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Dollars and Sense

October 26, 2016

Q:  Since bankers are typically conservative, does that mean they are all Republicans?

A:   I can't speak for other bankers and my voter registration choice is a private matter. However, I think it is very narrow minded for anyone to vote a certain way just because they have registered with one political party or another. I realize that nearly all politicians tie themselvesto a political party but, it doesn't mean they are the best person for the job. I have never voted a straight ticket for one side or another and neither should you. Take time to hear whatthe candidates have to say and vote for the one who best represents what you think needs to  be done. Family political ties usually go back 5 or more generations and it is normally not broken. If there is one thing that bankers are probably consistent with in politics it's that welook at candidates from a financial perspective. We want to know who has the most financialbackground and knowledge. I can't imagine anything more important than our country gettingits financial affairs in order unless it is terrorism. That's very important as well.   

Q:  What is your biggest concern financially about the Presidential election coming up soon?

A:  The biggest concern for all of us should be which candidate is most likely to spend money that    our government doesn't have unless they increase taxes. We should not elect that person. Abig part of why our country is a mess financially is that politicians have added billions of dollars in new subsidies most of which have gone to those who do not pay taxes. I think all  taxpayers are fed up with the way our tax dollars are spent. So, if your instincts tell you that one candidate is more likely to initiate more subsidies than the other, you might want to consider this before voting. There is only one way to pay for more subsidies and that's highertaxes. If we are fortunate enough to elect someone who will eliminate some of the subsidies,that would be a bonus for us. It will take years to eliminate our deficit but, we can start by  exercising our right to vote in a few days.

Q:  On a news show recently, they were talking about states that are giving free college tuition to students from Mexico. Is this true?

  A:   I happened to hear this discussed on an early morning news show but I don't know if it is true. It would not surprise me at all if it is true. Evidently, a handful of states with tax supported universities are giving up to a 50% discount in tuition to foreign students if they choose their school. Those same states offering this are charging more than the standard in-state tuition.  In other words, if you are from Mexico, you can go to college at these universities and pay halfprice tuition. However, if you are in a bordering state to the one with the universities, you willbe charged more than the standard rate. The newscaster was arguing with a representative of one of these states and he was not giving a convincing answer as to why this is being done.  The only one he could give is that they were doing it because student enrollment is down which is a ridiculous reason. Instead of charging students from other states more, why not charge them less also to get more students. I don't get this at all.   

October 19, 2016

Q: President Obama said on TV that the economic recession is over. Is it really over?

A:  Obama saying the recession is over doesn't make it true. Yes, there are positive signs that it'sgetting better. However, there are still some weak spots in our economy and they need to befixed before we can say the recession is completely over. People are beginning to borrow money and make purchases such as autos and real estate. It's certainly not back to what it was 10-15 years ago but, it's getting better. It doesn't matter if it's a Republican or Democrat, thePresident currently in office is going to try and make it sound good just to make themselves look better. It's what politicians do. Depending on how the election goes next month, positive  things may finally start happening. The wrong person in the White House could set us back in  our progress by raising taxes. This would not be a good time to have that happen. So, inanswer to your question, progress is being made but, it's premature to say that the recession isover. I think the best thing for us to do is live our lives and do what we can comfortably do. Ifyou have solid employment and can afford it, enjoy life and do the things you want to do.

Q:  What is the highest and lowest Prime Rate we have ever seen?

  A:  For those who may not know what it is, Prime Rate is an index used by banks to charge interest on loans to business borrowers. Prime Rate is usually set by the very largest banks and it generally changes with the stock market but there are other things that impact the need for change. Based on records, the highest Prime Rate recorded was in the early 1980's and it was21%. I have read stories that it reached 21% during the Civil War in the 1860's but I can't find  any documents to support that. The 1980's was a time of prosperity and the unemployment rate was low. The economy was strong and everyone felt good about things. About 10 years ago everything changed and this is when Prime Rate was the lowest in history at 2.50%.  Unemployment went up and we lost all the gains we made in real estate values and the stock market. Today, we are picking up the pieces after millions of foreclosures across the country.  It's ironic that record level foreclosures occurred during a low rate environment rather than when rates were high.                

Q:  How are home values holding up since the crash in the market a few years ago?

A:  Valuations on residential real estate seem to have bottomed out. Depending on what part of the country you are talking about, the decrease in values ranged from 20% to 50% and it hadto happen. For the past couple of years, it seems that values have stopped falling. However,  we need to be cautious about this. Residential real estate sales have not been the best and wecould be looking at another setback if things don't pick up. When discussing this, we need to  remember why the fall in values occurred. Runaway inflation back in the 1980's and early 1990's inflated the value of real estate above what was realistic. It was very typical if someone  purchased a home, lived in it for 3 years and then sold it for a big profit. It shouldn't have beenthat easy. So, the devaluation of real estate was a correction made to bring things back down to earth. Billions of dollars were lost across the country by individuals and banks who got hurt. We don't want or need to have runaway inflation. We need a steady growth.

September 28, 2016

Q:  When you purchase a car, clothing, etc. you pay taxes on it once. When you purchase real estate you pay taxes forever. Why?

  A:  When you pay a sales tax on food, automobiles, clothing and other consumer goods, the tax isnormally a state and local tax and it is used by both for operating revenue. This is the primary source of revenue for cities or villages and the state. The amounts are small so it takes a lot of    consumer purchases to pay the operating costs of both. Real estate taxes go to the county and it's probably 75% of  the counties income. They use it to repair roads and bridges, provide for  law enforcement as in the Sheriff's department, prosecutors and judges, and other county offices like the health department. The county also uses some of it to attract business and  industry. Also, let's not forget, a portion of our taxes goes to our schools to educate our kids  and grandkids. All of these expenses are ongoing. Therefore, we need real estate taxes to be  ongoing. If we didn't have real estate taxes, there would be another kind of tax because these  things must be funded.

 Q Does the cost of living index apply to all areas of the country?

A:  Each year, we're informed of the cost of living increase. It's normally somewhere between zero and 2 1/2%. There have been times in the past where it has been higher but, this is where it usually falls. There are a number of things that are priced to determine the increase such asfood, housing, utilities, clothing, fuel and others. However, it is not an exact science. So it's  impossible to come up with a number that applies to the entire country. Some areas are  actually lower while others are higher. Smaller rural areas are impacted less than big cities. You've probably heard the old saying "eggs are cheaper in the country." What that is really  saying is it's less expensive to live in the country. Some may disagree with that but, for themost part, I think it is accurate. Most employers review the cost of living index report but, itdoes not dictate pay increases. Performance is still the primary factor used to determine   compensation and rightly so.

Question:   What is the major difference between Socialism and Capitalism?

Answer:  Here is a basic comparison of Socialism vs. Capitalism. In a Capitalistic society, you are free towork as hard as you want and risk as much as you want to gain assets and build wealth. If yourrisk pays off, you become better off financially. If it doesn't pay off, you lose financially. Inother words, you have a chance to gain through your efforts. Under Socialism, the governmenttakes most of what you earn and spreads it evenly regardless of how hard you work or how  much you invest. Does this sound familiar? Well, it should because many of the things our elected politicians have done is Socialistic in nature even though we are a Capitalistic society.  Welfare and other subsidies is a good example. Nearly half of our nation is now receiving    benefits without turning a hand. There are many who feel we are already a Socialist nation. Iwon't go so far as to say it's true but, if the trends continue and more subsidies are created, it could become a scary situation. We do not want that to happen. It's not what we are about and we should stand against this.

September 21, 2016

Q:  What happens to paper currency when it's damaged to the point banks can't give it out?

A:  Banks are expected to take money out of circulation once it becomes significantly worn. Wecollect these bills and periodically ship them to the Federal Reserve Bank for destruction.  The Fed shreds the bills to the point where they are unrecognizable. The shredded material  is then sent to a central location. The average life of a dollar bill is 22 months. Larger denominations last longer depending on the size. For instance, the $100 bill, the largest denomination printed, will last up to 7 years because it passes through significantly fewerhands which reduces wear and tear. The volume of new bills printed is partially determinedby the volume of bills taken out of circulation. We are reimbursed 100% of the face value of  all currency we send for destruction. Here is a little side note and it won't make you feel good about handling paper currency. It is considered one of the worst items in terms of spreading germs because it is handled by so many people. A single piece of paper currency will be handled by thousands of people before it is finally taken out of circulation. 

Q:   Do banks have the authority to check on anyone's credit if they want to?

A:  No, we do not. A lender cannot obtain information on an individual's credit unless they have  requested a loan or have a loan with that financial institution and they feel circumstances are such that a current report is needed to protect their credit arrangement. The concept of credit bureaus dates back to the 1860's in a very basic way. However, they took shape in themodern era just after World War I. Today, there are three major credit reporting companieswho gather information on anyone who obtains credit. There is no doubt that the use of  credit bureaus has been good not only for lenders but also consumers. It is estimated that  90 million inquiries are made each year on the credit history of individuals. Over the years, the process has improved and the information can be obtained in a matter of minutes once the request is completed. If you have not borrowed money for a long time, you can go  on-line and check your score. Some web-sites are free.                    

Q:   Has there been a major change in bank lobby traffic with all the new technology?

A:    The banking industry has been going through a change in the habits of customers for years now. The changes began to accelerate over the last 10 years. Prior to the use of ATM's, debit and credit cards and other on-line banking technology, it was not unusual to have long lines waiting to see a teller. This was especially true on Fridays when pay day usually occurs. Due to technology, plus the advent of direct deposits of Social Security checks and worker's pay checks, the lines have decreased greatly. Many from the younger generation do not need or want the face to face contact. They are perfectly happy to do all their banking on-line to avoid coming into a bank lobby. So, we make that possible if this is their choice. It's been  estimated that lobby transactions in banks have gone down throughout the industry by as much as 40% or more in just the past 15 years. I think this will continue.

  September 14, 2016

Q:  What is the average age of first time home buyers?

A:  One article stated that first time home buyers are older today than they were 40 years ago. The average today is 32-33 years of age. In the 1970's the average was 25 to 26 years. There are various reasons for this. The primary reason is economic conditions. Another reason is high student loan debt.  Also, young people are not settling down with a family as young as they used to. There are many other things to choose from today for ways to spend money. Most young people are not ready for the responsibilities of home ownership before the age of30. They haven't been established in their jobs long enough and they are not aware of the  expenses associated with home ownership. There is no shame in renting a home when you are  young. I did it for a few years as do most people. Young people have it drilled into their brains  that renting is just throwing money away. I understand the thinking on this but, it's still theright thing to do when you are young and not yet established. Don't rush it.     

Q:  Is there a rule of thumb on additional expenses other than the mortgage payment for home  ownership?

A:  I can't give you a number that would be universal. Factors like the real estate tax rate, age of the home, the age of the mechanical units and, is the house brick or will it need to be painted every 5 to 10 years. Regardless of what you might think, parts of your home are not built to last forever.   Some home buyers are not prepared for the added expense and they just let the  home go without needed interior and exterior repairs. If you are buying a home and you want   some idea as to what additional expenses to expect, check the age of the furnace, air conditioner, water heater, appliances, the paint, carpet, tile and other things like this for damage or ware. Here is an idea to help with your decision. If you are not prepared to spend  up to $5,000 per year in additional expenses, you are not ready to buy. On top of this, you will have insurance and real estate taxes. You may have years where it's just taxes and insurance but, you should prepare for the unexpected. You will have it in home ownership.

Q:  I was told if I finance something and the business owner won't honor the warranty, I can callmy bank and they will look into it. Is that true? 

A:  Since I don't know what you purchased, I cannot address your question completely. However,in general, you made the choice of where to purchase the item and you decided to borrow money to pay for it. Your lender is not responsible for the enforcement of the warranty. I don'tknow if your claim under the warranty is legitimate or not but, if it is and you are not gettingsatisfaction from the store or company that sold it to you, your next step would be to contact the manufacturer. If they do not respond favorably, you can try the Better Business Bureauor some other consumer's advocate for help. Your lender may sympathize with you but, it isn'tsomething you can or should hold them responsible for correcting. There are some laws that apply to the auto lending industry but, since you did not specify the item purchased, I amanswering your question in general terms and not specific to one item.

September 7, 2016

Question:  Why do banks wait so long to sell a repossessed house? Some of them are falling apart before  they get sold.

Answer:  Based on my experience, it is usually 6 to 10 months before we get a foreclosed property sold.   Lenders have their attorneys do the necessary paperwork to foreclose and then it sits for months primarily due to the backlog of houses that are on the list for a Sheriff's sale. Over the  past 10 years there have been from 150 to 200 per year in Defiance County. The Sheriff has  requirements to meet to keep it in accordance with the law. There are appraisals that have to  be made to determine the value and notices that have to be published. If I had total control  over it as a banker, we would sell them immediately. Unfortunately, it isn't up to the lender so we wait our turn. On top of all this, the borrower often files for bankruptcy during this time  which adds to the delay. It is very frustrating for lenders when we have to wait so long to getback the property to sell. The majority of properties do not get sold at auction and lenders get  the property back to repair before selling. The lender loses money at least 90% of the time.   

Question:  Why do some banks, when approached to buy a CD, say you have to have an account with them to purchase a CD?

Answer:  As a general rule, this is not the policy for most banks. It's actually rare for banks to do this. For  those that do require you to have an account with them to purchase a CD, there are two primary reasons. The first is that they want to force you to have a checking or savings account  which ties you closer to the bank. The other reason has to do with banker's views of CD onlycustomers. CD's alone are the least profitable product for banks. Most bankers feel that CDonly customers are not as loyal and the individual that purchases one without any other business relationship is likely going to leave you when it matures if they can find a better rateelsewhere. I have never gone so far as to require a checking account relationship in order to allow someone to purchase a CD. However, I certainly understand to some degree why somebankers do it. The primary reason behind bankers not wanting CD's from individuals who don't have any other relationships and those who do want them is loan demand. If the banker has alot of loans to fund, it doesn't matter nearly as much about the additional relationships. Ingeneral, bankers would prefer more than just the CD.                 

Question:  What do you say to people who don't use banks and they just hide their money at home?

Answer:  If someone keeps all their money hidden at home and it is stolen, I would like to be there when  they ask their insurance company to cover the loss. It should be good for a laugh. With all due  respect to those individuals who do not believe in banks, keeping money in jars and cans is just not using your head and I'm aware that there are some who do this. It's not safe. There are extremists in this country that have people believing the government is going to take over all  of their assets including all the money in banks. That's about as farfetched as fortune tellerssaying the world is going to end on a certain date. Even if you own a safe in your home, it isn'tas secure as your bank. Some would say that an individual who would do this is just eccentric.    I think it goes a bit further than just being eccentric. It's irrational. You are not only putting your money at risk. You are risking your personal safety. It's a bad idea.

August 31, 2016

Question:  Are young people graduating from high school today with better financial skills than kids did  40-50 years ago?

Answer:  It depends more on how the parents address this issue than what they learn in school. We should not rely totally on the schools to educate our young people. Financial literacy should begin at home. Although our bank sponsors a program of financial literacy in our schools, youshould not rely totally on this training. If your child someday marries someone who has beentaught how to handle finances and your child hasn't, it will most definitely end up causing problems. You can almost count on it happening. I couldn't begin to count the number of timesI've seen this happen. One spouse cannot control their spending habits resulting in a poor credit rating for both. There are many lessons we need to teach our kids while they are still athome. Financial literacy is one of the more important ones.  Unfortunately, I would have to say that kids today are less concerned about financial matters than they were 40-50 years ago. We  can thank our government for much of this in creating the out of control welfare system.

Question:  We hear some say take your social security as soon as possible. Others say wait. Which way is best?

Answer: If everyone were financially able to wait until the age of 70, I would say wait. Since they aren't,there is no right or wrong age to start drawing social security. If you could wait until the age of 70 it would maximize your monthly income vs. the minimum amount at age 62. Also, from the age of 66 until the age of 70, if you have not drawn your social security, the amount will go up about 8% per year. In other words, waiting the additional 4 years could result in roughly a 32%  higher amount than if taken at 66 years of age. For example, if projections call for you to receive $1,500 per month, waiting the extra 4 years will result in your check being about $2,000  per month. That's a significant increase. The majority of retirees do not wait until 70 years of  age.   Again, there is no right or wrong. It's just a matter of whether you can retire at 62 and  take the smaller amount or, wait and maximize the amount at age 70.

Question:  Are U.S. Savings Bonds still popular?

Answer:  In 1935, Savings Bonds were first introduced to the public. They have been called by different names over the years. During World War II, they were referred to as War Bonds. Up untilJanuary 1, 2012, they could be purchased at any bank. They are no longer sold at banks and  purchasers now have to go on-line or through mail service to purchase them. I don't have any  solid numbers as to their current popularity. However, I would imagine they are less popular  since the convenience of buying them at your local bank was discontinued. Also, World War II was considered to be a popular war and many Americans purchased them back then as a patriotic act and not just an investment. Attitudes have changed since then about wars. We've  been involved in several questionable military actions so they are purchased more for the investment than to be patriotic. When you are purchasing a U.S. Savings Bond, you are basically making a loan to our government and they are paying you interest for the loan.

August 24, 2016

Question:  Is there a reason why banks advertise higher interest rates for larger deposits?

Answer:   Financial institutions sometimes offer a special rate. When they do, it usually requires a larger  amount. Let's say the figure is $50,000. The reason is simple. It takes the same amount of time to prepare documentation for a $100 CD as it does for a $50,000 CD. If the goal is to bring in an additional $1 million in deposits to fund loans, it can be done with the higher dollar amount  with much less employee time than if they allowed the special rate on a much lower figure. It's no different than what we see when retail stores offer a product and the more you buy, the better the price. Or, they may advertise buy one get a second at half price. It's basically the same concept except the bank isn't selling you an item. They are investing your money. The single biggest expense any business has is labor cost. The higher dollar amount allows them to attain their objective with less time. The average person does something along these lines in their personal lives all the time. We do things in the most efficient way possible to accomplish the tasks.

Question:  Why is it so difficult to get a loan with the interest rate fixed for a long term?

Answer:  A real estate loan to buy a home can have a rate fixed for a long term if it's being sold in the secondary market. This is about the only way it's possible. The reason is simple. The majority of a bank's customers will not go long term on deposits. Most individuals won't purchase a CD from their bank for longer than 2 to 4 years. Therefore, your bank can't take those deposits and loan it at a fixed rate for 10-30 years because if CD rates go up, our customer will expect a better rate when it matures even though we would be stuck with the long term loan rate. It's somewhat like asking a car dealer to guarantee you a new car price in 5 years at today's prices even though the dealer doesn't know what the manufacturer is going to charge them for the  car in 5 years. Prudent bankers are not going to guarantee a loan rate for 10 to 30 years either.   We just don't know how much we will be paying for deposits that far out. We may do it for 5   to 7 years but not much longer than that unless the loan is going to be sold.

Question:  Some say that one Presidential candidate is better than the other on the economy. Do you agree?

Answer:     We have never seen anything quite like this election and hopefully, we never will again. The attitudes of people toward these two candidates has resulted in us having to choose between the lesser of two evils. One candidate has the financial background we would like but, can't seem to stop putting his foot in his mouth. The other candidate appears to have more political experience but, lies about anything and everything.  Each person has to choose whom they think will do the best job overall.  However, don't worry about either of them  making our economic conditions worse than they already are. The President of the U.S. does  not have the authority to bring our economy down by themselves. Most critical decisions must have the support of the U.S. Congress and Senate. So, if there are mistakes made, there will be plenty of blame to go around. There are a lot of other issues that you need to look at in making a choice. National Security and integrity are just two of them.


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