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Dollars and Sense

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.

March 30, 2016

Q:

What is the single biggest tax break we have ever been given?

A:

In my opinion, there has been nothing bigger than the Individual Retirement Account (IRA).  The IRA was introduced during the late 1970's as a way to encourage individuals to save money to supplement their Social Security. An IRA allows an individual to deduct up to 6%of their paycheck and deposit it into an IRA and defer tax on this income until you retire.  You must begin to use it by the age of 70 ½ years of age. You do have to pay tax on it as you begin using it but, presumably at a lower tax rate than during your working years. Millions ofpeople will live better lives in retirement because of the IRA. Unfortunately, there are also millions who have not taken advantage of it and they will regret it when they retire. Unless you are already retired, it's never too late to start and IRA. However, if you have another 20 to 40 years remaining in your work life, don't let this opportunity go by without taking advantage of it.

Q:

I can't afford to do both so, which is better to contribute money to, an IRA or a 401K?

A:

If you can't contribute to both, I would say the 401K if your employer matches a portion of it.  An Individual Retirement Account (IRA) is something you do on your own and there is no onewho will match it. The reason for choosing a 401K is because a lot of employers match up to  50%. Obviously, this is the way to go if you can't do both. Employers who are matching a  portion of your contributions are offering a great benefit to their employees and everyoneshould take advantage of it. As a matter of fact, if this is the only type of savings program  you can afford, I would choose this rather than a conventional savings program. For starters, the conventional bank savings account deposits are made after taxes are calculated whereasthe 401K is taken from your paycheck before taxes are calculated. Doing the 401K is an easy decision from a financial perspective.

Q:

I was told it is a mistake to pay a mortgage down faster than the loan calls for. Why is that?

A:

No disrespect to your advisor but, I think you have received some bad advice. Some could argue that if you have mortgage life insurance, it might be better to not pay it down faster because if something happens to you, the insurance company would pay the loan off.  However, that is betting on something highly unlikely if you are a young person. Another argument could be that if you have other debt, you should be paying more than required onthis debt and not your mortgage and I would agree with that. Not having all of your financial details, I can't say if this applies to you. However, if you have no debt except a mortgage on your home, you should most definitely pay more than the scheduled payment to reduce the   balance faster. If you can afford to pay more you are fortunate because most people cannot do it. The years pass quickly and being debt free is a goal of everyone's.

March 23, 2016

Q:

How many people e-file their tax returns rather than use mail service?

A:

I did a little bit of research on this and hopefully the information is reliable. Supposedly, 91% or 128 million tax payers e-filed their tax returns last year. This is an astounding number. My guess would have been much lower. The article went on to say that it has been growing steadily. In 2001 it was 31% and in 2006 it was 54%. If you are receiving a refund, this is thebest way to do it. I'm certain nearly all accountants can do this for their clients. If they don't,  I would ask why. It's not just the convenience of e-filing over using conventional mail service.  It also cuts down the time for you to receive your refund if you are receiving one and, it's deposited directly to your bank account. If you owe more, you can e-file any time and wait until closer to April 15th to pay the additional amount. If you were not aware of this option, I would check it out. Technology has changed the way we do many things these days.

Q:

It's that time of year when we hear stories about people getting refunds who did not pay taxes. Is this tax fraud?

A:

The instances I've heard about are not tax fraud. It's stupidity on the part of our federal government. It's just another way to give away money to people who did not earn it. As Iunderstand it, this happens with low income families. Let's use a family of 5 for example earning $20,000 per year and they had $1,500 deducted from pay checks. With standard that are available to all of us, this family could receive a sizable refund. I have  heard of instances where there have been refunds of up to $7,000 which well exceeds the amount withheld. Why should you care? Well, from a financial perspective, there are two  reasons. First, it's the rest of us who pay taxes that are paying for it. Second, it just adds to  our federal deficit for our kids and grandkids to inherit from us. I am sympathetic to thoseliving on low incomes. However, this is going too far and it's a slap in the face to all thosewho pay large sums of taxes year in and year out.

Q:

If residential real estate values have gone down so much, why have our tax rates not gone down?

A:

It is true that residential real estate has taken quite a fall over the past 8-10 years and there have been instances where individuals have filed objections to their tax rate and won. However, for the most part, our tax rates have stayed about the same. The only drop in therate has been when a levy has expired and the entity did not request a renewal. Keep in mind that your residential real estate taxes are not based on the marketability of  your   home. There are other factors in an assessment like the size of the lot and square footage  of your home and buildings. Real estate taxes do not necessarily follow sales trends. Iunderstand if this is frustrating to you but, it's one of the things in home ownership you have to accept. Real estate taxes either stay the same or they go up. Rarely do they godown very much. I still believe the positives outweigh the negatives when it comes to homeownership.     

March 16, 2016

Q:

Has on-line shopping caused some individuals to get into trouble financially?

A:

On-line shopping has become very popular the past few years and I think it is going to continue to increase. Even the notorious Black Friday shopping the day after Thanksgiving  allowed for on-line shopping to get the bargains. As to your question, the convenience of  shopping on-line does get some individuals into financial trouble. These individuals, some who have nothing better to do with their time, go on-line and they just cannot resist the convenience of buying something that they would not necessarily buy in the store. Someindividuals do all their shopping on line while others have never done it even once. Then you have people like me who will occasionally buy on-line but not very often. I think most peoplefall into this category. I have known of instances where individuals have racked up substantialcredit card debt by shopping on-line. I think it can be as much of an addiction as many otheraddiction.

Q:

How can college graduates pay for the high cost of an education if their parents can't pay for  it?

A:

Many of them don't pay for it. The total outstanding balance of student loan debt today isover a trillion dollars. Not a million and not a billion. It's over a trillion. That's more than allcredit card debt and all auto loan debt and a substantial part of it will not be repaid thanks toour government. The U.S. Government has made it too easy for people to go to college withnot enough jobs out there when they graduate. So, how can they pay for it? Now, there is anidiot who is running for President who wants everyone to go to college for free if he's elected.  That's not a political statement. He's just an idiot for thinking that's even possible. We are a  country so far in debt we can't see light at the end of the tunnel and he wants us, the tax  payers, to pay for everyone's education. Yes, there is a problem with student loan debt and   how to get it repaid. However, giving everyone a free education is not the answer. The answer is creating more jobs for people so they can pay their debts.

Q:

Why don't the Presidential candidates talk more about spending cuts they will make if  elected?

A:

Politicians may not be brilliant but, they are not stupid either. With over 50% of our country receiving subsidies and every politician having a special interest group that wants federal  funding, the last thing they want to hear is that a candidate will make spending cuts. This is why business types and not politicians are doing so well in the Presidential race. Those who  are not receiving subsidies and federal funding are sick of paying the bill for all this. The goodnews is that a higher percentage of people who don't receive subsidies will vote compared to  the percentage of those who do receive subsidies. At least we better hope that's the case.   Candidates will sometimes elude to spending cuts but, you won't hear one building their campaign around spending cuts because it won't get you elected. It will be interesting to see ifall this changes in November. It would be refreshing to taxpayers if it did.

March 9, 2016

Q:

Are tax refunds good for the economy?

A:

I don't have any economic impact numbers to share with you but, tax refunds probably boost the economy. There are some who intentionally have more taken from their paychecks thannecessary so that they can get the big refunds each year. It may not be the best financial approach but, it assures them that they will have this extra money each year with a purchase ofsomething in mind. Maybe it's a vacation or a home project. Maybe they put it in a savings  account because they are not disciplined enough to save throughout the year. Millions of dollars are refunded each year with a portion of it going back into the economy. Ideally, we should not have any more than necessary withheld from our paychecks. However, I won't criticize those that have excess amounts taken out. If this is the best way for you to accumulatefunds for out of the ordinary expenses, then do it. There are just as many wage earners who tryto get their withholdings to come as close as possible to owing nothing extra or receiving norefund at the end of each year.  

Q:

Recently you wrote that people who lost money on stock and bond scams were partly to blame. Would you explain?

A:

As I mentioned last week, what those brokers did was awful and they deserve to be in prison.  However, bankers across this country have been telling customers to be very careful about chasing high interest rates. Many did not listen and some ended up dealing with people they did not really know. It is always best to deal with people you know and not some fast talkingstranger. Why do I feel the people who purchased these investments should take some of theblame? I suppose it has to do with what I see happening in society today. There are too many people who want to blame someone else for their poor decisions. It's easier than taking the blame themselves. The ironic thing is, most of the people who lost money through these unscrupulous bond dealers, didn't need to do it. They had more than enough money to live on and the interest rate being higher wasn't that important. It was greed that drove them to go after more. I'm not diminishing the crimes that were committed but, there was willingparticipants and they paid a price.

Q:

Would it help our economy if there were a Federal tax cut?

A:

I'm not an economist. However, I do feel there is a bit more to it than just giving income tax cuts to American workers. We have a major Federal deficit and there has not been a plan proposed to cure this problem. Just cutting income taxes by its self would make the problem worse and it will take a lot more brain power than I have to come up with a plan. There has to be other sources of revenue or cuts in spending to resolve this issue. The unfortunate thing is,I don't know if they can all put aside political differences long enough to work together for asolution. It hasn't worked so far and everyone who has a vote also has a pet project that theydo not want to see cut from the budget and that's the real problem. Several Presidential candidates have announced a plan to cut taxes. However, the more intelligent economists tellus each of these plans has a downside that could hurt the economy more than help it and I  think they are right. The plans proposed are all slanted to help get them elected.

March 2, 2016

Q:

Why didn't more individuals go to jail during the stock market crash the past few years?

A:

Corporate crime surrounding the stock and bond market was a big story over the past decade. No doubt there were some unscrupulous Wall Street brokers that did some badthings. Most if not all of those individuals are in jail or will be before all is said and done. However, the problems on Wall Street became politicized and it was made to sound like it was all of them when it was a select few. They ruined people's lives by getting them to investin things that didn't exist or, much more risky than they were told. What most of the victims  fail to accept is that they were partly to blame for their losses. Interest rates were low on  safer investments like CD's in banks. So, many bought uninsured investments that were veryrisky in order to improve their income. Yes, the brokers lied to them. However, they gave intogreed and made these decisions of their own free will.   

Q:

Has a 30 year mortgage always been the maximum term for paying back a loan?

A:

The term of a mortgage loan has changed. I remember when I first came into the business, the maximum term was 20 years. Then, it went up to 25 years. I don't remember when the30 year amortization came into being but, it has been at least 25 years. The primary reason for stretching it out is the escalating values of real estate prior to the recession and mortgagecrisis. The value of residential property was going up much faster than people's incomes. So, that brought about the need to stretch out the payback period. If the lending industry had not  been willing to make this adjustment, it would have had a major negative impact on the real estate market. However, the longer term also played a part in the artificial increase in home values which has now been corrected. There have been a few mortgage loan companies whohave experimented with a 40 year mortgage but, thankfully, this has not been widespread  and I don't see that becoming the new normal.

Q:

Why are the lower oil prices a bad thing for the economy?

A:

Most of us are thrilled to be paying lower prices for gas and oil and we have a hard time understanding news reports that tell us it is bad for our economy. But, just like most things,there are two sides to every issue. There have been an estimated 300,000 jobs lost in the oiland gas industry around the world since prices began to fall and it is predicted to continue.  Many of those jobs are in the U.S. Also, low oil prices brings about company mergers andconsolidation which adds more lost jobs many of which are high paying ones. There are very few industries that have this kind of major effect on the economy. As we have mentioned inprevious articles, we truly have a world economy so things that happen around the world  affect all of us. Low oil and gas prices are having a huge impact on the world economy. Also,  money saved at the gas pump is giving consumers more to spend on other things but, manyare just adding to their savings. As you can see, it's not as simple as you might think.

 

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