The New Reserve Solutions Visa 401 (k) Debit Card – Practical Credit Option Or Risky Borrowing Choic
Sharon L. Secor
July 21, 2008
The New York Times recently ran a story referencing an easy and convenient method of borrowing for those running short on other credit options -- "a Visa debit card aimed at people who wanted to borrow money from their 401(k) accounts." Operating like the standard debit card, users of the Reserve Solutions Visa 401 (k) debit card will be able to "withdraw the funds from an A.T.M. or spend them at any merchant that accepted Visa." This swipe and go borrowing plan has certainly stirred up a bit of controversy, according to the July 5, 2008, New York Times article, with many wondering if this type of debit card should be a credit option at all.
As a government approved retirement savings plan, the 401 (k) has a special tax status, one that can be disrupted by borrowing and not meeting the repayment schedule. Thus, in addition to reducing the amount available when retirement comes, this can be an expensive credit option, once the tax matters are figured in. This has some consumer advocate groups, lawmakers, and consumer economists quite concerned about facilitating this type of borrowing with a debit card. Some hold up the specter of irresponsible borrowers latte-ing themselves into golden year penury, of consumption crazed consumers unable to suck any more credit from their cards or homes swiping away at their retirement in order to continue living in the style they´ve become accustomed to, and insist that such an option should not be made available to the fiscally ignorant and immature masses.
Then, there are those that believe that people building and possessing 410 (k) plans are adults and, therefore, should have a free hand in deciding what to do with those plans and if they choose to borrow from them, should enjoy the ease and convenience of being able to do so with a debit card. Certainly among that group are those that stand to profit from such arrangements, such as Reserve Solutions and Visa (V), both companies that could use to bring in a bit more revenue. Reserve Solutions has had its share of trouble recently, with a shareholder related court case and a bout of embezzlement in its recent history. And Visa, with all the turbulence in the credit market, has been experiencing its own difficulties, including a drop in their stock prices and worries about potential credit card debt default rates in this period of economic uncertainty.
The fact is, borrowing from a 401 (k) plan should be thought of as serious business. Far too many Americans have lost sight of that old fiscal concept of productive debt versus consumptive debt . Productive debt, a debt that has potential for profit or offers real, lasting benefit – such as a home loan or borrowing for education or a business – is very different from consumptive debt, such as buying a big screen, high definition television on credit or this year´s SUV model, not because a new vehicle is needed, but because it is shiny, new and fashionable. Even borrowing from a 401 (k) for productive debt is something that should be weighed very carefully, as the future – and, thus the potential benefits and the repayment plan – is never sure, particularly in today´s volatile economic climate.
However, just because such borrowing should be thought of as serious business doesn´t mean that the choice to do so should be taken out of the hands of the consumer or made more difficult by refusing to allow the conveniences offered by a debit type card to be used. After all, we need only to look around us and pay attention to the news to see just how successful such paternalistic regulation and legislation has been in keeping the American consumer financially sound. Perhaps it is time to leave aside such political, paternalistic behaviors and allow the American consumer to become responsible for themselves and their money once again, perhaps even returning to the pre-consumer madness, shop ´till you drop era, in which thrift and fiscal self-control were both admired and rewarded.
As a government approved retirement savings plan, the 401 (k) has a special tax status, one that can be disrupted by borrowing and not meeting the repayment schedule. Thus, in addition to reducing the amount available when retirement comes, this can be an expensive credit option, once the tax matters are figured in. This has some consumer advocate groups, lawmakers, and consumer economists quite concerned about facilitating this type of borrowing with a debit card. Some hold up the specter of irresponsible borrowers latte-ing themselves into golden year penury, of consumption crazed consumers unable to suck any more credit from their cards or homes swiping away at their retirement in order to continue living in the style they´ve become accustomed to, and insist that such an option should not be made available to the fiscally ignorant and immature masses.
Then, there are those that believe that people building and possessing 410 (k) plans are adults and, therefore, should have a free hand in deciding what to do with those plans and if they choose to borrow from them, should enjoy the ease and convenience of being able to do so with a debit card. Certainly among that group are those that stand to profit from such arrangements, such as Reserve Solutions and Visa (V), both companies that could use to bring in a bit more revenue. Reserve Solutions has had its share of trouble recently, with a shareholder related court case and a bout of embezzlement in its recent history. And Visa, with all the turbulence in the credit market, has been experiencing its own difficulties, including a drop in their stock prices and worries about potential credit card debt default rates in this period of economic uncertainty.
The fact is, borrowing from a 401 (k) plan should be thought of as serious business. Far too many Americans have lost sight of that old fiscal concept of productive debt versus consumptive debt . Productive debt, a debt that has potential for profit or offers real, lasting benefit – such as a home loan or borrowing for education or a business – is very different from consumptive debt, such as buying a big screen, high definition television on credit or this year´s SUV model, not because a new vehicle is needed, but because it is shiny, new and fashionable. Even borrowing from a 401 (k) for productive debt is something that should be weighed very carefully, as the future – and, thus the potential benefits and the repayment plan – is never sure, particularly in today´s volatile economic climate.
However, just because such borrowing should be thought of as serious business doesn´t mean that the choice to do so should be taken out of the hands of the consumer or made more difficult by refusing to allow the conveniences offered by a debit type card to be used. After all, we need only to look around us and pay attention to the news to see just how successful such paternalistic regulation and legislation has been in keeping the American consumer financially sound. Perhaps it is time to leave aside such political, paternalistic behaviors and allow the American consumer to become responsible for themselves and their money once again, perhaps even returning to the pre-consumer madness, shop ´till you drop era, in which thrift and fiscal self-control were both admired and rewarded.
Print
Email
