Poll: How Often Did You and Your Parent(s) Discuss Money?

National surveys indicate that the majority of parents across our country have never spoken seriously with their children about money. In our own surveys done with high school students, we also find that a majority of parents are not fulfilling their responsibility to raise children to understand how money and credit work and how to stay out of consumer debt.

More than half of the students we survey indicated that they’ve had, at most, two conversations about money in their lifetime with parents. And these were high school seniors!!!

What about you? Interested in describing your own experience about money conversations with your parent(s) from your formative years? In your teen years, how often did you have discussions with your parent(s) about money, credit and/or debt?

Thank you for your participation. Have a wonderful week!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Teaching First Graders about Money

I wanted to acknowledge our gratitude for a store in the area that made our work a little easier this month. In December 2011, we received word that the Walmart store in Caldwell, Idaho had approved our mini-grant application and awarded us a $750 gift. With those funds, we quickly purchased from Random House 400 copies of the Berenstain Bears Trouble with Money book.

Debt Reduction Services Inc reads and distributes book to elementary school childrenBooks in hand, I visited three first grade classes this week here in the Treasure Valley (southwest Idaho). In each classroom, we had a discussion about needs and wants as well as earning and spending money. We even had a fun (and brief) conversation about why it would be pretty pointless if money actually did grow on trees.

Next, I read the Berenstain Bears book to the entire class, after which we talked about way that the cubs were able to earn money and save it. We also talked about the chores that the children do around the home.

Finally, and this is always my favorite part of the presentation, I got to announce that I was sending each of the children home with their own copy of the book. Yea!!! I also send along a 2-page “Parent’s Guide for Talking to Children about Money,” since surveys show that most parents have never had a serious discussion about money with their children.

The teachers appreciate the presentations because the lessons correlate with the state’s achievement standards, plus they get a few extra minutes to catch up on their own work during the class. All in all, the presentations were enjoyable and successful activities.

Do you know of a teacher whose class could benefit from a book reading (usually K-4), a presentation about money and spending habits (probably 5th grade and above), or about credit and interest (9th Grade and higher)? Please let me know or have them contact me. All such educational services are free if their within about an hour of our offices.

Have a fantastic week!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on January 13, 2012 at 11:31 am  Leave a Comment  
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What Is a Realistic Amount for Emergency Savings?

April 30, 2011

Emergency Savings Tips from Debt Reduction Services IncChances are that if you’ve ever looked into how much money you should be putting away as an emergency/”rainy day” fund, you have found that most financial experts, including myself, will suggest something like three to six months’ worth. The question, though, is three to six months’ worth of what? Gross income? Net income? All household expenses?

Here’s my take on this vital subject. First of all, it is my opinion that having an emergency fund is one of the top two or three indicators as to whether a household will remain financially stable or remain living continually on the edge of a financial abyss.

Next, I differ from many professionals who advocate paying down credit card debts and establishing a retirement fund before ever working on an emergency savings strategy. When asked which of the three should be the priority (emergency fund, credit card debt repayment, or retirement funds), my answer is always the same: “yes.”

From my experience, emergency savings is an attitude that leads to action, so committing to saving regularly, even in small amounts initially, is more important than trying to figure out long-term amounts. Perhaps, an initial savings goals could just be having $1,000 in a savings account within a reasonable time (perhaps 6 months or a year). If you can achieve this, you’ll already be ahead of 85% or more of the general US population.

That said, to establish a truly effective emergency savings strategy, each household needs to look at their current income sources (usually some type of employment) and ask themselves, “If I were to lose my job today, how long would it take for me to find another job earning me/us about the same income?”

A recruiting specialist once shared her rule of thumb with me that I think works in many situations: For every $10,000 of annual income you receive from your current employment, it will likely take you a month to find a replacement position. That means that if you earn $30,000 a year, it will take you on average 3 months to find another similarly paying  job.

However, during an economic downturn, it would be safe perhaps to double that estimate. So $30,000 of annual income might take 6 months to replace.

Next, now that you have an idea of how many months you might be without income, multiply those months by the amount of money you would need not only to survive but also to be at least minimally comfortable.

  1. Include expenses such as rent/mortgage, vehicle-related costs, food, basic clothing, utilities, holiday and birthday gift giving, and any contracted services with penalties for early cancellation.
  2. Do not include expenses related to vacations and travel, dining out, external entertainment (think theater, cinema, clubs, concerts, etc.), back-to-school shopping, charitable giving, etc.

If you ever lose you employment (or if you have a major medical event), your household should go into financial lockdown immediately, cutting out all expenses under List #2 above while planning for those under List #1. Unfortunately, we all tend to be far too optimistic about our ability to find re-employment soon, leading many to continue to spend at current levels even though we no longer have steady income. Of course, even if you do qualify for unemployment income (for which many do not because of the circumstances leading to their job loss), it only replaces a small percentage of your monthly income.

In summary, if you earn $40,000 per year and have monthly expenses (under #1 above) of $1,800, you’ll want approximately $7,200 available to you in case of job loss (4 months x $1,800 = $7,200).

Where to keep your emergency savings?Does that mean that you should put it all in a savings account, earning .25% interest? Of course not. You want to earn as much interest as possible while also keeping the cash in a fairly easily accessible account (“liquid”). One possibility would be to work toward having four 4-month Certificates of Deposit of $1,800 each, with one maturing each month. Money Market accounts may also work as emergency savings vehicles.

Best wishes in developing and implementing your emergency savings strategy. It will take time and effort, but in the end, it will definitely be worth it.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on April 30, 2011 at 9:42 am  Comments (1)  
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Can Budgeting Be “Fun?”

April 20, 2011

Last night, I met with a couple in one of my classes and wanted to share their insight into what they were experiencing. They had come to my Budgeting (aka “Spending Plans”) class a couple of weeks earlier, and they shared last night that they were making solid progress.

They had not only gone home and talked about a household budget, Can Budgeting Be Fun?but they had put one together and had been having regular discussions about it. I was excited for them because I know how a household budget can affect the family finances.

When I asked them how they were feeling about the past couple of weeks, the wife shared that they were having “fun” working on their budget. Now, you have to understand that during many of my budgeting classes, I explain how the critical step missing in virtually all failed budgets (written financial goals) makes budgets “meaningful,” but that even I – a budgeting professional – don’t think of budgets as “fun.”

So, when she said they were having fun, I had to ask for clarification. I was doubtful, I must admit. But, as she began explaining how they were enjoying the process of working together on a budget and feeling more in control of their finances each day, I could actually tell that she really was enjoying the whole process.

Budgeting Brings Peace of Mind and Greater ControlThe feeling of lacking control when it comes to our household finances is very disconcerting for pretty much all of us. Regaining that control really can provide us with a sense of euphoria that will have us coming back to our household spending plan again and again. In that sense, then, budgets certainly can be and are “fun.”

How about you? What are the feelings you’ve had as you’ve taken back control of your finances? Please feel free to share.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Raising Financially Savvy Kids-Part 1

April 6, 2011

Some of the inherent responsibilities of parents include protecting their children and preparing them to be responsible adults in our society. Teaching children the proper management of their financial resources helps to accomplish both of these goals.

If the children in your family are similar to my own (and I would bet there are far more similarities than there are differences), they probably do not enjoy being lectured by their parents, nor do they learn much thereby. So how else are they supposed to learn to be financially fluent if they don’t listen to what we tell them? Well, we show them.

Further suggestions will follow today’s blog, but here’s an easy, fun and effective way to teach children that money does NOT grow on trees and that it must be properly managed and controlled:

  1. Pull out the game of Monopoly or any other board game that has play money in real denominations. If you don’t have such a game, you can print some play money from www.printableplaymoney.net.
  2. Gather the kids around the table to “play” a game. Count on spending anywhere between 15 and 45 minutes for this activity. This game is best for children 8 or 9 years old or older, since they’re getting to the point of being able to grasp abstract concepts. You can tell them you’re going to play a game to show them how Mom and/or Dad makes and spends money every month.
  3. Explain the rules, such as, “We’re going to count out how much money Mom and/or Dad make every month and put it in the middle of the table. Our goal is to spend it on everything we need and then on things we want without running out of money.”
    At this point, you may choose to explain your feelings that you are sharing information that is only meant for your family, and that you are trusting the children not to talk to their friends or to extended family about how much money Mom and/or Dad make.
  4. Teaching children the realities and the value of household budgetingEnthusiastically and dramatically count out of the bills how much money your household makes every month. This should be gross income (before taxes and other deductions). Enjoy the look of astonishment on the children’s faces while it lasts. For many, any amount over $100 might lead them to think that the family is RICH!!!
  5. Explain that the first thing that comes out of the monthly income is Taxes. Remove from the pile of money in the middle of the table the amount of taxes you pay each month. To raise a financially responsible child, you should explain the benefits that come from paying taxes, including security provided internationally by our armed forces, security provided locally by the police and/or sheriff,  transportation infrastructure, schools, laws, health and human services, public transportation, and more. Avoid complaining bitterly about taxes, though it may be educational to explain how we have the right and responsibility to vote for representatives in our government who we hope feel the same way we do about how taxes should or should not be used.
  6. Next, explain that other amounts come out of your paycheck before you receive any money, including Medicare and Social Security (FICA), in addition, possibly, to insurance premiums and retirement account contributions. Remove the amount of your monthly deductions from the pile of money in the middle of the table.
  7. Teach children the importance of committing to saving for emergenciesNext, explain to the children that you have committed to paying yourself first, in case of emergencies, so that there is a specific amount that you put into your savings plan right off the bat. Let them know that this amount is non-negotiable, and that as they grow up, you expect them to do the same. Many children, even fairly young ones, may take comfort in knowing that their parents have a plan in place in case anything unexpected happens. Remove your monthly savings contributions from the pile.
  8. Then, ask the children if they think you should next pay for things you need or want? Explain what your survival needs are and remove that money from the pile. Typically, needs include shelter and security (rent/mortgage and their corresponding insurance and utilities), food and water (NOT including dining out), protective clothing (the very basics), and possibly medications or medical procedures.
  9. The next expenses to come out usually include things that make life comfortable and convenient, like transportation costs, child care, additional clothing, school activities, air conditioning in the summer,  etc. You may also include other obligations and loan repayments (credit card, student loan, signature loan, etc.).
  10. Continue to remove money from the pile until you’re left with “extra” money (usually pretty scarce). Remember to calculate the monthly amounts to set aside in order to take care of periodic expenses like vacations, car and home repair, holiday and birthday gift giving, etc. You may also consider including the children’s allowance or amounts they can earn through chores.

Going through this exercise every couple of years or so will help your children to realize that money is not an infinite resource, that it doesn’t grow on trees, and that their parents are in control of their finances. It generally has the added benefit of stemming the continual flow of the “gimmees” and the “buymees.” “Give me this” and “buy me that.”

Finally, letting our children “see” how important budgeting is to us will lead them to value it as well.

Have fun with this activity, and let me know how it goes.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Maximizing Benefit of Tax Refunds

March 15, 2011

Debt Reduction Services Inc suggests a sensible approach to using your tax refundIt’s tax return time. Many households are receiving tax refunds now or will over the next month or so., but too often, these refunds – which can amount to several thousands of dollars – are spent on consumer goods. Such emotion-based consumer spending typically has no significant impact on the household’s net worth or financial stability. Instead, it tends to perpetuate the mindless spending cycle that keeps too many American households stuck in the rut of paycheck-to-paycheck living.

Here is what we and other financial experts suggest such households ought to consider doing with their refunds instead:

  1. Set aside 25% of the refund for consumer spending, if the head(s) of the household feels “the urge to splurge.” This may help to satisfy the primal spender within.
  2. Add 25% of the refund to the household’s emergency fund. This should be held in accounts that are fairly liquid (or easily accessible). A savings account is a standard option, though its rates tend to hover somewhere between the average inflation rate and zero. Other possibilities include Certificates of Deposit that earn a little more interest than savings accounts. Money market accounts are also decent options, as well as interest earning online savings accounts. Rarely will you find an account that offers quick access to your cash but pays interest above the current rate of inflation.
  3. Use another 25% of the refund to pay down debts. Either send it to the account charging the highest interest rate or to the account with the smallest balance. Where I differ from many financial experts is that I also suggest that you consider paying down your mortgage debt. Even though there currently are tax incentives connected to mortgage debt, debt is still debt. Until a mortgage is paid off, the home owner’s freedom (to move, to rent out the home, etc.) is restricted, just as with any other type of debt.
  4. Lastly, use the final 25% to add to long-term retirement investments, including 401(k)s, 403(b)s and Individual Retirement Accounts.

Although some of these suggestions might not be relevant to some households, the remaining suggestions probably are.

Please feel free to share your own successes and experiences with your tax refunds.

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on March 15, 2011 at 10:53 am  Leave a Comment  
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Defining PovertyThink

January 7, 2010

I read this past week of efforts in many countries to eradicate poverty by, as some have phrased it, “paying the poor.” The generic term for such programs is “conditional cash transfers” (CCTs), meaning that the government essentially pays cash to families in poverty that meet certain criteria, such as keeping their children in school, having regular preventative medical check ups, and attending workshops on financial skills and disease prevention.

Reportedly, the CCTs can have a widespread positive impact on reducing the income gap between the wealthiest and the poorest in that country. Today’s topic, though, is not about the pros and cons of CCTs or whether we should implement one in the US. Rather, I’d like to address the less tangible side of poverty: PovertyThink, if you will.

Financial Evolution and PovertyThink-National Financial Education Center at Debt Reduction Services IncI would describe PovertyThink as a set of beliefs, attitudes, and accepted presumptions held by individuals of ALL  income levels that prohibit them from implementing, or cause them to  take action contrary to, wisely money management behaviors, particularly with regards to building a satisfactory positive financial net worth in a capital-base economy.

Please do not misunderstand my statement. I am not referring to poverty (deficiency of money, goods or means of support) as being a choice. I am talking about people of ANY income level that subscribe (usually subconciously) to PovertyThink as a view of the financial world and, consequently, who fail to achieve financial success or independence.

Following are possible indicators of the presence of PovertyThink:

  1. Blaming others, particularly banks and creditors, for your financial woes. After all, you reason, they are the ones who have sabotaged your finances by charging ridiculously high penalty fees for bounced checks, late payments, and/or other mistakes.
  2. A strong distaste for the rich. In your mind, being rich is driving luxury vehicles; vacationing at luxury resorts; living in large homes; having mountain retreats or ocean-side cabins; having a garage full of motorcycles, ATVs, or snowmobiles; dressing in designer outfits and suits; and be able to buy just about anything else you want. You feel that those who are rich probably don’t deserve, and certainly don’t appreciate, what they have.
  3. Obsessing over the lifestyles of the rich. In spite of your feelings about the rich, you are often prone to obsess about their lifestyles and dream about what you would do if you were “rich.”
  4. PovertyThinkers play the lottery, mistakenly believing it to be their best shot at wealthPlaying the lottery. You play the lottery because it offers you the best chance of becoming rich. You feel that  the lottery is a way to become rich without having to financially injure anyone else on your way to the top, as the rich often do.
  5. Believing that finances should be fair. You hold to the belief that life should be fair for everyone and that the riches of the world should be equally available to, in not downright divided among, everyone. It galls you as completely unfair to think that the “rich” have it all and you don’t. After all, you believe that the harder a person works, the more they deserve to be rich, regardless of what they do for a living or what they contribute to society. And since you work harder than the wealthy you see on television, you feel you are just as deserving of riches as anyone.

On the surface, these beliefs seem harmless enough. In fact, #3 and maybe even #4 seem to you to be attitudes that should actually motivate someone towards financial success. So how do these points above, collectively identified as PovertyThink, actually do more financial harm than good? Let’s address them one at a time:

  1. Blaming others gets us no where. Blaming the umpire or referee for a bad call, in fact, can get you thrown out of the game.  Blaming others for our financial woes just means that we’re throwing ourselves out of the financial game. What should we do, by contrast? Accept responsibility for (and the consequences of) our mistakes. This may mean additional fees, high interest rates, and more work for us in the short term. However, once we recognize that we often get ourselves into financial troubles, we also recognize that we are responsible (and capable) of getting ourselves out of them. No one else wants us to succeed like we do. It’s time to hunker down and approach our financial challenges with more focus, patience and wisdom. Lashing out only turns would-be friends to long-term foes.
  2. Beware of misconceptions regarding what it means to be rich and what it means to be wealthyThose who dislike the rich the most are often those who want to become rich the most themselves. Unfortunately, they also usually have a warped sense of what it means to be rich. For those in the grips of PovertyThink, being rich is a lifestyle or a certain amount of income. If someone earns, say, $100,000 a year, well, they may be defined by a PovertyThinker as rich. It’s considered whether the same person earning $100,000 a year is spending $110,000 a year, is deep in credit card debt, or is staring foreclosure in the face because they can’t take care of their mortgage payment. The same could be said (and often is true) for a large percentage of people who drive the fancy cars, live in the opulent neighborhoods, and dress and accessorize themselves in the most expensive fashions. PovertyThinkers assume that the rich are greedy and have oppressed others while they earned their riches. The irony is that those who live the luxurious lifestyles tend to have noticeably smaller net worths as a percentage of their income than most millionaires, who buy used, American-made cars and live in modest homes. This PovertyThink tenant is, therefore, based upon inaccurate assumptions.
  3. PovertyThinkers are often seen buying or reading magazines about celebrity lifestyles. They know what brands of clothing celebrities wear, what types of vehicles they drive, where they vacation, which celebrities have their children in a private school and where that school is located, etc. Because many of the truly wealthy typically shun the spotlight, there is no magazine that gives an accurate description of what a real millionaire’s lifestyle is like. So, PovertyThinkers use transitive arguments to equate celebrities (who tend to earn large sums of money) with millionaires (who, outside of their primary residence, have a net worth of $1M or more in assets such as investments, accounts, business ownership, and real estate). Unfortunately, not all celebrities are (or stay) millionaires, and only a very small percentage of millionaires ascribe much importance to the extravagant lifestyles of many celebrities.
  4. Every week, we can read of or watch on television the report of the latest multi-million dollar lottery winner somewhere in the US. PovertyThinkers will see a dream come true for the winner, because they think in terms of amounts and dollars. In reality, many lottery winners (even some of the multi-million dollar jackpot winners) end up spending and/or giving away ALL of their winnings within a few years. Some huge jackpot winners have notoriously ended up living in trailer parks or with family members because they did not have a true appreciation of how much money they had won. They figured that since they were millionaires, they could give away or spend whatever amount they chose. They soon learn, though, that even a million dollars is a finite sum.
  5. The idea that reward should be directly tied to effort is not new, though it is pervasive. “Johnny got an A for effort.” However, it is a fundamental reality that effort is only one of several factors that our society rewards financially. Others include competence, creativity, productivity, personal affinity, loyalty, and on and on. To base someone’s financial compensation solely upon effort is to deny the importance of the other factors. Such an inflexible practice would lead to stagnation in productivity and innovation. Unfortunately, PovertyThinkers who fixate on the importance of effort tend to shun or ignore opportunities around them to solve problems and create solutions that could otherwise lead them toward greater compensation and reward. Developing an entrepreneurial work ethic or style, even if one works as an employee for someone else, creates an entirely new way of considering the value of work as it relates to their income.

So what’s the answer for PovertyThinkers? Since becoming a financial educator, I’ve always felt that the formula for personal finance success has more to do with motivation than with numbers, math, or school grades.  PovertyThinkers, if left to themselves, often have to hit rock bottom or experience some other sort of life changing event before taking the decision to make changes. Otherwise, not surprisingly since this is coming from a financial educator, I believe education is key. Whether through workshops, webinars, conversations, or reading materials, learning about others who have broken the PovertyThink cycle and learning how they did so can provide the hope and belief that makes such individual progress possible.

Such stories are not hard to find. Most of us just don’t look for them or don’t recognize them in the context of breaking the PovertyThink cycle. A large percentage of rags-to-riches stories (excluding lottery winners and those who inherit their money) are case studies in overcoming PovertyThink.

Have a fantastic day!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on January 13, 2011 at 11:45 am  Leave a Comment  
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Debt Repayment Options Made Simple

December 20, 2010

One of the most talked about, written about and thought about financial topics in this country is, and has been since its founding, the best way to get out of debt (and then, hopefully, stay out of debt). Yet for all of the tongue wagging, ink wasting, and energy squandering on this endeavor, most American still have an extremely poor, if not completely mistaken, idea of what options they have available to them when they are ready to repay excessive consumer debts.

So, below you’ll find my unofficial “The American Consumer’s Guide to Debt Repayment Options: the Abbreviated (and just about all-you-ever-needed-to-know) Version.” I have listed them in order of their typical impact upon an individual’s credit history and personal finances, from least to greatest, according to  my own opinion:

  1. Pay your debts off on your own
    Minimum Payments Option: Make only the minimum payments requested by your creditors, and it’s quite possible that you’ll need 15 to 25 years to get out of debt – assuming you never use your credit cards again! NOTE: This is universally accepted by financial experts as a poor choice since minimum payments are designed to maximize interest (profits) from your own pockets to those of your creditors.
    Level Payments Option: Never pay less than this month’s minimum payments, even as creditors begin to request a smaller and smaller minimum payment because of a decreasing total balance. NOTE: Realistically, this could have many consumers out of credit card debt in just 5 to 6 years without any direct impact on current household spending levels.
    Extra Payments Option: Use the “Level Payment Option,” but add an extra $25 to $50 (or more) to the payment for the account with the highest interest rate (or, also not a bad choice, the account with the smallest total balance). NOTE: Many such consumers can pay off a $5,000 credit card debt this way in just 3 years!
    Equity Loan Option: Borrow money against the equity in your home or other asset and pay down your credit card debt. NOTE: On paper, this seems like a no brainer, since such loans are often at low interest rates and can have definite tax advantages to them. The problem for many (actually most) who choose this option is that within one or two years, those credit card balances that they paid off with their home equity loan will creep back up to their original amounts, meaning now the consumer will be dealing with the same credit card debts AND be at risk of losing their home because of the additional home equity loan. This is NOT the best option UNLESS the consumer has made a total commitment to budgeting their expenses and reining in any expensive or impulsive lifestyle issues.
  2. Debt Management Program:  A  modified repayment plan available through nonprofit credit counseling agencies (disclaimer: I am employed by one such – see AICCCA.org for a list of nonprofit agencies nationwide). Such programs, known by their acronym of DMPs, target high interest rates and penalty fees. Credit counselors work with creditors to lower the consumer’s interest rates and/or cease any recurring penalty fees. While the debts themselves are not consolidated, the consumer makes just one payment per month to the credit counseling agency, which turns around and disperses the payments to creditors according to accepted repayment proposals. NOTE: Depending upon the consumer’s current credit history, there may be an initial drop in credit score due to the fact that accounts on DMPs must be closed to further usage, which may have a detrimental impact on the consumer’s credit usage ratio. However, FICO has not considered credit counseling as a direct factor in its credit scoring model since 1999, and on-time monthly payments have the greatest impact on credit scores. At the end of the DMP (which cannot last longer than 5 years), creditors should remove any notations on the consumer’s credit report referring to their participation in a DMP, thus leaving no lasting indication of DMP activity. Finally, while consumers can often work directly with a creditor to put into action a DMP for one solitary account, consumers with more than one account will usually find that their creditors are unwilling to provide interest rate concessions unless all of the consumer’s other creditors are also committing to them. That’s were the nonprofit agencies play such an important role.
  3. Consolidation Loan: This option allows consumers to replace multiple smaller debts with one large debt (and, consequently, many monthly payments with just one). NOTE: First, if you’re struggling to repay your debts, you likely have less-than-perfect credit, which means you won’t qualify for a consolidation loan at anything less than an astronomical interest rate. Even consumers who somehow find an affordable consolidation rate are then subject to same temptation as those who use home equity to pay down debts: to recharge those same credit cards back up to unmanageable levels due to poor money management plans and habits.
  4. Borrowing from Retirement: Some retirement plans allow the individual to borrow money or to outright withdraw invested money from their retirement account. There are usually extensive penalty fees associated with some of these options. NOTE: At the very least, the consumer who chooses this option becomes subject to the temptation to recharge their cards back to their original balances, just as the consumer who uses a home equity loan or a consolidation loan.
  5. Debt Settlement: You offer to pay the creditor less than what they say you owe them. Debt settlement can be done directly between the creditor and the consumer, or the consumer may contract with a third-party negotiator (which may even be an attorney) to pursue a settlement. NOTE: Now we’re getting serious. Debt settlement means, by definition, that you have no intention to repay in full the debts that you owe. Such intentions brought to fruition form the basis of a poor credit reputation that is circulated by consumer reporting agencies among potential lenders for the next seven years. Additionally,  fees from third-party negotiators can tally up to 25% or more of the original debt, leaving the consumer still having to pay a total of 80% to 95% or more of the original debt owed.
  6. Personal Bankruptcy: Generally considered the final option where consumer debt is concerned, a chapter 7 or chapter 13 bankruptcy provides legal protections to consumers who are overwhelmed by their debts to such an extent that their creditors are threatening (or actually beginning) to take away all or portions of the consumer’s assets. Assets may include, for example, a home, vehicles, or even income. NOTE: No one enjoys going through bankruptcy. It’s not a pleasant experience. While our own statistics show that there is a fairly significant amount of recidivism among filers (close to 20% have filed before and 3% have filed at least two cases of bankruptcy before their current case), most people end up in bankruptcy due to job loss (about 40%), poor money management (25%) or excessive medical expenses (19%). Going through bankruptcy likely means giving up a portion of control over your own finances and even some of your assets. The consumer’s creditors receive so little of the amount they’re owed that bankruptcy has a solidly negative impact on a consumer’s credit for 7 years and remains on their credit reports for 10 years.

I’m sure there are other, more creative, debt repayment options out there, so I invite you to share those of which you are aware.

Have a fantastic day!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Paradigm Shift in Personal Finance Attitudes: Millionaire Lifestyles

December 10, 2010

National Financial Education Center at Debt Reduction Services Inc-Personal Finance Evolution from Debt to WealthI generally have the pleasure of facilitating three to seven personal finance classes each week, usually around the Treasure Valley of southwest Idaho. Many of those classes are for high school students in an economics or a personal finance course.

Inevitably, whether I’m discussing budgeting, credit, avoiding debt, or effective consumer spending behaviors, questions or comments come up about wanting to be rich.

In a previous post (“What It Means to Be Rich“), I discussed what I believe is a good definition of wealth, as well as some important tips for reaching the level of being wealthy. Today, though, I’d like to share thoughts about the “millionaire lifestyle” that so many of our youth (and many in our adult population) so desperately want to live. Thanks to the extravagance of many in the entertainment, professional athletics, and other high-profile industries trumpeted in magazines and publications proclaiming themselves to be the luminaries of and guides to the lifestyles to which we, as patriotic American consumers, ought to aspire, many young people have a warped sense of who the wealthy are and how the overwhelming majority of them live.

To many of the students in the classes I visit, wealth is all about spending. There is little concept of how the wealth was created or of the finite characteristic of wealth. Too often, wealth is only for fulfilling today’s appetites for thrills, frills, and glitz designed to attract attention.

Such a view of wealth discredits the hundreds of thousands of millionaires who, typical of most in their group, have spent decades dedicating themselves to their business, their employment, their investments, and the management of their own money in order to reach such an achievement. And when they wake up one morning, look over their finances, and discover that, not including their primary residence, they have a net worth of over a million dollars, they do not then go out and begin buying fancy cars and designer clothing. It is not their habit.

One of my favorite series of books that help to enlighten us on the “secret” lifestyles of the rich is the “Millionaire Next Door” books by Thomas Stanley and William Danko. They may not be the most compelling of readings, but the substance of their surveys should shake long-held, though misguided, attitudes and beliefs too many of us and our children cling to.

Some of the most interesting findings:

  1. Most millionaires never purchase new cars. They buy and drive used cars.
  2. Most millionaires have never spent more than $55,000 (in 2010 dollars) on a new car.
  3. Most millionaires live in homes worth less than $300,000 (in 2010 dollars)
  4. The most common make and model of a millionaire’s primary mode of transportation back in 1996 was a used Ford Taurus, not a Mercedes or a Lexus or a BMW.

High school students in my personal finance workshops get a kick out of that last one, especially when I ask who, in the class, drives a Ford Taurus. It seems there’s always at least one or two, so I congratulate them as likely being on their way to becoming a millionaire.

My hope is that eventually, we can collectively teach our young people to value life as an experience and not as a race to collect and show off as much superfluous STUFF as our incomes will permit.

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Education@NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

Published in: on December 10, 2010 at 12:10 pm  Leave a Comment  
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Santa’s Not Comin’ to Town Quite Yet

November 15, 2010

I’ve always thought that Thanksgiving gets the short end of the stick when it comes to fall holidays. Christmas seems to invade stores almost as soon as kids are back on the school playgrounds after summer. Maybe that’s why I love Thanksgiving some much. It hasn’t been (and hopefully never will be) commercialized. Hopefully it stays the most home-centered of gatherings of our society.

Additional Thanksgiving expenses on decorations, travel, and entertaining can add upStill, just because it’s not been co-opted by Madison Avenue doesn’t mean we don’t, as a nation, spend a lot of additional money on the holiday. Thanksgiving generally means extra expenses in:

  • Travel: If you’re flying to your destination, you’ll generally spend anywhere between 10% and 50% less if you DON’T travel the day before Thanksgiving and the Sunday AFTER Thanksgiving.
    TIP: Consider flying out TWO days before the holiday and coming home on Friday.
  • Meals: Often, a portion of the extra money we spend on Thanksgiving meals can be recouped by enjoying leftover turkey sandwiches for a week or two afterwards.
    TIP: To make leftovers easier to deal with, separate them into smaller portions, place them in freezer bags, and pack into the freezer. That way, you won’t have to pull huge portions out of the freezer to use all at once.
  • Decorations: After travel, decoration expenses can be considered to be the most expensive “optional” expense of Thanksgiving. Whether it’s new Thanksgiving-themed plates and serving dishes, front door wreathes, pewter turkey-shaped napkin holders, or other household ornamentation highlighting the joys of fall, a spendthrift household could easily lay down an extra $200 or $300 each Turkey Day in making their dinner more festive.
    TIP: If children or grandchildren are available, use their pictures or artwork to decorate the house. Back a small photo of a family member with some construction paper and tie them around the napkin as a holder.
  • Entertainment: More and more families are deciding to spend the afternoon or evening of Thanksgiving at the movie theater. Whether Hollywood pushed for it or reacted to it, the demand is definitely there. That’s why many blockbuster movies often debut on Thanksgiving Day or that weekend.
    TIP:  Games at home can be more affordable and usually much more interactive, but if you insist on going to a movie, make the decision to skip the high-priced treats. After all, you’ll probably still be feeling as stuffed as the turkey was just a few hours before.

Have a wonderful, safe, and happy Thanksgiving Day and holiday season!

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney