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This is a guest post from Jonathan, one of the writers at Master Your Card. The blog is all about teaching people how to be fiscally responsible, with the focus on helping readers to get out (and stay out) of credit card debt.
If you’re a parent then you probably know that your kids are always watching you and remembering the things you do. You may tell your kids that swear words are bad and you should never use them, but the one time you drop something on your toe and let out a hearty stream of cussing your kids think this gives them carte blanche to indulge in an occasional swear word.
In other words, the things you do have a huge influence on your kids whether you like it or not.
This is especially true when it comes to dealing with money. As a parent, you need to realize that you’re setting the stage for how your kids will eventually deal with money as adults. Remember: they watch everything you do, and they figure that’s the way it is supposed to be done.
Are you teaching any of these bad things about money to your kids?
Things just land in your hands. You’re walking through the store and your kid sees a candy bar she wants, so you grab it and give it to her. She then sees a coloring book she wants, and that lands in her hands too. At what point are you going to start explaining to your kids that everything in a store costs money?
Electricity is free. Even preschoolers can start to grasp the concept that all the resources they use cost something. Once they understand this they might actually start turning the lights off when they leave a room.
Saving isn’t a priority. Every kid should have a piggy bank and a savings account along with a parent who is willing to take the time to teach the basic principal of saving money. You should also make it a point to save money each month, and to discuss your saving methods with your kids.
The ATM is magic. The next time you stop at the ATM to get some cash, narrate the process to your kids. Otherwise you might inadvertently send the message to your kids that any time you need money, all you have to do is ask the ATM really nicely and voila.
Everyone has enough money. If your kids don’t ever witness you donating your time or money to people in need then they may not realize that there are people in the world who need help. Kids should learn that money can be a means to help other people and not just a way to buy a lollipop.
Delayed gratification? What’s that? Do you decide on impulse that you want something expensive (a new car, a new TV, or whatever) and then just go out and buy it on credit? You’re teaching your kids something dangerous: You don’t have to budget and save for the things you want. You can just get them and pay later.
Cash isn’t very useful. Do your kids ever see you using cash? If all they ever witness is you using your credit or debit card then they’ll have a hard time understanding what cash is all about. Make an effort to use cash once in a while and help your kids understand the basics of actual cash.
A job is just something we do. Do your kids actually understand why you head off to work every morning? Unless you tell them, they may not make the connection between working and income. Teach them about working to earn money.
Take a look at how you handle your own finances and then realize that this is probably how your kids will handle their finances unless you make an effort to teach them otherwise. If the thought of your kids eventually handling their money as you do now makes you shudder, it’s time for a change.
With my wife’s job change comes the addition of flexible spending accounts (FSA) for us to consider. A few days ago, we looked at the dependent day care FSA so let’s round up the discussion by looking at the health care version today.
Health Care Flexible Spending Account
With any FSAs, the main benefit is of course the fact that anything you spend on health care is from pre-tax dollars. While it’s arguably more work involved on our end to set this up, the cost savings benefit far out way the hassle. Also note that for you and your dependents do not necessarily have to participate in your employer’s health plan in order to participate in their FSA.
How it Works There are generally a few steps involved in the whole process:
Towards the end of the year, estimate how much you and your dependent’s out-of-pocket medical expenses will be for the following year and elect that as your annual amount.
An equal portion will be divided and taken pre-taxed from your paycheck towards the FSA.
Whenever you incur medical expenses, submit a claim directly to your FSA or use your debit card (more on this below)
Ways to Get Your Money In the old days, the only way used to be to submitting your claim by filling out a form and including all your documentation. This is followed by some days of waiting for checks to come just so we can line up at the bank to deposit it.
Direct Deposit Nowadays, many providers allow us to setup direct deposit. So at least we don’t have to wait for that check and wonder if it got lost in the mail.
Debit Card Another relatively new option is the FSA debit card. The convenience of this is amazing because you can just use the debit card as the form of payment and all FSA-eligible items will be deducted.
Do note however that while the IRS has required department stores, discount stores, and supermarkets to have the system in place to automatically determine eligible FSA items on the fly by the start of 2008, retail pharmacies have until the start of 2009 to do so. So take care in reviewing your receipts to make sure that all eligible items are being deducted correctly while all systems are either not implemented yet or relatively new.
Some Important Points to Consider
Save all your receipts. Your FSA provider may request for additional documentation for verification. Also remember that you still need to submit the receipts after you use your debit card for the purchases or else those expenses will be considered ineligible.
You will receive the full amount of your FSA annual contribution even if your payroll deductions have not reached the full amount.
Note the submission deadline for your claims because claims submitted afterwards may be deemed ineligible.
Unlike the dependent day care FSA, the IRS does not cap the contribution limits of the health care FSA. However, your employer may have a limit so remember to find out.
Remember your annual contributions and don’t waste unused portions because you lose what you don’t use.
I read in the paper on Sunday where an article suggested that instead of all the silly bailout, we ought to pass legislation to let homeowners deduct $2 for every $1 of interest that they pay. It’s a creative way to help the troubled housing and financial markets and one that I’d like to discuss today.
The plan is simple. Currently, those who are eligible can take the interest portion of their mortgage payments as tax deductions. So if you paid $10,000 in mortgage interests for the year, you will get a $10,000 deduction on your taxes. The proposal is simply that instead of $10,000, you get $20,000 in return. The benefits would be:
Lowers the borrowing costs for home ownership (the columnist’s rough calculation estimates that a 6% mortgage effectively becomes 3%)
Lower taxes for every kind of mortgages (long or short term, fixed or adjustable)
Puts money directly in mostly middle class people’s hands, where it could be spent (instead of banks getting the money and using it for anything but lending it out)
Might convince renter’s to buy a home because this favors the home side of the owning vs renting argument considerably
Possibly reduce foreclosures as there’s an added incentive for financially strapped owners to do more to pay their mortgages and keep their home
Sounds like it’s unaffordable but it should only cost $80 billion a year, compared with 10 times the amount we’ve already spent bailing out other firms like AIG
What I Think of This Plan Reading this article really caught my attention because this is much more creative than what we are seeing from the government so far. I think that congress should setup a suggestion box for people to submit ideas as to how we can help our current crisis. Sure, most of us are never going to produce something sophisticated enough, but many of us can write something comparable to a 3-page proposal that our Treasure Secretary did, not to mention that some suggestions might spark other ingenious ideas.
Going back to the plan though, it’s great because:
I completely agree with the fact that it will help promote home buying. I need to do a more serious calculation before I commit, but at first glance I will be buying a house if this bill passes.
This will artificially make me feel more wealthy, and I will spend more (unfortunate psychological flaw of mine and shared by most other people in the world but it’s good for our economy)
I will directly benefit from this. On a personal level, it will end up giving me so much money through the years.
For our country as a whole however, I do see a few issues:
While $80 billion is much less than the money that we’ve spent with other plans, it is $80 billion that is totally not recoverable. How much we can recover from the bail out money for the financial institutions are debatable, but we will get some of this back.
The $80 billion is a “per year” expenses, which quickly adds up.
This plan promotes excessive lending. If I could borrow money at effectively 3% a year, I’m going to borrow as much as I can and leave my savings/investments alone because I can make my money work for me at more than 3% per year.
Excessive borrowing is never good. (For examples, look around you, they are everywhere)
What Do You Think? Do you think this is a good idea? If you do, how should we promote it to the right people who can get this through? Let us know what you think.
For the first time ever, a company that my wife or I worked for offered flexible spending accounts (FSA). We were given two accounts to enroll in: Dependent Day Care FSA nad Health Care FSA. I will be looking into each of these in more detail. Today, let’s focus on:
Dependent Day Care Flexible Spending Account
In our society where dual income families are the norm, day care is almost a must for any young families. I’ve heard that people could spend $1000 or more a month on day care, so if we can use pre-tax dollars to pay for this, it would help the family budget significantly.
Another important point to note is that while the most common use of this type of FSA is for child care, elderly care is also considered under this plan. Adult day care and even nursing homes for parents that don’t live with you are all eligible expenses.
Check list for Determining If Your Dependent Care Expenses Qualify The government has set some rules for eligibility in order to prevent abuse. Check below to make sure all the criteria are met before you apply.
Both you and your spouse must have earned income, unless the person without income is a full-time student or is incapable (physcially or mentally) of self-care
The day care center must enable you two to work, look for a job., or attend school full-time.
You and your spouse must be paying at least half household expenses that you two reside in.
The reimbursed amount must be lower than either you or your spouse’s earned income
You cannot be using the funds to pay for care by your dependent, or for that matter anyone under the age of 19
The day care center you choose must be licensed if they care for more than 6 children
A Couple Look Out Regarding Day Care FSAs Even though the maximum you can contribute to this type of FSA is $5,000, your employer has the option of setting a lower maximum contribution so remember to find out. Also be careful when filling out the forms because some forms asks you for the full annual contribution amount while others asks for the per paycheck deduction amount.
Remember that with FSAs, you have to estimate how much you will need for the whole year in advance and you lose what you don’t use. Therefore, careful planning is crucial or else you will end up losing money instead of benefiting from this plan.
Last year’s records are a great place to start when planning for the upcoming year’s expenses. If your expenses largely revolve around a day care facility, speak to them about the upcoming year and whether there will be fee changes.
Ever wonder how many companies announced plans to participate in the US’s government TARP (Troubled Asset Relief Program)?
I did a little digging and as of November 18th, there were at least 25 companies either approved or planning to participate. Here’s an unordered list.
First Midwest Bancorp Inc. (FMBI) – Received preliminary approval for about $193 million worth of investment
South Financial Group Inc. (TSFG) – Applied
CoBiz Financial Inc. (COBZ) – Plans to apply
E*Trade Financial Corp. (ETFC) – Applied for $800 million
Associated Banc-Corp. (ASBC) – Preliminary approved for $530 million
Capital Pacific Bancorp (CPBO) – Preliminary approved for $4 million
Fulton Financial Corp. (FULT) – Filed an application for about $375 million.
Trustmark Corp. (TRMK) – Preliminary approved and will issue $215 million in senior preferred shares and $32.3 million in common shares.
Pacific Capital Bancorp (PCBC) – Preliminary approved for about $188 million
Heritage Commerce Corp. (HTBK) – About $40 million was preliminary approved
Banner Corp. (BANR) – $124 million was approved in senior preferred, $18 in common shares
Columbia Banking System Inc. (COLB) – $76.9 million was preliminary approved
Heritage Financial Corp. (HFWA) – $24 million in senior preferred, $3.6 in common stock.
Bridge Bancorp (BDGE) – Considering participation
Cascade Financial Corp. (CASB) – About $39 million
Midwest Banc Holdings Inc. (MBHI) – About $85.5 million in preferred, $12.8 million of common stock.
Goldman Sachs – part of the initial 9 banks that the government bought equity stakes into, along with the 8 below
Morgan Stanley
J. P. Morgan Chase & Co
Bank of America
Merrill Lynch
Citigroup Inc.
Wells Fargo & Co.
Bank of New York Mellon
State Street Corp
As I know, the TARP is a 5 year program that allows banks to borrow at 5%, an amazingly attractive rate given the circumstances. Do you have any relationships with these banks? Are you scared that so many already announced their desire to participate (and many more assumed to have applied but without any announcements yet)? Does it really matter to you?
I’ve contemplated about switching my checking account to the online high yield checking account (ING’s electric orange or ETrade’s online account come to mind) before. I will be honest, I wanted to switch not because I liked the other two companies better but mainly due to a high(er) yield when compared to my current Wells Fargo solution and the fact that without direct deposit, I might be hit with a monthly fee.
After careful thought, I stayed with Wells Fargo because people at the bank told me that I won’t be charged any fees based on my situation (I still had one direct deposit coming from other sources each month). While I’m losing the extra yield, I’m glad that I stayed because I now realize how important relationships with real people still are in this world where computers and automation are slowly taken over day-to-day tasks.
This realization wasn’t intentional. In fact, it almost costs us $50. My wife primarily deals with Bank of America, her financial institution of choice. Last week, we were shuffling around money in our all accounts, making CD investments and got an email from Bank of America telling us that we will be hit with 2 overdraft charges of $25 each.
The rest of the story should be obvious. My wife called up the banker that she has a relationship with, left a voice mail and the next day, the fees were waived. Could we have done this with a pure online checking account? Maybe. Would it be as easy, no way.
Off the top of my head, here are more benefits of having relationships with a banker:
Get Better Advice Because They Care More About You If They Know (Like) You
Possibly Better Mortgage Rate
Little Favors Like Waiving Fees
Higher Yields on CDs (The bank managers can all give you adjustments)
The biggest benefit I believe is getting better advice because having access to someone who actually knows the products that the bank offers is priceless. While I probably have the option to enroll is all the products on my own, there is practically impossible for me to research every little detail to make sure I’m getting the best deal possible. Having someone who knows my situation and offer advice is invaluable when there are choices.
Perhaps real relationships are still worth something in this day and age.
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