Rabu, 30 Mei 2007

Office for Financial Success

For many of you, aside from receiving the Financial Tip of the Week, you may not know a lot (anything?) about what other educational efforts we’re involved in. Let me share more with you about our Office for Financial Success (OFS).

About two years ago, several ingredients came together (an open faculty position in the Personal Financial Planning Department/ College of Human Environmental Sciences; generous funding from State Farm Insurance to remodel office space; and me [Dr. Mark Oleson]. I had been at Iowa State for the prior 6 years running their Financial Counseling Clinic when the opportunity came knocking). The OFS officially opened its doors in fall of 2005 with two primary missions in mind: (1) Provide training opportunities for undergraduate and graduate students in the Personal Financial Planning Department; and (2) Provide educational services and resources to the University and University Community. The OFS is in place to provide unbiased information to individuals at all stages of life [with the obvious primary target being college students]. We provide resources in all aspects of personal finance: remedial issues (debt management, bankruptcy, credit card, student loan problems, etc.); productive issues (investing, insurance, homeownership, etc.) and all areas in between. This service function is the one that I will outline in this weeks tip …

Financial Tip of the Week.
The weekly blog, our most visible service [tens of thousands of subscribers nationwide], has received national recognition for its educational efforts. I’ve been sending a “Financial Tip of the Week” for over seven years (about 10 months in the blog format). The weekly tip is the primary springboard directing people to OFS services (classes, workshops, etc.). You can view current/ past tips and in a ‘topical’ format.

Individual Counseling Services.
The OFS offers personalized financial counseling services [free to students]. We offer counseling face-to-face, over the phone, and via e-mail. We try to make our services as accessible to as many as possible. The OFS houses one of the MoTAX (Missouri Volunteer Tax Assistance) offices that assisted over 1,000 people [in the OFS – more were served in other parts of the State] with taxes this past season. We are also the only University-run program in the country approved by the US Dept of Justice to provide the pre-filing financial counseling required for those seeking bankruptcy.

Group Workshops/Seminars.
We regularly provide information [on a myriad of topics] to different groups: residence halls, fraternities/sororities, professional student groups, classes, summer/new student orientation, community groups, etc. Workshops can be requested via the OFS website.

Personal Finance Courses (Financial Survival/Financial Success).
The Personal Financial Planning Department offers many valuable classes on a wide range of personal finance topics. Since arriving at MU, I have added two 1-credit courses to that curriculum (designed for non-majors). Financial Survival is written as a ‘front end’/underclassmen course: understanding student loans, credit/ credit cards, financial pitfalls, etc. Financial Success is designed to be a class taken on the back end [as one approaches graduation] to address issues such as managing debt after graduation, 401(k)/IRA plans, general investing, insurance, homeownership, and other post-graduation financial issues. Both courses [currently] are available fall and spring semesters; Financial Survival is also available this summer.

Web Resources.
Most people today use the Internet to gather information. The OFS website was created to provide a resource that could direct consumers to useful financial information. Information about budgeting, debt management, credit/credit cards, investing, taxes, insurance, student loans, and a lot of other issues are all available on the OFS website.

I am pleased with the great things the OFS has done in such a short period of time. The Personal Financial Planning Department, the financial backing for the OFS, deserves much of the credit for its early successes since their support is the reason we exist!

Director – Dr. Mark Oleson
Student Assistant – Sam Miller (2006-07)

Website – http://financialsuccess.missouri.edu
Blogsite – http://mufinancialtip.blogspot.com

E-mail – financialsuccess@missouri.edu
Phone – (573) 882-2173

Kamis, 24 Mei 2007

Student Loan Consolidation - "What if my loan is sold?"

I almost feel apologetic in writing on this topic since it seems I do it so frequently; it is, however, one of the most commonly queried topics (student loan consolidation) as well as one of the least understood/most confusing issues. When consolidating federal loans (after graduating), seek out the program that will save you the most money: Educational Loan Company, North Carolina, The Loanster, FinanSure, and Key Bank are examples of programs that offer the best borrower benefits (depending on your selected repayment strategy – see 4/25/2007 tip).

Many students become confused thinking they need to consolidate with their existing lender or the Dept of Ed (in the event that’s not their lender) in order to get the benefits of “federal consolidation” – neither case is true. You can consolidate wherever you want; and regardless of the federal consolidation program you use, the loan will always be regulated by the federal government (meaning your ability to defer the loan, and the other benefits associated with a federal loan will apply regardless of who you choose for your lender to be) … Many students have been asking the question “What if the lender sells my loan?” The obvious concern is that I don’t want to find a program with good financial benefits that I will lose when/if they sell my loan to someone else (an obvious [and common] bait and switch tactic). Asking the question of whether a lender will sell your loan is the wrong question to ask, however – the question you need to ask is whether or not the lender will offer something in writing that will enable you to keep the advertised benefits in the event that the loan gets sold to a different lender. Ultimately, does it really matter who you’re paying if you’re receiving the best benefits? I don’t think so. I share the example regularly of moving to Columbia about two years ago. When shopping for a mortgage, my only real interest was in getting “the best deal” (lowest interest rate; lowest loan fees). About two or three months later, our loan was sold. Did that bother me? No. The rate that we’d contracted earlier was established, so the only change was who payments were made to. This is what you want to ensure with your federal consolidation – don’t be concerned about whether or not the lender will sell your loan; rather, find out whether or not they will guarantee your benefits in the event that it does get sold.

NOTE. I'm sure several of you have already consolidated your loans, not fully understanding the issues I just outlined (the primary irrelevance of who your lender is [from the standpoint of deferment and other general 'federal loan' benefits], or the vast difference in benefits that companies may offer). Understand that if you're in your grace period and the loan has not yet been consolidated [it is scheduled to be done at the end of your grace period], you can likely "get out" of the loan and reconsolidate elsewhere ...

Rabu, 16 Mei 2007

Selecting an Insurance Company

For most, the selection of an insurance company is based upon one issue – price. Price obviously plays a very critical role in shopping for insurance. Let me suggest some other things to consider when selecting an insurance company (Source: Insurance Information Institute) …

Licensing. Not every company is licensed to operate in each state. As a general rule, it is good to work with a company licensed in your state because if you have a problem, you can rely on your state insurance department to help out. Go here to find a listing of companies licensed in your state.

Financial Stability. Insurance is purchased to protect you and your family financially and provide peace of mind. You should purchase insurance through a company that is solidly ranked in terms of credit (financial standing; likelihood of payout). It would be unfortunate to have the company be unable to pay because they’ve gone out of business. A.M. Best, Moodys, and Standard & Poors are three of the most common agencies that rate the financial strength of insurance companies.

Service. Your insurance company and its representatives should answer your questions and handle your claims fairly, efficiently and promptly. You can get a feel for whether this is the case by talking to other customers who have used a particular company or agent. You may also want to check a national claims database to see what complaint information it has on a company (state insurance departments provide this information on their website – see resources below). You have a right to quality customer service.

Comfort. Ultimately, you should feel comfortable with your insurance purchase, whether you buy it from a local agent, directly from the company over the phone, or over the Internet. Make sure that the agent or company will be easy to reach if you have a question or need to file a claim. You should never feel pressure to buy certain products – your agent should serve as an ‘educator.’

Complaint Index. If you find that after reviewing these items that companies are tied, a complaint index could serve as a good tiebreaker. A complaint index measures how many complaints are received over a period of time relative to the amount of money brought in through premiums. View Missouri’s complaint index. A national complaint database is also available.

Cost. Initially, I mentioned the importance of examining other issues, but there’s no denying the fact that price should be part of your “shopping equation.” Policies and prices will vary dramatically from company to company; as a result, most consumer advocates suggest pricing 3-4 policies before making a decision [use the Internet as well as agents]. Many state insurance departments publish guides to assist with your ‘insurance journey.’ See resources below for a link to all state insurance departments.

So whether your priority is to find a good neighbor; feel inclined to be in good hands; or have an affinity for lizards, shop around. Make sure you’re comparing apples with apples (similar types and levels of coverage). Lastly, review your insurance at least once a year to ensure that the company you’ve selected and the product you’re utilizing continues to meet your constantly changing needs.

- Information on insurance for various life stages
- NAIC “Insure U” – Get Smart About Insurance
- Shopping for insurance online:
---> Insurance Finder
---> Insure.com
---> Insurance Web
- State Insurance Department Websites
- What companies offer what insurance products in your state?

Sabtu, 12 Mei 2007

Financial emergency brings one couple closer together

A financial crisis like a job loss can put enormous stress on a marriage and a family. But it can also bring deeper problems to the surface that can turn it into a blessing in disguise.

For instance, Sara and Tom always considered themselves a typical American family when it came to their household finances. They each worked full-time, carried some credit card debt, and generally lived within their means.

But in the back of her mind, Sara knew something wasn’t right. Whenever she sat down to pay the bills, she felt a sense of fear and insecurity. “We’ve always been okay financially. We didn’t overspend and we are not extravagant people, but we didn’t have an emergency fund,” she said.

In a financial bind
Like many people, Sara and Tom [I’ve changed their names to respect their privacy] felt there was no reason to expect a financial crisis. They both have good jobs—Tom is in the New Jersey state government, Sara is a sixth-grade science teacher—where they’ve worked for more than 20 years. But in the spring of 2004 Tom had to stop working due to a serious illness, putting the family in a bind.

“We needed to learn how to live on one salary when we were just doing okay on two salaries. We didn’t know how we were going to do it,” Sara said.

I met Sara and Tom through Good $ense, a financial counseling ministry I serve with through our church. While a crisis had prompted them to seek counseling, it was evident that Sara and Tom often were not on the same page financially. Sara is more of a saver, Tom more of a spender. Money was often a source of conflict in their marriage.

Accountable to their budget
As their counselor, I helped Sara and Tom examine their income, assets, and spending patterns. They learned how to create a spending plan for their family each month, something they had never been able to do before. Each time we met, they stayed accountable as to how well each was sticking to the plan. As they began to monitor their budget and plan together how to pay their bills with less income, the stress and conflict caused by the money problems subsided.

“[The counseling] put us on the right track,” said Tom. Sara agreed, “It helped me to feel secure and safe when everything felt out of control.”

A catalyst for positive change
Thankfully, Tom has since recovered from his illness and is working again. Though the emergency is over, the lessons on budgeting and getting on the same financial page have stuck with them. A crisis turned into a catalyst for positive change in their marriage and financial life.

“The funny thing is, we were more financially together during that time of our lives than ever before,” Tom said.

Kamis, 10 Mei 2007

Consumer Action Handbook

Many of you have e-mailed your concerns regarding the recent hack into an MU database where the personal information of 22,000 people was recently compromised. I don’t want to focus a lot of time/attention on this since I dealt with the issue about 6 weeks ago in a tip, but I wanted to remind you of what you should be doing if you find yourself in the middle of this …

- Review the information from the financial tip dated 3/22.
- Think twice before buying the theft protection services that are sold.
- Review your credit reports. Even if you’ve already received your free report(s) for this year, as a potential fraud victim, you are entitled to free credit reports [for fraud]. Contact the three credit reporting agencies (Experian.com, Equifax.com, TransUnion.com) to order the free reports.
- Place fraud alerts on your reports (https://www.annualcreditreport.com) click on ‘fraud alert.’
- If you live outside of Missouri, you may be eligible for a credit freeze [Missouri has considered a bill but has not acted upon one yet]; read the tip mentioned above and you can find out if your state has a law in place.
- I would review my credit report monthly for the next 3-6 months. In most instances, activity that occurs will not show up immediately.
- Go to StolenIDSearch.com. You can enter your SSN and it searches a database of nearly 2.5 million compromised numbers. It will tell you if yours has been compromised or not. Secure site.

The Consumer Action Handbook, first published in 1979, is one of the most helpful and popular consumer resources. The free guide is designed to help consumers find the best and most direct source for assistance with their consumer problems and questions. Tips are offered on such topics as banking, making purchases (buying and leasing cars, housing), protecting against fraud, insurance, and resolving marketplace problems (includes sample complaint letters). Thousands of contacts for Better Business Bureaus; federal, state, county, and city government consumer protection offices are also provided.

Ordering Information.
- The booklet can be viewed online
- Order by phone: 1-888-878-3256
- Order online
- View contents in pdf format

Kamis, 03 Mei 2007

Private Loan Consolidation

Last week I addressed consolidation issues/strategies for federal loans. As promised, this week I will discuss consolidation of private loans (PL). Contrary to popular belief, you can consolidate private loans – the primary question you will need to answer is whether or not doing so is in your best interest. In most cases, it’s not …

Private Loan Consolidation Considerations.

* Cannot consolidate PLs until you’re out of school and beginning repayment.
* Cannot consolidate PLs with federal loans.
* Unlike federal consolidation – in the vast majority of instances, consolidating PLs will leave you with a variable rate loan – NOT a fixed interest rate.
* Keep in mind that the best option/choice is often to leave them alone.

How do I know if consolidation makes sense for me?

* Look at the benefits of your current lender. There are very few companies (about 10) that will consolidate any private loans [regardless of lender]. Most companies will offer some type of consolidation or “refinancing” of private loans, but will require that you have loans with them to be eligible. That requirement will differ by lender; some will require at least one loan be with them, some may require that at least 50% of the consolidated amount be with them. Regardless, researching your current lender(s) is a good place to start.
* Shop around. As mentioned, there are a few companies that don’t have stipulations in order to use their consolidation/ refinance program. Here is the best list I’ve come across (http://finaid.org/loans/privateconsolidation.phtml). You want to shop closely the loan rates/terms because the lender, not the government sets the interest rates (most are linked to the Prime Rate or LIBOR Index).
* How does your credit look? Perhaps the most important question to ask is ‘How is your credit now’? and what did it look like when you first took out the loan(s). Private loans are credit-based – if you had poor credit with no co-signer, your current rate is inevitably high. You are the best candidate for PL consolidation. Your rate with good credit should never be worse than the prime rate (currently 8.25%), but could be 6% or more than that with poor credit. You possibly paid fees to take the loans out initially; most companies will assess more fees (not all) to consolidate the loans (1% - 3% is common, but I’ve seen fees that approach 10%) … these fees [along with maintaining a variable rate loan] are the biggest reasons why often you’re best not to consolidate private loans. If you had good credit all along, your loan situation is not likely to improve by consolidating. If you decide that PL consolidation does make sense for you, you may want to review my article on PL shopping – the criteria used to shop for the loan initially is the same for shopping for a consolidation company.

Selasa, 01 Mei 2007

My daughter's millionaire dreams aren't far from reality

Our oldest daughter Jessica said she wants to be a millionaire someday. At age 19, she’s off to a good start, and that substantially increases the odds of achieving her goal.

A few weeks ago, Jess took about $1,600 she’d saved from after-school jobs and opened a Roth IRA. With a Roth IRA, Jess can save and invest for her future, such as retirement. The money she puts in will grow without being taxed, just like a traditional IRA or a 401(k) plan. However, unlike those types of retirement savings vehicles, when she starts taking money out of the Roth IRA down the road, her earnings likely will be tax-free.

$100 a month to start
Naturally Jess isn’t thinking as much right now about retiring from her career as starting it. She’s in her second year at Northeastern University in Boston, majoring in journalism and cinema studies. Part of her education includes a semester working full-time at a local newspaper, so she’s been getting a weekly paycheck since January. Her plan is to put at least $100 a month into her Roth account for the foreseeable future, and beyond.

No school debt and lots of time
Jessica’s opportunity to build substantial wealth is enormous thanks to two huge advantages she has. First, she attends Northeastern on a full scholarship. She will graduate in a few years with no school debt whatsoever, which should help to keep her plans to save on track even while pursuing a career field where starting salaries often almost feel like minimum wage.

The second advantage is time. With a savings horizon of 40-plus years, Jess’ sacrifices of trendy clothes, late-night pizzas, and morning ice coffees in these college years could mean financial freedom and security in her retirement years. I’d bet some Baby Boomers today wish they had made the same decisions when they were her age.

It sure adds up
Not that Jess needs any motivation, but I e-mailed her these numbers to show just how wise she really is to start a meaningful saving plan at age 19:

(For simplicity, I based my calculations on a 10% average annual return on the IRA investments.)
  • By saving just $100 a month in a Roth IRA, Jess stands an excellent chance of being a millionaire by the time she is 63 years old.

  • If she increased her savings to $168 a month, she has a great likelihood of being a millionaire by her 60th birthday.

  • If she starts saving the maximum amount allowed for an IRA ($4,000/year in 2007, or $333/month), she could even have her first million by the time she turns 52 (not even “retirement” age).

Granted, $1 million in 2047 won’t get Jessica a retirement that is 100% financially secure. But unlike many kids her age, she already understands the value of saving and sacrifice to reach a long-term financial goal, and that will serve her well.

I couldn’t be prouder.