Friday, December 17, 2010

ATM Fees

Poor folks use ATMs a lot, and many pay staggering fees to use them!

As I have noted time and time again in this blog, one reason the poor stay poor is that they don't think about how to best spend what little money they have.  So they make less money - which is half the problem - but then they spend their money unwisely, which is the other half.

No matter how rich or poor you are, how you spend your money is as important as how much you earn.  Even so-called "well off" middle-class and upper-middle-class people end up in perpetual "middle-class-poverty" though poor spending habits.  And by poor spending habits, I mean both uses of the word "poor".

Automatic Teller Machines (ATMs) are an example of where the poor willingly get ripped off.  If you use an ATM that is not part of your bank's network, there is usually a charge of a dollar or two tacked on by the ATM provider.  Some of these machines (such as at convenience stores) are privately run and charge $2-$3 for each transaction.  Worse yet, your own bank may add on a dollar or two for using an ATM out-of-network.

And yet, the people I see using these types of machines are people who can least afford such charges.  Oftentimes, I will see a poor person run into a convenience store, withdraw $20 from the ATM, incurring up to $5 in ATM fees, to buy a pack of cigarettes and put $5 of gas in their jalopy parked at the pumps.  I notice this, because I'm the guy stuck behind them at the pump, waiting to put gas in my car, while they jerk around with their poverty financing.

Taking aside the issue of smoking among the poor (again, the poor making themselves poorer through bad choices, often linked to compulsive-addictive behavior) the mathematics in such transactions are truly staggering.

By withdrawing money $20 at a time from the bank, they are spending 25% of their income on ATM fees.  For someone making maybe $20,000 a year, this is a staggering amount of cash - more than 1/4 of their take-home pay, or at the very least, 1/4 of their disposable income.  And yet people do this all the time, which is why it is such a lucrative business for the banks.

ATMs are very useful machines and many banks are trying to wean customers from tellers to ATMs entirely.  Bank of America, for example, scans in deposited checks at ATMs and credits your account the next day.  Cash inserted INTO an ATM might be credited immediately.  So long as you use an ATM from that bank or banking network, there are no charges.

Citibank is trying to build a virtual banking network this way, but going to a teller-less model, where customers will do all their banking via ATMs, and they save a boatload of money not building bank branch offices.  In the long run, this may be the successful model for consumer banking, as people become more used to using ATMs for more than just getting $20 in cash.

And this is one reason I use Bank of America, as they are a large banking network with many branches and ATMs up and down the East Coast.  It is not hard to call the 1-888 number on my ATM card and locate an in-network ATM with no fees, simply by typing in my zip code.  Branches can also be found using your GPS software.

The other day, we went to an Italian Sausage place in Rochester, who accepted only cash or checks.  We were going to use one of those high-fee ATMs at a convenience store, but it was out of order.  Clicking on "Bank of America" on the GPS revealed that a branch was only a few blocks away.  The owner of the convenience store also was able to give me directions to it, and of course, the 1-888 number on the back of my ATM card, when called, would list it as well.  It takes some effort, but not much, to avoid these sorts of charges.

Another technique to avoid ATM fees is to simply carry more cash or use your debit card.  Many poor folks don't like to carry cash, as they are afraid of being "ripped off" and also know that they will spend money if it is in their wallet.  I know this, as when I was a young man (and poor) I had that same poverty mindset.  To avoid spending money, I avoided carrying it.  But that plan backfired every time I would go out with friends to a bar or the like, and need money, thus spending more to withdraw money from my account.  And the fear of being "ripped off" of a hundred dollars or so seems very real when a hundred dollars seems like a lot of money.

But the poverty mindset usually leads to poverty behavior, which in turn keeps a person in poverty.  People say "I don't have enough time to find an in-network ATM" or "I don't mind paying the fee for the convenience!"  But these are the sorts of people who can least afford to pay such fees.

And if you notice, rich folks rarely succumb to paying out-of-network ATM fees, even though they could "afford" to.  And if you asked them, they'd tell you that not paying junk fees is one reason they are "rich" in the first place - and they are right about that.  Being smart with money is the one sure way to become wealthier, no matter what your income bracket is.  Squandering money is never a good idea, particularly when you have so little of it.

Another way to avoid ATM fees is to use a bank than doesn't charge them.  Some Banks will refund out-of-network ATM fees, which can be very handy and save you a lot of money. For me personally, this is not a big issue, as I don't go running to ATMs every time I want to buy something.  A debit card works just as well, as does a pocket full of cash.

There are some folks in our society who claim that our society is unjust - that the rich get richer and the poor get poorer, and that the deck is stacked against the poor from the get-go.  To some extent, they have a point, but on the other hand, a lot of what victimizes the poor is their own poverty behavior - spending money on ATM fees, payday loans, rent-to-own furniture, and other crappy deals.  They make little money, but willingly end up with even less, so that they can "have now" some shiny consumer trinket that they think they need.  And oftentimes, these raw deals drive them right into bankruptcy or worse.

And education is part of the problem - if not all of the problem.  Our schools have been gutted of critical thinking skills teaching.  Instead of teaching kids today how to live in a complicated technological world, we teach them creationism.  Instead of teaching kids how to manage their finances and be skeptical of our consumerist society, we teach them rote learning skills so they can pass standardized tests.

And much of what people learn today is learned through the television - the greatest teaching machine ever - which they watch an average of 4-5 hours a day.  And television, having been sold out to the highest bidder, pounds bad normative cues into their heads - that investment scams can work and that payday loans are a good thing.

The only good news in all of this is this:  You CAN choose a different path, a path that will lead you to being happier and wealthier.  But it requires that you reject normative cues that our society is throwing at you - and that most of your friends have bought, hook, line, and sinker.

You can live a better life.  But it takes willpower, self-determination, and hard work.