Your Money Matters
A Consumer Financial Column
Credit 101 for your college freshman
July 26, 2010
By Jason Alderman
If you’ve got teenagers heading off to college soon, I hope you’ve done a good job educating them about the importance of personal financial responsibility and how to build a strong credit history. If not, better do it now.
College freshmen and young adults entering the workforce encounter many unfamiliar expenses – and temptations – so it’s important to help them avoid early financial missteps that could damage their credit for years to come.
Probably the most fundamental tool for helping students manage their finances is a checking account with a debit card. A few tips:
- Look for a bank or credit union that charges no monthly usage fee, requires no minimum balance and has conveniently located ATMs so they don’t rack up foreign ATM charges.
- Enter all transactions in the check register or use a digital tool like www.mint.com and review the account online weekly to know when transactions have cleared.
- Avoid writing checks or making debit card transactions unless the current balance will cover them.
One way to build credit history is through responsible use of credit cards. The 2009 Credit CARD Act requires that people under age 21 now must have a parent or other responsible adult cosign on any credit card account unless they can prove sufficient income to repay the debt.
Although this new policy probably will prevent many young adults from amassing more credit card debt than they can afford, it may also make it more difficult for them to begin building a credit history. A couple of alternatives are available to parents:
- Make them an authorized user on one of your accounts. They’ll get their own card and you can usually restrict the amount they can charge. Authorized users are not legally responsible to pay balances owed – that’s your responsibility, so tread carefully.
- You can add them as a joint account holder to a new or existing account – preferably, one with a small credit limit. Joint account holders are equally liable to pay off the account.
- Just remember, any account activity, good or bad, goes on both your credit reports, so careful account monitoring is critical.
Those who haven’t yet demonstrated financial maturity may not be ready for an unsecured credit card or loan. Two alternatives include:
- A secured credit card linked to an account with the card issuer to which they deposit money. Typically, users can charge up to the deposit amount, which can be replenished. Then, after a period of on-time payments, they can ask the lender to convert it to an unsecured card, or at least add an unsecured amount to the account.
- A prepaid debit card, where you load the card with money in advance and they use the card for purchases or ATM withdrawals. You monitor account activity online or by phone.
- With each, fees and restrictions may apply so shop around for the best terms.
If you need help educating your kids about personal financial management, a good resource is What’s My Score (www.whatsmyscore.org), a financial literacy program for young adults run by Visa Inc. It features a comprehensive workbook called Money 101: A Crash Course in Better Money Management, which can be downloaded for free.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.
This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to you and about your individual financial situation.
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Stretch your back-to-school budget
July 19, 2010
By Jason Alderman
State and local government budget cuts have taken their toll on practically every public service, including school districts. As parents, you’re probably already being asked to contribute more and more to fund your children’s classroom and extracurricular activities. That means when it comes to personal budgeting, we’ve got to do more with less.
Take back-to-school shopping. Some of the money you earmarked for new clothes may now have to go toward classroom supplies or to pay for childcare you need because after-school programs have been shuttered.
Here are a few tips on how to better manage back-to-school expenses while helping your school get through tough times:
First, calculate how much you can afford to spend without blowing your overall budget or racking up debt. Consider spreading some purchases like clothing throughout the school year – added bonus, your kids won’t outgrow everything all at once.
Next, make a comprehensive list of all anticipated expenses, and leave wiggle room for unexpected ones as well. A few strategies:
- Try to recall what you bought in previous years – and compare notes with other, more experienced parents.
- Ask the school which supplies they expect parents to purchase. Go in with other families to take advantage of volume discounts and sales.
- Find out the financial commitment for extracurricular activities like athletics, music and art programs. Consider things like uniforms, membership dues, private lessons, field trips, etc.
- Don’t forget public transportation, school bus charges or your share of gas for the car pool, if any apply.
- Compare the cost, convenience and nutritional value of school lunches and food you prepare yourself.
Prioritize “needs” versus “wants.” Although outgrown shoes should be replaced to ensure proper physical development, you can probably get one more year’s use out of an older computer if money is tight. Share your decision-making process with your kids – it’s never too soon for them to learn about delayed gratification and compromise.
Before buying new clothing or accessories, look for “gently used” items in the closets of your older kids, friends and neighbors, at garage sales, thrift or consignment stores, and at online shopping sites like eBay and Craig’s List.
Many retailers post discount coupons in newspapers and on their websites. In addition, numerous consolidation websites post downloadable coupons and sale codes you can enter at online shopping sites. Some of the better sites I’ve seen include: www.dealnews.com, www.couponcode.com, www.mybargainbuddy.com, www.dealcoupon.com, www.dealhunting.com and www.alexscoupons.com.
A few additional shopping tips:
- Wait until after school starts to shop fall clearance sales – that’s when department stores want to make room for holiday merchandise.
- Although shopping online can save you money, time and gas, shipping and return costs can undo your savings, so anticipate these expenses before making a purchase.
- Understand your school’s dress code so you don’t buy inappropriate clothing.
Help your school. To stretch your dollars even further, you can join school fundraising organizations like eScrip (www.escrip.com) and OneCause.com (www.onecause.com/schoolpop). A percentage of all purchases made by members at participating retailers and service organizations are donated to the school of your choice.
With a little careful planning, you can stretch your dollars and ease the financial pain of back-to-school shopping.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.
This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to you and about your individual financial situation.
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Accidents happen: Get your affairs in order
July 12, 2010
By Jason Alderman
Recently, a man stepping off a curb near my office was struck and killed by a passing bus. Only 49, he clearly had many productive years ahead. Reading about it reminded me how quickly unexpected accidents can turn your family upside down, and how vitally important proper planning is.
No matter what your age, you should have already drafted a will and other key documents that outline how you’d like your financial and health matters to be handled if you die, become disabled or fall seriously ill. Even if you already have such documents in place, however, it’s important to review them periodically, particularly if your financial or family situation changes – say you get married or divorced, have a baby, a beneficiary dies, etc.
Among the things that could go wrong if you haven’t made your current wishes known:
- Court-supervised probate could hold up your estate and result in costly fees.
- Your ex-spouse might still be named primary beneficiary of certain assets.
- The state usually awards assets to surviving spouses, children and other relatives, so friends and favored charities could be passed over.
- With no will, the state decides guardianship for minor children if both parents die.
Here are a few documents to consider for preventing these scenarios:
A will declares who should receive your assets, chooses an executor to handle your estate and names a guardian for your minor children, among other decisions.
A revocable living trust creates a trust to which ownership of your assets is transferred. As trustee, you control the trust and as beneficiary, you own its assets. After you die, assets are transferred to your successor beneficiaries (heirs) without having to go through probate.
A financial durable power of attorney specifies who has legal authority to pay your bills, manage assets and conduct other financial matters if you become incapacitated.
A healthcare durable power of attorney assigns someone to make your medical decisions if you’re unable. Be sure to pick someone who would closely follow your wishes and can make tough decisions.
A living will instructs doctors and hospitals which medical treatments and life-support procedures you do or don’t want. Have your doctor put a copy in your medical file.
There are a few additional considerations for any of these documents:
- Sign, date and notarize them and file for safekeeping.
- Compare will or trust beneficiaries to those named in your insurance or retirement plans to eliminate conflicts.
- Before naming an executor or power of attorney, make sure they are up to the task.
- Name alternate beneficiaries and executors in case anyone dies before you.
Do-it-yourself kits like Quicken WillMaker Plus are available, although you should probably have an attorney who specializes in estate law review your documents. And if trusts, complex estates or large assets are involved, definitely hire a professional – one typo or skipped signature could end up costing far more than the lawyer’s fee.
Free or low-cost legal assistance is often available for lower-income people. A few helpful sites include LawHelp.org (www.lawhelp.org), Legal Services Corporation (www.lsc.gov) and the American Bar Association (www.abanet.org under “Public Resources”).
My motto: Hope for the best, but plan for the worst.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.
This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to you and about your individual financial situation.
Federal Student Loan Program Changes
July 5, 2010
By Jason Alderman
My wife recently enrolled in graduate school, so like millions of other Americans we've paid close attention to news about student loan programs. One recent example: A key component of the Health Care and Education Reconciliation Act will result in several significant modifications to the how federal student loans are offered and processed.
According to the nonpartisan Congressional Budget Office, the changes will save approximately $61 billion over the next 10 years – money that will partially be used to expand the Pell Grant program for low-income students, beef up community college funding and eventually lower monthly loan repayment amounts for lower-income earners participating in the Income-Based Repayment Plan.
Here’s an overview of key changes:
As of July 1, all new federally backed student loans are now issued directly through the Department of Education’s Direct Loan program, thereby eliminating the Federal Family Education Loan Program (FFELP), which had allowed banks and other private lenders to offer federally guaranteed loans. The government is essentially eliminating banks as the middleman for these loans.
Affected loans include subsidized and unsubsidized Stafford Loans for undergraduate and graduate students, PLUS Loans for parents and PLUS Loans for graduate and professional degree students. Under Direct Loan, the latter two actually have lower interest rates than they did under FFELP (7.9 percent vs. 8.5 percent); and, the approval rate for parent loans tends to be higher.
Private lenders will continue servicing student loans already on their books and may continue offering student and parental loans that are not federally guaranteed, just as they always have. Such uninsured loans typically have higher interest rates but may allow larger loan amounts.
Another feature: For federal loans granted beginning in 2014, lower-income graduates with outstanding Stafford or Grad PLUS loans who opt for an Income-Based Repayment (IBR) plan will see their monthly repayment amount capped at 10 percent of income, compared to the current 15 percent, provided their loan debt qualifies as high relative to income and family size. Go to www.studentaid.ed.gov and search “IBR” to read about eligibility requirements.
These changes do not impact the process of applying for federal grants, loans or work-study programs or change the amount of federal aid that students are eligible to receive. The first step for students interested in receiving federal aid is still to complete a Free Application for Federal Student Aid (FAFSA), which is available online at www.fafsa.ed.gov, from the school’s guidance counselor or financial aid office, or by calling 1-800-4-FED-AID.
Most of the savings reaped by eliminating the FFELP will be applied toward the Federal Pell Grant program. (Pell Grants are scholarships given to students from lower-income families that needn’t be repaid.)
Beginning with the 2010-2011 academic year (July 1, 2010 to June 30, 2011), the maximum Pell Grant amount increases by $200 to $5,550, where it will remain until 2013-2014. In addition, from the 2013-2014 through 2017-2018 academic years, the amount will be indexed for inflation, as measured by the Consumer Price Index for all Urban Consumers), capping out at $5,975.
For more details on the budgetary impacts of this Act, visit the Congressional Commitee on Education and Labor’s website, www.edlabor.house.gov and search “SAFRA” (Student Aid and Fiscal Responsibility Act.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.
This article is intended to provide general information and should not be considered tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how tax laws apply to you and about your individual financial situation
