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.
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.
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
Congrats on getting married! However, I still think that you were wrong to dish out 25K. 10K is more than enough for a wedding! Anyway, now you have to pay for your new car with financing from Chrysler Capital Group, rather than using that 25K to buy your car outright. But seriously, congrats on getting married. You have a lot of hard times ahead of you, but the difficulties can be turned from bitter to sweet if you use them to draw closer to each other and re-establish your commitment to each other.
I have one request: Can you talk more about Lending Club? How has your investing been going? What are your thoughts on the ‘Automated Investing’ option?
I think your review of the people featured was very kind.
I have spent a great deal of time with my older relatives that lived through truly tough times such as the great depression, dust bowl, WWII rationing etc. I also have many friends from foreign countries. Their stories and childhoods are amazing and quite humbling for an American. For most of history and the world: Life is tough.
My parents are from of the most spoiled generation in history (USA boomers). That generation was born and came of age when the US was a market, manufacturer and military super-power. They rode the wave of prosperity and with world reserve currency were able to export inflation upon the rest of the world.
The succeeding generations (X & millennials) have it much tougher. We as a group don’t have the opportunities of the boomers and likely will not have their prosperity-at-little-cost.
But, I think that is normal. The boomers were the exception not the norm. In this movie…
Tiffany, quit working for a year. She had no income and didn’t appear to lower her expenses to reflect this. Some of her choices could have been better (title loans are almost without exception only taken on newer model cars, she should have sold the expensive car and got a beater, keeping a child in private school for a year with no income) but for the most part they were fine. The fact is she chose to take a year off work to help her family and then she suffered the consequences of that action. That was fine, but actions have consequences.
Justin had a hard life growing up, but he made it and deserves credit for that. I am glad he is doing well in his business and has a real hottie for a girlfriend. Based on the video of them at his house he is certainly not depriving himself of any of the toys he wants. He can’t get credit for a new house. That’s fine, he’s young. Save, grow credit, get it later. That’s what every generation had to do before the boomers and I think it is strange everyone thinks they DESERVE everything they want, and they DESERVE it now.
Debbie is doing great! She is in that early hand-to-mouth start-up phase of entrepreneurship. Those are tier-your-hair-out, have hope, make or break days. That’s the time went life really tests you and you have to prove it to yourself and the world. I would LOVE to fund her start-up for a small equity share in her future business. I agree she will eventually make it. And as much as I would like to swoop in and make it better, these starting struggles are NEEDED and casting them aside would do a permanent disservice to her future self.
Alex and Mellissa had serious medical problems for multiple family members and the problems are NOT temporary. I give them a pass.
For most of the troubles presented, in as kind a manner as possible, I would offer my depression-era grandmother’s advice, first, “That is life; it is not supposed to be easy. Work hard; make the life you want”. Second, “we know that suffering produces perseverance; perseverance, character; and character, hope” Rom5