5 Financial Myths Debunked
Every once in a while I’ll hear a new piece of lunacy about the financial industry and the things that people think are true. Some of my favorites include ‘requiring citizens to pay taxes is illegal’ and ‘checks float longer if they’re written in red ink’.
*sigh*
First of all, if you decide not to pay your taxes, I hope you’ll be very happy in prison when they come to collect you. If you think it’s perfectly legal to avoid your taxes, look throughout history and the news to see what happened to those who didn’t pay. Um, hello? Al Capone?
As far as red ink goes, the best I can figure on this is that people assume the scanners have a hard time with the red ink and it slows down the processing of checks once they reach the Fed. Hmm…nope! Now, gel pens do tend to trip up the scanners a little and what ends up happening is the Fed sends it back. Rather than having more floating time, you’re slapped with a Returned Item fee. As a side note, that little trick of floating checks when you don’t really have the money is called kiting and it’s illegal. Just in case you didn’t know.
But there are some financial myths out there that exist simply due to a lack of knowledge. There are five that I want to talk about today.
1.) I don’t need to learn about finances because my spouse handles all of that.
I can’t stress enough how important it is for spouses to share financial information and responsibility with one another. Even if one person is primarily responsible, the other should have a working knowledge of who they owe money to and when the bills are due.
I have a friend at the credit union whose husband took care of the family finances - I’m not really sure why as she was the banker and he was in construction, but that’s how it was divvied up. He took care of everything and only asked that she provide him with receipts when she spent money. She was always really careful to discuss any purchases with her husband - which was good since he took care of everything, but she couldn’t tell you who or what they owed.
Unfortunately, not too long ago, her husband had a severe heart attack and died. Her world was literally turned upside down. She didn’t know the first thing about where to begin and it took several of us to help sort through the mess. She had bills coming in she knew nothing about, she had money placed in several different accounts with different banks, and she discovered that they owed money to the IRS and that her husband had made payment arrangements. Suddenly, his very uptight mood about money made sense. But, it didn’t help her much when it came time to figure out it all out. Also, with divorce rates so high it’s a very good idea to at least familiarize yourself with your financial situation.
2.) Saving for your child’s education is more important than saving for retirement.
While every parent wants to provide their kids with the things they never had growing up, it shouldn’t be at the expense of your retirement. College funding can be achieved through many different avenues including scholarships, grants, student loans, part-time jobs, and payment plans. Retirement planning doesn’t have anything comparable.
3.) You need to make more money before you can start saving.
If that were true no one would ever save - and it’s the reason that the nation is so far in dept. The trick isn’t to make more money. If you live above your means, you will always live above your means regardless of what your income level is. The way to save is to learn what living below your means is and make a budget that keeps you there.
4.) All credit cards are bad.
Now I know I’m going to catch some heat for this one because there are folks out there that just don’t get along with credit cards. Well, I’m sorry to you guys, but the truth is, credit cards aren’t all that bad. The problem comes in when consumers misuse the credit cards. To be fair, credit card company practices are deceptive and the reason for many people’s ire, but that doesn’t mean the credit cards themselves are all bad. Using credit cards responsibly and repaying your debt timely can help build, re-establish, and maintain a credit rating.
5.) I’m under 18 so I can’t be held accountable for debt (or the counterpart: debt disappears at 19)
While the first part of this is true - anyone under 18 can’t legally sign a binding contract, many credit card companies will allow the minor to have a card with the caveat that there is a responsible party on the account. Guess what, Mr. Responsible, you’re now liable for that debt. If your teen went on a little spring break spree and ran up a bunch of hotel charges on the card, you’re stuck paying them. It’s important to educate your teenagers BEFORE handing over the plastic.
On the flip side with this one, contrary to many teenagers’ beliefs, debt doesn’t just magically disappear at 19. If you’ve got credit problems at 19, it’s probably going to take some time to sort through them and get them cleaned up. Take it from me, the sooner you start the sooner you’ll be free of it. Parents, you’ll be doing your teenagers a world of good if you make sure they understand this rule, as well.
And that’s it. What other financial myths can you think of that are completely bogus?
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May 20th, 2008 at 9:43 am
While I was working in credit card customer service I heard some good ones. One guy argued with me for a long time saying that we couldn’t charge him a late fee AND interest. lol… what do you even say back to that? Um… yes we can. And then another time a lady told me she didn’t owe us any money because she wrote “paid in full” on the check and we cashed it. So that clears her balance. If only it were that easy!
May 20th, 2008 at 9:57 am
LOL…I’ve heard the “paid in full” one before as well! I seriously wonder where people get this stuff. I mean, do they honestly believe it’s true or are they hoping we won’t notice the craziness of it all?
Good times!
May 21st, 2008 at 5:32 am
[…] 5 Financial Myths Debunked posted at Master Your Card — Jonathan shares common financial misconceptions and explains why they are wrong. […]
May 22nd, 2008 at 8:57 am
About the payment in full thing: IF the amount that is owed is legitimately under dispute between the buyer and seller (there is no written contract, and the parties differ on what was actually agreed on), the buyer can write “payment in full” on a check. If the seller accepts it, it is his/her admission that this was, in fact, the amount that was owed.
Obviously, this is NOT applicable for credit card balances! Just because you would rather not pay the whole balance doesn’t mean the credit card statement is wrong! Although it would be cool if it worked.
May 22nd, 2008 at 11:12 am
Hi Kathy,
That would still not stand in court as a complete admission to payment in full. If there is a dispute between the two parties, then an agreement needs to be reached and a judge will tell both parties to reach one. But, they’re not going to back that payment in full thing UNLESS the amount was actually paid in full. It’s a myth, there’s no grounds in which it is accepted as truth when more money is owed to a company.
May 22nd, 2008 at 11:23 am
To clarify the check thing more and why it isn’t a document that can contain the words “paid in full” and be accepted as such, checks are simply a promise to pay. They replace cash when cash is not available. They are not a contract in terms of what will be paid when, etc., between two parties, only an admission of payment. The five areas of a check that are used for legal purposes are: the date (post- and stale-dated checks can legally be returned), the written amount (this is also considered the legal amount which banks and cashing parties are to go by), the numbered amount (the written and numbered amounts should match, but if they don’t, the written is the final rule), the signature (does the information match the signature at the bottom? Is there a signature at the bottom?) and the payee (the person that the check is made payable to should be the only one cashing the check. More and more banks are getting away from taking third party checks).
Anything else on the check barely registers on anyone’s radar - including the memo line where ‘paid in full’ is usually written. The memo line is really for the benefit of the person writing the check so they have a notation. It is not legally binding because it is not a contract, it is simply a promise to pay. You could write the same thing on cash and it wouldn’t mean anything, the same holds true for a check. That’s why it won’t hold up in court.