Your Money Matters
A Consumer Financial Column

What's really behind that tempting CD rate? Maybe you should ask.
June 19, 2009

The FDIC has received inquiries and complaints about certain companies advertising above-market interest rates for FDIC-insured Certificates of Deposit (CDs). Some of these ads display the FDIC logo or state "FDIC Insured." Many of these companies are not FDIC-insured banks. Rather, they are insurance or financial service companies that sell non-insured financial products. The small print in the ads may state that the company is not an FDIC-insured financial institution.

The advertised CDs generally offer above-market interest rates for only a short term, require a minimum amount, and insist that the customer visit a company office. The advertisement's goal is to attract consumers for the company's non-deposit products or services. If a customer asks to purchase the advertised CD, the company will direct the customer to a computer terminal in the company’s office to purchase a CD from an FDIC-insured financial institution that accepts Internet deposits. The CD will be offered at a rate lower than advertised. The company typically writes a separate check to the financial institution for the difference between the bank’s rate and the advertised rate for the term of the CD. Both checks are mailed to the bank, and the bank then issues the CD for the increased amount, but at the bank’s lower interest rate.

Things to consider:

Consumers should carefully consider whether non-insured products are appropriate for their personal financial situation.
Consumers should understand the terms of any CD they purchase.
Consumers can research deposit interest rates at Web sites, such as http://www.bankrate.com.
Consumers can verify whether identified financial institutions are FDIC-insured at http://www2.fdic.gov/idasp/main_bankfind.asp.
Consumers can find information about FDIC deposit insurance coverage at http://www.fdic.gov/deposit/deposits/index.html.

Financial advice for new fathers

By Jason Alderman

People often say mothers have the hardest job in the world – and I wouldn’t dispute that. But being a father might be the second hardest job in the world. And becoming a dad for the first time is a challenge for all men.

Putting aside the physical and emotional rigors of fatherhood, the financial implications of having a child are staggering.

According to the USDA, the average cost for a middle-income family to raise a child until age 18 is over $200,000 – and that doesn’t even include college. Small wonder, then, that nearly 40 percent of Americans surveyed by Visa Inc. said they weren’t prepared financially for the birth of their first child.

As one dad to another, let me share a few financial planning strategies that can help map out a strong financial future for your family:

Get insured. Although young, single adults often go underinsured, if your family depends on your income, you shouldn’t be unprepared for life’s unexpected events. Buy adequate coverage for:
· Health insurance. If you don’t think kids are expensive, start adding up the costs for prenatal exams, delivery, immunizations, check-ups, broken arms, medications, dentist appointments, braces – the list goes on. When comparing medical plans, focus on issues like monthly premium, copayment, deductible and prescription amounts, in- and out-of-network charges, and coverage limits and exclusions.
· Homeowner/renter’s insurance. Don’t allow theft, fire, faulty plumbing or other catastrophes to leave your family without possessions or a place to live. Consider choosing a higher deductible to lower your premium, and opt for “replacement cost” coverage, which will replace items in today’s dollars.
· Life insurance. Depending on your family’s size and ages, you’ll probably want coverage worth at least five to 10 times your annual pay; more, if you want to cover college costs. And don’t forget to insure your spouse so you’ll be protected as well.
· Disability insurance. Nearly a third of us will suffer serious disabilities between ages 35 and 65. Yet many folks forego long-term disability insurance, potentially leaving them without an income after a serious accident or illness. To learn more about the financial implications of disability and other unexpected life events, visit Practical Money Skills for Life, Visa’s free personal financial management site (www.practicalmoneyskills.com/unexpected).

Start saving now. It’s ironic: When you’re young and can least afford it, that’s when you can make the most lasting impact on your financial future. The earlier you start saving and “compounding” or reinvesting the interest earned, the faster your savings will grow. That’s true whether you’re saving to buy a house, pay for retirement or send your kids to college.

One tip: If your employer offers 401(k) matching contributions, contribute at least enough to take full advantage of the match: A 50 percent match is the same as earning 50 percent interest on savings.

And finally, spend responsibly. If you buy things you don’t really need or can’t afford, you’ll just end up having to work longer hours to pay for them. That’s unrecoverable time you could have spent watching your kids grow.

Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.

 

Learning to Save is a Lesson that Never Gets Old
April 16, 2009

Clever economists and television commentators have taken to calling this period of continuing economic turmoil the “Great Recession.” Lawmakers at every level of government are busy coming up with plans to spur economic recovery; new plans seemingly come out every day, but few have taken hold and none are a magic bullet. If one thing has become clear throughout our nation’s latest economic crisis, it’s this: the need for financial literacy has never been greater.

While no one – even the so-called experts – completely understands or agrees on how the economy fell apart so far and so fast, most agree that the discipline of responsibly managing one’s personal finances was sorely absent over the last several years. Basic principles about managing money and budgeting were forgotten in favor of spending more and buying bigger. Savings rates in the last few years were at all-time lows.

It’s important for everyone – adults and children alike – to be educated to make good financial decisions, and recognize and avoid bad ones. But it’s far easier to learn those lessons at a young age than it is when you’re older and already in over your head.

Wisconsin’s bankers have been visiting students of all grade levels for decades, talking to classrooms full of children about the basics of saving money, how to balance a checkbook, the pros and cons of credit cards, and responsible spending habits, to name just a few topics.

Here are some tips about how you can teach your kids to save:
• Be a financial role model and make responsible saving and spending decisions.
• Discuss money and financial choices with your kids.
• Set spending limits and stick to them.
• Allow your children to manage some of their own money and learn the consequences of their financial decisions while they’re young.
• Teach children to divide their money and always set aside a percentage in savings.

April 21 is National Teach Children to Save Day, and bankers from across the state will be talking to students about personal finance and economics, just as they do throughout the year. Our state and national economies depend on a solid understanding of finances and making smart, responsible financial decisions. On April 21 choose to make a smart investment in your financial future by talking to your kids about the value of savings. Your children will thank you.

Identity theft occurs when someone acquires key pieces of another person's identity and commits fraud.  Information such as name, date of birth, social security number, mother's maiden name, etc., can help a criminal impersonate another individual.  Once this person has access to this information, they can commit different kinds of fraud, including accessing bank accounts, obtain loans, making purchases, renting apartments, etc.

Understanding the New Home Buyer Credit
March 23, 2009

Making a purchase as large as a home – especially if you’re a first-time home buyer – may sound counter-intuitive during the worst recession in well over a half-century. But the truth is it’s a great time to be a first-time home buyer.

Interest rates are low and there is plenty of inventory available to prospective home buyers looking for a good deal. And at a time when every dollar counts, recent changes to the federal government’s First-Time Home Buyer Tax Credit offer new home owners some additional tax relief.

An earlier version of the First-Time Home Buyer Tax Credit was actually instituted last year. That law gave first-time home buyers a credit-loan that applied to home purchases after April 8, 2008 and before July 1, 2009. The tax credit-loan amounted to 10 percent of the home’s purchase price up to a maximum available credit of $7,500. Whatever the size of the credit-loan a taxpayer received, the credit-loan must be repaid over a 15-year period beginning on the 2010 tax return.

The new law contains certain eligibility requirements including the following:

To be eligible for the new credit, homes must have been purchased on or after Jan.1, 2009 and before Dec. 1, 2009.
Because this is a tax credit, it can only be claimed on a home owner’s federal tax return, and cannot be applied at the time the home is purchased to reduce the price. However, since it is a credit and not a credit-loan, it does not need to be repaid.
The credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
The tax credit is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between those amounts.
The law permitting the tax credit defines first-time homebuyer as a buyer who has not owned a principal residence during the three-year period prior to the purchase. If the “buyer” is a couple, this test must be met by both individuals.

Any home that will be used as a principal residence will qualify for the tax credit. This includes single family detached homes, attached homes like townhouses and condominiums, and manufactured homes. A principal residence also includes one that is constructed by the home owner where the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.

For more information on the First-Time Home Buyer Tax Credit speak to your local banker or other trusted financial adviser for tips on how to take advantage of this powerful credit.

Congratulations! You’re the Latest Sweepstakes Scam Victim
January 7, 2009

It starts off innocently enough. You receive a congratulatory phone call or letter informing you that you’ve won a prize in a lottery or sweepstakes. The cash prize sounds great, especially during the recent economic downturn. The only hitch is a minor one; before any winnings are delivered, you must pay fees, taxes or other charges. Considering all the money you have just won, the amount requested seems small and reasonable compared to your winnings.

Congratulations! You’re the recipient of a sweepstakes scam. The only prize you will receive is an overdraft notice from your financial institution if you attempt to spend your winnings.

Scams involving lotteries or sweepstakes are very common and tend to target consumers age 70 and older. With the recent economic downturn, it is more important than ever to be cautious when receiving an offer that seems too good to be true.

Protect yourself from sweepstakes scams with the following tips:

Know who you’re dealing with and confirm the company’s name, address and phone number through agencies like the Better Business Bureau.

Don’t give out your credit card, checking account number or write a check unless you are sure who you’re dealing with and what you will be receiving.

Resist high-pressure sales tactics and insist on time to think and discuss offers with trusted friends, family members or financial advisors.
Report any suspicious offers to your local police or financial institution. Either agency will offer help in determining the legitimacy of the offer.

During hard economic times scammers are also contacting individuals claiming to hold stimulus checks in your name, or they may contact you with an offer to be a mystery shopper or a similar job that sounds too good to be true. As tempting as these easy money opportunities might sound, you should always trust your better judgment and contact Consumer Protection, the Better Business Bureau or your local financial institution if you receive such an unsolicited offer. These organizations can advise you if the opportunity is the real deal, or just a scam. Also, you should never have to pay an employer for work. If they ask you for money there’s a very good chance that something is up.

An educated, cautious consumer is the number one defense against scams like these.