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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Why Pre-Approved Credit Offers Are a Myth

Way back when, in the dark days of my credit past, the postal service would frequently back a dump truck to my house and unload several metric tons of pre-approved credit card offers on my doorstep. Their snazzy, can’t-miss ad copy printed in a dazzling array of retina-burning Day-Glo ink was all too alluring: “$100,000 Line of Credit with 0% APR for Eternity”? Where do I sign up?

But, like the saying goes: “If it looks too good to be true, it probably is.” I’ll let you in on one of the credit industry’s (many) dirty little secrets: pre-approved credit card offers a myth. Bogus. Impossible.

The reason? Credit issuers can’t pull your complete credit report (also known in industry slang as a “hard pull”) without your express permission. They therefore rely on “soft pulls” which provide them with little more than your name, social security number, address and maybe your employer and favorite color. Soft pulls reveal nothing about your debt, past credit history or anything at all for that matter about your current financial situation.

How then, you might ask, is it possible for credit issuers to pre-approve you without knowing a darn thing about your financial health? It’s not. It’s a marketing ploy like any other: throw enough baited hooks in the water and someone is bound to bite. Fortunately for the lenders, this tactic works for a whole lot of unsuspecting someones. I’m still astounded by how many folks are gamed into believing that, with their 525 FICO score, they allegedly qualify for a 0.9% interest rate!

What’s worse is that every one of those pre-approved applications you mail back leaves a black mark on your credit report that announces to other prospective lenders that you’re in the market for [gulp] an even bigger line of credit. Tally up enough of these black marks, and you can seriously damage your credit score.

So the next time you’re thinking of accepting that “One Time Promotional Super Secret Squirrel For-Your-Eyes Only” credit offer that seems too good to be true, be sure to read the fine print. It also pays to be aware of your credit history and FICO score, to understand your current financial health and, above all else, to opt out of those darn pre-screened credit offers in the first place.

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