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Dollars and Sense

May 18, 2016

Q:

Is there one type of business that works best in a small town like Hicksville?

A:

I'm sure some types of businesses are more suited for a small town than others. However, there are things much more important than the type of business. Someone wanting to open anew business must do research to determine if there is a need for their product or service. They need to have knowledge of what they are selling not to mention practical experience.  All too often, people go into business just because they have always wanted to start a business or maybe they have an emotional attachment to what they are wanting to do. These are not good reasons for doing it. It doesn't matter how passionate you are about your product or service. If there is not enough of a market for it, you are wasting your time and money. Having  passion for something is great. However, you cannot let it stand in the way of making a goodbusiness decision like this. Make the decision with your head and research and not your emotions. Your margin for error is much smaller in a small community.

Q:

I've heard that banks sometimes go in partnership with businesses. Is this true?

A:

By virtue of lending money to a business owner, we are partnering with them. However, not in the sense that you are thinking. We don't own stock in their company, we don't make business decisions in the company and we don't help manage. If it gets to the point that we are makingdecisions, it means the business is in trouble and we are trying to avoid losing money. We neverplan on that happening and we don't want it to happen. Bankers are not interested in running your business if there is any way possible to avoid it. Obviously, we are glad to offer advice if itis requested. Otherwise, we don't interfere. Sometimes, when a business owner gets in trouble, they become too emotionally involved to make the tough decisions needed like   closing the doors. If our loan is in jeopardy, we help them with that decision just to avoidthings getting worse. We will do everything we possibly can to stay out of your business affairs but, we will get involved as a last resort.

Q:

What's the single most important thing in making a decision in lending to a business?

A:

Well, you may have heard the phrase, "numbers don't lie." When it comes to making a credit decision, the ability of the borrower to repay the loan is critical and we determine that by analyzing financial numbers. The borrower may have the best intentions in the world of repaying the loan but, if there is insufficient income to pay it, they won't pay. Hard work, character and experience are all important things to a credit decision but, the numbers are themost important thing. A lender could know the individual his or her whole life but, if they are attempting to borrow beyond their capabilities to repay, we won't loan the money. I've made the following statement many times over my career. I would much rather have you upset with  me because I rejected your loan request than to make the loan and have you upset with mefor taking your home or automobile because you didn't pay as agreed. I think most bankers  feel the same way. If they don't, they should.

May 11, 2016

Q:

The government is always giving economic percentages on the economy. Are they reliable?

A:

We read numbers like the CPI (Consumer Price Index), Unemployment Rate and the number  of new homes under construction. All of these ratios and numbers are for the entire country. People that are giving us this information (our government) are the same people who cannotstop the wasteful spending, stop welfare fraud and offer political favors for votes to keep  them in office. The economic numbers may possibly be fairly accurate. However, when they come from people like this, how can you believe anything they say. If you want a good feel for the economy, read what the big retailers are telling us about sales. If they are seeing anincrease in sales, you can feel better. If they are not experiencing and increase, it's a prettygood indication that the economy is still struggling.

Q:

Is the banking industry worried about something like a cyber-attack on their computers?

A:

It's not just the banking industry that's concerned about it. All businesses plus our federal government is concerned too. It's the number one threat to our country. Billions of dollarshave been spent over the past few years to protect computers against attacks from enemies abroad and criminals in our own country. However, to address your question, we are very concerned and have been for many years. It's one of our industry's largest areas of expense.  Is a cyber-attack possible? Anything is possible but, we have taken steps to minimize the riskof such an event and we will continue to upgrade our safety measures to stay on top of thisissue. We have to be diligent and the cost of system upgrades is a permanent item in ourbudget every year. I believe it is the same in all financial institutions.

Q:

Have many people have stopped having home phones to help their financial budget?

A:

According to some reports, about 40% of homes do not have a land line (home phone) and their cell phone is the only thing they have for calling and receiving calls. To be honest, I thought the percentage might be higher. I'm guessing it will go higher. Aside from wanting to save money, the other reason landlines are disappearing is due to the ever increasing amount of telemarketing calls they receive. I know there is a number you can call to get on a  "do not call" list. However, speaking from my own experiences, that is a waste of time. It doesn't work. I think most people feel the way I do. The people I want to receive calls from have my cell number. So, I don't need a land line on which 80% of the calls received weretelemarketers that I didn't want to hear from. With today's economy being what it is, the average person needs to save on expense anyway they can. Some people want or need a  land line and some don't. There is no right or wrong decision. It's just a preference.

May 4, 2016

Q:

Are the reports true that car sales remained good during the recession?

A:

 I have read numerous reports that auto sales have remained good while most other sectors of our economy have not been so good. Most retail businesses have struggled to keep their doors open over the past 10 years or so. Residential real estate sales have been soft for a  very long time. The answer to why auto sales have not been affected as much as other sectors is hard to pinpoint. Some say it is because the recession did not affect the higher income buyers as much and they went right on buying autos as if there were no recession.  Others say low interest rates kept sales going. I believe both reasons played a part in this.   However, I have another one to consider. The American public loves their cars. While it is short sighted during a recession, we just can't resist the urge to trade our vehicles from time to time. Very few people buy a car with the intend of driving it until it just quits running or  falls apart. I'm sure there are probably other theories as well.

Q:

Why is our government still giving money to other countries while we have a deficit?

A:

I don't pretend to understand our government's foreign policy. However, it is something that frustrates all of us. We hear about the trillions of dollars that our country is in debt but, we still continue to give away billions of dollars to other countries and, in many cases, these countries do not appear to have anything to offer us in return. Generally, our government does not offer any explanation for it other than humanitarian aid. I realize that some of this is necessary due to their strategic and geographic location. However, I think we can all agree that charity begins at home and we have some pretty bad situations right here in the USA. We should be asking more questions of our elected officials about foreign aid decisions.

Q:

I found quite a few silver coins in my parent's home after they passed away. Are they  valuable?

A:

This is not something that bankers keep up with unless they happen to be coin collectors and I'm not a collector. However, I do know that it depends on the age of the coin and the condition. Fifty cent and dollar coins used to be made of silver. But, silver became too  valuable to be used in making coins. We rarely see them come across a teller window. Start first by looking it up on the internet. There is very little that can't be researched on the  internet.  Also, you could try a coin dealer. They will know the value of your coins. Keep in mind, the dealer will not give you top dollar for your coins because they need to purchase   them at a price where they can make money or they won't stay in business very long. If you  want top dollar, you need to go to a collector who wants them for his or her own collection and not to resell.

April 27, 2016

Q:

Is it true that you can get a government guaranteed mortgage with no down payment?

A:

There are government backed programs out there that would allow someone virtually 100% financing and this is one banker that thinks it's a bad idea. It appears our governmentdid not learn any lessons from the housing and mortgage crisis of the past 10 years. This  type of financing is what brought about the hundreds of thousands of foreclosures on which lenders and our government lost billions of dollars. It is absolutely amazing to me thatthis is happening again. Many years ago, someone came up with the phrase "The Great American Dream." It was referring to the dream of owning your own home. To thousands offamilies, it became their nightmare and not their dream. The fact is, not everyone should own a home and renting is a good alternative. I would never encourage anyone to buy a home with no money invested and the fact that our government is encouraging this type ofthing is bound to end in disaster. If you can't afford the down payment, you can't afford thepurchase. There are too many unknowns that come with home ownership.

Q:

What do you think about some lenders offering a 72 month auto loan?

A:

I don't think they are doing the borrower any favors by going that long on an auto loan.   So, I don't think it's a particularly good idea. My guess is that most borrowers choosing to go for a 72 month auto loan couldn't afford the payment for a lesser period of time. The problem is, most people don't keep a vehicle that long and when they go to trade it in, they will probably owe more than it is worth. Six years is a long time to pay on a car. If you can afford to pay a larger payment on a shorter number of months, I would definitely do so.  If you need to go 72 months, just be sure you understand the risk involved. It would notsurprise me if a lender comes up with an 84 month auto loan which would make matters  worse.  

Q:

Since the Federal Reserve started raising rates, why haven't CD rates gone up as much?

A:

Most of the general public does not understand what the Fed interest rate is or how it impacts them. The Federal Reserve Bank can make loans to banks that are Fed members.  The rate you see in the news is the interest rate they will charge banks. What the generalpublic does not know is that a very small percentage of banks borrow from the Federal  Reserve and practically no community banks borrow from the Fed. The banks that borroware normally the very largest banks in the country. While the Fed rate is a key interest rate to describe what condition the economy is in, it really doesn't have an immediate impact on deposit rates like most people believe. Because of the insignificant impact it has on smaller banks, deposit rates usually lag behind a change in the Fed rate. Why? Because it doesn't  have an impact on our cost of funds or the interest rates we charge our customers on loans. Over time, if the Fed continues increasing their rate, you will see a delayed impact.

April 20, 2016

Q:

What is the biggest mistake people make in their personal finances?

A:

 There are several. But, there is one mistake that is universal with an average family. The biggest mistake people make is not budgeting for their expenses and needs. They just wing it.  Money is spent without a clue as to whether they can afford it or not. If your finances are notfilled with a lot of excess funds, which in most cases they aren't, spending money without a   budget is like sailing the ocean without a compass. In both cases you don't know where you are going. I strongly suggest that you develop a budget outlining your known expenses which tells you if there is excess for other things. A budget will force you to prioritize your needs and help you identify things that are not needs but simply your wishes. There is a big difference  between the two. This is a good practice for anyone. However, it's a necessity for those whostruggle making ends meet.

Q:

I heard that some states are making people work to get food stamps. Do you think this is right?

A:

A few weeks ago, there was a news report that disclosed a handful of states that are requiring people to do charitable work or some minimal kind of work in order to get food stamps. It's about time someone did it. I think every state in the U.S. should do it. I have to pay for my food. You have to pay for yours. Why should we have to pay for both ours and theirs? I'm aware that some are disabled and can't work. However, the majority of those receiving food stamps and welfare checks are just lazy and don't want to work. Anyone who doesn't believethat should do some research. Someone sent me a joke recently that is all too true to be funny. The joke is, "If you want to break up a large group of rioters or protestors, start handing out   job applications and they will disappear in a hurry." The insinuation is that hard working people don't have time for that kind of stuff. In the majority of cases, this is probably true.  

Q:

How will it impact taxpayers on the announcement that our country will be accepting a substantial number of refugees from other countries?

A:

It was announced a few weeks ago that the U.S. will be accepting thousands of refugees from other countries in a humanitarian effort. Based on what I have seen in news stories, the refugees will be given a certain amount of money to get their new life started in America andwe are helping foot the bill. There are varied opinions on this ranging from those thinking it's  a good thing we are doing to it being a ridiculous waste of taxpayer money. Each of us can decide for ourselves how we feel about it but, it won't change anything. It will still be done. Accepting people from other countries legally is what our country has done for centuries. However, the timing of this announcement is not good because we have a huge federal deficit as it is and now we have found another way to make it worse. It's a delicate subject with no easy answer.

April 13, 2016

Q:

What percentage of individuals receive tax refunds?

A:

It depends on which report you believe. One stated that 8 out of every 10 workers (80%) will receive refunds rather than having to pay additional amounts when they file their tax return.  Another report stated that 57% will receive refunds. I'm guessing the truth is somewhere inbetween those two percentages. My guess is 70%. Why do people get refunds? Because most working Americans find it difficult to save money. Therefore, they use the overpayment of  taxes as a way to save money for vacations, home repairs or something else they would like to purchase. Others just hate the idea of having to write a check to the IRS in April each year.So, they make sure that doesn't happen by having enough taken out each pay period to coverthe final number. Having more withheld from your paycheck than necessary may not be the  best financial planning move but, if it works for you, that's all that matters.

Q:

You mentioned previously that there are some who are fighting for a flat tax. Why don't youthink it would work?

A:

I haven't said a flat tax wouldn't work. I said I don't think it will ever happen. Even though it may be the fairest way to address income tax, there are probably too many lobbyists in Washington, D.C. who are fighting for the extremely rich individuals in this country againstthe idea of a flat tax. If there are some who are not familiar with it, I will explain a flat tax.  It means that no matter how little or how much money you make, everyone pays the same percentage of their income. If income tax was set at 10%, those making $50,000 a year wouldpay $5,000 in taxes. If you made a $1 million a year, you would pay $100,000 in taxes. On thesurface, it doesn't sound like a bad concept. I just don't think our elected officials in D.C. willever vote it into law. There are a lot of powerful people in this country who would fight itstrongly. Personally, I would be in favor of giving it a chance. I think it would help eliminate our federal deficit.  

Q:

 From a financial perspective, what do bankers look for in Presidential candidates?

A:

I can't speak for all bankers. However, I believe most bankers are conservative by nature. Therefore, most of them would likely try to see which ones are the most conservative. That does not necessarily mean Republican vs. Democrat. It means which ones appear to be  focused on finding ways to get a balanced budget and which ones are willing to make the  necessary cuts in spending.  We should care less about who is Republican or Democrat and focus more on who has the best plan to address the problems we are experiencing at thepresent time. Right now, those problems seem to be balancing the federal budget and national security. Other things like global warming might or might not be important but, I would not choose someone based on those kind of things. Everyone should decide for themselves who is addressing the important issues best.

April 6, 2016

Q:

Most of the Presidential candidates say they have a plan to fix the federal deficit. Should we  believe them?

A:

Some of the politicians may be sincere in believing they can do it while others don't have a clue. However, they say it because it wins voters. The truth is, some of them couldn't balance their check book much less balance the federal budget. The majority of politicians on the national level have never worked in the business world. They are career politicians. They may  be educated but, that does not replace practical experience. Don't take everything you hear  from political candidates at face value. They know what you want to hear and they say it but,it doesn't mean they can do it. So, the answer is no, they won't fix the deficit. Why? Because  they won't risk the votes by making the tough decisions that need to be made like cuttinguseless programs that eat up billions of tax dollars.

Q:

I've heard that charitable giving is down from previous years due to the economy. Is it?

A:

I don't have any figures to share with you but, common sense would tell us that charitable giving has gone down steadily during the recession. I don't think this has happened in oneyear. It has been a gradual thing over a number of years. Most of the general public is scared. They are afraid of losing their job, higher cost of living or just a desire to be morecareful with their money. Regardless of the reason, charitable giving has gone down steadily for a number of years. For some, it has been a case of prioritizing their choice ofcharities and discontinuing some while continuing others. Being charitable with your gifts is still important and we should do what we can. Unfortunately, the legitimate charities have  suffered through the recession with all of us. I did see an article recently that suggested weshould take time to learn more about a charity before we commit to it. That's probablygood advice.

Q:

Why do some articles on the internet try to scare retirees into thinking they are going to lose their Social Security?

A:

Every time I see one of these articles it disturbs me because there are some who tend to believe everything they read. Yes, the Social Security fund is in trouble. However, there are no credible reports from Washington, D.C. that should make anyone lose sleep over not getting their monthly check. These scare tactics are often politically motivated. For the  federal government to even decrease benefits to retirees would cause an economic disaster.When I hear anyone insinuate the government is taking care of the elderly, it is disgusting.  The Social Security system was put in place over 70 years ago, we have all paid into it and when we start receiving our checks, we are just taking what belongs to us. The fact that our government has tapped into the fund for things that were never intended is the reason the fund is in trouble. We earned the right to collect it. Don't ever listen to anyone try to tell you differently. Your checks are not going to disappear.

 

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