Suze Orman, one of the most well known personal finance gurus in the media, announced a few days ago that she had created, and was releasing, a new prepaid debit card.  Prepaid debit cards, if you’re not familiar with them, are cards, like credit cards, where you prepay and then can only use the card for amounts up to what you’ve prepaid.  In most cases, they are marketed towards people who are unable to get credit cards because of bad credit.

Phil, from PT Money, blasted Suze for the card, on his site and on twitter.  I can’t say that I entirely disagree with him.  His problem with the card, and mine, is that prepaid cards should be a last resort for people who are unable to get a bank or Credit Union account that has a debit card attached to it.  What Suze is doing with this card, however, is pushing it to the general public who really have no use for it, and, by using it instead of a debit card from their bank or CU, are going to be lining the pockets of Bancorp (the bank behind the card) and Suze.  That’s shady, when you are claiming to be “America’s Most Trusted Personal Finance Expert”.  If she is an expert, she should know better. And, I think she does.  Which is why, instead of responding to PT (and others) on Twitter with a factual defense of the card, she had this to say:

Suze Orman Calls PT Money an Idiot

Terrible way to take criticism, Suze.  To some degree, I discount her response because of the “sassy” way that she responds to questions and such on her shows, but I think she crossed the line here.  It’s one thing to tell the guy who calls in and asks if he should buy a new car when he’s 500k in debt an idiot, but another thing altogether when you’re calling a guy an idiot simply because he thinks your new prepaid card is a bad product.

Is the card a bad product? To Suze’s credit, unlike some prepaid cards that have had celebrity endorsers, this one has plenty of good things going for it.  It includes a credit watch program, and a free credit report with credit score.  It’s got a program to allow you to put money into a separate account for an emergency fund, free bill pay, and the ability to transfer money from one cardholder to another.

But, my Credit Union has all those things.  A $3/month fee on the card isn’t the worst of the cards, but it’s still a fee.  $36 a year to have access to your own money via a debit card?  Come on.  Again, my Credit Union does that, and they do it for free.  Yes, there are some who are unable to get a bank account.  And for those people, if you absolutely need to have access to a Visa/Mastercard card, then go for it.  But, despite what Suze is claiming, don’t expect it to improve your credit score.

There is no way that any of the credit agencies are going to take your activity on a prepaid card into account.  They’ve never taken your cash spending habits into account, and a prepaid card is no different than spending cash.  Would it be nice?  Absolutely.  Many of us who make most of our transactions on debit cards or with cash would agree.  But, it isn’t going to happen.  Your cash spending has nothing to do with your credit, so why would a credit score take that into account?

I just don’t see enough difference between this, and other similar cards to say that Suze went out on a limb here and created a product that is going to change the industry.  As a prepaid card, it’s decent.  There are better.  In the end, it’s still just a prepaid card that should be used as a last option when you can’t/won’t get a bank or credit union account with a debit card.

Read what some other Personal Finance Bloggers are saying:

Suze Orman’s “Approved Card” gets Denied; Thinks PF Bloggers are Idiots

Suze Orman’s new prepaid debit card: The Approved Card

My two cents on Suze Orman and her prepaid card

Young, Gullible, and Broke: Suze Orman’s debit card FAIL

Suze Orman’s prepaid debit card scam

Suze Orman’s Card is Not Approved by Me

Suze Orman’s Approved Prepaid Debit card is Bad for Consumers

Suze Orman Shows True Colors with Her Approved Prepaid Debit Card

And that’s just a smattering of the posts on the subject.  I have yet to come across one that is entirely positive about the card. What do you think? Do you think that Suze did a good thing here, or is it just another way to milk some money out of her followers?

CNN had this post on the Association behind the popular lottery game, Powerball, announcing that, starting January 15, 2012, the price of a ticket to play Powerball would be doubling, to $2 a ticket.  If you read the article, you’ll notice several things.

1. The starting jackpot will also double, from $20 Million to $40 Million
2. The second prize (all the white balls without the red “powerball”) will increase from $200,000 to $1 Million.
3. The Power-Play option, which allows you to pay $1 to double any prize (except the jackpot) will remain at $1

There are a couple other things that you should also notice, but probably won’t.  But, they are likely the more important ones.  First, the number of red “powerball” balls will be decreased from 39 to 35, which will “decrease the odds of winning the jackpot slightly.”  To me, decreasing the odds translates to less chances of winning.  But, that doesn’t make sense.  If there are less choices in the “powerball”, doesn’t that make it more likely to get that match, thereby increasing your odds of winning?  Maybe that’s just a typo.  If it’s not, then I obviously need a new class in statistics and chance.

Second, because the starting jackpot is increasing, and the price is increasing, they estimate that the average jackpot will increase to approximately $255 Million which is a bit more than the average jackpot of $141 Million now.

Finally, the last thing that you should notice is the remark that “We know that most folks play for the big jackpots and this game will have more of those more often.”  I know several people who only play if the jackpot is over a certain value.  Say $100 Million.  The association has obviously noticed that as well.  Heck, it probably didn’t even take a statistics genius to pull the sales numbers and see the spike when you hit a certain amount.  So, rather than find a way to get people to play more often, (North Dakota has a subscription option) they just make it more certain that the jackpot will reach the higher numbers faster, thereby getting those people to play more often.  I wonder if those people who wait until the jackpot is higher in order to save money on lottery ticket costs will realize that they’re buying tickets more often?  A few might, but I bet the majority don’t.

My personal stance on Lottery games is that if you’ve planned for the expense as a “fun” entertainment expense, then, go right ahead and buy those tickets.  But, if you’ve got bills to pay, food to buy, and no budget for the tickets, you really should avoid them at all costs.  I’ve played off and on over the years, and I am one of those people who generally only buy a ticket when the jackpot is really high.  Will I buy tickets more often now that the jackpot is going to be higher, faster?  Probably not.  It just means that the number will have to be adjusted a bit.  Maybe I’ll wait until the jackpot hits $200 Million now…

What about you?  Do you play lottery?  When?  How often?  Will an increased cost per ticket change your habits?

photo credit: Lisa Brewster

Goodness!  Did you see what the markets did yesterday?  Down almost 400 points!  If you haven’t already, you had better join the rest of the world in getting out while you still can.  The era of easy gains in the stock market and guaranteed returns has officially ended, and it isn’t pretty.  It’s time to let go of the bull market ideals.  Do you know what happens to a bull in a room full of bears?  Here.  Let me show you.

Seriously. Those bears are going to eat you alive! Sell everything you got now. Take it out in gold, and head for the hills. Don’t forget the canned supplies and vegetable seeds for after the apocalypse that will follow!  Quit your job, pack your family up, and head for North Dakota.  We’ve got plenty of oil field jobs available. (see: Bakken formation) And with a bunch of liquid black gold running over your fingers, you won’t need to worry about the crashing stock market anyways!

Ok, obviously, this whole post is a little bit tongue-in-cheek, with the exception of the North Dakota part.  We really do have plenty of oil field jobs available.  Best economy in the U.S.A., in fact.   And, even if the post weren’t tongue-in-cheek, and you took it seriously, you really, really, should talk to a financial professional before making any thing resembling a sell everything move.  The whole post was all for the enjoyment of myself, MoneyMamba, and others who felt that there would be a whole plethora of posts by our colleagues touting the benefits of dollar cost averaging and long term views on the stock market.  They may be right, but sometimes you just have to poke a little fun.

Despite my best efforts, I don’t know everything about finances, stock markets in particular, so please don’t construe this as advice.  It isn’t.

photo credit: VirtualErn

According to CNNMoney, Wells Fargo will begin testing a program to charge a $3 a month fee for debit cards.

Wells Fargo said Tuesday it will start charging a $3 monthly fee for debit card usage to customers in Georgia, New Mexico, Nevada and Oregon beginning Oct. 14.

“We regularly review our pricing and take into account the needs of our customers, industry trends, the market competition, and our cost of doing business,” a Wells Fargo spokeswoman said. Customers who don’t use their card during the month won’t be charged the fee and the fee will be waived for select accounts, she added.

I’m beginning to wonder if it isn’t lost on the companies that adding new fees like this is a step backwards on usage?  When there was only cash to pay with, the banks were only able to make money by usury.  You gave them your cash to safe-hold.  In exchange, the bank paid you a small interest rate on that money and then loaned it out at a higher rate to other consumers.  They kept the difference.  Simple, no?  With the advent of credit cards, they’ve found any number of new ways to nickel and dime us out of our money.  All in the name of “cost of doing business”.  (Side note: Part of the reason I like being a member of a credit union is  that they usually don’t go looking for profit at every turn.)

Eventually, as the regulation piles up, and it becomes harder and harder for the banks to make any money on credit and debit cards, they’ll find more and more ways to fee us for those services and others.  As the fees increase, more  and more of us will revert to using cash as a medium of exchange.  And the more of us who are using cash, the less of us are using those services which means they’ll have a smaller income on those services and will need to squeeze more fees out of the users.  Do you see where I’m going with this?  Good.

I just don’t see the Wells Fargo fee as good business, or any of these new fees, for that matter.  Some of the regulation should be pared off, but if the banks can’t figure out how to operate without passing the buck on to us, they’ll find themselves with far fewer users than they had before.

ING Direct, the online savings account giant, is running a bit of a special, when you sign up for an Orange Checking account, and use the debit card that is associated with that account 3 times within 45 days.  I don’t see anything about when the offer will be pulled, but these generally don’t last too awful long.

Sign up here!

If you’re unfamiliar with ING Direct, they really do bear some looking into.  I use them for most of my business accounts.  Part of that is because of the higher rates that they pay on their savings accounts (1.00% as of this article) that beat the pants off of what I’m getting from my local credit union.  Another part is that they make it super duper easy to create sub-accounts to help categorize your money.

For instance, in my account, I have an Orange Checking that I do almost all of the transactions through.  I then have two Orange Savings accounts, one as just a general savings and another that is a tax savings that I put a portion of all earnings into as a slush fund to help cover any tax costs each year.

In any case, if you don’t have an online checking, this could be a good opportunity to pick one up and grab a free $50 as a result.  Because you’ll be using the debit card associated with the account, you won’t have to change any deposits/withdrawals that you currently have set up, just deposit an opening balance, then use the debit card three times.  If you don’t want to use it after that, you don’t have to.  Heck, use it for three transactions that total less than $50 and you’ll get them paid for!

Sign up here!

Beating Broke Note: The links here are affiliate links.  If you click on them and sign up, I will receive some money.  It’ll eventually get deposited into my orange checking and split up into my tax savings and regular savings.  Even if they weren’t affiliate links, I’d still recommend the company.

It wasn’t that long ago that we were talking about how far home sales had dropped (a new record low at the time) and the causes behind it.  It was just announced (yesterday or today) that new home sales have “unexpectedly” dropped another 12.4% to a new all time record low.

To be completely honest, I’m not sure why it was so unexpected that the sales would continue to drop.  The economy is still just as bad as it was.  It hasn’t necessarily gotten any worse, but it certainly hasn’t made any great rebounds either.  I still maintain that anyone who was in a financial situation to buy a new house likely did already to take advantage of the tax credits that were in play until the end of April.  On top of that, there’s still talk of more “stimulus” to the housing industry.  So it’s likely that there are some who are holding out for a new tax credit to show up.  Will that happen?  I hope not, but you just never know.  Another factor may be the still falling value of homes.  The further the prices fall, the more likely it is that you’ll end up underwater on it.  If you can’t get out from under that, it’s unlikely that you’ll be able to sell without a large amount to cover the difference.

I will continue to not be surprised by these “unexpected” drops in sales.  How about you?  Are there factors that I’m not taking into account that might rescue the sales figures?  (Wizards and warlocks don’t count.)

So, are you surprised by that news?  That new home sales dropped like a rock in May?  I can’t say that I am.  I try hard to keep my politics out of this site, but what the heck were they thinking?  If you look at the chart that CNNMoney has posted, you can clearly see that, not only did they drop, but they dropped below where they were before.

And obviously, there is a very nice spike for a while.  Incentives do make a bit of a difference.  And, in all honesty, if we had been in a situation where we felt we could afford a new home, we would have jumped at the opportunity to take advantage of those incentives.  But the spike was just that.  A small percentage of people taking advantage of an incentive that made it very attractive to buy a new house.  What it didn’t do was return home sales to anything like previous numbers.  In fact, it didn’t even get the numbers back to 50% of what they were in 2000!  And now, after the incentives have expired, they dropped 33% to an all-time new low. The last time the numbers were this low was in 1981!

I think everybody has the right to purchase a home.  You shouldn’t be dis-allowed from purchasing a home.  But, you still have to pay for it!  Owning a home is not a right.  The ability to purchase one if you can afford it is.  Years and years of politicians buying votes by pushing lenders to finance houses to people who couldn’t afford them is what caused the housing market (and our economy as a whole) to be in the condition it is in.  And that crashs’ ripples are still being felt throughout the country and the world.  Creating incentives to buying a home just extends that streak.  People see that $8000 and think that they can afford a home that they really can’t because they will get a nice $8000 check to help pay it down.  But, when that money comes around, what are they going to do with it?  Spend it.

And in five years, when those mortgages adjust, we’ll have a nice little mess to figure out again.  Sure, it won’t be anywhere near as bad as the current one, but it’ll be there.  If only we could teach people to be responsible consumers.  To not buy what they cannot afford, and to only spend what they earn or less.  If we could do that, then they wouldn’t need those incentives to buy a home.  They might actually be able to afford it without them.

There’s a new bank in town.   It’s called banksimple, and it might just turn a few of the more “traditional” banks on their heads.  Why?  Transparency.  I know, you think I’m joking.  But, I’m not.  Let’s start with no overdraft fees.  None.

No overdraft fees. If you have no money immediately available, we will draw down your savings. If you don’t have any savings, we may extend you credit. It doesn’t cost us very much to provide this, so we don’t charge you for it.

What about other fees?  According to their FAQ, they plan on passing on their cost only.  So, if an international wire costs them $15, it’ll cost you $15.  Simple.  Of course, if you’re like me, you’re wondering how they are planning on making money.  They answered that one as well.

We make money from two sources: interchange and interest margin. Interest margin is the revenue earned from lending, less what they pay on deposits. For example a bank may charge a customer 12% to borrow money, but pay 5% interest on a savings account. The difference, less any defaults on the loan, is revenue to the bank. Interchange is a small revenue source that card issuing banks earn whenever that card is used at a store. Typically banks earn less than 1% for each time the card is used to make a purchase. These are both great revenue streams, but banks got greedy and started charging additional fees to bolster their revenue. Our operation is low cost, so we don’t need to rely on extraneous fee revenue.

I have to admit that I’m a bit skeptical.  It’s just not normal operation procedure.  Hell, even Credit Unions, who are supposedly owned by their members, charge overdraft fees and other fees.  The problem is that what is now normal M.O., hasn’t always been.  There was a time when banks actually operated the way that banksimple says they are going to.  Honestly.  Making their money from interest margins.

If it works the way they claim it will, I’m a bit excited.  The problem at the moment, is that they aren’t open for business.  I couldn’t find an exact date; all they say is “later this year”.  (I’ve got an email in to them asking for clarification) All you can do right now is sign up for an invite when they do open their doors.  Might be worth a check when they do open up.  I’m all for transparency in banking.

Anyone else got any more information on banksimple?

UPDATE: You can read a couple of interviews that the guys behind banksimple did with the New York Observer at the New York Observer site.

It struck me the other night, as I was reading a book and came upon a section on Ponzi Schemes, that insurance companies are borderline ponzi’s themselves.  The definition of a ponzi scheme is when the broker/banker/agent takes money and promises a unusually high return and then pays said return from the incoming money from other investors.  Eventually, when the incoming investors dry up, the agent can no longer pay the returns and the scheme comes crashing down.

Now, let’s look at insurance companies.  We, as the insured, pay the insurance company our premiums in return for insurance against some sort of event.  With health insurance it’s against some sort of health event.  With car insurance, it’s against some sort of accident.  In any case, it’s a payment.  Or a return on the premium.  Very seldom will you actually come out with your entire investment.  What would happen if the premium payers dried up?  It would get more difficult for the insurance companies to pay any claims.

Where the key difference lies is that if you stop paying your premiums, they stop paying any claims for you.  Also, as a premium payer, you never really expect your money back unless you have a claim.  You’re paying for the “in case”, if it were to happen.  In a Ponzi, you’re investing your money specifically for the return.  You’re not going to stop investing as long as the returns are stable.  And a Ponzi only really dies when the new investors stop coming.  If new insured stopped coming to the insurance company, they would still have their current insured to collect premiums from.

So, no.  Insurance companies are not Ponzi Schemes.  But, it sure feels that way sometimes.

Photo Credit: Showmeone @ Flickr

April, besides having a horrible day for pranks, is National Financial Literacy Month.  It’s been promoted as such since 2000 and was officially recognized by the U.S. Congress in 2003.  Too bad they haven’t improved their own financial literacy since then.  But, I know many of us have.  There are several ways you can improve your financial literacy here at Beating Broke.  Below is a list of some of the topics that you should peruse.

• Beating Broke Rules
• Budget
• Financial Truths
• Guru Advice
• Personal Finance Education
• Financial Mistakes

That should get you started.  J.D. over at Get Rich Slowly has a great collection of the posts that he’s done that you should check out as soon as you’re done reading those ones from Beating Broke.

While we’re celebrating, let’s share a story or two.  And while we’re at it, let’s make it a Giveaway!  The lucky winner will receive a $10 Amazon Gift Card.  Tell us a story of how you’ve improved your financial literacy in the last year.  You can do it with a comment here, or a blog post on your blog if you like.  If you do a blog post, though, please come back here and leave a comment so I can find your post and count your entry.  We’ll run it through Monday the 5th.  On Tuesday the 6th, I’ll compile all the comments here, and use random.org to pick a winner.  Please restrain yourself to only one entry each.

Now, let’s hear those stories!

UPDATE!  We have  a Winner!  Comment #3 wins the $10 Gift Card from Amazon!  Congratulations Mike from Personal Finance Ninja!  I’ve dropped you an email and we can sort out the details.  Thanks for everyone for participating!