The Worst Idea Ever

As I was perusing financial blogs the other day, I read a shocking post describing what the author said was "one of the worst ideas ever."

I was intrigued, thinking, "Surely it can't be all that bad." But sadly, I really can't argue. It is indeed a terrible idea, no doubt concocted by those evil spirits who seduced lenders into making shaky mortgage loans and who even now whisper in our ears to "go ahead and buy that large-screen HDTV" we can't afford.

Here's the idea: a 401(k) debit card. A simple plastic card -- it looks like a debit card. Yet it's tied not to your bank account but to your 401(k) account. I know, you can't believe it, either. Maybe you should sit down before reading more.

Why, oh why?
Why has society been graced with this deplorable innovation? Could it be because some entities stand to make money from it? Employers are beginning to offer the "benefit" -- and they stand to benefit because it will save them from having to administer more traditional loans to employees against 401(k) accounts. And the main company that offers the cards, The Reserve, collects fees on every debit transaction.

The problem
Why is this card horrific? Think of how many Americans have tapped their home equity in order to finance this or that -- or just pay off credit card debt. Think of how many Americans have not saved enough for retirement. Think of how easily many Americans have sunk deeply into credit card debt, often (but not always) due to a lack of discipline.

This card stands to make a really bad situation even worse. Normally, you'd have to fill out form after form to borrow a lump sum against your 401(k), and it would be repaid rather reliably via automatic deductions from your paycheck.

With this card, you'll now be able to deplete your critical retirement savings account so easily, and every day if you like -- you can swipe your card to pay for a Barcalounger or a bacon cheeseburger. Repaying the loan will be your responsibility on receiving monthly statements.

As investors, let's see if major lenders such as Citigroup (NYSE: C  ) or JPMorgan Chase (NYSE: JPM  ) begin offering these cards. Let's hope not.

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