- The Washington Times - Wednesday, September 7, 2005

The federal government yesterday said it will hand out prepaid debit cards worth $2,000 to thousands of households that were hit by Hurricane Katrina.

The new cash-card program is meant to help people, who have been moved to major rescue centers like the Houston Astrodome, buy emergency supplies like food, clothing and transportation.

“FEMA is initiating efforts to bring the registration process to those in need,” said Federal Emergency Management Agency Director Michael D. Brown.

Agency spokeswoman Natalie Rule would not return repeated calls to give more details about the program. It was not clear if the cards would be restricted in any way to prevent the purchase of alcohol and other nonessential items.

FEMA, which handles natural disasters, instructed victims to visit the agency’s Web site, www.fema.gov, or call 800/621-FEMA to learn how to get the cards.

Agency officials said the debit-card program is designed to help hurricane victims in Mississippi and Louisiana who have no identification, no bank account or no access to their bank accounts, and no means of identifying property loss.

Each household will get $2,000 and a debit card that can be used at ATMs that accept MasterCard.

FEMA will deposit the money in banks or write checks to people who have direct deposit and access to their banks.

Not all families who fled the Gulf Coast will be eligible, the agency said, adding that the funds are not more assistance than what others may get.

To prevent fraud, FEMA plans to use aerial photographs of the devastated areas to make sure the refugees, who have no proof of identification, were forced from their homes in areas with immense destruction.

The agency did not say how much the program will cost the government, but the tab could run into the hundreds of millions of dollars because hundreds of thousands of people left the region.

Hurricane refugees need resources to restart their lives, but a windfall could turn them into spendthrifts, warned the Financial Planning Association.

“When people receive money from private insurance, relief agencies or the government, the tendency is to misallocate, overspend and not pay attention to what they are buying,” said Clara Lipson, the pro bono services director for the Denver association of financial planners.

Ms. Lipson, who is helping to provide free services to victims of Hurricane Katrina, called the problem a “lump-sum phenomenon.”

“When people get a lump-sum payment from government assistance, the lottery or inheritance, there often is a tendency to quickly spend it,” she said.

Not all victims getting the debit cards will blow through the $2,000, but irresponsible spending was a problem last year for victims of the four hurricanes in Florida, Ms. Lipson said.

“People got a check to rebuild, but rebuilding wasn’t happening for maybe a year. So they used that money to buy a car instead,” she said.

But the debit cards could act as a catalyst for people to get their lives back to normal, said Rudi Hoffman, a Port Orange, Fla., financial planner.

“It’s not designed to be a government bailout but a catalyst to get people back on their feet and gain a sense of independence and self-reliance,” said Mr. Hoffman, who yesterday was driving through Florida to Biloxi, Miss., to help hurricane victims there.

Ellen Siegel, a financial planner in Miami advised victims to spend 10 percent, or $200, of the assistance on “mad money” expenses and budget the rest.

The frivolous purchases “give people a sense of control in their lives after they have just lost everything and are discombobulated,” said Ms. Siegel, who in 1992 weathered Hurricane Andrew, previously the most expensive natural disaster.

But extra expenses only limit available dollars for people who have no immediate salary, said Steve Rhode, president of Myvesta.org US Inc., a Gaithersburg nonprofit consumer-education organization.

Poorer people, who have lived on welfare, will view the debit card as money to spend on new clothes and electronics, he said.

“If you have lived a lifestyle where you find it OK not to save and you live month to month, then $2,000 must seem like a bag of gold falling from the sky,” Mr. Rhode said.

The $2,000 should last one adult, who buys only the basic necessities, 30 to 60 days, said Ric Edelman, a Fairfax financial adviser.

“Ironically, the scope of the tragedy may prevent overspending because there is nothing to buy because stores in the affected area are not open,” said Mr. Edelman, head of Edelman Financial Services LLC.

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