Commemorating Constitution Day and Citizenship Day

September 17th is Constitution Day and Citizenship Day (Constitution Day), a day that commemorates the September 17, 1787 signing of the United States Constitution.

From the U.S. Department of Education:

We encourage Federal, State, and local officials, as well as leaders of civic, social, and educational organizations, to conduct ceremonies and programs that bring together community members to reflect on the importance of active citizenship, recognize the enduring strength of our Constitution, and reaffirm our commitment to the rights and obligations of citizenship in this great Nation.

See "Constitution Day Resources".

From the U.S. National Archives and Records Administration:

On September 17, 1787, the delegates to the Constitutional Convention met for the last time to sign the document they had created. The National Archives and Records Administration celebrates this important day in our nation's history by presenting the following activities, lesson plans, and information. We encourage teachers and students at all levels to learn more about our Constitution and government.

See "Activities".

More about credit card debt and payoff

I just found this Credit Card Interest Calculator from American Consumer Credit Counseling (ACCC), a NFCC member agency.  This one can be even more accurate than the BankRate calculator, because it allows input of the LOWEST that the minimum payment will ever be (until the very last payment), based upon the specific credit card agreement.

For example, from a Purdue Federal Credit Union card agreement, “Your minimum payment will be any amount that is past due, any amount exceeding your credit limit, plus the larger of 3% of your new balance or $25 (the “Minimum Payment”).”

So for the PFED agreement, using the ACCC calculator, you would enter a minimum payment of 3% of the balance, and $25 as the lowest possible payment.

For the couple in our in our September 3rd scenario, we can use the same 18% interest rate and find that by simply paying a slightly higher minimum monthly percent AND specifying a higher lowest dollar amount, they would pay about 1/3 the interest and pay it off in nearly 1/3 of the time!

I also found a very good explanation from Discover about how credit card interest is calculated.

Tough to understand?  Of course it is!

If it was less complicated no one would ever fall for it.

Thinking of Starting a Business?

The Indiana Small Business Development Center will be hosting one-hour seminars that answer typical questions about starting or buying a small business in Indiana.

"Small Biz Jump-Start" addresses topics such as financing, market demand and legal requirements, and there is no cost to attend.

Lafayette: September 27th and October 25th.
Kokomo: September 11th, October 9th, November 13th and December 11th.

For other Indiana cities click here.

Who Can I Trust?

There's a basic financial literacy assessment circulating among my students that I did not assign, and I felt the need to express an alternate view.

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The LendingTree quiz can be an eye-opener!  But if you don’t score as high as you would have liked, then don’t be hard on yourself.

The quiz was developed in 2007 and published in 2008.  During this time the “financial crisis” was beginning to make the news and resulted in the financial institution bailout in October of 2008.  Years of overleveraging, combined with inadequate risk assessment and disclosure seem to be the primary causes of the problem.

The “correct” responses in the quiz reflect the prevailing opinions of the time.  Since then, many Americans have come to realize that excessive debt benefits neither the consumer nor the lender in the long run (at least when there’s not a taxpayer-funded bailout).

Whenever you hear what you “should” or “shouldn’t” do, or what is “wise” or “unwise”, or any similar words or phrases, there are (at least) two thoughts to keep in mind.

First, these are all judgments that each of us must make for ourselves, based upon our own knowledge of financial products, our risk tolerance, and understanding of our own behaviors and circumstances.

There are many times in our lives when we have to tell ourselves that just because we can, doesn’t mean that we should.

Second, consider the source of the advice.  Whether the individual is actually competent in the particular field is an obvious question.

But an even more important one is whether their interests are in alignment with our own.  For example, a lender might encourage you to borrow the most that you can, but if you are uncomfortable with 30% or even less of your income being spent on housing, that’s okay.  This concept also comes importantly into play when choosing an investment advisor.

The quiz suggests that it’s "better" to have a couple of credit cards.  What they mean is that it can enhance a credit score to have credit cards, but not necessarily.  Though the scoring formulas may ding a few points, it is possible to have scores high enough to get the very best rates on a mortgage even if one has no credit card at all.

Do not try to manipulate a credit score.  Do practice effective financial behaviors day in and day out.  Pay what you’re supposed to pay when you’re supposed to pay it, and don’t take on too much debt.

An interesting note here is that, a few years ago, it was reported that World Financial Network National Bank (WFNNB) planned to deny new Gander Mountain credit card applications to customers with FICO scores of 800 or higher!  Gander Mountain sued, WFNNB (later Comenity Bank) countersued, and about a year later they resolved their differences and dropped the suits.

Some people still say that it’s practically impossible to get by without having a credit card.  If that really was ever true, it no longer is.  There are very many people today who choose not to have a credit card; they simply prefer the advantages of cash when spending locally, and they use a debit card when traveling, even internationally.  Nevertheless, if you do choose to use one or more credit cards, then pay the balance(s) in full every month.

The quiz also suggests that “smart” use of a second mortgage is to pay off credit card debt.  If you know of someone considering this, be sure they understand that they’re putting the family’s home at risk, and that they may have this opportunity only once.  Make the most of it; stop using credit cards.  In my opinion, anyone thinking of any kind of debt consolidation should run it by a reputable counselor.

One local credit union (that I otherwise have a lot of respect for) has suggested use of a second mortgage to "Take that all-inclusive vacation you've been waiting for."  Though I can think of one (very extreme) example when even I might consider this, it’s far more effective to save up for vacations.  After all, if I can’t save up for it now, how can I expect to borrow for it and to repay later  – with interest?

There’s a lot of valuable advice out there, but there is also a great deal of faulty reasoning and deceit.

The Federal Trade Commission suggests:

If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate non-profit credit counseling programs.

Here are a two sources of information that I know to be credible and that also have Indiana locations and are member agencies of the
National Foundation for Credit Counseling (NFCC):

·         Apprisen <http://www.apprisen.com/learning-center>

·         Greenpath <http://www.greenpath.com/university>

I took a glance at maps this morning.

For those of you near Lafayette, Muncie, and Noblesville, Apprisen’s Indianapolis is probably closest, and for Sellersburg their Lexington, Kentucky location might be more convenient.  The one of you in Goshen KY is only a few minutes from Apprisen’s Louisville location!

For Michigan City and South Bend, Grenpath’s Mishawaka looks good.  This one might also be useful for Ft. Wayne people, but it’s a distance, and this is particularly disappointing to me given the large population of the Ft. Wayne area.  Not too many years ago a NFCC member agency, CCCS of Northeastern Indiana, had several locations in the area.  Following mergers and acquisitions, they all dissolved.  For the student in California, the best that I can offer right now is to check with NFCC.org.

I expect that whoever picks up the phone at any NFCC organization is likely to be well-trained and able to help you.  Nevertheless,  if you’d like a referral to an individual in either organization, then tell me.  If you or someone you care about is a veteran, then I can also offer a referral to a counselor with the Armed Forces Services Corporation in Ft. Wayne.

Money Management International is another organization -  a huge company with 43 locations in 30 states – that appears to no longer have a location in Indiana.  Nevertheless, their resources can probably be trusted.

Some of you will enjoy the FINRA Investor Education Foundation Financially Fit? workbook.

We’ll likely talk more about how much we “should” have in an emergency fund, and just how to establish one.

Kurt Burnett

Credit Card Debt?

According to the Federal Reserve, credit card debt is now nearly $1.4 trillion, which is a 4%  increase from last year and the level is even higher than in October 2018, at the height of the financial crisis.

The “economy” now looks good and consumer confidence is up.  Young people are taking on more debt and older people are “retiring” with mortgage debt, credit card debt, and even student loan debt.

Add in the mindboggling (and daily increasing) level of our nation’s debt, and it certainly seems that Americans are far more experienced with crisis intervention than with crisis prevention.  We haven’t yet mastered long-term thinking.

For anyone in credit card debt the first step is simply stop the bleeding.  Hide the cards from yourself or freeze them in a block of ice – whatever it takes to stop using them.

In my counseling office I kept a big pair of scissors that I offered to clients to cut up their cards, and I displayed a plastic milk jug filled with them.  I wish that I had snapped a picture of that jug before I destroyed the remnants!

Some clients decided that they weren’t quite ready to cut them up.  After all, what about emergencies, or car rentals, or airline or hotel reservations?  What about my credit score, and what’s wrong with using a credit card if I pay it off every month?

Some enthusiastically cut them into itsy-bitsy pieces.  The sigh of relief and the satisfaction that I saw in them afterwards is priceless.  Others believe that they cannot live without credit cards, but it’s an illusion.

If you’re a counselor at heart, here’s an assignment for you.

Your two very best friends, a newly married couple with no children, have credit card debt, and they know that high-interest debt is no good, but cannot yet “feel” it.

They have a card that charges 18% interest and has a minimum payment of 2% per month.  If they have a $6,500 balance and they pay only the minimum payment each month, how long will it take them to pay it off?

Be aware: Even people who should know better get this one wrong.  They might tell you that the minimum payment = $6,500 x 2% = $130.00.

But to arrive at the correct answer - which is decades (and many thousands of dollars) away from that one, you will need a calculator that allows input of how the minimum payment is calculated, like the one at BankRate.com.

Have fun with this one – it can be quite an eye-opener!  For example, you can click on “Show payment schedule” and scroll down to see what the balance will be at the end of five years, 10 years, and so on.  You can also try various scenarios, such as if they would pay a steady $130 every month rather than the 2% minimum.

The student loans are a federal government mess that needs a solution – perhaps many.

Do I need a credit card?

I’m not in the counseling trenches these days, and teaching personal finance helps to keep me updated on what is on consumers’ minds.

Teaching is also a daily reminder that socioeconomic class, age, life events, and financial experience and literacy all determine what’s in one’s thoughts on a particular day.  Moreover, our individual beliefs, attitudes, and values play a tremendous role in our life’s major decisions and outcomes and, cumulatively, the many billions of decisions that we make every day affect the larger economy.

Today’s topic was spurred by a student’s desire to get a credit card and how to select the “best” one. 

I did not include any of this in my response, but when I hear such a question my mind always screams, “Back up a step.  Why do believe that you even need one?”

Though a credit card can certainly facilitate transactions, I don’t believe that anybody “needs” one.  I’ve used a debit card for such as conference and hotel reservations and also for vehicle rentals. 

Though it’s been many years since I’ve flown internationally, I do know two people who have in more recent years, and they also have no credit cards.  One of them travels fairly regularly in North America, and the other has travelled to at least two countries in the Middle East and to several European countries.  I don’t remember the details of how they pulled it off; I only know that it is possible, and that it was not particularly complicated for either.

Eight or ten years ago a group of Purdue students surveyed area car rental companies for me, asking whether they require a credit card.  Some do and some don’t, so it will help to check in advance.  There’s a funny car-rental story about one of the two travelers that I mentioned.  I may ask the individual to write something about it someday.

I did include this:

As I recall, Dave Ramsey said that he carries four plastic cards in his wallet, and not one of them is a credit card.

I’m with him.

Minimum Wage and Poverty

The Fight for $15 minimum wage proponents have established a McDonald’s employee sect that claims racism and threatens “to do whatever it takes” for a $15 minimum wage and the right to join a union.  Along with the demands they claim that the company is guilty of corporate greed, collusion, intimidation, and widespread sexual harassment.

The National Labor Relations Act already allows them to unionize, and if there is substantiation to other accusations, then the FTC, the EEOC, the SEC and perhaps some other government acronym would be willing to look into it.  Except maybe for the corporate greed, whatever that is.  Nevertheless, it seems that these once-atrocious practices would suddenly become acceptable at 15 bucks an hour.

The racism claim seems to stem from two conditions that offend them.

They say that the company targets “communities of color” (i.e., nonwhites) in its advertising, spending more than $30 million every year in “Black-targeted media”.  On the other hand, McDonald’s reportedly receives the largest portion of the $22 billion that black consumers spend annually in quick service restaurants, so it appears that blacks enjoy patronizing McDonald’s.  If it’s wrong for a company to advertise to its loyal customers then they might at least propose alternatives.  For example, would it be better to hire more whites for ads?

The second offense is that the company’s low wages are “disproportionately hurting workers of color”.  In other words, a company has been willing to hire a disproportionate number of nonwhites who asked to work for it, so the company is to blame.

Near the bottom of the McDonald’s employment main page is, “Committed to being America’s best first job.”  The idea here is to work hard and learn valuable skills when you’re young, and then move along when you’re ready for bigger and better things.

In rural areas teens begin to develop character and other life skills by bailing hay and tending livestock, and in the suburbs they mow lawns and shovel snow.  In urban areas, what shopkeeper could give a kid a chance and let him sweep floors and stock shelves at $15 per hour?

For more than fifty years, an endless cascade of politicians and private sector rabble-rousers have promised the glory and spoils that, somehow, never materialize (except for the agitators themselves).

Again and again, government-mandated price floors and ceilings have been shown to help a select few in the short run but end up hurting everyone, including those who were purported to benefit.  About the $15 minimum wage in particular, George Mason University economist Walter Williams explains how and why “A minimum wage not only discriminates against low-skilled workers but also is one of the most effective tools in the arsenal of racists.”  Even so, the NAACP backs the Fight for 15 gang.

Some companies (including Wal-Mart) have voluntarily raised wages and offer excellent benefits so they can attract and retain the best people.  If the 15ers do somehow get a $15 minimum wage law rammed through, then small businesses will necessarily reduce staff and/or cut back on hours of operation, and some will be forced to close their doors.  In an effort to remain viable, the larger and wealthier companies could easily reduce the low-skilled payroll expense and invest more heavily on kiosks and robots.

They do correctly state that nonwhite Americans are trapped in poverty.  After all, poverty has steadily worsened for all shades since war on it was declared.

Researchers with the UC Berkeley Center for Labor Research and Education 2015 study, The High Public Cost of Low Wages, claims that the public cost of poverty-level wages costs U.S. taxpayers $152.8 billion each year in public support for working families.  “At both the state and federal levels, more than half of total spending on the public assistance programs analyzed in this report—Medicaid/CHIP, TANF, EITC, and food stamps—goes to working families.”  In other words if the minimum wage is high enough, then these programs can dissolve.

Even though income is only one side of a budget, for decades we’ve been hearing the term “living wage” and finally this study has specified it.

These researchers define a working family as one that has “at least one family member who works 27 or more weeks per year and 10 or more hours per week”, so a single mother of four working 270 hours per year could qualify the family.  To pull them out of poverty she simply needs to earn $109 for every hour of work, and at $190 she could even achieve our county’s median household income.

Five years ago a Brookings Institution study identified three behaviors that teens can follow to increase the likelihood of pulling themselves out of poverty:

• Finish high school (at least);
• Get a full-time job;
• Wait until age 21 to get married and have children.

It was reported that when these three simple rules were followed, only about 2% of the American adults remained in poverty and nearly 75% had joined the middle class (defined as earning around $55,000 or more per year).

McDonald’s claims that its Archways to Opportunity program provides eligible U.S. employees an opportunity to earn a high school diploma, receive up-front college tuition assistance, access free education advising services, and to learn English as a second language.  The funds reportedly can be put toward trade school, a community college or a four-year university.

In a recent Magnify Money survey of more than 3,000 college students, 39% of those with debt would consider dropping out of school before they add more debt and, among these, 52% owe more than $20,000.  People who worked their way through college and those who will take student loan debt to their grave can only imagine the relief of someone else freely offering to pay for their educations.

Though there is a grain of truth to many common stereotypes, within most any large group there is a wide range of individual differences.  We can only do our best with the hand that we’ve been dealt.

The growing gig economy, estimated to be about 34% of the workforce at least part-time, can be a good thing or not depending on your viewpoint.  If you do decide to work for a company that offers benefits that will improve your circumstances, then make use of them.