Archive for financial literacy

A Right of Passage…the VISA Logo

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Recently I had the pleasure of bringing my daughter through a right of passage. This is not something most would view as a right of passage, but for someone who is devoted to financial literacy I couldn’t help but take a pause. My daughter, 13 years old, just got her first debit card!

Over the last year, my daughter accumulated funds from babysitting and watching our neighbors’ animals – too large of a sum to be stashing away in her bedroom. She also experienced an incident last Christmas, where she was shopping for gifts for the family, took close to $100 in cash with her, and lost her wallet. This brought to my attention the need to extend her banking services and add a checking account. Along with the checking account came a debit card armed with… the all-powerful VISA logo.

After depositing the cash she had accumulated into the checking account, I found that she had more discretionary funds available than I did! At first she was a little reluctant to use the debit card, but soon she got the hang of it – so much so, that she spent $180 in one week – an amount likely greater than she had spent in the last six months combined.

My daughter quickly experienced a common psychological effect involved with spending, because people typically spend at higher rates when paying with a card than with cash. We always feel sad when we part with our money, but when we hand cash over to a cashier, we trigger an especially negative psychological response. This emotion decreases when we instead hand a card over to a cashier because the negative response is delayed until the moment when (and if) we check the balance in our account.

Despite the initial urge to comment on her spending, it didn’t feel right to tell her how much and how often to buy. It’s her money, and I could tell by her reaction to viewing her account balance that she had learned on her own how easily money can go when paying with plastic.

A Penny Saved Is a Penny Invested

Yesterday I was paying the bill for my toddler’s daycare, and bracing for the annual rate increase, only to be pleasantly surprised by a decrease. My three year old is now moving up from daycare to preschool. The difference between my former two year-old and my now three year-old is significant. Changes include ridding our house of diapers, not having to replace her wardrobe every three months, and no longer having to follow her around worrying about what she is going to get into.

As children reach the age of three, their budding independence allows daycare providers to increase the child-to-teacher ratio. This begins preparing children for a classroom setting and results in a decrease of $100 per month in my childcare bill. An opportunity quickly presented itself.

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Calculator from Bankrate.com

Instead of allowing these funds to get lost in my budget and spent on unnecessary items I will shift these funds towards my daughter’s college savings fund. I have already established a 529 college savings account through our state’s plan, the Oregon College Savings Plan. To date, her account has been mostly funded with birthday and Christmas funds from family members. Take a look at what shifting the $100 from her childcare expense to her college savings does.

Still, we know that with the rate at which college costs are increasing $41,892 is likely not going to be enough to fully fund my daughter’s college education. But there are more upcoming opportunities for me to increase this savings. In two years she will be heading off to kindergarten (wow, time flies) and this will significantly decrease my childcare costs. What if I invest that saved money and increase her monthly college savings to $300? Now I find my daughter with over $100,000 in her college savings account.Screen Shot 2015-07-07 at 5.03.57 AM

An opportunity to save money is an opportunity to invest money, and in this case, invest in my child’s future.

A Trip to the Toy Store

I recall when my teenage daughter was about five-years old and it was the first time we went to the toy store with the intent of her using her money, from a birthday as I recall, to purchase a toy. We had been to the toy store several times before selecting a toy for either her or a friend’s birthday and I assumed the experience would be the same, but it was not. The amount of time it took to pick out the toy she wanted exponentially longer, why? The only differing variable was this time she was spending her money.

She had the cash in her hand and by then she was starting to understand numbers well enough to start to recognize the toy prices that she could not afford and those that she could. I then recall when the option of getting multiple lower prices toys versus one higher price toy came up and then that started another debate.

I recall the torment in her eyes as she processed what was likely the most difficult decision she had been faced with so far in her life, at least in her mind. She even tried to negotiate with me to pitch in my own funds so that she could get multiple higher priced items, but I held firm. What did she decide to do? Honestly, I don’t remember. I just remember the lesson she had to learn and how I really had not realized that at the young age of five she was ready to start making personal financial decision.

Birthdays have proven to be good times for financial lessons for my daughter. In the coming posts I’ll share two more money lessons taught to my daughter after receiving money from her birthday.

Melody Bell
Executive Director

Determining the ROI on Your Next Home Remodel

Woman with tools.Each year my husband and I choose one large home improvement project to check off of our list. We have lived in our home for four years and luckily the inside was fully remodeled shortly before our moving in; so there was nothing that needed to be done. This left us mostly to the outside and our wish list was and still is long.

In the last several years we have done some great projects. Most of these projects were on our wish list. The exception was last year’s project, which ended up needing to be done. We have three pretty large decks attached to our house and all of them are high enough to where they need a railing. We had several items that we wanted to get to before replacing the decks, but unfortunately the decks did not agree and got to a point where they were dangerous. Other projects have included: building a gazebo (brought back my high school geometry knowledge), planting trees, installing a riverbed, added much needed storage (that included a really cool murphy bed).

We can justify these projects to ourselves by calling them investments and thinking we will get our money back, but we are kidding ourselves. There are some important aspects to be met in order to classify your home improvement projects as a good Return On Investment (ROI).

How long are you keeping the home?

If you’d like to start classifying your remodeling projects as an investment, you first have to determine when you would ever realize the investment. Is this a home you plan to live in long-term or are you planning to fix it up and sell it? If you plan to keep the home long-term then these home remodeling projects are not a financial investment, but merely an investment in your personal appreciation of your home.

Looking to flip?

If you foresee your time in the home as short-lived and want to determine where best to put your funds to maximize your resale; here are some suggestions:

  • First maximize the cosmetic improvements. A gallon of paint costs about $30 dollars and it is amazing what a fresh coat will do to the look of a home. Invite some friends over, buy some beer and pizza and make it a paint party.
  • Put the real dollars into kitchens and baths. These have shown to provide the highest ROI. Also, having kitchens and bathrooms in disrepair can be a deterrent for potential buyers because they understand the great cost involved in these types of improvement projects.
  • Add square feet. Is there an unfinished basement? This can be a great investment because it adds to the square-footage of your home and you know the saying…bigger is better.
  • Don’t neglect the yard. Landscaping is another area to make sure is well cared for. If nobody wants to drive up to the house because of the overgrown yard it will never be sold.

Understand the average remodel does not get back its full cost

The remodeling projects with the highest ROI still, on average, do not gain more value than the expenses incurred. If you are looking to be successful in flipping real estate there is a delicate balance between timing, getting a good deal, purchasing in the right area and putting your remodeling dollars in the right places. Not a job for the risk adverse or faint of heart.

Melody Bell
Executive Director

Financial Beginnings Hired Program Manager in Seattle

PORTLAND, Ore. March 27, 2015– Financial Beginnings, a Portland-based nonprofit that provides financial education programs, hired a program manager to bring no-cost financial education programs to the Seattle Area.

Financial Beginnings currently provides its programs to about 100 schools and community groups, serving 25,000 students each year, primarily in Oregon and SW Washington. Financial Beginnings has opened an office in Seattle, where all Washington programs will be managed.

Clinton Taylor has been hired by Financial Beginnings as the Washington program manager and will be opening the market. Clinton is currently pursuing his Master’s Degree in Organizational Leadership from Brandman University and holds a Bachelors of Science degree in Human Development from Warner Pacific College. He is a U.S. Army Veteran who served in Iraq Operation Desert Storm. Clinton is also a certified Washington State Associate Prevention Specialist, Inspirational Speaker, Life Skill Coach, and Master Workshop Facilitator. Clinton has over 10 years of professional experience working in the Social Services and Education field, specifically Employment and Training, where he spent most of his time assisting people with various barriers to employment, including ex-offenders, the homeless and at-risk youth.

For more information about Financial Beginnings programs or to request a class, please contact, programs@financialbeginnings.org.clinton head shot

What We Need: Student Education, Not Student Debt

A college degree is a product. Students pay a fee in the form of tuition and they receive an education. That education is a ticket to a better life in the form of higher earnings, or at least it always has been. College professors and administrators have bristled when I opine that their “product” should be viewed in terms of future earning potential. They would rather focus on the intrinsic value of education. UnfortuUniversity Student Begging with Mortar Board - Education Costsnately the ever-increasing cost of their product forces us to look beyond the intrinsic and seriously consider extrinsic value. Only with this information in hand can a student and his/her family make a wise choice about where to go to school, how much to pay for the degree, and what the future prospects will be for the graduate.

Some very disturbing statistics that I recently learned when I attended a community conversation bring into specific relief the need for a deeper consideration of the value of a college education:

  • In Oregon alone students borrow between $1.3 and $1.5 billion dollars in student loans each year.
  • Student loans amount to $1.2 Trillion in the United States.
  • Each year students in our country will take out $100 Billion in new student debt.
  • The state of Oregon provides only 11% of state college and university expenses the rest must be made up with tuition.

These numbers are staggering. It disturbs me to think what this level of debt means to the future of our country. I, therefore, ask: What is the value of a college degree in terms of life earnings? This is simplistic of me, however. One needs to understand other elements to even begin to fully answer the question.

The Payscale organization has developed a chart called College ROI that may help. Here is a link to the chart: http://www.payscale.com/college-roi/. Before signing onto a lifetime of debt students should at least consider some of the statistics. The chart provides some choice details such as graduation rates, the “ticket price” with and without financial aid, and how much debt the average student has when s/he leaves school. These and other considerations are important when trying to determine the value of an education from a particular college.

Students need to be well armed before entering the battlefield of college. They need many arrows in their quiver and understanding the value of their education is an important one.

Anne Lee
Director of OperationUniversity Student Begging with Mortar Board - Education Costs

Opportunities to Lower Your Credit Score and Increase Your Debt

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Retail marketing is incredibly effective at getting us to act in ways that harm rather than help us. Marketers appeal to our emotions and impulses. Often it is difficult to resist and that is why marketing is a very lucrative strategy for retailers. Here are some of the areas where we should avoid acting impulsively:

  1. You know the scenario…you are standing in the grocery store check-out line with your full cart waiting for the person ahead of you to finish checking out. At eye level you find screaming tabloid headlines, battery packs, sugar-laden treats, paperback books with racy titles, and the list goes on. These items have low prices, but they are not bargains. Resist the urge to reach out and add them to your groceries.
  2. At your favorite department store you have just handed the clerk the outfit you want to purchase that offers you the opportunity to save 15% if you sign up for a credit card right now. If you take this offer from multiple stores over a few months, your credit score could suffer. Each time the store checks your credit, it appears as an inquiry and multiple inquiries can result in a lower score.
  3. The clerk hands you the receipt for your purchase and you notice that you’ll get 15% off your next purchase as long as you purchase $50 of good within the next two weeks. Do you really need to return to the store to buy more? Think twice.
  4. Your favorite uncle gives you a $50 gift card and you go online to purchase that new sweater on sale for $39.99. Your gift card now has $10.01 available and you don’t find anything you want for that amount. Most people either forget the balance on the card, essentially throwing that money away, or purchase something in addition that increases their spending above what they had planned to spend. Gift cards are great as long as you don’t get lured into purchases you don’t need.

Before giving in to an impulse buy, step back and ask yourself, “Do I really need this or am I just reacting to the marketing hype?” You’ll thank yourself for resisting.

Anne Lee
Director of Operations

It Pays to Be Loyal

I am a loyal consumer. Over the years I have found a lot of convenience and saved costs by being loyal to the businesses I patronize. Some businesses have won me over though loyalty programs, while others have just served me well over the years and I have stayed with them because of that.

The loyalty programs make it easy. I only fly Alaska, stay at Kimpton and shop at Fred Meyers or Costco and put it all on my Capital One Venture card. Why? This year alone I have:
• Been upgraded to first class 75% of the time when I fly on Alaska.
• Have received two free night stays at Kimpton hotels and get upgraded most of the time. They even delivered a basket of candies and a platter of cheese to our room last month when we were staying there with our girls.
• Received almost $100 cash back from Costco, which covers the cost of membership.
• Been contributing to Financial Beginnings through Fred Meyer’s rewards program just by shopping there.
• Received $1333 cash back from Capital One year to date. Last year I got over $2000 cash back. (Note this only works if you pay off the balance each month so no interest is accrued)

It is not just loyalty programs that bring me in. My husband laughs that I still drive across town to go to the same salon for a pedicure or to get my dry cleaning done, but to me it is worth it. Have you ever had an experience trying a new dry cleaner, hair stylist or plumber to save a dollar or some time and then end up kicking yourself because they did not provide you what you wanted?

Being loyal to merchants has also brought me many benefits, such as:
• Putting me to the front of the list to schedule an appointment.
• Being more willing to take returns or exchanges.
• Providing me a better price.
• Sharing their network of discounts with me.
• Getting a free drink or larger pour.

Whereas, with the loyalty programs I am working with larger merchants, with these other merchants I think the smaller the better. If you build a rapport with the small businesses, you will be amazed by the loyalty they will have to you in return for yours.

Do you have any merchants you are utterly loyal to that you would like to share with us?

Melody Bell
Executive Director of Financial Beginnings

Is the Credit CARD Act of 2009 Already Out of Date?

It has been five years since the Credit CARD Act of 2009 was passed, has it made a positive impact? Is it out of date already? Here’s one reason why it might be.

I am what you’d call a ‘deadbeat’…no really. ‘Deadbeat’ is a term commonly used by credit card companies for those who pay their balance off every month. That means the credit card companies do not make finance charges or fees on my, except I do have an annual maintenance fee. Does that mean the credit card companies make no money on us? Absolutely not! Every time I swipe my card the credit card company is making money by charging the merchant a processing fee.

Last December, I blogged about how I got over $2,000 back from my credit card company. We try to put everything we can on the credit card because of the cash back we get on our Capital One Venture Card. I know of several others who utilize their credit cards to wrack up points or miles. The trick is making sure that it is paid in full each month. My husband and I have gotten into the habit of logging into our accounts each week and making a payment on our credit card so we don’t let our spending get out of control to where we cannot pay it off within the month.

Congress understood that consumers did not understand the terms of our credit card contracts and likely the power of compound interest. For years I have stressed to my students the importance of calculating how much you are paying for something when you borrow the money. I say “if you do not know when you will have the item paid for then you should not be borrowing to buy it”.

Now this can come as a shock right? Have you ever signed mortgages papers and saw how your interest over the life of a 30-year loan was two to three times the amount you were borrowing? It can be hard to swallow, but that’s a good thing.

Time and time again I’ve heard from students they assumed they were doing the ‘right’ thing by making the minimum payment on their credit card. “I got a bill that says to pay $25, I paid it, all must be well.” Not all think this way, but many do fall in the trap.

While lecturing about credit to my summer students I mentioned some of the aspects of the Credit CARD Act of 2009, one being the requirement that the credit card companies show on your statement how long it would take to pay off your balance by making the payment and the total, including interest, you would pay. In addition, the credit card companies are required to show you how much you need to pay in order to pay off the balance in three-years (assuming of course you do not charge anymore and your interest rate does not increase). I though about this for a moment and realized I had never see this on my statement?

Was my credit card company out of compliance?

No, because I don’t actually look at my statements. I receive electronic statement notifications, log in each week, review my transactions and pay accordingly. I am a ‘deadbeat’! I never actually look at my credit card statement. In order to view my statement I have to log into my account and download the pdf to look at my statement.

I am not sure how many customers opt to receive electronic statements, as I do, but I’m pretty sure the percentage is pretty high. We live in an electronic age that encourages us to, not only, seek instant information, but also be ‘go paperless’.

Do you agree this regulation might be out of date already? In 2009, electronic statements were very prevalent, why didn’t anyone think to also require these minimum payment calculations show on the home screen when you login?

It would make people think twice to see this right when they login. This comes from my credit card statement, which I finally downloaded and looked at. Why don’t they add a third option “pay in full” pay off now and pay “0” interest?

Would love your feedback!

Melody Bell

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Any Educators Ever Have a Similar Classroom Experience?

I thought in honor of the upcoming Financial Literacy Teacher Conference that I would share my own personal Educator story around personal finance and how excited I am that this resource is now available to Educators in Oregon.

I’ll never forget when I was teaching on the topic of personal finance in a career transition class (pre Financial Beginnings) and I had a student say to me, “why do I need to put my money in a bank?” I think I stumbled on my words for a bit and then I said, well, that’s just what you do.  Of course, I knew the importance, but honestly, it has been ingrained in me from a young age, that I was caught off guard by the fact that they even asked. Wow, if I knew then what I know now! I would have loved to have the opportunity to attend the Financial Literacy Teacher Conference.  I would have felt more confident in explaining the importance to the class, and not just base my reasoning off of something I have always done.  Many students don’t understand the importance of personal finance and maybe the first place they learn about it is from a teacher.

If there are any educators out there who have had a similar experience, come to the conference, so that you can feel more confident about educating your students and yourself!  Click here to register for the conference.

I’d love to hear if you’ve had a similar experience, share your comments below or send me an email, sarah@financialbeginnings.org.

 

-Sarah Janda