DebtFreeGuru.com's - Tip of the Week - Monday, November 7, 2005
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10 Financial Urban Legends
Writing checks in red
ink wont prolong the float, and yes, you really do have to pay income
tax. Here's a look at these and other lingering myths
By Bankrate.com (as seen on MSN.Com)
Every now and then you read about a retiree snookered in a Nigerian bank
scam, or some nitwit marched off to jail while still insisting the
income tax is illegal, and you just shake your head and wonder who could
believe that guff.
Unfortunately, a lot of people.
Just ask Barbara Mikkelson, co-founder and researcher at Snopes.com, a
Web site dedicated to the destruction of urban myths. Mikkelson spends a
lot of time getting to the bottom of financial tall tales that she
encounters.
So does Catherine Williams, vice president of financial literacy at the
nonprofit credit counseling agency, Money Management International.
Williams has a slew of oddball beliefs folks have shared with her during
the company's educational seminars.
"We get into situations where we can't pay our bills, and we become like
3-year-olds: the 'dog ate my homework' routine," she says of Americans'
willingness to latch onto urban legends. "We want to believe there is
some excuse, and something will bail us out of still owing the money."
Legends and Tall Tales
It doesn't help that rooted in many myths is the tiniest grain of
reality, she adds. The trick is extracting that truth. Check out this
collection of legends:
● Myth No. 1: You
can float a check longer if you write in red ink. The theory is that
a bank's equipment can't scan red ink, so it takes longer to process the
check.
Poppycock, says Williams. The color of the ink makes no difference.
"However, gel ink doesn't image well, which makes it difficult to verify
the signature and the check," says Tracey Mills, of the American Bankers
Association. "As a result, the paying bank cannot authorize the
transaction, and chances are the check will be returned to the creditor
or merchant."
Then, instead of getting some extra time on the float, you are socked
with a returned-check fee.
● Myth No. 2: You
don't have to pay income tax -- it's illegal. Only foreign income is
subject to Uncle Sam's cut, the story runs, and there's a form you can
file to exempt yourself. But no one will tell you about it.
The truth is, there is no form. You'll get arrested if you don't pay
your taxes.
"I have this flat spot on my forehead because I'm constantly striking it
with the palm of my hand," Williams says. "Somebody has way too much
time on his hands, usually because he's either done something illegal or
he hasn't followed the rules of the game. So he looks for something that
might get him off the hook for a period of time."
Sorry, Charlie: You must fill out your IRS forms before April 15.
● Myth No. 3: I'm
under 18, so I can't be held accountable for a debt. (Variation:
Credit-card debts are wiped out when you turn 19.) Spring-breakers love
to use this one to justify running up a cruise or resort-hotel bill on
their credit cards.
This one is only partly myth, because it is true that people younger
than 18 cannot sign a legally binding contract. So they can't take out a
loan or sign a credit-card agreement. "You are legally an infant until
you are age 18," Williams says. However, credit-card companies will
allow a minor to have a card -- if an adult has co-signed the agreement
or added the minor to their account as an authorized user.
So someone will pay -- the adult who signed on the dotted line.
● Myth No. 4: My
hotel key card has my credit-card information. The ramification is
that you'd better clutch it tightly or a con will decode it and rack up
a big bill.
This urban legend has an actual source: the police in Pasadena, Calif. A
fraud-detection team had honed in on one such hotel key and notified
each other before verifying whether it was standard practice in the
industry. It wasn't, but they didn't find out until after the
information leaked to the public and spread like wildfire.
The Pasadena Police Department now has devoted a page to this accidental
myth at its Web site. It says, "Detectives have contacted several large
hotels and computer companies using plastic card key technology and they
assure us that personal information, especially credit card information,
is not included on their key cards. The one incident referred to appears
to be several years old, and with today's newer technology, it would
appear that no hotels engage in the practice of storing personal
information on key cards."
Luckily, the news has risen only to the annoyance level throughout the
hotel industry, says Joe McInerney, president and CEO of the American
Hotel and Lodging Association. "It seems to crop up in 18-month cycles.
But people are still staying in hotel rooms."
The manufacturers who churn out these magnetic-strip room-key cards
employ three embedded and encrypted tracks. Most hoteliers use track
three, which contains locked information listing the guest's room number
and check in/out dates. The remaining tracks -- if supplied by the
hotel's property-management system -- provide additional, limited guest
information like a folio number or name to identify guests at
point-of-sale terminals located throughout the hotel.
"Worst that ever happens to me is the key stops working promptly at
12:01 and I have to go to the reception desk to get back in my room,"
McInerney says.
● Myth No. 5:
Boycotting a few gasoline brands brings gas prices down. Poor Exxon
and Mobil. They often show up as the bad guys in a mass e-mail urging
Americans to avoid their pumps on a particular day.
Its easy-to-understand language makes the plea plausible. The trouble
lies in the fact it's too simple -- and economics don't work that way.
For starters, gasoline is what's known as a fungible commodity -- if one
company has an oversupply, it sells it to a competitor. No matter who
you buy from, the basic supply numbers remain the same.
Furthermore, prices at all the nonboycotted outlets would rise, thanks
to the temporarily limited supply and increased demand, making the
original prices look cheap by comparison, according to Snopes.com.
Besides, the industry is too large for a boycott of two companies to
make a dent, says Stephen Ciccone, University of New Hampshire assistant
professor of finance.
● Myth No. 6: It's better if you don't sign the back of your credit
card. Some well-meaning pigeon decided one day this would protect
him from identify theft.
Unfortunately, in the real world, it only "protects" you from having the
merchant accept your payment at the checkout counter, says Mills. Not to
mention that an unsigned card in the hands of fraudsters is much easier
to use for unauthorized purchases. They can just sign the card
themselves. Then their signature will always match the receipt
signature.
● Myth No. 7: You
can make a pile of dough by helping a foreigner solve his money
problems. "Hello, my name is unpronounceable, and I need to get
money out of my country. Will you let me use your bank account?" is the
gist of this e-mail plea.
It's called the Nigerian bank scam, and it's among Mikkelson's
favorites, mainly because the number of people asking about it is huge.
"It is impossible for the average person to figure out what is going on
unless they know there is such a thing as a Nigerian scam," she says.
For one, the back-story changes constantly to reflect current events.
Expect a new variation every time a foreign leader dies or is deposed.
Presently, Yassar Arafat's widow is supposedly seeking help moving his
secret bank account out of enemy hands, and the sergeant who found
Saddam Hussein's hidden gold wants help keeping it out of insurgent
hands.
● Myth No. 8: You
can now opt out of having credit bureaus give your information to anyone
who asks. Just call (888) 567-8688 and give them the Social Security
numbers of everyone in the household in a single call, says the message.
But hurry -- you only have 60 days to take advantage of this ability.
The credit-reporting bureaus are working hard to debunk this one, if
only to stop people from calling that number. It merely connects you to
an operator who can help you opt out of receiving pre-approved credit
offers. Keep in mind that if they weren't allowed to give out credit
information on you, they wouldn't exist.
The grain of truth lies in the fact that companies are required by law
to inform their customers of their privacy policies. (Remember the flood
of confusing legalese that showed up in your mailbox from every
department store credit card prior to July 1, 2000?) If you don't want
them to sell your personal information, you must call them directly --
one by one -- to halt the practice.
● Myth No. 9: You
can buy your way out of points on a speeding ticket. If you pay a
bit more than your fine actually is, the state will send you a refund
check for the difference. Don't cash it and they can't assess points
because the transaction isn't complete.
Hmmm, sounds good -- a way to circumvent rising insurance rates for a
mere $5. But when Mikkelson checked into it, she discovered the popular
e-mail advice originated in Australia. Maybe it works for Aussies, but
Americans aren't so lucky.
● Myth No. 10: Hotel
Bibles often have $100 bills tucked into them. Heard the one that
Gideons leave $100 bills in their hotel Bibles to reward folks who turn
to the Good Book?
Mikkelson rejoiced when she actually discovered such a treasure during
her honeymoon -- and found out a few hours later that her new husband
was pretending to be God. The only thing Gideons leave behind is the
book.
DebtFreeGuru.com - Tip of the Week - Monday, November 7, 2005
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