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Debunking financial urban myths

Every now and then you read about a retiree snookered in a Nigerian bank scam or some nitwit marched off to jail, still insisting the income tax is illegal, and you just shake your head and wonder who could believe that guff.

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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 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."

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, an American Bankers Association representative. "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 in trouble 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 still 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 card agreement or added the minor to their account as an authorized user.

So someone will pay -- the adult who signed on the dotted line.

 
 
Next: "Boycotting a few gasoline brands brings prices down ..."
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