So I came across an interesting documentary the other day called Spent: Looking For Change Sponsored by American Express. It’s a documentary about four families who have fallen on hard financial times and have essentially been booted out of the traditional financial systems that most of us (including me) use every day.
Even though I know a little about having financial trouble (I grew up with a single mom living on disability and social security while we stayed in my grandparents’ basement), I’ve really never been denied access to traditional banking. It’s an interesting video and is only about 40 minutes, so I do recommend watching it if you have time.
I’ll post the video below, and I’ll also give my review of each of the four families and how I can relate to them, as well as what financial options I think they may want to consider.
Debbie – Small Business Owner – Can’t Get Business Funding
As you guys know, I’ve always admired entrepreneurs and would love to be one someday (although I just took a new job and am really focusing on my career for the next few years). Debbie’s story was very interesting to me and I have a feeling it’s going to turn out to have a happy ending.
Debbie makes leather purses, bags, and clutches and sells them to boutique stores and on her website. According to the video, her bags are great and her business would be booming if she could only afford the materials to fill all her orders. Unfortunately she has too much student loan debt ($100k) and not enough credit to get a loan. It sounds like she’s a great investment, but apparently banks don’t see it that way.
Kevin’s Financial Advice: If the story is true then she literally just needs money for materials so she can fill orders and get paid. In that case, I’m actually amazed that she doesn’t have access to loans from a bank. However she can look to private investors and, assuming her business is as strong as the documentary makes it out to be, should have no trouble getting a loan that will help her fulfill orders and grow her company.
Furthermore, I think she should consider a Kickstarter campaign. Here’s just one example of a guy who got over $17k with a Kickstarter campaign for making leather bags, and he probably didn’t have the benefit of a documentary with over 7 million views as free marketing. If I were Debbie, I’d start a kickstarter campaign immediately and hopefully use this publicity to have people to “kickstart” her business.
Alex and Melissa – Health Issues – Stuck in Payday Loan Cycle
This is the other family that really spoke to me in this film. Alex, the father, was diagnosed with Multiple Sclerosis and the disability left him unable to work. That’s exactly what happened to my mom when I was very young. My mom was a flight attendant, but was diagnosed with Multiple Sclerosis and couldn’t physically perform the duties of her job.
My mom was divorced so she didn’t have a 2nd income to fall back on (so we moved in with Grandma and Grandpa). Luckily Alex has Melissa, and her income was able to keep them above water but just barely. They tried to live on only cash because they were afraid of credit card debt, but this left them unable to get a loan when they needed one because they didn’t have any credit.
They eventually turned to a Payday loan to make ends meet and they ended up borrowing $450 and paying $1,700 in fees on that loan. Ouch! They finally got some help from a neighbor to get out of the Payday Loan cycle but it seems like they are still struggling and remain without access to traditional banking.
Kevin’s Financial Advice: It’s good that they got out from under the Payday loan, but they have a ways to go. I would recommend that Alex find a job that he can do with his MS (my mom did and I think he can too, although I don’t know the severity of his disease). It may not be his dream job, but he needs to support his family.
Secondly, they need to build credit. They can’t go back to Payday Loans to get credit when they need it. Start with a secured card, pay the small fees, and work your way up from there.
Justin – Small Business Owner – Can’t Get Approved for a Mortgage
Justin is another entrepreneur and this time his business is really doing well. Unfortunately he had a very difficult childhood, which included him being on his own at 16 years old. He accumulated some debt when he was very young and never paid it off. That bad debt has ruined his credit score and now keeps him from qualifying for a mortgage.
Luckily he hasn’t fallen into any financial traps since then. He does pay fees to get his checks cashed because he can’t get a regular bank account, but other than that he has avoided debt and Payday Loans. He makes good money but just can’t insert himself into the financial system and build credit.
Kevin’s Financial Advice: I would suggest Justin do 2 things. First he should get into the financial system with a secured credit card and start building credit. He’ll end up paying a little bit in fees but it will help in the long run. The second thing he should do is to just keep working and keep saving. It didn’t say if he had a 20% down payment for a house, but my guess is that he doesn’t. If he can get a 20% down payment then I think lenders will be much more wiling to extend him a mortgage.
Tiffany – Nurse/Single Mother – Unemployment / Title Loan
Tiffany is an impressive woman. She got bachelor’s degree in nursing, got a full time job, and worked hard to save over $100,000 in her 401k. She was sending her daughter to private school to make sure got a good education and she had her whole life (including her financial life) completely in order.
Then her mother got sick and she decided to quit her job and take care of her mom. It was a very selfless action and she expected to be able to re-enter the workforce when she was ready. Unfortunately, she wasn’t able to find full-time work when she was ready to start making money again.
She used up all the money in her 401k and eventually had to take out a title loan to pay the bills. When she fell behind on those payments they took her car. As a result of her financial situation, she had to take her daughter out of private school.
Kevin’s Financial Advice: The good news is we learn at the end of the film that Tiffany found a full time job. As a nurse, she will be making a good living and should be able to get back on her feet and re-enter the financial system soon. My only advice to her is that she keep her expenses as low as possible as she pays down any debt she may have and starts saving again.
Tiffany has the right attitude and the right job to get back on her feet very quickly. I have a feeling it won’t be long before she’s able to put her daughter back in private school. My only suggestion is that she consider moving to a good school district where her daughter will get a great education and she doesn’t have to pay tuition.
What is the Solution?
The documentary was informative and the stories of these people were very unfortunate. There’s no question that these families are/were struggling.
But what’s the solution?
For Alex/Melissa and Tiffany, their main issue is a lack of income. Tiffany has solved her income issue and I believe will re-enter the financial system soon. Alex and Melissa need to get Alex working again and then they can take steps to solve their financial problems.
Debbie is not being served by the banking system, but in all honesty a small business is a huge risk. That’s why there are a lot of other funding options for small businesses; it’s typically too risky of a bet for a bank to take it on. I believe she could easily be served through investors or other funding options.
Justin has an unfortunate story as well but when you have debt charged off on your credit report it’s going to raise a bunch of red flags. He and his girlfriend need to save, save, save and get enough of a down payment for a house that the bank is finally ready to extend them credit.
I don’t think the system is perfect, but I want to see some concrete suggestions to improve it. Hopefully we see new financial products that are available to people with less than perfect credit, but don’t prey on them. If there is a good solution I expect it to come from the free market.
The only thing I know for sure is that I don’t see this as a problem the government can solve. There is no law that can differentiate between these families and others who are not being served because they are truly bad investments. For these people to get served, we need a private business to recognize that they can lend these people money at reasonable rates and make a profit.