23 percent.

BNPL users tend to be younger. About 22 percent of consumers under age 35 borrowed using BNPL, while approximately 10 percent of those over the age of 65 used the service. Renters (22 percent) were more likely to be a BNPL user compared to homeowners (15 percent).

BNPL borrowing is viewed as less costly than other credit sources, such as credit cards or payday loans. However, consumers need to be aware of the potential concerns. While advertised as “no interest,” late or missed payments can trigger high fees, which can result in paying more than the original cost. BNPL will not improve your credit score, but it could damage it due to missed or late payments. BNPL can be a doorway to financial difficulties, especially if you use it for more than one purchase at a time.  

For additional information on buy now, pay later, click here.

Teaching Suggestions

  • Have students talk to someone who has used BNPL to learn about the person’s experience with this credit source.
  • Have students create an audio file or podcast with a summary of the benefits and drawbacks of BNPL borrowing.

Discussion Questions 

  1. What features of BNPL services are most attractive to consumers?
  2. What advice would you give a person who is considering using BNPL?
Jul 30 2022

SECOND CHANCE BANKING

Several groups in our society are unable to open a checking account and access other banking services because of past life circumstances.  To help address this situation, financial service providers are offering second chance banking. This program is designed to provide financial opportunities to unbanked individuals and formerly incarcerated people.

Second chance banking involves a special checking account that doesn’t require a background check of a person’s past banking history. This account has limited features to minimize potential fees and no minimum balance. For those who lack a US ID or Social Security number, a foreign ID or passport is accepted to access this service.

A major goal of second chance accounts is to build banking credibility.  Once reliability is demonstrated over time, a person is then able to open a regular checking account. These accounts have a positive impact in low-income communities, where customers traditionally pay higher bank fees resulting in their account often being closed by the financial institution due to overdrafts.

In addition to making banking available to unbanked and underbanked consumers,

second chance banking also serves as an important step in financial freedom for formerly incarcerated people. A high percentage of these individuals were unbanked prior to their confinement, lack proper identification, or denied banking services due to their criminal history. Some who previously had an account may have had it closed due to inactivity or extensive fees.

The program also involves financial education to help a person build credit, save money, and achieve financial independence. A wide variety of banks, credit unions, community development financial institutions, minority depository institutions, and community-based non-profits are involved in second chance banking.

For additional information on second chance banking, click here.

Teaching Suggestions

  • Have students talk to others to learn about difficulties they may have encountered with banking services.
  • Have students create a visual summary (poster or slide presentation) to communicate how banking services are related to successful money management and financial planning.

Discussion Questions 

  1. What are benefits of second chance banking for individuals, their community, and society?
  2. Describe actions you would recommend to a person in need of obtaining a bank account. 
Feb 26 2022

THE NEW “BUY NOW, PAY LATER”

For a long time, “buy now, pay later” (BNPL) has referred to the use of credit. However, recently a new BNPL approach has surfaced, and is growing. Today, financial technology (FinTech) companies are using a different method to finance consumer purchases.

BNPL providers include Affirm, Afterpay, Klarna, Zip, and PayPal. The BNPL plan allows consumers to obtain a purchase immediately and then make a series of equal payments, often four payments each due two weeks apart. The first payment is due at the time of purchase.

Most BNPL plans charge interest and late fees. These plans often offer financing to customers with bad credit or no credit. BNPL is used mainly for online shopping although the plan is also available in some stores. Purchases of technology, furniture, clothing, beauty care products, groceries, health care services, and to eat at restaurants are the most common uses of BNPL.

The main benefits of BNPL mentioned by consumers, include to:

  • spread cost of expensive items over time.
  • buy items that they might not otherwise be able to afford.
  • avoid credit card debt.
  • try out the BNPL method.
  • not have to wait until payday to buy an item.

When selecting a BNPL plan, search for those with low or no interest and low or no late fees. Remember when using BNPL, you are still taking on debt. This easy access to credit often results in overspending. Some people will make purchases through multiple plans resulting in greater financial difficulties.

Be sure you can pay on time to avoid late fees and interest charges. Unlike traditional loans, BNPL providers may not report to credit bureaus, so you are not building a credit record.

For additional information on BNPL, click on these articles:

Article #1

Article #2

Teaching Suggestions

  • Have students ask if any friends or relatives have used a BNPL plan. Obtain information about their experiences.
  • Have students create a visual poster, slide presentation, or video with the benefits and drawbacks of BNPL plans.

Discussion Questions 

  1. What aspects of BNPL might create financial difficulties?
  2. Describe actions a person might take to evaluate a BNPL plan.
Dec 18 2021

SELECTING AN ONLINE BANK

More and more bank customers are using online financial-service providers. Online-only (digital) banks provide traditional financial services in an online format.  FinTech companies (neobanks) offer innovative banking services with an emphasis on emerging technology, often through apps.

When deciding which online bank to use, consider these factors:

  • FDIC Insurance, Federal Deposit Insurance Corporation (FDIC) covers deposit accounts against bank failure up to $250,000 per depositor and type of ownership category. To determine if a bank is protected by the FDIC, go to https://banks.data.fdic.gov/bankfind-suite/bankfind
  • Fee-free ATMs, to avoid costly charges. Many online banks have an extensive network of ATMs, while others do not have ATM access.
  • High-yield savings accounts, with lower operating costs many online banks offer savings accounts with higher yields. Be sure to compare the rates, rules, and regulations at various online banks, such as the required minimum deposit and minimum balance. 
  • Multiple banking products, depending on your goals and needs, you might choose a bank that offers an array of financial services–checking, saving, CDs, debit card, ATMs, credit card, and loans.
  • Financial management tools, FinTech apps and online banks offer innovative financial planning tools to help you save money, such as with a round-up savings component, automatic savings deposits, and low-cost investment funds. Other apps include features for achieving goals to pay off debts or save for a vacation, or savings based on your spending patterns.
  • Investment guidance, robo-advisors provide portfolio suggestions based on financial goals and risk tolerance with the use of artificial intelligence. 

For additional information on selecting an online bank, click here.

Teaching Suggestions

  • Have students talk to others to learn about factors that were considered when selecting a bank or other financial-service provider.
  • Have students create a visual proposal (poster, slide presentation, or other format) to highlight the main factors to consider when selecting an online bank.

Discussion Questions 

  1. What online banking features could help a person improve their financial position?
  2. Describe actions a person might take to select an online bank. 
Jun 6 2020

Giving A 6-Year-Old A Debit Card to Teach Wise Spending…Really!!

Kids are no longer using a piggy bank to obtain financial responsibility. Instead, digital tools, such as debit cards and apps, are the basis for learning smart spending and wise money management.  Many of these products are prepaid cards that help kids track their spending, and also include customizable oversight features for parents.  Some available products include:

  • FamZoo (famzoo.com) makes use of parent-paid interest to encourage saving. Common users of the app are preteen and young teenagers, but may also be used for kids from preschool to college.
  • Greenlight (greenlightcard.com) allows parents to control the stores at which the debit card can be used. Greenlight plans to introduce an investing feature to move users to a higher level of financial literacy.
  • gohenry (gohenry.com) is an app for kids (ages 8 to 18), but may be used by younger children. The emphasis is on building money management confidence in a safe setting while learning to spend and save.
  • Current (current.com) is a custodial bank account aimed at teenagers. Parents may also open accounts for younger children.

These products allow parents to channel digital funds to their children to pay weekly allowances. Also, kids may divide their money into accounts for saving, spending, and donating to charity.  Most apps have a monthly fee, ranging from $3 to $5.

When using prepaid debit cards with children, consider the following:

  • Spend time talking about why the kids want to buy various items, and why certain household tasks earn money and others do not. Expand the Connect the discussion to talk about total family finances as well as money attitudes and values.
  • Allow freedom to make spending decisions to give kids experience at managing money, and to make mistakes from which they will learn.
  • Ask older kids to buy household items, even though they might be reimbursed. Buying shampoo, toothpaste, and snacks will prepare them for when they are on their own. Also consider billing them for monthly expenses, such as the cost of their cell phone.

For additional information on prepaid debit cards for kids, click here.

Teaching Suggestions

  • Have students conduct online research to evaluate apps that might be used by parents to teach their children smart spending and wise money management.
  • Have students talk to parents to obtain suggestions that might be used to teach wise money management to children.

Discussion Questions 

  1. What are the financial, social, and relational benefits of children learning smart spending and wise money management early in life?
  2. Describe some possible money management learning activities for children that do not involve the use of technology.
May 25 2019

What is FinTech?

Technology impacts every aspect of personal finance. FinTech (financial technology) involves apps, software, and other innovations for banking and financial activities, which includes PayPal, Venmo, and cryptocurrencies, such as Bitcoin. FinTech companies use online activities, mobile devices, software, apps, and cloud services to for financial transactions. Over 1.5 billion people around the world do not have access to formal banking. FinTech can provide these unbanked people with financial services through easy-to-use technology.

The main categories of FinTech for consumers are:

  • Crowdfunding, such as Kickstarter and GoFundMe, which allows individuals or businesses to go directly to potential investors for funding.
  • Blockchain and cryptocurrency, such as Bitcoin, with improved verification for financial transactions.
  • Mobile payments through a smartphone.
  • Insurance coverages provided by online start-ups.
  • Robo-advising provides portfolio investment recommendations and allocations based on algorithms. For stock-trading, investors buy and sell stocks using apps such as Robinhood and Acorns.
  • Budgeting apps, such as Mint and You Need a Budget (YNAB), monitor and plan spending.

For additional information on FinTech, click here.

Teaching Suggestions

  • Have students talk to several people to obtain information about their experiences with FinTech products.
  • Have students create an app prototype for a proposed FinTech product to help people make better financial decisions.

Discussion Questions 

  1. What might financial literacy and money management activities be improved with FinTech?
  2. Describe concerns that might be associated with expanded used of FinTech.
Sep 15 2018

Banking Activities of the Future

As you walk into your bank, you are met by a video teller. These robo-banks allow you to connect with financial specialists based on your needs through a virtual concierge and videoconferencing. These banking staff members are located hundreds and thousands of miles away.  Banks benefit from these actions with fewer branches and fewer employees covering customers in many geographic settings.

Other actions being taken by banks and other financial institutions to better serve customers include:

  • A variety of services to enhance the banking experience, such as offering co-working spaces for customers who work remotely.
  • Payment systems in the athletes’ Olympic pins to complete purchases transactions at the 2018 Winter Games.
  • Customers can pay with a facial recognition scan in some retail settings.
  • Financial services offered through Alexa (Amazon), Siri (Apple), and Google Assistant allowing bank and credit card customers to check their balances, pay bills, and send money.

For additional information on technology banking trends, click here.

Teaching Suggestions

  • Have students talk to two or three others to obtain their ideas about: (a) future banking technology, and (b) the setting and services of the bank branch of the future.
  • Have students create a presentation or video that communicates future banking activities.

Discussion Questions 

  1. What technology services do you desire from a bank for your financial services?
  2. Describe actions banks might take to better serve the needs of customers.
Mar 4 2017

Overdraft Opt-in or Opt-out?

Most financial institutions offer overdraft programs for checking accounts, which for a fee covers a transaction where there is not enough in the account.  However, this service can result in several fees before the next deposit is made.  For debit cards, an overdraft fee cannot be charged unless you have agreed (“opted in”) to these fees.

To reduce or eliminate overdraft fees, these actions are suggested:

  1. carefully track your balance; sign up for low-balance alerts
  2. check your balance when making a debit card purchase; also consider other checks that may not yet cleared
  3. do not opt-in to an overdraft program for your debit card, or opt-out if you are currently opted in; while your debit/ATM may be declined, you will avoid high fees
  4. link your checking account to a savings account to cover overdrafts
  5. contact your financial institution to determine if you are eligible for a line of credit or a linked credit card to cover overdrafts
  6. compare account fees at other financial institutions

Complaints related to overdraft fees or other financial services may be submitted at   http://www.consumerfinance.gov/complaint/ or by calling 855-411-2372.

For additional information on overdraft programs, click here.

Teaching Suggestions

  • Have students search online or contact the costs associated with overdraft fees at various financial institutions.
  • Have students prepare a creative presentation describing actions to take to avoid overdraft fees.

Discussion Questions 

  1. Describe situations that might result in overdraft fees.
  2. What are methods to take to avoid overdraft fees?
Jun 4 2016

Avoiding Payday Loans

Payday lenders see borrowers as prey, people floundering in financial difficulty.

The Consumer Financial Protection Bureau is planning to release proposed rules related to loans and other short-term borrowing, such as auto title loans.  These efforts will include requirements that payday lenders make sure borrowers are able to repay the loans.

Payday loans are usually viewed as a temporary financial solution.  However, quite often borrowers need more time.  As a result, consumers get trapped in rolling over their debt and may be charged as high as 700 percent on an annual basis.  According to the Pew Charitable Trusts, 12 million Americans use payday loans each year, resulting in $7 billion of interest and fees.

For additional information on payday loans, click here.

Teaching Suggestions

  • Have students ask people to describe situations in which a person might use a payday loan.
  • Have students create a list of methods that might be used to inform others of alternatives to payday loans.

Discussion Questions 

  1. What are benefits and drawbacks of payback loans?
  2. What alternatives might be considered instead of a payday loan?
Feb 27 2016

Newcomer Money Guides

While beneficiary, collateral, and fair market value are familiar to many, these terms can be especially confusing to those with limited English-language skills. In an attempt to assist various people, the Consumer Financial Protection Bureau has created the Newcomer’s Guides to Managing Money to provide recent immigrants with information about basic money decisions.  These guides offer brief suggestions to those who are new to the U.S. banking system.  The guides also include guidance for submitting and resolving problems with a financial product or service.

The Newcomer Guides include these topics:

  • Ways to receive your money, comparing cash, check, direct deposit, and debit cards.
  • Checklist for opening an account, to assist with starting a bank or credit union account.
  • Ways to pay your bills, providing guidance on whether to pay by check, debit card, credit card, or online.
  • Selecting financial products and services, providing assistance on deciding which financial services are right for various household situations.

Print copies of the guides can be ordered or downloaded. These publications are available to English and Spanish with additional languages to be offered in the future.

For additional information on money guides for newcomers:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to create a list of financial planning terms that people find confusing.
  • Have students suggest methods to have people learn about confusing financial planning terms.

Discussion Questions 

  1. What financial problems might be encountered by people with limited English-language skills?
  2. What actions might be taken to assist various groups to better understand banking services and money management activities?