Renovating Health Care

 

Over the past few months, several readers have asked me to write something about the health care debate.  I tried my best to publicly stay out of the debate, while maintaining my private opinion.  Now, we’ve a new law and it is my obligation to try to let you know what renovation means to you .  We will stick to 2010.

 

As a taxpayer:

 

·         Deductions – Currently, to deduct medical expenses on your Federal 1040 form, your medical expenses must exceed 7.5% of your Adjusted Gross Income (AGI).  That will change to 10% of your AGI, thus raising the costs of not being insured and paying your costs out of pocket.  Yes, you can include the costs of medical insurance in the sum of health expenditure deductions.

·         Taxes – For the relatively affluent, taxes will increase.  For single taxpayers with AGIs greater than $200,000 and for married couples with AGIs greater than $250,000, they will pay a greater Medicare payroll tax of 0.9%, applied to income above the threshold.  These household will also pay an extra 3.8% tax on capital gains, dividends, royalties, rents, interest, and other unearned income.  Let’s do the math and assume a married couple with $300,000 in Adjusted Gross Income, with a full $50,000 in unearned income.  They will pay an additional $450 in Medicare taxes ($50,000*0.009) and an additional $1,900 in federal income taxes on their $50,000 in unearned income ($50,000*0.038).

·         Tanning services – There will be a 10% federal levy on indoor tanning services.  This levy does not begin until July, so there is plenty of time to get a jump on swimsuit season. 

 

As an uninsured:

 

·         Medicaid will cover more people and Medicaid is being expanded to cover those with incomes up to 133% of the poverty level, or $29,327 for a family of four.  For those making more than that amount, they will be required to buy medical insurance, through one of the state-run insurance exchanges, with a premium cap ranging from 3% to 9.5% of income.

·         Individuals who earn more than $43,320 and couples that earn more than $58,280 will be required to pay full premiums for their medical insurance.

·         You cannot be denied medical insurance coverage for pre-existing conditions.

·         There will be no lifetime benefit cap, meaning that if you contract a dread disease and would exhaust your coverage at, say, $1,000,000, under your existing policy, that cap on benefits can no longer exist and your treatments would continue to be covered.

·         Insurance companies will be required to maintain coverage on dependents until the dependents are 26 years of age and children cannot be excluded due to preexisting conditions.

 

As an employer:

 

·         Tax credits will be available to those with 25, or fewer, employees to purchase insurance for their employees.

 

What can we say?  Not much.  As mother used to say, “The proof of the pudding is in the eating." So, we really cannot judge the true value of the health care bill, until we’ve lived with it. Without doubt, there will be multiple changes in health care legislation and great debates about the effect this law will have on our citizenry and our economy.  There is even less doubt that the merits of this shift in domestic policy will be the focus of our upcoming fall elections.

 

Regardless of where you stand on this issue, you have to agree that financial success is worth very little without health and that being healthy makes it much more likely for you to earn an income, leading to financial success.   Our nation has decided to help those that want to work toward success, a chance to receive health care in support of their goal.  When the day comes, however, where financial success is available to those without merit, we will have said good-bye to our collective futures.  Remember, there is no such thing as a free lunch.

 

 

 

How do you talk about money matters in the family?

When families experience conflict about money, it is really about something else. Money is a medium of exchanging goods and services with each other, but money conflicts are usually about who gets to have and do what.  Many national studies show that financial management difficulties can affect families of all types and at all levels of income.

Each family has to decide how they will handle their money—whether to pool funds, keep separate accounts or have some combination of both.  For many couples, however, less conflict occurs when each person has at least some amount of money that he or she can spend without checking with the other person.  This amount might be $5, $20, $50 or however much the couple decides is reasonable and within budget.  For example, each month a couple puts their paychecks into a joint account to cover bills and expenses, and then each person pulls out $40 that he or she can use for what they want.

What can make money decisions difficult is that family members may have different attitudes and values about money.  How money was used or whether money was talked about in a person’s family of origin can play a factor in people’s current money habits.  Their approach to money may be the same as how they grew up, the opposite or somewhere in between.

The key to managing money is to communicate, communicate, communicate.  And how and when people talk about money issues makes a big difference, as well.  As you talk, try to keep the following in mind.

·         Try to find a time when there are no other stressors (for example, after work and school may not be good, since people are tired and hungry). 

·         Give each person a chance to share without interrupting.

·         Try to stay calm—take a deep breath to focus.

·         Allow different opinions (no judging ideas or thoughts).

·         Avoid words like “always” or “never” (these words tend to put people on the defensive).

Take time to learn about each other’s values on money.  It will help you remember where the other person is coming from and how to address future issues.  The more family members know about each other, the easier it is to talk about concerns.

Here are some questions to help you get started or use the worksheet on page 4 from Communicating About Money and Money Issues www.ag.ndsu.edu/pubs/yf/fammgmt/fs592.pdf.

·         What were money issues in your family of origin? Who handled the money?  Who decided how money was spent?

·         Did your family of origin talk about money?

·         Is it important to save for the future?

·         Is it important to live in the moment and not worry about the future?

·         How should money be used for the current family?

·         What are family goals?

·         What are each person’s goals?

Remember that working out money issues takes many conversations and time.  Knowing how much money you have and managing your money are two different issues, but understanding each person’s approach can help your family set and reach financial goals.

 

Bean Game Activity

How can you help youth understand how families make financial decisions to meet their basic needs?

One way to start discussions is to have students go through the Bean Game (from University of Missouri Extension’s Building Strong Families Program-Money Matters topic).  Youth divide into family groups and decide how to spend resources to make it through the month.

Directions, discussion questions and Bean Game cards can be printed off at: http://extension.missouri.edu/bsf/money/moneyhandouts.htm

 

·         Divide students into small groups of 2 to 6 people. 

·         Each group becomes a “family.” 

·         You will need a set of cards and 20 beans for each family.  A set of cards has different categories, such as, housing, child care, food, etc. 

·         The family decides how to allocate their beans (money) for the month.  Give each group 10-15 minutes to spend their beans. 

·         If you still have time, take 5 beans from each group and have the families re-allocate their beans (scenario might be: someone in the family lost a job or got sick and the 5 beans represent that loss of income).

·         Group discussion (see cards for discussion questions)

·         Another discussion point: just because you save money by using family members or friends for child care (or to live with, etc.) someone has to “pay.”  You shift the burden, and that person pays with their time or resources.  Ultimately, it may look like your family is “making it,” but how have you affected someone else’s resources for the month?

·         How do you discuss these issues in a family?  What are some strategies to talk about money?

 

From University of Missouri Extension’s Building Strong Families Program, Money Matters topic http://extension.missouri.edu/bsf/money/index.htm

 

Lucy Schrader, MA Educational and Counseling Psychology
University of Missouri Extension, HES Extension Associate State Specialist

 

References

Allen, K. & Crawford, C. (2009). Money talks: Using communication skills to discuss finances. University of Missouri Extension. Retrieved March 2, 2010 from http://missourifamilies.org/features/divorcearticles/relations70.htm

Allen, K. & Crawford, C. (2009). Money talks: The value of understanding. University of Missouri Extension. Retrieved March 2, 2010 from http://missourifamilies.org/features/divorcearticles/relations70.htm

Osteen, S.R. & Neal, R.A. (2003).  Couples and money: Let’s talk about it, T-4201. Oklahoma State University Cooperative Extension Service. Retrieved March 2, 2010 from http://osufacts.okstate.edu

Pankow,  D. (2003). Communicating about money and money issues. Reviewed 2009; North Dakota State University Extension Services.  Retrieved March 1, 2010 from www.ag.ndsu.edu/pubs/yf/fammgmt/fs592.pdf

University of Missouri Extension. Building Strong Families Program: Challenges and Choices—Money Matters topic. http://extension.missouri.edu/bsf/money/index.htm

 

Living with "The Deficit"

No matter how much we try, we cannot ignore the growing federal deficit.  Even if we are not personally bothered by it, we are unable to listen to the radio, watch television, or engage in conversation with our friends without hearing someone talk about the deficit.  Yes, it is HUGE.  Take a look at these pictures I downloaded from the internet and you can see that the annual deficit is very real and our national debt is growing rapidly.  While I do not want to make you feel bad on a Friday morning, with 307 million Americans, the amounts equal to about $6,000 in debt added for each of us during 2009, with a total per person federal government debt of over $40,000 per person.  (I’m sorry to break this to you, particularly when some of you are still in high school.) (Source: http://www.kowaldesign.com/budget/ )

 

 

 

 

 

Given these pictures, it is prudent to ask the question, “What should I be doing with my money?”  To answer that question depends on what happens in the future and, since I lost my license as a fortune teller some years ago, we should think about what is likely to happen and, if it does, what we should and shouldn’t do with our money.

 

Three scenarios are talked about, when economists peer into their crystal balls.  The increase in government expenditures is generally expected to cause one, or all, of the following: Inflation, Higher Taxes, and/or a Weaker Dollar.  We’ll take each in turn.

 

Inflation

 

Do:

·         Buy Treasury Inflation Protected Securities (TIPS), loans to the US Government where their value rises with inflation, while they pay you a low, real rate of interest.

·         Buy a home or other real asset, whose value will increase with inflation.

·         Buy the common stock of companies who have a large base of real assets.

·         Delay repaying mortgages, if you have a fixed-rate mortgage, as the inflated dollars for future payments will be worth less

Don’t:

·         Keep your money in checking accounts, savings accounts, or other dollar denominated, inflation sensitive assets.

·         Be driven by fear of the future to keep you from making decisions to support your family and your goals.

 

Higher Taxes:

 

Do:

·         Look for ways to take capital gains now, while taxes are lower.

·         Convert your traditional IRAs to Roth IRAs; pay the taxes now, while taxes are lower.  (As long as the law doesn’t change, Roth IRAs are taxed now but not at withdrawal.)

·         Consider purchasing tax-free municipal bonds to protect you from higher taxes.   Moreover, if taxes increase, the bonds will become more valuable in the bond market.  (Focus on general purpose municipal bonds, as opposed to revenue bonds.)

Don’t:

·         Send your money overseas.  There is a large movement to reduce the advantages of overseas accounts.

·         Make your decision solely based on taxes, as other factors should determine the time to buy or sell assets.

·         Complain about the government, if you are not willing to work toward change.  Get involved and try to make a difference in the world we live in and the future we face.

 

Weaker Dollar:

 

Do:

·         Buy foreign securities, stocks and bonds.  Focus more heavily on companies that do not depend on exporting to the United States, such as companies that are crucial to any country’s infrastructure; communications, food, transportation, utilities, etc..

·         Focus you domestic investments on companies/sectors that export American goods or with large international operations.

Don’t:

·         Give up on the dollar.  America has proven herself over the past 200+ years to be the cornerstone of the world’s economy.  She’ll (i.e., “We’ll”) be very reluctant to relinquish that role.

 

Clearly, I don’t know what the future holds.  Each of us only knows what we want our future to be and we make decisions each and every day which either support our dreams for financial success or work against our dreams.  One of my students, Kelley, sent me an email yesterday and I noticed her signature line was a quote from Abraham Lincoln.  He said, "The best way to predict the future is to create it." 

 

I say, “Do It.”

 

Robert O. Weagley, Ph.D., CFP(R)

Chair

Personal Financial Planning

241 Stanley Hall

University of Missouri

Columbia, MO  65211

Living with "The Deficit"

No matter how much we try, we cannot ignore the growing federal deficit.  Even if we are not personally bothered by it, we are unable to listen to the radio, watch television, or engage in conversation with our friends without hearing someone talk about the deficit.  Yes, it is HUGE.  Take a look at these pictures I downloaded from the internet and you can see that the annual deficit is very real and our national debt is growing rapidly.  While I do not want to make you feel bad on a Friday morning, with 307 million Americans, the amounts equal to about $6,000 in debt added for each of us during 2009, with a total per person federal government debt of over $40,000 per person.  (I’m sorry to break this to you, particularly when some of you are still in high school.) (Source: http://www.kowaldesign.com/budget/ )

 

Given these pictures, it is prudent to ask the question, “What should I be doing with my money?”  To answer that question depends on what happens in the future and, since I lost my license as a fortune teller some years ago, we should think about what is likely to happen and, if it does, what we should and shouldn’t do with our money.

 

Three scenarios are talked about, when economists peer into their crystal balls.  The increase in government expenditures is generally expected to cause one, or all, of the following: Inflation, Higher Taxes, and/or a Weaker Dollar.  We’ll take each in turn.

 

Inflation

 

Do:

·         Buy Treasury Inflation Protected Securities (TIPS), loans to the US Government where their value rises with inflation, while they pay you a low, real rate of interest.

·         Buy a home or other real asset, whose value will increase with inflation.

·         Buy the common stock of companies who have a large base of real assets.

·         Delay repaying mortgages, if you have a fixed-rate mortgage, as the inflated dollars for future payments will be worth less

Don’t:

·         Keep your money in checking accounts, savings accounts, or other dollar denominated, inflation sensitive assets.

·         Be driven by fear of the future to keep you from making decisions to support your family and your goals.

 

Higher Taxes:

 

Do:

·         Look for ways to take capital gains now, while taxes are lower.

·         Convert your traditional IRAs to Roth IRAs; pay the taxes now, while taxes are lower.  (As long as the law doesn’t change, Roth IRAs are taxed now but not at withdrawal.)

·         Consider purchasing tax-free municipal bonds to protect you from higher taxes.   Moreover, if taxes increase, the bonds will become more valuable in the bond market.  (Focus on general purpose municipal bonds, as opposed to revenue bonds.)

Don’t:

·         Send your money overseas.  There is a large movement to reduce the advantages of overseas accounts.

·         Make your decision solely based on taxes, as other factors should determine the time to buy or sell assets.

·         Complain about the government, if you are not willing to work toward change.  Get involved and try to make a difference in the world we live in and the future we face.

 

Weaker Dollar:

 

Do:

·         Buy foreign securities, stocks and bonds.  Focus more heavily on companies that do not depend on exporting to the United States, such as companies that are crucial to any country’s infrastructure; communications, food, transportation, utilities, etc..

·         Focus you domestic investments on companies/sectors that export American goods or with large international operations.

Don’t:

·         Give up on the dollar.  America has proven herself over the past 200+ years to be the cornerstone of the world’s economy.  She’ll (i.e., “We’ll”) be very reluctant to relinquish that role.

 

Clearly, I don’t know what the future holds.  Each of us only knows what we want our future to be and we make decisions each and every day which either support our dreams for financial success or work against our dreams.  One of my students, Kelley, sent me an email yesterday and I noticed her signature line was a quote from Abraham Lincoln.  He said, "The best way to predict the future is to create it." 

 

I say, “Do It.”

 

 

A Strategy for Getting Out of Debt

Ryan H. Law, AFC

In response to the Credit Card Act of 2009 (most of which went into effect February 22) credit card issuers have raised rates, raised minimum payments, lowered credit limits and added on extra fees.  Here are some statistics:

·         53% of 2000 people surveyed reported an increase in their credit card interest rate in the past year.  One card jacked its rate up to 79.9%.  That’s not a typo – 79.9%!

·         26% reported reduced credit limits

·         21% reported increased fees

Source: Credit Card Tricks and Traps http://www.rd.com/advice-and-know-how/credit-card-tricks-and-traps/article175291.html

Note:  To learn more about the Credit Card Act of 2009 please see Dr. Rob Weagley’s article here: http://mufinancialtip.blogspot.com/search?q=credit+card+act.

So do you just have to put up with this from your credit card issuers?  Of course not!

If you are finished paying too much of your hard earned money to interest and fees then it’s time for you to develop a debt elimination plan.  Here’s what you need to do:

1.      Make a commitment to STOP charging things to your credit cards.  Cut the cards up, shred them or do whatever you need to do to stop using your cards.

2.      Build up an emergency fund.  If you use your credit card for emergencies you can avoid doing that in the future by building up an emergency fund.  Experts recommend you have 3-6 months of expenses saved up.  Make that your long-term goal.  For the time being, though, try to get one full paycheck in the bank as soon as possible.

3.      Gather up all of your recent statements and make a list that has the creditor name, amount owed, minimum payment and interest rate.  For our example let’s use the following numbers:

Creditor Name	Amount Owed	Minimum Payment	Interest Rate
Citicard	$14,567	$230	18%
Discover	$994	$60	12%
Visa	$7729	$262	29%
Student Loans	$19,334	$223	6.8%
Auto Loan	$21,000	$406	6%

 

4.      Pay the minimum on each card and any extra towards your highest interest loan.  A common mistake people make if they have an extra $50 is to put $20 on this card, $10 on another, etc.  If you concentrate any extra money on one debt, though, you will get it paid off much faster.

5.      Make Power Payments.  When you have paid off your first debt, roll that amount over to start paying on your next highest interest rate debt.  It would look like this:

Visa	Citicard	Discover	Student Loan	Auto Loan
$262	$230	$60	$223	$406
$262	$230	$60	$223	$406
-	$492	$60	$223	$406
-	$492	$60	$223	$406
-	-	$552	$223	$406
-	-	-	$775	$406

 

Can you see how powerful this technique is?  Using this technique can save you thousands of dollars in interest and shave years off your repayment time.

There is software available that will help you set this up and give you detailed payment calendars.  It was developed by Utah State University Extension and is available online, for free.  The software is called Power Pay and you can access it at http://www.powerpay.org. 

I plugged the numbers above into the software and here are the results:

Paying the debts off without power payments will take you 16 years, 10 months to pay off.  The total you will pay back is $112,104.09, with $48,480.09 being interest!

If you pay using power payments, though, it will take you 6 years, 5 months to pay off with a total payoff of $90,891.04 ($27,267.04 being interest).

Power payments save you 10 years and 5 months and $21,213.05 in interest!

There is also a feature on Power Pay where you can add extra payments, so if you are getting a tax refund you can plug that in there, or if you can devote an extra $100 to debt you can plug that in there.

I encourage you to take some time to plug your own information in the software to see how power payments will benefit you.  If you are a teacher I encourage you to use this software for an in-class demonstration and assignment.  Make some numbers up then ask your students to plug them in and come up with the answers to a series of questions (i.e. how much will the payment be to Visa in September of 2011?).