My Youngest Son with His Wells Fargo Youth Cash Card

Remember back in December when I wrote about how I was rethinking my kids’ allowances? Well, it’s been a little over six months since we opened youth cash cards for our kids and I thought it would be good to give you an update.

So far, so good!

Not every bank offers youth cash cards. We bank with Wells Fargo and they offer them (unfortunately, I did a search on Wells Fargo’s website and didn’t find much information so you’ll probably need to speak to a banker).

Our boys love them. They don’t have to worry about cash. They can take their cards with them wherever they go and use them just like a debit card. Several of the merchants we have gone to have made comments about the kids using a debit card, which I thought was kind of cool. A couple of them wouldn’t accept the cards because they were suspicious of the fact that they were kids. But, for the most part, I would say this has been a success.

I set up my account to automatically deposit their allowances on the 1st of every month. It forces the boys to budget their money, which I think is a good thing.

One frustrating aspect was the fact that the boys weren’t very good at keeping track of their balances and were always asking me to check them for them (they don’t have web access). I showed them how to keep track of their balance in a journal and they did pretty good with that. Then I figured out that they could check their balance over the phone and showed them how to do that.

I get their statements sent to me once a month so they know that I or their mother will see everything they spend. I also have access to their accounts through my online account. The boys don’t have access to their accounts online, which is okay with me.

Anyway, for those of you looking for a solution to giving kids cash in a cashless society, I would recommend you look into getting them a youth cash card.

GMAC Bank is now Ally Bank.

Dear JLP,

We told you that you’d be among the first to know about the changes coming to GMAC Bank. We’re excited to fulfill that promise today with the news that GMAC Bank is now Ally Bank.

We’ve kept everything you’ve loved about GMAC Bank—and added more. We’re using 90 years of experience and taking banking in a new direction. Right away with Ally Bank, you’ll enjoy benefits like no monthly fees, no minimum balances, no minimum deposits, plus 24/7 Customer Care Support, online statements and a streamlined web experience.

Our commitment to high rates remains unchanged. We’re always among the highest rates in the country. You can count on it.

And your account/s will stay the same. Be assured that you’ll continue under the same terms you had before. You’ll simply see the improvements we mentioned above, including 24/7 access to your accounts and enhanced online tools.

Get the details today at ally.com or check out our FAQs. And remember, we’re here 24 hours a day, every day, at 877-247-Ally
(877-247-2559).

So far, it sounds like everything will remain like it was before–just a different name. We’ll see…

The problem is that we live in a cashless society. Everything my wife and I have is automatically deposited into our checking and savings account. We rarely have cash unless I make a special trip to the ATM to make a withdrawal or remember to get cash back at the grocery store. The problem with this is that I rarely have the necessary change to pay the correct allowance.

So,…

I have been rethinking how we pay allowance.

I called our bank and found out that we can get our boys check cards that we can load up for them. The banker told me that he didn’t think they had fees but I’ll have to find out for sure. I have an appointment with him today. I’ll let you know what I find out. They also have a teen checking account that looks interesting. Only one of our boys would qualify for this type of account.

I’m a little nervous letting our boys have a check card but they have to learn to handle money some way and since their account would rarely have more than one month’s worth of allowance, I don’t see downside other than overdraft fees. I’ll have to find out more from our bank.

I can see this as an excellent learning opportunity for our kids. I can also see this leading to more responsibility in the future as my wife and I give them a clothing budget and make them responsible for clothing purchases (hey, they gotta learn sometime!).

Thoughts?

I do want to make one thing clear: my wife and I will still be very involved in their financial decision-making. In other words, our boys won’t have free-reign.

UPDATE: I just got back from the bank. I signed our boys up for “Youth Cash Card Accounts.” The accounts are in the boys’ names with my wife and I as co-owners. There’s no charge to have the cards unless the boys overdraft. I doubt that will happen. If it does happen, the boys will be responsible to pay it back AND they will lose their card privileges. It’s my goal to show them how to keep track of their spending so that they never get to the point where they are overdrawn.

The accounts are separate from our checking account but linked so that I can transfer money into the account for them—something I plan on doing once a month. The boys have no online access so they can’t logon and move money around or anything like that. They will have to rely on me or my wife to look up their balance. I will show them how to keep a register so that they won’t have to ask us how much money they have.

The only thing I’ll have to work around is how the boys pay their tithe. These aren’t checking accounts so they won’t be able to write a check to pay their tithes. I’ll figure something out.

The downside to this is that their cards could get stolen. But, I don’t see them taking their cards anywhere without at least my wife or me being with them.

Mr. Rubin said it is a company’s risk-management executives who are responsible for avoiding problems like the ones Citigroup faces. “The board can’t run the risk book of a company,” he said. “The board as a whole is not going to have a granular knowledge” of operations.

Still, Mr. Rubin was deeply involved in a decision in late 2004 and early 2005 to take on more risk to boost flagging profit growth, according to people familiar with the discussions. They say he would comment that Citigroup’s competitors were taking more risks, leading to higher profits. Colleagues deferred to him, as the only board member with experience as a trader or risk manager. “I knew what a CDO was,” Mr. Rubin said, referring to collateralized debt obligations, instruments tied to mortgages and other debt that led to many of Citigroup’s losses.

Mr. Rubin said the decision to increase risk followed a presentation to the board by a consultant who said the bank had committed less of the capital on its balance sheet, on a risk-adjusted basis, than competitors. “It gave room to do more, assuming you’re doing intelligent risk-reward decisions,” Mr. Rubin said. He said success would have been based on having “the right people, the right oversight, the right technology.”

The decision has been blamed in part for Citigroup’s problems, including the growth of its CDO holdings amid signs the mortgage market was unraveling. Mr. Rubin doubts that’s true. “It was not an inflection point,” he said, but “I just don’t know what would have happened” if the decision had been different.

I’d like to hear an executive say, “You know what, we messed up! We packaged crappy mortgages together and sold them as safe investments. For some reason we forgot that you can’t grant mortgages to people with poor credit and little ability to pay them back and expect good things to happen. We messed up bad!”

Instead, we get guys like Rubin saying stuff like, “I just don’t know what would have happened had we done things differently.” What the heck?

This is the real kicker (emphasis mine):

Mr. Rubin said he believed in 2004 and ‘05 that while a cyclical downturn such as the 1994 Mexican devaluation or 1997 Asian financial crisis was possible, the losses the bank might suffer wouldn’t come close to wiping out the profits made during the good times.

In the current crisis, “what came together was not only a cyclical undervaluing of risk [but also] a housing bubble, and triple-A ratings were misguided,” he said. “There was virtually nobody who saw that low-probability event as a possibility.”

Maybe Mr. Rubin should go back to stats class and learn the definition of “low-probability.” When you bundle together lots of subprime mortgages, there’s a high probability that they will default. That’s why they are called “subprime mortgages.” I just don’t see how someone with Mr. Rubin’s intelligence can say something like this.

This is just another case where greed trumped “doing the right thing.” And now we have all these executives saying stuff like, “I don’t know what we could have done differently?” Yeah, right…

“While the firm has distinguished itself through many aspects of the crisis, we cannot ignore the fact that we are part of an industry that is directly associated with the ongoing economic distress,” the firm spokesman said late Sunday.

Source: Goldman Chiefs Give Up Bonuses ($), WSJ

If Goldman does this despite having a decent year compared to their peers, imagine the pressure it will put on other investment banks to do the same!

As was proved last week in the bonus discussion here on AFM (this post and this post), it’s a touchy subject. I’m a staunch believer that that bonuses should only be paid on company-wide results. If the company has a bad year, then no bonuses should be paid. If the company has a good year, then bonuses should be paid based on performance. In other words, split the pie when there’s a pie to split.

Anyway, I applaud Goldman’s move. I think it’s the right thing to do and I think it sends the right message. Besides, Goldman’s CEO, Lloyd Blankfein, should still have some of that $68.5 million left over from last year!

There are two sectors where more extensive regulation might have made a difference [in preventing the current crisis]. These are the investment banks and the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. Both sectors were major players in the events leading up to the crisis.

In 2004 the SEC adopted a rule that pretty much allowed the investment banks to regulate themselves. While a number of other factors were involved in this decision, the commission’s belief at that time was that self-regulation would be more effective than SEC regulation. This policy was consistent with the free market ideology of the Republican administration.

In 2003, efforts to bring the GSEs under tighter regulatory control were defeated in Congress. This was primarily the work of Democrats, who feared that tighter regulation would crimp the ability of the GSEs to meet affordable housing goals.

The author refers to the decisions of Rebuplicans and Democrats which ultimately helped set the stage for this crisis “a tie” as far as political blame is concerned. He also hastens to add that “an only slightly less severe” crisis would have occurred anyway for reasons below.

Deregulation – defined as the removal of existing regulations – was not a factor in this crisis. The article explains that the only significant financial deregulation legislated in the past three decades applied to commercial banks. “Restrictions on where they could branch, and on their involvement in investment banking, were both removed. Most economists, including me, believe that these actions made the banks stronger than they would have been otherwise.”

The author then goes into an interesting historical explanation which explains that regulation itself is a weak defense to financial crises because regulations always tend to look backwards. For example, regulations on the Savings and Loans in the 1970’s were very strict – but the regulatory system was geared to preventing S&Ls from taking on too much default risk because, historically, that had always been the major problem. The exposure of S&Ls to interest rate risk was not controlled, which led to the huge financial crisis that many of us remember in the 1980’s.

S&Ls were encouraged to make long term fixed rate mortgages and loans with short term deposits. When interest rates spiked in the 80s the cost of deposits jumped, but revenue from loans stayed the same. Enter S&L crisis.

The policy changes that were introduced following the S&L crisis were largely designed to prevent another crisis of that type. Among other things, associations were authorized (and encouraged) to write adjustable-rate mortgages (ARMs) on which rates would adjust with the market. This would make S&Ls as well as banks less vulnerable to swings in market rates. Enter current crisis.

In short, regulations always have unintended (and usually unforseen) consequences which can sometimes cause problems just as bad ans the crisis they are designed to prevent. I’m sure Congress will shortly enact all sorts of regulations that will prevent a similar crisis to the one we’ve got now from ever happening again. I just hope whatever other consequences they inadvertently cause down the line aren’t too destructive…

More from Meg at The World of Wealth

Here is the part of the article I want to focus on:

“The main point, and the main issue for everyone, is there should be a stop to foreclosures and evictions, and the government should be assisting the victims of the crisis and not the people who created it,” said Richard Becker, spokesman for the Party for Socialism and Liberation. The group picketed outside the convention center on Sunday and Monday.

Mortgage bankers should be punished if it’s found that they knowingly put people into mortgage loans that people couldn’t afford, Mr. Becker said. “Jail them, don’t bail them” was a popular rally cry outside the convention center.

Side note: The Party for Socialism and Liberation? Do those two words belong in the same title? I found their website and they actually have a presidential candidate. But, I digress.

I’m tired of people throwing around the word “victim” to include anyone experiencing the consequences for bad decisions. According to Merriam-Webster.com, the definition of victim is:

2: one that is acted on and usu. adversely affected by a force or agent the schools are victims of the social system: as a (1): one that is injured, destroyed, or sacrificed under any of various conditions a victim of cancer; a victim of the auto crash; a murder victim (2): one that is subjected to oppression, hardship, or mistreatment a frequent victim of political attacks b: one that is tricked or duped a con man’s victim

Those who purchased homes they couldn’t afford are not victims of anything other than their own poor decisions. The REAL victims of this crisis are all of us who CHOSE to do things the right way and live within our means and buy houses we could afford and those of us who are STILL saving up for a house.

Finally, I’d like to challenge Mr. Brecker’s comment that mortgage bankers should be jailed if they knowingly put people in loans they couldn’t afford. What about those who took on mortgage loans they KNEW they couldn’t afford? Can we jail them too?

Through a reliable source, I was told that there is a strong potential for a credit freeze come January 2009. According to this source, absolutely NO loans will be granted…for anything (mortgages, vehicles or otherwise). Although I would appreciate you not listing the bank’s name [which I deleted], I thought this may be an interesting ‘what if’ scenerio for you to write about. I don’t have any other details, but thought you’d get a kick out of the topic and possibly want to dig a little deeper into the idea of a 100% credit freeze.

I followed up with this reader to see if I might be able to interview the source anonymously and this was the reader’s response:

As for the guy I spoke with, he won’t talk to you – nothing personal. It was a social situation when we spoke, but he wasn’t exactly open to comment. I tried (on your behalf, of course). He just said that if anyone needs a loan, they needed to get it within the next 90 days – or they won’t get one at all. I assume he was speaking of things going on with his bank, but you never know.

Interesting. Possible? Maybe so. But, I can’t imagine it lasting for any length of time. But, you never know…

What do you guys think? Anyone with any authority out there want to offer up an opinion?

Oh, and for what it’s worth, I trust the reader who sent me this information.

“It’s a perfect storm. It started with Congress encouraging lending to lower-income people. You went from subprime loans being 2% of total loans in 2002 to 30% of total loans in 2006. That kind of enormous increase swept into the net people who shouldn’t have been borrowing.

Those loans were packaged into CDOs rated AAA, which led the investment-banking firms [buying them] to do little to no due diligence, and the securities were distributed throughout the world, where they started defaulting.

When they started defaulting, out of bad luck or bad judgment, we implemented fair-value accounting….You had wildly different marks for this kind of security, which led to massive write-offs by the commercial-banking and investment-banking system.

In the face of those losses…you needed to raise new equity…which came from sovereign-wealth funds, in part, which then caused political resistance to sovereign-wealth funds, who predictably have withdrawn from putting money into the system….It seemed pretty obvious that would happen. We now find ourselves with a liquidity crisis where fundamentally the cost of money for financial intermediaries [such as investment banks] is significantly in excess of their cost of lending it. So several institutions found themselves in a structurally impossible position. …Goldman reverted to a banking charter for a lower cost of funds, which today is still not low enough for the business.”

That pretty much sums it up. It’s just ironic to me how Wall Street has always talked down to average Americans and now they (Wall Street) are reeling from some very poor decision making. What the hell were they thinking?

My brother just sent this to me:

I handle pretty much all my financial business online. I don’t get paper statements for many accounts at all. I wanted to know what my Interest Rate was on my Bank of America credit card so I pulled up a statement online and come to find out it was 29.99%. I had seen online about how you can call your credit card company and tell them that you have offers from other companies and your current credit card company will most likely give you a better rate.

So I called Bank of America and mentioned that I had Credit Score that was around 750, I had a our mortgage with them that I had never been late on. I also stated that I had anywhere from $2,000 to $3,000 in my checking account varying throughout the month as well as having over $2,000 in one of my savings accounts with them, I have four savings accounts with them total that vary from $100 to $500 during the month. I then stated that I didn’t understand why I would have a 29.99% interest rate and asked that they give me a better rate.

The lady said, “OK sir let me pull your information up.” She did so and stated, “Well I see that you were late in March and you were also late in November.” She then told me that the system automatically changes your interest rate if you are late twice.

I said, “How many day’s late was I? She said, “Uh it looks like three day’s on the one and one day the other time.” I said, “So my interest rate with all that I have with your company should be set at 29.99% that doesn’t make sense to me. I’ve been late a couple times and you are telling me that I should have such an outrageous rate?”

She then said, “Well sir you’re blaming the credit card company for your mistakes.”

Well of course that comment really ticked me off so I said, “OK I know I am not your biggest customer but I can tell you this: I will actively seek to move every penny, including my mortgage elsewhere.”

She said “OK” and I hung up.

I was so ticked off. I don’t care if I was late a few day’s here and there. I was never late 30 day’s…not even close because I just pulled my credit report last week and there were no blunders on it. Anyway I will mention to everyone I know that BOA sucks a**!!!

Now for a little background. I sent my brother an email and asked him to clarify how he didn’t know that he had a 29.99% interest rate. This was his resonse:

I received a phone call from a BOA rep about three months ago and he stated that my interest rate was going to go up and that I could keep my current interest rate for the balance on my card until I paid that amount off but I would have to close the account. My other option was to leave the account open and the rate would go up. He wasn’t for sure what it was going to go up to.

Well in all my research on credit scores I didn’t want to close the account so I left it open and continued making my monthly payments. In the hustle and bustle of things I never thought twice about checking to see what the rate had actually gone up to, especially since I don’t get an actual paper statement with the APR printed on it.

I’ve really been focusing on paying off any and all debt so I decided to get rates on any loans/credit cards that I had and determine which to pay off first so I went online and pulled a statement and low and behold I noticed the rate was 29.99%.

Okay, my brother could have done one thing that might have changed the outcome of this situation (or prevented it from happening in the first place):

When he was late, he should have called the bank and explained why he was late. I know for a fact that this helps the situation. A lot of times the bank will make a note in your file or even delete the late fee.

Regardless, a 29.99% interest rate does seem extreme in this situation. That’s nearly 2.5% per month! Usually those kinds of rates are reserved for those who are considered a credit risk—or at least they should be.

Bottom line: Don’t take those warm and fuzzy bank commercials—where they show the loving banker taking care of their customers—seriously. The bank doesn’t care about the customer.

ADDITIONAL THOUGHTS: As an afterthought, I wanted to add my experiences with Bank of America. When we bought our house in 1999, we used a mortgage broker. A few months after we bought our house, we were informed that BofA had bought our loan.

Things went along fine until the day that I made an error when I paid our mortgage electronically. I misplaced a decimal point and paid $107.00 instead of $1,070 (or whatever amount it was). BofA rejected the payment, making our mortgage payment late. They charged us something like $40 and sent us a scary letter. I immediately called them and explained what had happened the guy cleared the late fee and allowed me to make the payment with no penalty.

We do our main banking with Wells Fargo but have our mortgage with BofA. As long as I can remember, we have always had good service.