Larry's Dollars and Sense

Dollars and Sense September 6, 2017

Question: Why doesn’t our government require car companies to make all cars that get over 30 MPG?

Answer: Don’t expect that to happen any time soon. Some of it is political and some of it consumers. There have been new regulations over the years forcing auto makers to produce cars with better gas mileage and some do get between 30 and 40 miles per gallon. However, America’s appetite for big cars and big trucks is still strong and they just don’t build these with this kind of mileage. You also have the lobbyists for the oil industry who fight to keep it within reason so that oil companies can sell their products. I could be wrong about this but it’s hard for me to believe that, with all the technology available, they can’t create a way to get all vehicles above 30 MPG if they wanted to. They just aren’t going to let it happen. The same could be said about a lot of things that waste energy like home heating and air conditioning. You and I can’t make it better but someone can. Maybe it will happen someday. 

Question: Is it true that the changes they want made in Obama Care only benefits the wealthy?

Answer: There are those that would like you to believe that but it is not true. I certainly haven’t read through the entire document but, there is no question that a lot people are better off with the changes but the changes were not made for the benefit of the rich. I don’t think our government getting involved in health insurance was a good idea to start with but since they did, changes need to be made. It doesn’t matter what the topic is whether it is health care or taxes, some are going to benefit from it and others won’t. It’s impossible for millions of people living in our country to all be happy with every decision made. I am one of those who firmly believe the government should stay out of our lives as much as possible and that certainly includes healthcare. There were promises made when the government healthcare program was introduced. They promised it would keep the insurance companies from increasing rates for those of us who have insurance and it actually increased our cost.

Question: If filing bankruptcy is so bad, why do people do it?

Answer: Most of the time, it’s because they don’t want to take responsibility for their own problems. Filing for bankruptcy protection to escape debts is not acceptable in most cases. In some instances, like when a family has experienced catastrophic illness in their household, they are forced to file to help them get back on their feet. However, a very high percentage of bankruptcy filings are due to people over extending themselves financially. There are a lot of people out there that seem to think it’s OK if they cause a significant loss to a bank or other financial entity but it’s not OK. When an individual or company files for bankruptcy protection, a lender loses money which affects our income and ultimately, it costs our shareholders. As I mentioned earlier, there are those rare occasions when it is unavoidable. All the other times, it’s because they extend themselves past their ability to repay debts. The real deadbeats will often brag about beating the system and getting out of repaying their debts. I have no tolerance for these individuals.

Dollars and Sense – August 30, 2017

Question: I’m in college. My friends and I want to protest against the new President by not filing a tax return. Isn’t that our right?

Answer: It sounds like you have a lot more to learn in college because what you are planning to do is not very smart. You can protest if you want but you are heading for big trouble if you don’t pay your federal taxes. I don’t like paying taxes any more than the next person but it’s the law and I do it. College students have not lived enough life and earned enough money to protest anything. You are probably too young to vote and, in my opinion, your political views are not worth a dime at your age. I expect your parents would agree with me on this. Concentrate on your schooling, then get a job and become a responsible citizen of this country. When you have worked a few years and matured, then you can develop a political opinion. If your parents are paying your college bills, they may have something to say about your ill-advised plans for protesting. I know what I would do if you were my child and you probably wouldn’t like it.

Question: Banks are still not paying much in interest rates. What are some other options?

Answer: Every so often I get a question related to bank interest rates and I suppose my answer is about the same every time. Interest rates have been low throughout the country for a very long time for various reasons. The primary reason has been general economic conditions worldwide. Another reason is that, due to a poor economy, loan demand has been at historically low levels. This drives rates downward in an attempt to stir lending activity. As to your question about alternatives to bank deposits, there are options. The decision you have to make is how much risk you are willing to take. You should give consideration to the safety of your money. The stock and bond market are an option but they usually come with a risk. It always troubles me when I see people risk their money by chasing after higher rates. My question to them is always the same. Why do you think you can get this higher rate? The answer is simple. It’s because you are taking greater risk.

Question: Why do people who file a tax return as a single wage earner pay a higher rate than those who file jointly?

Answer: You have asked a question that millions of wage earners have asked and there is no reasonable answer to it. It’s a penalty for being single which isn’t fair but we are talking about the federal government and many things they do doesn’t seem fair. If you are unmarried, you will have a greater tax rate than those married and filing jointly. Also, if married and filing separately, you will pay a higher rate. This is why most accountants will tell married couples to file jointly to avoid a higher tax liability. I’ve done some research on this subject and nothing I have read explains to my satisfaction why singles pay more than joint tax filers. Federal tax is an extremely difficult topic to understand and explaining things is not something Washington D.C. does well. Let’s hope they find a way to simplify the process. In the meantime, all we can do is pay them.

Dollars and Sense – August 23, 2017

Question: If you had excess funds after paying bills, would you pay more on a mortgage or put it in savings?

Answer: If you look at it strictly from a financial point of view, you would pay more on your mortgage because your mortgage interest is higher than your savings interest. However, there is more to consider than just the financial aspects. Some enjoy the financial security in saving everything they possibly can. If you are one of those individuals, that’s what you should do. On the other hand, if your goal is to be mortgage free by a certain time in your life, then you should pay down the mortgage as fast as you can. Just do what fits you best. There is no right or wrong when it comes to your peace of mind. If this advice still doesn’t solve your problem, here is another thought. Why don’t you alternate where your excess income is going to go? One month, save it and the next month, apply it to your mortgage. You can’t lose either way. You won’t save as much but you will cause your mortgage balance to go down faster. Most people would love to have your problem.

Question: I hear trucks are outselling cars by 5 to 1. How has this impacted lending by banks?

Answer: I don’t know if your 5 to 1 ratio is accurate but I have been told that trucks are outselling cars considerably. As for how it has affected lending activity, I don’t think it has affected our willingness to finance vehicles. We have as much interest in financing trucks as we do cars. However, car values have dropped significantly in recent months simply because the market for them has dropped. Even used luxury automobiles have become more affordable because the prices have dropped. On the other hand, if you have priced trucks recently, you know that they are higher in price and that applies to both new and used trucks. It’s important to keep in mind that vehicles are no different than any other consumer goods. Things that are hot items are always going to sell for more than those that are not. The automobile industry is simply reacting to what consumers are buying. Everything goes in cycles.

Question: My family wants a second home preferably on a lake. How can I justify the expense?

Answer: The answer to your question is, you probably can’t justify it but we do a lot of things that cannot be financially justified. For the majority of families, if you take the amount they spend for a lake cottage compared to how many days per year it’s used, you can’t make financial sense out of it. However, owning a second, or even a third home isn’t about justifying the cost. It’s about being able to afford it and I would not criticize anyone for making that decision. Since I don’t know your personal financial situation, you have to answer this question for yourself. Can you afford the cost of a second home without depriving your family of what they need? If so, it’s no one else’s business how you spend your money. If you are really stretching yourself to make this happen, it may not be a very smart decision on your part but you have to answer that for yourself.

Dollars and Sense – August 16, 2017

Question: If we go to war against another country, like North Korea, how will it affect the economy?

Answer: The U.S, as with any country, experiences an economic impact from being at war. When our country goes to war, it historically experiences inflation and an increase in taxes in order to fund the cost of war. Prices are almost always pushed up. According to most accounts, these things are what you should expect if we go to war. On the positive side, we have typically seen an increase in usable technology and infrastructure is normally improved like new roads and bridges just to name a couple. This usually causes the government to create new jobs and private contractors typically do more hiring during times of war which means the creation of new jobs. However, the negatives always outweigh the positives. Oddly enough, foreign trade agreements are typically made during times of war. There has been a long running argument by many scholars and historians about the economic effect of war and there are compelling arguments for both.

Question: Can someone expect a higher sales price on their home if they make improvements before they put it on the market?

Answer: Making improvements to your home before selling it will certainly help the sale regardless of whether the improvements are simply repainting the walls or a major remodeling effort. However, if you have to hire all the work done, don’t expect to get every last penny back when you sell it because it probably won’t happen. Actually, getting all your money back in remodeling expense shouldn’t be your objective. Depending on how expensive the needed repairs are, your house might not be sellable if you don’t do anything at all. If your home does not show well, it isn’t going to sell much less sell at the price you think it is worth. Take the advice of your realtor before you list it. Most of them will be honest with you and tell you if a few things need to be done for you to get the best price. There is something known as “curb appeal” and if your house doesn’t have it, they won’t even be interested in going inside. In some manner of speaking, you are in competition with other sellers to make the best presentation.

Question: Are the big gains in the stock market artificial or are they a good sign for the economy?

Answer: Gains in the stock market cannot be judged in the short term. There has to be sustainable growth in the market to get excited about it. We have received some very encouraging increases in the stock market the past few weeks. However, we should reserve our excitement until we see these levels sustained over several weeks and months. On the surface, it appears that Americans and American businesses are feeling better about the economy. Individuals are buying consumer goods at a higher rate and businesses are investing and expanding. We have waited a very long time for this to happen. It has been 10 years or more sense the Great Recession began and we all want some good things to happen for our economy. No, the gains we are seeing are not artificial but it remains to be seen if it is sustainable. 

Dollars and Sense – August 9, 2017

Question: How does our country compare financially to other countries?

Answer: There is no easy answer to your question. However, I suppose if you compare us to Socialist countries, we are much better off financially. If you compare us to other capitalistic countries, it becomes a little more difficult to answer. If you take into consideration our tax structure, nationally and locally, we are a better place to live. The difference is poverty levels. A lot of other countries have a concentration of wealth in fewer people and extreme poverty for the rest. We have a system that allows us to make all the money we want if we want to work for it. That’s one extreme. The other extreme is, if you don’t want to work hard and make money, our government will take care of you through welfare and subsidy programs which are out of control. All in all, I would have to say that we are in better shape financially as a nation and we should feel very fortunate to live here regardless of your income level.  

Question: How would you feel if the banking system was nationalized?

Answer: I’m sure if you ask anyone in a nation where the government has taken control of the banking system, they would tell you it is a disaster. Even the thought of the U.S. Government managing our banking system is the scariest thing I can imagine. We all know from experience that our government is not good at managing our money. Look what it has done to the Social Security system. They have taken a large portion of our tax money and created the welfare system which is, in part, responsible for our national deficit. Just about everything our government touches is mismanaged.  However, they will never take over our banking system. Our country would have to be near collapse or taken over by a foreign government for them to run our banking system. We can rest easy because it won’t ever happen. However, if it did happen, I have no interest in being a government employee and never will be.

Question: Do people open up savings accounts for infants?

Answer: I can’t give you actual numbers but I can tell you that parents and grandparents often open accounts for children and begin to make deposits to those accounts. Many times, they do so years before the child is old enough to comprehend what has been done for them. Sometimes, they never find out until they complete high school. Parents and Grandparents who do this are expressing their love for the child and showing them the importance of putting money aside. By them telling the child that they have been making small deposits to the account over a long period of time is a great lesson in how small amounts can become larger amounts over time. I couldn’t say that a lot of people do this but some do. However, it should be done for a specific purpose like a college fund. I do not think we should save the money just to turn it over to them when they are older. They will probably disappoint you on how it is spent and it teaches them to be dependent on others. 



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