Black Buyers Beware: How to Avoid the Retail “Black Tax”

BY: - 20 Mar '17 | Money

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I still remember the afternoon I went in search of a new car. Inside the Toyota showroom a Black salesperson casually strolled my way making amiable small talk. When I asked how much I could get off the sticker price (also known as the MSRP or Manufacturer Suggested Retail Price) he looked me straight in the eye and without flinching told me that the sticker price was the price I’d have to pay.

I don’t know what made me more furious, the fact that the salesman considered me too naive to know that the sticker price is an artificially inflated price that no savvy consumer should ever pay, or that perhaps the salesperson, seeing that I was Black, was targeting me as an easy mark?

Unfortunately, all too often, African-Americans and other minorities shell out more than their white counterparts just because of the color of their skin.

In the classic 1995 study, economists Ian Ayres and Peter Siegleman sent secret shoppers to nearly 200 Chicago car dealerships. The black and female shoppers were consistently quoted higher prices than their White male shoppers. Black males, in particular, were quoted prices nearly $1000 higher than White males.

And while the study is over 20 years old, recent accusations suggest that Black auto buyers still face the same challenges. The Consumer Financial Protection Bureau, for instance, recently reached a settlement with Honda over charges that the company charged African-American borrowers higher dealer markups for their auto loans than non-Hispanic white borrowers. Honda was forced to pay $24 million to victims of its discriminatory practices.

TNMMoneySaveCoinsHandsOnce they drive the car off the lot, African-Americans face even more discriminatory pricing. Motorists with good driving records living in Black neighborhoods pay far more than drivers elsewhere. According to a survey by the Consumer Federation of America, quoted premiums were as much as 70% higher for the drivers living in Black neighborhoods.

What I call the retail “black tax” applies to other large ticket items as well. Research data of over two million home sales in four metropolitan areas found that African-Americans and Latinos pay more for homes. “We find that black and Hispanic homebuyers pay premiums of about three percent on average across the four cities, differences that are not explained by variation in buyer income, wealth or access to credit,” The study’s authors concluded.

“We find that black and Hispanic homebuyers pay premiums of about three percent on average across the four cities, differences that are not explained by variation in buyer income, wealth or access to credit,”

But having to pay a premium for a home is not the only barrier to the American dream for people of color. African-Americans also pay higher rates when trying to obtain mortgages for those homes, even when they have similar creditworthiness as their white counterparts.

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In 2012, the Justice Department reached a $175 million settlement with WellsFargo Bank. The bank was found to have pushed Black borrowers into subprime mortgage loans even when they qualified for less expensive and less risky conventional mortgages. This was not an isolated practice as research by the National Bureau of Economic Research reveals that African-Americans are 105% more likely than whites to carry high cost mortgages on their homes, even when controlling for credit scores and other factors.

Why are Blacks forced to pay more for the significant purchases in their lives? Clearly naked racism plays a part, but economist Robert J. Stonebraker suggests another reason:

“While dealers and/or salespeople may know little or nothing about a particular customer, they know quite a bit about statistical differences among races and genders.  They know that women and African-Americans typically enter the showroom with less information and less proclivity to bargain.  Although white males often salivate at the chance to lock horns with car dealers in a bargaining struggle, females and African-Americans may be unaware that bargaining is even possible.”

In essence, he argues that retailers may believe that customers of color are less knowledgeable about their intended transaction, and as such are more susceptible to being taken advantaged of. This a more nuanced, but equally damaging, form of prejudice.

This lack of information concerning the purchasing process is also alluded to by the researchers who noted the higher home prices paid by buyers of color.

“The relative inexperience of black and Hispanic buyers, due to the historically lower rates of home ownership among the black and Hispanic households, may contribute to the higher prices that they initially pay upon entering the market,” they noted.

The inevitable conclusion: As a consumer of color, car dealers, insurance agents, and mortgage brokers may assume that you are less knowledgeable about the process, and therefore ripe for exploitation

You have a target on your back. Either by way of implicit racism or the belief that because of your skin color you are a naive consumer, you are at risk of being taken advantage of financially.

You have a target on your back.

To avoid becoming a victim, flip the script. Knowledge is power. Take the time to become well-informed about any significant purchase you plan on making. My suggestion is that if you’re going to spend more than $5000 on any purchase, take at least two hours researching your intended purchase, paying particular attention to how much others are paying for the same product or service.

A little amount of planning and preparation in the beginning of the buying process will save you a significant amount of money down the road.

BMWK, how do you keep from getting ripped off when making a major purchase?

About the author

Alonzo Peters wrote 279 articles on this blog.

Alonzo Peters is founder of MochaMoney.com, a personal finance website dedicated to helping Black America achieve financial independence.

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Stop Losing Money: Here’s Why You Should Get Help With Your Taxes

BY: - 27 Mar '17 | Money

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According to Benjamin Franklin, there are only two things certain in life: death and taxes. Unfortunately, this year’s April 18th tax deadline is fast approaching.

With a tax code that is 74,608 pages long and changes being made yearly, it’s almost impossible for an individual to be aware of all the tax credits or deductions for which he or she may be eligible. Take the Earned Income Tax Credit, for instance. While this credit is worth up to $6,242, according to the IRS, one out of five eligible tax filers fails to take advantage of the credit.

That’s why I strongly suggest you get help. Consider this:

You only do your taxes once a year, while a professional tax preparer does this for a living.

Who is going to do a better job?

Likewise, software tax preparation packages are programmed to find you the biggest refund.

According to thumbtack.com, the national average cost for tax preparation is $145, with most people likely to spend between $90 to $230 total. Prices increase, of course, with the complexity of your tax situation.

While you might spend more upfront for tax help (either by way of online software or a professional tax preparer), you’ll likely save hundreds or even thousands through tax credits and deductions you might not even be aware of.

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I personally use Intuit’s TurboTax online software. I love the ease at which the software walks you through doing your taxes.

Last year I spent about $100 for the software to complete my taxes. But, I increased my refund by nearly $1200 with tax credits and refunds I was not aware of but that the software identified for me. (I used a more expensive version of the software since I had self-employed income and expenses to consider.)

H&R Block and Tax Act are two other highly regarded online tax software packages. Typical prices range from $60 to $120 depending on your tax situation.

If you have a simple 1040EZ form you can even file your federal taxes for free.

For a good review of all three online programs, I suggest this Consumer Reports review.

Picking the Right Tax Professional

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While tax preparation software is a Godsend for many of us, for those of us who do not like using computers, a professional tax preparer might be the way to go. This is also a smart decision if you have a complex tax situation. You may have been recently married or divorced, for instance, or gone back to school, purchased investment real estate, found a new job, or started your own business or side-hustle.

But, remember, just like any other professional service provider, it pays to do your research. You are ultimately held responsible for your income tax return, even if someone else prepares it.

That’s why you must find a reputable tax preparer. Ask around. Find a friend or colleague who has had a good experience with their tax preparer and can provide you with the appropriate referral. Then, do your due diligence by checking out the preparer with the Better Business Bureau.

In addition, the IRS advises that you check a preparer’s qualifications. All tax preparers who receive compensation are required to have a Preparer Tax Identification Number (PTIN). Ask about fees upfront and steer clear of preparers that base their fee on a percentage of the amount of refund they are able to obtain for you.

Finally, the IRS warns you to never sign a blank return. Make sure your preparer also signs the the tax return and includes his or her PTIN number as required by law.

Taxes can be dreadful, but with right help you can ensure that you pay as little as possible or receive the maximal refund you’re entitled to.

BMWK, how do you file your taxes?

About the author

Alonzo Peters wrote 279 articles on this blog.

Alonzo Peters is founder of MochaMoney.com, a personal finance website dedicated to helping Black America achieve financial independence.

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