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Millennials find tax refund anticipation loans appealing
This week's Daily Tax Tips explain why RALs are bad … plus more tax-filing advice

When it comes to millennials' personal finances, a recent study by the tax and consulting firm PricewaterhouseCoopers and the Global Financial Literacy Excellence Center at George Washington University found eight trends among this generation born between the early 1980s and the mid-1990.


These young adults:

1.  Have inadequate financial knowledge,
2.  Aren't happy with their current financial situation,
3.  Worry about student loans,
4.  Have debt that crosses economic and educational lines,
5.  Are financially fragile,
6.  Are heavy users of alternative financial services,
7.  Sacrifice retirement accounts, and
8.  Don't seek professional financial help.

Before my millennial friends and readers start blasting, remember that I'm just the messenger. I don't necessarily agree with all the survey's findings.

But I am disturbed by one of them.

Millennials and alternative financial services_PWC survey 2016 excerpt"In the past five years, 42 percent of millennials used an alternative financial service product, such as payday loans, pawnshops, auto title loans, tax refund advances and rent-to-own products," according to the report's elaboration on #6.

Millennials are heavy users of alternative financial services, or AFS, primarily to deal with short-term debt. The practice is common, says the report, even among those who have a bank account or credit cards.

Avoid tax advances: While AFS are handy, they also can be very costly. That's particularly true of tax-related products.

Refund anticipation loans, or RALs, and their now more common cousins, refund advance checks, or RACs, are, as the names indicate, loans against your expected tax refund amount. But if your actual tax refund turns out to be less than you had planned on, then you've liable for shortage.

Plus, these loans and checks often come with added fees and charges. As with any financial product, be sure to read the fine print before committing.

Last week's tax tips: You can find more on refund loan alternatives in one of last week's Daily Tax Tips, specifically the one that was posted on Tuesday, Jan. 12. Here's last week's full five-day tip run: 

  1. Watch out for these Dirty Dozen tax scams (Monday, Jan. 11, 2016)
  2. Tax refund loan alternatives (Tuesday, Jan. 12, 2016)
  3. The skinny on paying estimated taxes (Wednesday, Jan. 13, 2016)
  4. What's your filing status? (Thursday, Jan. 14, 2016)
  5. Picking the perfect tax pro (Friday, Jan. 15, 2016)

Just like I did last tax filing season, I'm posting a Daily Tax Tip each week day in the upper right corner of the ol' blog's home page. 

I'm also putting together the week's five tips in one post (like this one and the first week's tips collection) on Fridays, except when life happens and other tax topics (like Free File's opening yesterday) take precedence. Then the roundup gets pushed to Saturday.

And they're all being, or will be, collected on their own special Web pages, starting with January's list.

You also might find these items of interest:


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Good point, Jim, when if comes to refund advances through preparers. However, some less that stellar retailers, car sales outlets, etc. offer "deals" based on expected refunds which are essentially informal ad hoc RALs. Still lots of folks out there finding ways to prey upon uninformed fellow taxpayers. Kay

Jim Howard

You're right about never borrowing against a refund, but RAL/Racs have been effectively outlawed by banking regulators for several years now.

Letting your tax preparer deduct her fees from your refund isn't that bad a thing, since the risk is on the preparer rather than tax payer.

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