[Winstonm]

kenberg, on 2014-February-14, 21:27, said:

Let's look at a portion:



I don't doubt the truth of this, but how would having financial services in Post Office help? Are there henceforth to be no consequences for repeatedly bouncing checks? It seems unlikely that doing business at the Post Office will somehow change a person from check bouncer to careful money manager. So "They’ve bounced so many checks that no bank wants them as a customer." will no longer apply?

The question is not whether some people are in very bad shape. They are, of course they are. The reasons vary, but many lives are a mess. But how will having banking services in a Post Office help with this? In short, other than finding a new use for old buildings, what will be different?

Not everyone who is poor bounces checks or has awful credit. Post office/bank will help some. There are others who it will not help.

[kenberg]

Winstonm, on 2014-February-14, 23:49, said:

Not everyone who is poor bounces checks or has awful credit. Post office/bank will help some. There are others who it will not help.

Of course. I have never thought or suggested otherwise. But the problem still remains of who this is to help and how. I had not heard abut this initiative until you posted the article. I am not necessarily opposed but the more I think about it the more skeptical I become.

Questions that occur to me:

When money was very tight for me, I had a checking account and I deposited my check. I gather that, for those who don't bounce checks, this can still be done. So this initiative will help them how?

Is this initiative expected to help those who bounce checks or those who don't, and just how?

Here, for example, is a thought experiment. Suppose we agree that paying heavy fees to cash a check is something we would like to fix. How? People with a checking account don't need to pay, or at least don't need to pay heavily, to have their payroll checks converted to cash. The target clientele are, I guess, those who don't have an account. The second article you cited suggests that, for these people, this is because their past behavior makes them unacceptable to banks. Would the Post Office service allow them to open and to keep a checking account even if they regularly bounced checks? Or, if not, would they simply convert the check to cash and send them on their way, money in pocket? This latter would seem to involve having a very large amount of cash on hand on Fridays.

You don't have to be Milton Freeman to accept that there are reasons markets behave as they do. Before you attempt to circumvent this you need to evaluate these forces and have a plan for coping with them. Perhaps this is being done, but as of the moment I don't see it. Just saying that we will have the Post Office provide financial services is not enough of a plan.

[Bbradley62]

kenberg, on 2014-February-15, 08:09, said:

Suppose we agree that paying heavy fees to cash a check is something we would like to fix. How? People with a checking account don't need to pay, or at least don't need to pay heavily, to have their payroll checks converted to cash.

When my finances were such that I could not get a checking account, I was still able to get a savings account, with ATM (not debit) card, into which I had my paycheck direct-deposited.

[y66]

If the market opportunity is $89 billion per year and the USPS can partner with, say, American Express, on a deal that nets each of them $5 billion a year while providing useful financial services at lower costs to the 25 percent of Americans who are currently underserved by the banking system, more power to them indeed.

The Inspector General of the US Post Office thinks this may be possible and that small market tests in key geographical areas can be used to prove the concept before expanding it system wide.

[barmar]

The services mentioned in the article aren't checking and savings accounts. It says they're bill-paying, check-cashing, and small loans. Currently, if you don't have a bank account, and you want to cash a paycheck or pay a bill, you have to go through services that charge exorbitant fees. But the people in this situation tend to be those who can least afford these fees.

[kenberg]

y66, on 2014-February-15, 10:13, said:

If the market opportunity is $89 billion per year and the USPS can partner with, say, American Express, on a deal that nets each of them $5 billion a year while providing useful financial services at lower costs to the 25 percent of Americans who are currently underserved by the banking system, more power to them indeed.

The Inspector General of the US Post Office thinks this may be possible and that small market tests in key geographical areas can be used to prove the concept before expanding it system wide.

This sounds like a viability plan to check whether anything good would actually come of it. I'm fine with that.

[kenberg]

I want to take two sentences from the inspecter General's report:

a. However,most borrowers cannot afford to pay the loan back in full, so they renew the loan repeatedly, and are in debt for an average of 5 months of the year , all the while paying fees that equate to a 391 percent annual interest rate.

b. Research shows that a majority of payday loan users are borrowing money for everyday expenses, rather than for unexpected emergencies.

What are we to make of this? They borrow money as a way of life. Let's say it amounts to $100 held for a toat of five months. Not an emergency, this is just their way. It is not correct to say that they have no resources. They pay this $100 back, and they pay up (500/12)(391)=$163 more. Sure, some don't. But if they continue on, then apparently they do or the lonas, and maybe their knees, would be cut off. So if they could hold off on using that loan over a period of a year, and salt the money away, they would have the $100 in reserve so that they would not need to borrow it again, they would have $63 left over, and they could resume spending at their former rate indefinitely using the $163 that they have saved.

The usual reply is that they can't. But if they can't, then how can they repay the loan? If they don't repay the loan, how do they get another loan?

My mantra for helping people is that if I am to help them at all, I want to help them to need less help in the future. I in fact do not mind helping people, I just don't like helping them ineffectively. For example, if we take the above calculations head on, it would appear to be possible to hand a person who is in this fix $100. Just give it to him. Then explain that with this money he can, if he uses good sense, never have to patronize the loan sharks again. He can spend that $100 this year, and still be $163 richer at the beginning of next year than he would have been without this $100 gift. He can spend $100 of that next year, and have $63 left over, and another $163 to add to it. Yes I know that this won't work. It might actually work for some people, but for most it would not. We should give some thought to the implications of this.

[blackshoe]

Not just the implications of it, but the why of it. Why would people shown the way out of their hole not take it?

[kenberg]

blackshoe, on 2014-February-15, 22:45, said:

Not just the implications of it, but the why of it. Why would people shown the way out of their hole not take it?

Humans, and I most certainly include myself, are not nearly as rational as we like to think we are. But social customs come into play.

When young, I at times had more money than at other times. When I had it, I would drive to White Bear Lake, rent a power boat, and go water skiing. When I didn't have it, I would bike to Lake Phalen and go swimming. Except for educational loans and, later, a mortgage, I never spent money I didn't have. Very importantly, neither did anyone else that I knew. Social standards made it easy and natural. Times change. Living on borrowed money has become an accepted part of modern life. Listen to any discussion of the continuing slow recovery and someone will bemoan the fact that consumers are becoming cautions and no longer running up their credit cards like they used to. How can we get people to spend more, that is seen as the question. In a rational world, having a month to month unpaid credit card balance would be seen as something a person does only in very exceptional circumstances and as something to get past absolutely as soon as possible. I imagine that most people on this forum live that way but many in this country do not.

In the Inspector General's report he mentions that part of the financial services could be educational This would be very good. Not every problem is solvable, but some are and a sit down over finances could sometimes be useful.

[y66]

blackshoe, on 2014-February-15, 22:45, said:

Not just the implications of it, but the why of it. Why would people shown the way out of their hole not take it?

Cognitive bias?

Quote

When considering the irrational choices of a stranger, for instance, we are forced to rely on behavioral information; we see their biases from the outside, which allows us to glimpse their systematic thinking errors. However, when assessing our own bad choices, we tend to engage in elaborate introspection. We scrutinize our motivations and search for relevant reasons; we lament our mistakes to therapists and ruminate on the beliefs that led us astray.

The problem with this introspective approach is that the driving forces behind biases—the root causes of our irrationality—are largely unconscious, which means they remain invisible to self-analysis and impermeable to intelligence. In fact, introspection can actually compound the error, blinding us to those primal processes responsible for many of our everyday failings. We spin eloquent stories, but these stories miss the point. The more we attempt to know ourselves, the less we actually understand.

[kenberg]

y66, on 2014-February-16, 15:20, said:

Cognitive bias?

I reject this analysis. Of course it is difficult to get at the truth of ourselves, difficult enough that we will never totally succeed. As with most things, the impossibility of being totally successful does ot at all mean that partial success is out of reach. We can use the help of friends, perhaps therapy can be useful, we can gain from interaction even with people who do not particularly wish us well.

I said above that "Humans, and I most certainly include myself, are not nearly as rational as we like to think we are. But social customs come into play". I believe that this is the realistic approach. Don't expect miracles, but with some thought and some effort, you may do better.

And this has applications. If people are handling there finances badly, don't just say "Oh you poor poor thing there is nothing you can do in this cruel world" Tell them we can help, but they have to do their part by getting their heads out of their butts. Nothing will work in all cases, of course.

[y66]

That was a semi-flip reply I made, not an analysis.

re: your point that we can use the help of friends to sort out these kinds of problems, Kahneman says the same thing in this interview with the Daily Beast:

Quote

It’s a complicated question, but what is the simplest, most straightforward advice you’d give to someone who wants to make sure their System 2 isn’t ceding certain important decisions and calculations to System 1?

Not really a complicated question because the answers are not surprising. Slow down, sleep on it, and ask your most brutal and least empathetic close friends for their advice. Friends are sometimes a big help when they share your feelings. In the context of decisions, the friends who will serve you best are those who understand your feelings but are not overly impressed by them. For example, one important source of bad decisions is loss aversion, by which we put far more weight on what we may lose than on what we may gain. Advisors are likely to give us advice in which gains and losses are treated more neutrally—they are more likely to adopt a broad and long-term view of our problem, less likely than the affected individual to be swayed by the fears and hopes of the moment.

Freeman Dyson explains what Kahneman means by System 1 and System 2 in his review of Thinking, Fast and Slow:

Quote

Another theme of Kahneman’s book, proclaimed in the title, is the existence in our brains of two independent sytems for organizing knowledge. Kahneman calls them System One and System Two. System One is amazingly fast, allowing us to recognize faces and understand speech in a fraction of a second. It must have evolved from the ancient little brains that allowed our agile mammalian ancestors to survive in a world of big reptilian predators. Survival in the jungle requires a brain that makes quick decisions based on limited information. Intuition is the name we give to judgments based on the quick action of System One. It makes judgments and takes action without waiting for our conscious awareness to catch up with it. The most remarkable fact about System One is that it has immediate access to a vast store of memories that it uses as a basis for judgment. The memories that are most accessible are those associated with strong emotions, with fear and pain and hatred. The resulting judgments are often wrong, but in the world of the jungle it is safer to be wrong and quick than to be right and slow.

System Two is the slow process of forming judgments based on conscious thinking and critical examination of evidence. It appraises the actions of System One. It gives us a chance to correct mistakes and revise opinions. It probably evolved more recently than System One, after our primate ancestors became arboreal and had the leisure to think things over. An ape in a tree is not so much concerned with predators as with the acquisition and defense of territory. System Two enables a family group to make plans and coordinate activities. After we became human, System Two enabled us to create art and culture.

The question then arises [enter blackshoe]: Why do we not abandon the error-prone System One and let the more reliable System Two rule our lives? Kahneman gives a simple answer to this question: System Two is lazy. To activate System Two requires mental effort. Mental effort is costly in time and also in calories. Precise measurements of blood chemistry show that consumption of glucose increases when System Two is active. Thinking is hard work, and our daily lives are organized so as to economize on thinking. Many of our intellectual tools, such as mathematics and rhetoric and logic, are convenient substitutes for thinking. So long as we are engaged in the routine skills of calculating and talking and writing, we are not thinking, and System One is in charge. We only make the mental effort to activate System Two after we have exhausted the possible alternatives.

System One is much more vulnerable to illusions, but System Two is not immune to them. Kahneman uses the phrase “availability bias” to mean a biased judgment based on a memory that happens to be quickly available. It does not wait to examine a bigger sample of less cogent memories. A striking example of availability bias is the fact that sharks save the lives of swimmers. Careful analysis of deaths in the ocean near San Diego shows that on average, the death of each swimmer killed by a shark saves the lives of ten others. Every time a swimmer is killed, the number of deaths by drowning goes down for a few years and then returns to the normal level. The effect occurs because reports of death by shark attack are remembered more vividly than reports of drownings. System One is strongly biased, paying more prompt attention to sharks than to riptides that occur more frequently and may be equally lethal. In this case, System Two probably shares the same bias. Memories of shark attacks are tied to strong emotions and are therefore more available to both systems.

[kenberg]

OK, I may actually read this stuff. Not tonight, it's bedtime. But thanks, and it doesn't sound totally crazy. For me to say that about someone who talks of System 1 and System 2 is probably about as close to high praise as we will get.

[billw55]

Short term lending is not a poverty tax. If you don't want to pay absurd interest and fees, then don't borrow. Nobody is forcing them.

As for the Post Office, I am with blackshoe. If they can provide financial services without tax support, then great. I suspect they will find that it is not so easy to serve the highest risk customers and stay in business, while providing those services at significantly lower cost than the current market. But what do I know? If they think they can do it, go for it. I hope it works. But if it doesn't, I don't want to be supporting it through taxes.

[kenberg]

Well, yes, this is pretty much the way I see it. To support tis initiative it would appear that you have to argue on one of two points:

1. Providing good service to the intended population is a really good business opportunity for the Post Office.Somehow others have totally overlooked this fine chance to make a buck while doing good.

or

2. Well, people need this and we should provide it, never mind if it makes a profit or is even self-supporting.

With regard to 1., I look at it the same way I look at any pitch as to how I can make a lot of money in some way that no one has ever done before. Unless I know a lot about it, I just figure there is a reason no one has done it before. Sometimes this is wrong, but it is usually right.

With regard to 2., if that's the basis for it all, then this needs to be stated clearly and openly. Myself, I would be skeptical about whether the bang would be worth the buck.


I think TANF does in fact provide some counseling and over sight of how people use the aid. This can be very helpful. SNAP sets rules, but afaik, it does not much give counseling.

There are a lot of people in dire straits. Help is needed. In many cases I think guidance, perhaps rather forceful guidance, is also needed.

[Winstonm]

billw55, on 2014-February-17, 08:09, said:

Short term lending is not a poverty tax. If you don't want to pay absurd interest and fees, then don't borrow. Nobody is forcing them.

As for the Post Office, I am with blackshoe. If they can provide financial services without tax support, then great. I suspect they will find that it is not so easy to serve the highest risk customers and stay in business, while providing those services at significantly lower cost than the current market. But what do I know? If they think they can do it, go for it. I hope it works. But if it doesn't, I don't want to be supporting it through taxes.

Do you lump in all taxes when you state that you do not wish to support the idea with taxes, or are you only counting the personal taxes you pay, or is your complaint simply one of ideological belief that using tax money (i.e., government action) is inherently bad when used to support the less fortunate?

What if, instead of any present taxes used, a progressive tax on the top 1% of earners is used instead?

[kenberg]

Bill will of course speak for himself but nothing that he said leads me to believe that he opposes the use of tax dollars to help the less fortunate.

There is a world of difference between "I am opposed to using tax dollars to help the unfortunate" and "I don't think using tax dollars to subsidize a Post Office based financial service is a good idea"..

First the fundamentals; Is the initiative envisioned as a profit making activity for the Post Office? The Inspector General's report certainly presents it this way, it speaks of billions of potential revenue, and perhaps Elizabeth Warren is presenting it this way. If so, this claim should be examined. Alternatively, is the initiative to be supported by tax dollars? If so, let's say so, say how much it will cost, and say what it will achieve.

What I don't want to see is something that is presented as a profit maker for the Post Office and then, when it requires a massive subsidy by taxes, hear that well, it's ok, we never really believed what we said, that was just said to get it through Congress, but it's good anyway so what's the problem.

[billw55]

Winstonm, on 2014-February-17, 10:40, said:

Do you lump in all taxes when you state that you do not wish to support the idea with taxes, or are you only counting the personal taxes you pay, or is your complaint simply one of ideological belief that using tax money (i.e., government action) is inherently bad when used to support the less fortunate?

What if, instead of any present taxes used, a progressive tax on the top 1% of earners is used instead?

Actually, I do favor a more progressive tax structure. I just don't favor using tax money in this manner. IMO if it works, it should be self-sustainable on revenues.

Like many things, it comes down to our ideas about what services should or should not be provided by government. Law enforcement, fire protection, roads, military, most people will agree on. Health care, worldwide most will also agree, in the USA not so clear. Utilities? Maybe, maybe not. Hardware stores? No thanks. Where banking fits in, is a matter of personal opinion.

For me, the fact that somebody will benefit is not, by itself, enough reason. People (including me) would also benefit if the government opened restaurants across the nation, undercut market pricing, and paid the workers double. But we don't do that, and I suspect that few people think we should.

[PassedOut]

kenberg, on 2014-February-17, 11:02, said:

First the fundamentals; Is the initiative envisioned as a profit making activity for the Post Office? The Inspector General's report certainly presents it this way, it speaks of billions of potential revenue, and perhaps Elizabeth Warren is presenting it this way. If so, this claim should be examined. Alternatively, is the initiative to be supported by tax dollars? If so, let's say so, say how much it will cost, and say what it will achieve.

As I suppose that you, Bill, and Blackshoe well know, the US Postal Service has not received taxpayer subsidies for decades even though it is legally required to serve all citizens at a uniform price and quality. The taxpayer subsidy fear has no foundation in reality.

In addition (and I suspect that some folks have forgotten this) in 2006 the US Congress placed an additional and unique burden on the USPS, requiring a $5.5 billion yearly payment to prefund retiree healthcare 75 years into the future. Without this unique burden, the USPS would have been profitable last year.

The goal is, as it has been, to allow the USPS to be profitable and still meet its legal obligations, some imposed by a rather hostile congress. Whether the new services would meet that test is not a certainty, of course. However, the post office has the advantage of existing ubiquitous locations.

As I've mentioned, we live in Upper Michigan and the USPS is quite important to the small towns all around here. And it certainly provides business opportunities for folks in rural areas. In fact Constance has an online business that uses the USPS, so we take advantage of that too.

[awm]

If you are living paycheck to paycheck (in other words, you have basically no savings and spend very close to what you earn each week) then even small unexpected expenses can put you in debt. With few assets, this debt is likely to be on a credit card or (even worse) with a payroll lender, meaning there is very high interest. And again, living paycheck to paycheck you have very little excess income which can be used to pay off this debt, making it hard to ever get out of the hole. While people at any income level can potentially fall into this problem, poor people are much more likely to have expenses that nearly match their income, less likely to have assets which can be used as collateral for a reasonable loan rate, and less likely to be in this situation due to unreasonable expenses (i.e. if I am making $2000 a week and somehow spending $2000 a week, I'm probably doing something irresponsible with my money, whereas if I am making $500 a week I may need to spend that much just to feed/clothe/house my family).

Going into debt like this often leads to poor credit, and banks may be less happy to offer accounts to people with low income and poor credit (at least without significant fees), and then people get into the situation of having to pay to cash their paychecks too, etc. All of this is more likely to happen to poor people for the reasons given above.

Is there a money-making opportunity in cashing checks for poor people with very low fees and lending money to them at reasonable interest rates? Obviously there is a bit of money in it, but the problem is one of scale. To make significant money you will need to provide these services to a lot of poor people (since each person can't afford to pay you much). This means you need offices all over the country and a lot of employees, which is a huge expense. Further, you need some method of enforcement in case people take out loans and don't pay them back, and this also costs money. Realistically, there is not profit in this for a "startup" private company.

However, the Post Office already has offices all over the country and lots of employees, so the incremental expense of asking these employees to cash paychecks and give out short-term loans is not very high. And the US government can easily garnish paychecks to pay off small loans when people are irresponsible (so they don't need to pay money to collection services). For the postal service, this is a money-making opportunity which also has good social effects of helping the working poor find a way out of poverty.