Many students recently marked a big milestone by graduating from school. Looking back, what words of wisdom regarding personal finance would you like to have received when you left high school?
Personal finance does not have to be boring! The National Endowment Financial Education – www.nefe.org has a couple resources to help your graduate be an independent young adult.
On Your Own –is a blog with a range from credit score calculated, making better money decisions, and the pros and cons of college? This is a trustworthy site.
Another option is Smart About Money (SAM) is an in-depth, guided learning experience. There are five sections with valuable tools, worksheets, calculators and quizzes. Each course is about 45 minutes.
Cash Course targets college students. Some colleges and universities offer it especially for their students, but any student can enroll independently. It’s free, with no strings attached, but you do need to create a user account.
Forty Money Management Tips Every College Student Should Know – this Cash Course resource helps young people learn how to take control of their money instead of letting their money control them.
Several years ago I wrote a MoneyTip$ post extolling the virtues of dry milk. Since June is Dairy Month, it occurred to me that now would be a good time to revisit that topic, because things have changed. Dry milk is no longer the same bargain that it used to be. I’m sure this varies regionally, but where I live I can no longer buy the bargain-sized (20-quart) box of dry milk, and the store-brand liquid milk is so inexpensive that it’s usually a cheaper product per quart compared to dry milk.
Why is this blog-worthy? Two reasons:
- It’s a valuable reminder to re-examine your consumer habits periodically. I resisted giving up dry milk — it was a habit ingrained from childhood, built in to how I work in the kitchen. I kept buying it for a while even after I realized it was no longer the cheapest deal.
- It’s also a reminder that cost is not the only consideration when shopping. After being without dry milk for several weeks, I realized it was a product I still wanted in my pantry, for several reasons.
I’m back to using dry milk, though not as much as before; these days, if I’m making pudding or pancakes I’ll probably use liquid milk, unless my supply is running low. I still use dry milk though, for more reasons than I could possibly include here; I’ll list a few to give you a general idea:
- I can add milk nutrients without adding liquid. By adding extra dry milk to casseroles, meat loaf, soups, baked goods, and mashed potatoes, I can boost my intake of calcium and other key nutrients without making my product too runny.
- It doesn’t need to be stored in the refrigerator. At holidays or with company, frig space is at a premium; by using dry milk for cooking, I can make extra space for refrigerated foods – after all, an extra gallon of milk takes a lot of space!
- If you make yeast bread (I know not many people do), using dry milk means you don’t need to “scald” milk before adding it to the bread dough. (Scalding deactivates an enzyme that interferes with yeast action – with dry milk that enzyme is already gone).
The main reason for this post is not to let you in on all my kitchen habits, even though that is fun to talk about. The main reason was to share one story of how things that are true at one time may not stay true indefinitely. This applies to specific products we buy, and it also applies to questions like how high should an insurance deductible be, or how much to keep in a savings account.
What habits, beliefs or assumptions affect your consumer decisions? When is the last time you revisited them to make sure they were still on target?
A big thank you is in order from Iowa consumers to the Legislature, Governor Kim Reynolds, and Attorney General Tom Miller for passage and enactment of Senate File 2177 . Beginning on July 1st you will no longer be charged fees to use a “freeze” on your credit report.
The Equifax Breach put many individuals in a pool of consumers whose personal information was compromised. Faced with potential misuse, one step to limit damage was freezing your credit report at the three credit reporting bureaus, but the cost was $30. In passing the new law, Iowa government officials reasoned that consumers should not be forced to bear the cost when a reporting bureau is negligent.
The credit bureaus are also making other changes: what data they collect; how it is reported; and credit score calculations.
- All public record information, except for bankruptcy, is being removed from files.
- Reports on medically-related debts are held for six months before posting to allow for insurance closures.
- Medical debt is given less weight compared to other consumer spending when calculating your credit score.
- Rent data can now be included in your credit report; only positive reports will be accepted.
- A series of auto or mortgage inquiries are treated as one event.
- Paid collection accounts will be removed from reports.
- Keeping a card open that is paid in full will not help your credit score if it isn’t used. A card that is not used in a 3-6 month time period is dropped from credit score calculations.
Checking your credit report for accuracy is a good habit to maintain. If you haven’t checked yours in the past 12 months, now would be a good day to start!
My brother recently attended a medical conference in which a lawyer spoke about the physician’s responsibility when providing care for someone who is unable to make medical decisions for themselves. If a patient has not completed a Power of Attorney for Health Care, the doctor is required to listen and weigh the concerns of all family members when caring for the patient. Speaking from our personal experience, my brother and I did not struggle while communicating with caregivers and making decisions for dad; we knew what dad’s wishes were and the two of us shared dad’s values and faith. Additionally, as Dad’s POA for Health Care, it made it easier for me to say “no” when a family member made a request that was clearly not in line with his wishes…even when there was support from a fourth sibling for that request.
In comparison, the family of my brother’s wife is learning (the hard way) what happens when someone has not designated a Power of Attorney for Health Care. Their mother had a major medical emergency that has left her unable to communicate her wishes. Early on in her health emergency, there were 8 – 13 people in her room at all times and an additional 3 – 5 being consulted by phone; basically, they were making decisions by a majority vote while under stress and in an emotional state. Can you imagine being the physician in this example…having to listen and weigh the concerns of all family members?
The Finances of Caregiving is a series of five 2-hour workshops to expand your understanding of options and to help families plan together for providing care for a loved one. Understanding your choices is only possible when you know your current situation. This series guides you through finding and collecting that information, and includes the importance of identifying a Power of Attorney for both Health Care and Financial matters. For more information on this program, visit https://www.extension.iastate.edu/humansciences/finances-caregiving
Having a debt – perhaps a mortgage or a car payment – may feel as if you have a ball and chain around you for the duration of the loan. Is there a way to lessen the load?
One option is to simply round up your payments. Suppose your current car payment is $360 per month. If you round up and make monthly payments of $400, that is like making one extra payment during the year on your car, and the extra money goes toward the principal on the loan. You’ll reduce your interest costs, and you will also pay off the loan faster.
Here’s a mortgage example: if your mortgage payment is $900, but you pay $1,000/month, the extra $100 goes toward the loan principal. That’s an extra $1200/year! If $1,000 is too much for your spending plan, try $950, which is an extra $600 per year. Over several years, either strategy will save thousands in interest and get your mortgage paid off years early. Read the fine print on your contract. Make sure your lender accepts larger payments. Need to know so it helps your cause.
You can use the same strategy with any credit card bills where you are carrying a balance, and on any other loans, as well.
Every time you round up you’re getting closer to debt freedom without feeling much of a pinch. Once you start this habit, it will be hard to break. Fortunately, it’s a very helpful habit!
As a financial educator and as a volunteer income tax preparer I sometimes hear from people who wish they had been better informed before making decisions. During this past tax season I talked to an unusually large number of people who face really big tax bills that could have been prevented if they had been better informed ahead of time.
While taxes have been the recent topic, there are plenty of other situations where people face problems that might have been prevented if they’d had more information. Examples:
- A person who discovered (too late) that her medical providers weren’t in her health insurance network.
- People who retired early, but went back to work when they realized they were not financially prepared to retire.
- A couple who bought a car that proved unreliable, discovering later that Consumer Reports had rated that model’s reliability as poor. (The next time they bought a car, they reviewed the reliability ratings first.)
Stories of financial regrets are endless. I have my own stories, too – no one makes perfectly-informed decisions 100% of the time. Happily, I also frequently talk with people who have success stories, both large and small. Those successes usually result from careful thought and good information!
We never want to get complacent about our money knowledge. Even if you’re already well-informed, it takes on-going attention. Why? Because the financial world changes (new products, new risks, new scams), and our lives and our needs change too.
Staying Informed. As you know, not all information found on the Internet is trustworthy or accurate. Consider the source of the information.
- Sites with a .gov or .edu address are considered trustworthy. These are sites hosted by a government agency or an educational institution. Examples: www.investor.gov; www.consumerfinance.gov; www.extension.iastate.edu
- Many private organizations are identified by a .org address. These sites may or may not provide trustworthy information. It’s important to investigate its mission, and evaluate information carefully. Examples of trustworthy sites include www.extension.org and the National Endowment for Financial Education www.nefe.org, and the additional sites NEFE hosts.
- Commercial sites use .com and commonly promote or sell a product. You will want to evaluate information on these websites carefully.
It’s best to seek information from several sources. Also note that trustworthy websites include information on how to contact them.
Let’s be truthful, some of us do an excellent job helping our 17-18 year old get ready for the real world even if we also remember situations when we hope they didn’t pay too close attention to our bad habits. Adult finance is complicated by some natural tendencies toward spending and savings. I’ve heard more than one parent wonder out loud how a child could grow up in their house and manage money the way they do.
Whether you have full confidence in their money management skills or expect to get several calls asking for guidance when the issue is totally out of hand, here are some tips that may help you and the 17-18 year old in your life:
Reduce their risks-
- Review your insurance policies and find out if the coverage extends to include their property while they are living away from home temporarily. If they are leaving home permanently, pick up information about renters policies and explain it to them.
- Share tips about auto insurance coverage. Remind them that valuables in the vehicle are not insured. Consider whether it makes financial sense to have them insured through their own policy. If the premium will exceed 10% of the value of the vehicle, it may be time to switch to liability only.
- If they will continue to be covered by your health insurance plan: 1) confirm they will have access to the network providers; 2) make sure they are carrying an insurance card; and 3) share a quick reminder of typical preventive services and what to plan for co-pays.
- Recommend filling out their W-4 with a 0 for withholding exemptions until they have filed their first tax return. Several part-time jobs combined together can result in underpayment of taxes due.
- Consider giving them a list of the records you save, electronically or on paper, for financial reasons.
- Give them a shredder. Not an exciting gift, but important to keep their identity intact.
Keep the door open for conversations without judgement. We’ve all done stupid things with money – why not make sure the young adult learns some lessons from you and not the hard way.
Spring is in the air. Are looking to buy your first home or upgrade your current one? Understanding mortgage vocabulary will help your purchase or refinancing go more smoothly. Do you know the difference between pre-qualification and pre-approval mortgage?
Even though the terms sound similar, mortgage pre-qualification and pre-approval are two very different processes. A pre-qualification is designed only to give you an idea of the mortgage amount you might qualify for, based on information you provide without verification. Some mortgage professionals believe pre-qualification is virtually useless.
A pre-approval letter from a lender shows that you qualify for a specific mortgage amount based on an underwriter’s review of your actual (verified) financial information, such as your outstanding debt, credit history, income and assets. Your home buying journey will be easier with a pre-approval letter. Why? With clear verification that you will be able to get the loan you need, a seller of a home will take your offer more seriously.
If you want more information, Iowa State University Extension and Outreach offers a comprehensive homebuyer workshop online: A Place of Your Own.
I have often talked with people who were excited about turning age 62. Why? So they can claim Social Security retirement benefits. I understand that excitement, especially from people whose jobs are causing them problems.
In those situations, however, I hold an internal debate about whether to put on my “educator” hat and make sure they understand all the factors involved in their decision about when to claim Social Security. Note: sometimes I do provide information, and other times I do not – it depends on the situation!
Claiming Social Security before your full retirement age means a permanent reduction in your monthly benefit. Having the income now will be nice, but if you live to be 90 and use up your other retirement accounts, you might wish you had waited. Here’s an example of how the benefit amount is affected by the age you claim:
- Mike’s full retirement age is 66. At age 66, his monthly benefit would be $1,496.
- At age 62, the earliest age he could claim, his benefit would be $1,060.
- On the other hand if he waits till age 70, his monthly benefit rises to $2,044.
There’s not a “right” age for a Social Security claim. Your choice depends on your situation, your priorities, and what other resources you have available. If you would ask me, I wouldn’t be able to tell you what to do – only you can decide.
What I would tell you, though, is to make sure you understand all the implications of your decision. One resource to inform your planning is an ISU Extension recorded mini-lesson on Social Security Choices (20 minutes). It is one of many retirement planning resources on our “Retirement: Secure Your Future” page.
When you near the actual decision point, the best way to gather complete information about your options is to contact the Social Security Administration.
Iowa’s new legislation will allow “health benefits plans” to be sold for coverage in 2019. The health benefits contracts will not offer the ten essential areas of coverage mandated by the Affordable Care Act. Mental health, maternity care, and treatments for addiction are examples of coverage that can be dropped and may result in lower costs.
It’s important to remember the new benefits plans are not insurance. Reading the offered plan will be important to understand what is covered and your rights if you disagree with decisions to not pay a claim. The Iowa Insurance Division will not have authority over the plans and has no responsibility to review issues that arise if benefits are denied. The plans fall under ERISA laws administered by the Department of Labor.
While consumers will be able to consider selection of coverage with fewer benefits, they also will be considering a product that lacks some of the traditional back-up security used by insurance. Health insurance providers participate in a risk pool, where money can be borrowed if there are extremely high claims in any one year. The new benefits plans won’t have this protection, a reason why they are apt to be highly selective when offering coverage to clients.
Extension’s health insurance education programs encourage individuals to compare coverage to needs and to read and understand their policies. Those consumer skills will be equally beneficial when comparing health insurance policies to health benefits plans.