Larry's Dollars and Sense

Dollars and Sense – October 10, 2018

Question: I heard this crazy thing the other day about people setting up a “Go fund me” page for people to raise the money for a down payment for a house. Is this true?

Answer: In a recent Wall Street Journal there was an article about something of this nature. I think it is just about the dumbest thing I’ve ever heard. Apparently, people are setting up this fund which allows family and friends to help fund the down payment for individuals or couples who don’t have the money for it. What are these individuals or couples going to do when the furnace goes out and they don’t have the money to fix it? It’s one thing for parents to gift the down payment for their adult children to buy a home but to set up a “Go fund me” website for family and friends to contribute is ridiculous. Whatever happened to the good old days when people rented a home or apartment until they were able to save enough to buy a home? Begging for money from family and friends for a down payment to buy a home indicates a total lack of self-respect. It’s just unbelievable.

Question: At what age of your children should parents stop letting their kids depend on them financially?

Answer: There is no clear answer to your question. Some parents are fortunate enough that their kids never look to them for help after they get out of high school or college. Some continue to be a financial burden their entire lives. In most cases, the parents can control which it is going to be. In other cases, some parents want to make their kids financially dependent on them to some degree in order to maintain some level of control. One thing is for sure. If your kids remain financially dependent on you well into their adult lives, they sure won’t be able to do it for their kids because they won’t have the ability to do it. You will have made them into a financially crippled adult. I don’t know about you but I would not want that for my children. There is an old saying that goes something like this. “Give your children enough to do something. Just down give them so much that they don’t have to do anything.” I think this makes perfect sense to me.

Question: I try to shop locally but the local businesses are too high priced so, I can’t do it. Are there others who feel this way?

Answer: I’m sure there are others who share your opinion. However, you don’t have the whole story if you don’t understand why it is this way. You are comparing the prices locally to prices in a larger store in a larger community which isn’t fair. Stores in smaller communities like ours are having to pay much more for their product. So, they have to charge more to make a profit. I understand your dilemma but we have to make an effort to buy local as much as possible. We all know there are some things that cannot be purchased locally and we are forced to travel out of town to buy them. One thing you might want to do is factor in the cost of going out of town to save a few dollars. Consider the cost of gas not to mention your time. You add at least an hour to your shopping by having to travel out of town.

Dollars and Sense – October 3, 2018

Question: Do you agree with everything banks are required to do with their customers in terms of regulations?

Answer: It doesn’t matter whether you are in the banking business or some other type of business. You are sometimes forced to follow rules and regulations that you would rather not see in existence. Also, when you are in a highly regulated industry like banking, you have to deal with the federal government having a lot to say about what you can and cannot do and I don’t necessarily agree with all of it. Unfortunately, we don’t have a choice. When the federal government creates a regulation or law that they feel protects the consumer, we have to follow it without exception. The majority of regulations and laws are created as an over reaction to an event or situation that occurred and not because of some excessive abuse by the industry. Bankers who decide to ignore these regulations and rules do not stay in the business very long.

Question: If I felt there was an employee in my bank who had disclosed something about my personal business, who would I call?

Answer: Our bank has zero tolerance for an employee divulging personal information about a customer. If you believe someone working within your bank is discussing your personal financial matters, I would call the management and discuss it. I would want to know if it ever happened in my bank. A word of caution on this issue. I believe all banks have discussed this issue with their employees and have told them the consequences of disclosing private information. So, be sure you have your facts straight and don’t just take one person’s word for it. If you determine there is sufficient evidence of this happening, then talk to someone. I can’t speak for your bank but if something like this were to occur in our bank and it could be proven, it would be grounds for dismissal but you don’t want to accuse anyone without strong evidence. Don’t destroy someone’s career over an unsubstantiated rumor.

Question: What can be done about getting both people in a relationship to look at financial matters in the same way?

Answer: Some couples can’t agree on what restaurant to go to for dinner let alone agree on financial matters. I have seen many situations where one person in a relationship was much more capable of making good financial decisions than the other. Getting the person who is not good at it to accept it is another story. If this situation exists in your relationship and you cannot resolve it, counseling might be worth a try. The one thing you should not do is let it go unresolved. It’s too important and it can destroy your future as a couple not to mention your future financially. Your problem is much easier to solve if your partner in the relationship accepts their weakness in this area. I will caution you to make sure this isn’t just a situation where you don’t want your partner to spend any money at all. However, couples not agreeing on financial matters is near the top of relationship destruction.

Dollars and Sense – September 26, 2018

Question: I see a lot of banks are doing away with tellers in their lobbies and going to machines? Is that the way all banks are heading?

Answer: Although there are reports that this is happening in many larger banks, you won’t see us eliminating all tellers in our bank for a very long time if ever. The reason larger banks are doing this is to reduce expenses. Employees have been and always will be the #1 biggest expense in any type of business including banking. For smaller banks our size, one of the things that sets us apart is our personal service and being able to interact with people. If we lose that ability, we become just like bigger banks and we don’t want that to happen. However, who knows what the future brings 20 years from now? The younger generation does not have that need for personal contact. They want to do everything through a computer or cell phone. In future years, not having real people to wait on customers might not matter to the next generation. For now, you will be greeted by human beings when you come into our lobby.

Question: Will there ever be a time when no bank will issue a paper bank statement for my account?

Answer: We are getting very close to that point. At least 90% of all individuals have either a cell phone or computer or both. If you have these devises, you really don’t need a paper bank statement. Most banks either don’t offer a paper statement or they do but you will pay a fee for them. The biggest reason this is happening is cost associated with sending out statements. Postage is very expensive not to mention the cost of paper and printing. There is no type of industry that hasn’t gone through significant change and banks are no exception. I remember when we first told our customers that they would no longer receive cancelled checks. You would have thought the sky was falling. However, no one even misses not getting those cancelled checks because they serve no purpose. The same will happen with paper statements. It’s just a matter of adjusting to it. For the time being, many banks will give you a paper statement if you will pay a fee for it. The time will come when you don’t even have that option.

Question: Most banks used to keep later lobby hours at least one day a week. Few of them do anymore. Why?

Answer: The main reason banks do not have a day in the week when they keep later hours is because it is not necessary. The way people conduct their banking is much different today. Many years ago, banks used to stay open on Friday evenings until 6:00 to 7:00 p.m. to accommodate factory workers who didn’t get off work until late and they needed to cash their paychecks or deposit them. Today, most companies have direct deposit of paychecks. In addition, we didn’t have the technology back then that we do today. There were no cell phones or computers. Staying open later on Friday evenings was a necessity to accommodate the needs of customers. It was very expensive to staff for these extended hours so when it was eliminated, it was a good thing for us and I don’t believe many customers are inconvenienced from not having them today.

Dollars and Sense – September 19, 2018

Question: I have noticed interest rates are going up and Prime Rate is now 5%. Does this affect the rate on home mortgages?

Answer: It certainly does affect residential loan rates. It may seem like it was a long time ago but mortgage rates were below 3% just a few months ago. As a matter of fact, it wasn’t all that long ago that we were seeing 30 year fixed rates as low as 2.75%. It may be a very long time before we see those rates again. A lot of home owners missed out on refinancing their homes at 2.75% thinking they might even go lower. It’s too late now. However, rates are still fairly low compared to 20 or more years ago. I can still remember back in the early 1980’s when residential loan rates were over 12%. I hope we never see that happen again. Interest rates are not something you can ever consider as stable. They are constantly changing for better or worse. Based on what the Federal Reserve Bank is telling us, we can expect more increases in 2018.

Question: How do you feel about individuals being able to get mortgage loans with 5% or less for a down payment?

Answer: Almost everyone has a dream of owning their own home and not having to pay rent. However, I am not a big supporter of home ownership without the borrower having something substantial at risk. My reason is simple and it is supported by what happened back in the early 2000’s during the housing crisis. The biggest cause of the crisis was homeowners having very little to lose by walking away from their homes when real estate values crashed. There is absolutely nothing wrong with young people having to rent a house or apartment until they can save a sufficient amount for a down payment. I did it and so have millions of other Americans. The bigger issue is credit quality. If a person has good credit, stable employment and good debt to income ratios, buying a home with just 5% down is more acceptable. If these things are not present, buying with little or no down payment is harder to accept.

Question: How often should I check my credit bureau report?

Answer: There was a time when it was not necessary to ever check your credit bureau report. Today, it is not a bad idea to periodically do it just to be safe. Fraud has become more prevalent than ever and if someone has used your identity to obtain credit, it would show up on your credit report. I don’t think it does any harm to check it once a year. There is no harm in doing it more often than that if you prefer. Thousands of people every day are victims of identity theft which can result in more damage than having your home actually broken into. Your credit rating is something very personal and it should be protected as much as possible. Up until the last 3 or 4 years, checking your credit report had the risk of affecting your credit score. The process is much more refined these days and it has no impact on your credit score when you check it. Just for clarification, when someone accesses your account because you shared your PIN, or allowed them to use your credit card, it is not identity theft. It’s stupidity on your part for letting them have the information. Don’t ever do that.

Dollars and Sense – September 12, 2018

Question: I have tried everything I can to save money but I can’t seem to get it done. Am I like most people in that regard?

Answer: There are certainly others who cannot save as much as they should. However, in general, I think most people can do pretty much what they want to do if they try hard enough. The reason most people cannot save money is that there are other things they want to spend money on and they won’t give them up. It might be expensive cars, hobbies, recreational activities, clothes or some other thing that they could live without if they wanted to. I’m very much in favor of people enjoying life. I think it is important to their physical and mental health. However, a lot of people go to the extreme and it sometimes comes at the expense of their financial well-being. As I have said many times before, each person should take a look at their priorities to make sure that their desire to save some of their hard-earned money is as strong as they claim it is. If you are honest with yourself, you might find that your commitment to saving money is not as strong as you seem to think it is.

Question: Do many individuals buy municipal bonds?

Answer: Although some do, most individuals do not buy municipal bonds. They come in two different forms. One is taxable and the other is tax-free. The tax-free bonds earn a lower interest rate. If you are interested in this type of investment, you should understand that there is normally a credit risk. The municipality that issues the bonds must be able to generate sufficient income to pay the money back. There are some bonds that are backed by insurance but do not assume they all are because some are not. My best advice to you is the same I would give for investing in anything. Make sure you understand what you are buying. Read up on it. If you seek advice from a bond expert or financial planner, make sure they know what they are talking about. The bond market can be a good place to invest but it can also be very volatile. Be comfortable with your decision before you leap into a new type of investment.

Question: Have you heard of an investment called a REIT?

Answer: I believe you are referring to a Real Estate Investment Trust. A REIT is the shortened name for this investment. A REIT is usually made up of many different commercial real estate properties. For example, there might be 50 properties in the REIT totaling a value of $100 million, you would be purchasing a piece of this REIT. There could be 1,000 different investors sharing this investment with you but you won’t know them by name. REIT’s became very popular back in the late 1980’s and early 1990’s. Although they are still there, they are not as popular as they once were. I’ve known individuals who have invested in them. What you must understand is that there is a degree of risk. One person I know invested in them and one of the properties was a large shopping center which ended up going under and the investors took a big loss on the project. I’m not a big fan of REIT’s and never was. I think they are too risky for the average person. These are better suited for someone who is a very astute commercial real estate investor who has the ability to analyze the properties involved.

Dollars and Sense – September 5, 2018

Question: Is our community considered a middle-income community?

Answer: I believe the last census that the government conducted had us listed as a middle-income or moderate-income community. I’m not sure which wording they used. However, I don’t believe this is an accurate assessment of our community based on certain things that I am aware of. It is my understanding that we have a high rate of students in our school who are on the free meal program. I don’t know the percentage but I believe it is above average. Also, we have an above average number of renters vs. owners of homes. It doesn’t take a lot of effort to drive around town and see that for yourself. I’m not criticizing this. I’m just stating a fact. I also believe we have a considerable number of families who receive public assistance in the form of Welfare, Food Stamps, Assisted Living and other subsidies. With all this in mind, I do not believe the government’s assessment of us as a middle-income, or moderate-income community is accurate. I don’t know how they arrived at this conclusion but we are not.

Question: It seems like we have a lot of higher priced housing on the edges of town for our size community. Why is that?

Answer: I don’t know what number you are using to determine that we have “higher priced” housing in the area but this term is all relative to the surrounding area someone lives in. Personally, I don’t believe we have a high number of “higher priced” homes in the area. We have very few homes that exceed $400,000 in value and in larger cities, this is not “higher priced” housing. The homes you may be referring to are mostly in the area just north of town within a couple of miles and those homes usually range from $250,000 to $400,000 in value. Very nice homes for sure. Although we have a number of nice homes, I don’t believe the number is considerably higher than you would find in any other community our size. What causes these areas to develop is usually insufficient housing to satisfy the need for them within the limits of the Village. In addition, most of these homes come with 2 to 10 acres of land and these individuals want this much land to give them privacy they can’t get in town. We are fortunate to have these areas but I don’t think it is above average for our size community.

Question: What are the guidelines for determining how much of a home someone can afford?

Answer: Most financial institutions use the guidelines for the secondary market regardless of whether they plan to sell the loan or keep it on their books. In most cases, these guidelines are more than fair. To qualify, the borrower must have sufficient income to meet their monthly payment, plus taxes and insurance, at a maximum of 28 to 30% of their monthly income. Total monthly obligations, which includes your mortgage payment plus all other obligations is 40-43% depending on the lender and the market maker for the loans. From a banker’s perspective, these numbers are stretching a bit because there are other factors that could come into play very easily. If you are right at these two percentages, it doesn’t leave a lot of room for unexpected expenses and very little for savings or retirement funds. In my opinion, consideration should also be given to how many children you have and other costly lifestyle pursuits. A family can get into trouble very quickly if they are not careful.

Dollars and Sense – August 29, 2018

Question: I was out of work a few years ago and lost my car. Since it wasn’t my fault, why does this have to be on my credit record?

Answer: Whose fault is it, the lenders? All they did is lend you the money to buy the car. All they wanted in return was for you to make your payments. It is true that things happen beyond our control like the loss of a job. However, not knowing the circumstances under which you lost your vehicle, it is difficult for me to answer objectively. Did you go to the bank and explain your situation regarding the loss of your job or, did you just call them and tell them to come and pick it up or force them to contact you repeatedly? Did you make any effort at restitution once you were back to work or did you just let your lender take a loss? By the way, in my experience, lenders always lose money on repossessions. These are all valid questions. Things do happen in our lives beyond our control. However, how you handle the situation makes a big difference as to how it impacts your credit standing. Assess how you handled the situation and you might have your answer.

Question: It seems you place all the blame on the housing crisis a few years ago on the borrower. Is that fair?

Answer: If you have read all the articles I have written on this subject, you would know that is not completely accurate. Yes, when a person loses their home for non-payment of a mortgage, they are ultimately responsible for losing it. However, there were a lot of non-bank mortgage companies that got a lot of people in trouble by granting them mortgage loans they could not afford and I have repeatedly said this in past articles. Many of these mortgage companies were crossing the line of decency in making loans to people who were clearly not qualified. I will also place a lot of blame on our government for making it possible for everyone to own a home which is just not realistic. Guess what? Many of these mortgage companies are at it again. There are numerous indications that mortgages are being made to individuals with marginal credit, no down payment and questionable work history. It seems like some have decided to ignore the past and repeat it and our government is supporting it.

Question: Years ago, when you bought a car and financed it, the local bank was the lender. What happened?

Answer: We still grant auto loans and we want to do more. However, what has happened is beyond our control. Our government continues to allow credit unions to operate without paying federal taxes and since they do not have shareholders to keep happy, they don’t have to be profitable. They can offer lower rates of interest, pay no taxes and it makes for an unfair competition with your local banks. Our industry leaders are fighting this and someday, we might get this changed. If you don’t care that credit unions are not paying taxes like the rest of us, including you, then you can probably get a lower rate on an auto loan. Franklin Roosevelt created the laws that allowed credit unions to exist with the understanding that anyone dealing with them had to have something in common like working for the same company. That has been violated and now they serve no purpose other than to get away without paying taxes. It’s unfortunate but our hands are tied. Every person and company should pay their fair share of federal taxes.

Dollars and Sense – August 22, 2018

Question: Back during the housing crisis, some people did a “short sale” on their homes. How did this work and did it hurt their credit standing?

Answer: Our country went through a difficult 10-year period where a lot of people lost their homes and a lot of banks lost money in the process. Billions of dollars in foreclosure losses were incurred. Some banks, mostly larger ones, allowed some homeowners to sell their properties at less than the mortgage balance and forgave the shortfall just so they would not have to foreclose on the property. Most of the banks that allowed this had hundreds of potential foreclosures. Regardless of what you may have heard, this was wrong. These individuals walked away from their obligations just to make life easier and they let banks take the loss. Many of those individuals were not destitute financially. They simply lost value on their property and they let the bank take the hit. I would never knowingly offer credit to anyone who did this kind of thing. In my opinion, they took advantage of a glut in foreclosures and they let lenders eat the loss and that is simply unacceptable. I never allowed this practice and never will.

Question: Why is there such a big disparity in housing values in short distances as little as 20 miles apart?

Answer: An example of what you are referring to is all around us. Look in any direction to Fort Wayne, Bryan or Defiance and you will find a significant change in housing market values and it all comes down to location. As much as we like living in our smaller town, we will probably never compete with home values in these larger communities because of desirability. To you and I, we might feel this is a more desirable place to live due to lower traffic volume or any number of other reasons. However, to some the availability of shopping, restaurants and other amenities is more important than the ability to live a quieter life in the country. Therefore, home values are pushed higher by the demand for homes in these areas. To live in these other areas, there is a downside. You will pay higher real estate taxes. Maybe twice as much in some cases. Don’t get too hung up on one positive aspect of being in a larger community and forget to look at all the positive reasons for being here. First and foremost, we have a lower cost of living.

Question: I’m hearing various stories about land prices. Are they going up or down right now?

Answer: They are stable at best. You will find some unusually high sales prices in Amish country over in Indiana once in a while. However, I would not use those sales prices to determine or justify what farms are worth around our area. It’s not realistic. About 4 to 5 years ago, we saw a jump in prices that went as high as $8,000 per acre. Most of these prices were paid by farmers who had adjoining land or land near the location. If they were being honest and you were to ask them if they paid too much, they would say they did because they couldn’t get that price today if they sold it. If you base the value of land purely on grain prices and yields, values would be in the range of $4,500 per acre on the high side. Even that might be a little too high. If we’re being honest, smaller tracts of farm land aren’t even that high. Too much emotion is involved when it comes to farmers and land values. From the standpoint of a return on your investment, most land sales prices cannot be justified. Also, it’s a big gamble if you are betting on prices going up 10 years from now.

Dollars and Sense – August 15, 2018

Question: I paid a loan payment late and I was charged a late charge. They are still charging me interest so, why do they do that?

Answer: When you are granted a loan through a lender, you agree to certain things which includes paying your payment by a specific due date. It also states that you agree to pay a late charge if you don’t pay on schedule. Here is why you received a late charge. When a borrower is late with a payment, your lender incurs additional expense. There is additional postage cost to send late notices and employee’s time to handle the additional work of mailing a notice. If your loan gets significantly past due, it will likely cause additional time to make phone calls to determine why you are behind in your payment. Let me assure you that any lender would much rather you pay on schedule than to have to charge you. Charging a late fee is within your lender’s rights and you agreed to pay it when you borrowed the money.

Question: Have banks cut back their hours of being open in recent years?

Answer: When I first started my career, the hours of operation were actually shorter than they are today. Drive Thru banking had just started and not every bank offered this service. Lobby hours were usually from 9:00 a.m. to 3:00 p.m. for a total of 6 hours per day. We did stay open until 7:00 p.m. on Fridays and until noon on Saturday. Today, most banks have their Drive Thru open before and after lobby hours and most banks keep their lobby open until 4:00 p.m. Overall, banks keep their lobbies open longer than they did many years ago in spite of the fact that lobby traffic is down considerably due to electronic banking. From a deposit standpoint, once the account is opened, it is conceivable that an individual would never have to go into the front doors of their bank due to electronic banking. While the customer may enjoy this, some of us miss not seeing the customer as often as we used to see them.

Question: Do a lot of your customers pay their monthly bills through online banking?

Answer: It’s not as many as you might think but it is growing all the time. You may wonder why we would like to see more people use online banking. When someone writes a check and sends it to pay a bill they owe, it costs the bank to process the check when it is returned to us for payment. I understand that is our responsibility to do so but it is less expensive for us to process the online payment. However, that doesn’t mean that we don’t want your business if you don’t use online bill payment. We’re glad to process your checks. Some large city banks are even beginning to charge their customers an extra fee if they do not use their bill payment system. In my opinion, that is going a little bit too far but I do think you will see this more in future years. Some customers have payments automatically taken from their accounts, some use bill pay and some still write checks. although writing a check is becoming less of an option for people. The primarily reason being the cost of postage and the time it saves to do it electronically.

Dollars and Sense – August 8, 2018

Question: It seems like my bank is always asking for more personal information. Why?

Answer: Without details, I cannot be specific to your personal situation and why your bank is asking for more personal information. However, I’m guessing it has something to do with new regulations. It seems like every day we are being notified of new rules and regulations as it relates to retaining information on our customers. We’re just as tired of it as you are but it isn’t going to get any better. I will give you one bit of advice. If you think changing banks is going to get rid of the problem, you’re wrong. It won’t change a thing. The next time your bank asks you for information try to remember that they are not enjoying it any more than you are. It’s just another way that our government can keep tabs on us to make sure we are not doing something illegal.

Question: Do bankers sometimes bend the rules on laws and regulations to accommodate a good customer?

Answer: I can answer that one for our bank and the answer is a very strong no. We will not violate laws to keep a customer happy. That has not and never will happen. The regulations and laws are very clear on what we can and cannot do for our customers. Some of the punishment for ignoring these laws is severe and I would never put our organization in that position. While I cannot answer for other financial institutions, I can’t imagine that any of them would view this any differently than we do. I will be the first to admit that some of the rules we are expected to abide by don’t make a lot of sense. However, once they become a law or regulation, we have no choice but to operate within them. The size of the relationship does not make a difference. There are probably instances where banks lose business because they will not bend rules but I’m sure they found the same restrictions applied to other institutions. While the current Washington administration is trying to curb some of the requirements, it probably won’t change any of those already in place.

Question: I heard that banks make money off of repossessed cars when they get them back. Is it true?

Answer: I don’t know where you got your information but it was obviously not from a lender. I have been in this business for over 40 years and I have never been able to sell a repossessed vehicle for more than the borrower owed on it. Normally, when we get a vehicle back for non-payment, it is in bad condition. There is body damage and/or mechanical issues that need to be addressed. I’ve never understood this but you would think when someone can’t pay, there would be some remorse. However, that’s usually not the case. Most of the time, they are upset or angry that we took the vehicle even though they could not make the payments. The same applies to home foreclosures. When we get possession of the property, it normally needs work done before it is in condition to sell and we rarely, if ever, recover 100% of our loan and the expense of getting possession. Your source has no basis for the comment that we make money on repossessions.

Dollars and Sense – August 1, 2018

Question: Would you advise someone to start taking their Social Security benefits even if they are still working full time at the age of 70?

Answer: Actually, you don’t have a choice on taking it at the age of 70 whether you are working or not. Social Security requires you to take it when you turn 70 years of age. However, you should do it at this age even if you were not forced to do so because your benefit caps out at this age. However, there is one thing you should be aware of if you continue to work after your 70th birthday. A substantial portion of your social security benefits will be taxed at your current income level. I know there are differing opinions about whether you should take your benefit at the age of 62, or 65 or some other age prior to turning 70 years old. However, if you retire prior to age 70 and you don’t need the money, I would try to hang on until age 70 to claim your benefit. You can still collect your Medicare benefit without claiming your Social Security. The one irritating thing about working after age 70 is you will still pay Social Security tax but your benefit will not go up.

Question: I have heard farmers say their accountant told them they should buy some equipment to avoid paying taxes. How does that work?

Answer: I do know that some accountants tell their clients to do this but I don’t necessarily agree with it. The only exception would be if you are going to need to replace some equipment in the next year or two and you have had an especially good year, it might make sense to go ahead and buy it for tax purposes. However, if you don’t need the equipment, why buy it just to save tax dollars? I assure you that the equipment will be much more expensive than the taxes you would pay so why not put that excess income back for a later need? Maybe even retirement. I have had a number of farmers tell me their accountant gave them this advice but no one has proven to me why that is a wise decision. Most new farm equipment will cost between $40,000 and $250,000. I doubt many farmers have a tax bill that comes close to these numbers and if you owe taxes, that means you made a profit. So, I’m at a loss as to how buying equipment you don’t need is a good idea.

Question: How can these people justify buying trucks that cost $60,000?

Answer: Unless someone comes to me for credit, I don’t have the right to criticize or judge how someone spends their money. I can see how we might not understand this kind of purchase if the individual is neglecting their family’s needs or allowing their home to deteriorate because of neglect. However, it’s still none of our business. Some people spend way too much time talking about other people’s finances when they should spend more time managing their own situation. Unless you have been asked for financial help from someone, it’s not your place or mine to comment on how other people spend their money. Some individuals choose to buy expensive homes. Others, a lake cottage or boat or some other expensive item. None of these people have to justify to us why they chose to make these purchases and we don’t have right to comment.

Dollars and Sense – July 25, 2018

Question: We are hearing a lot about U.S. trade deficits. Why should the average person care about it?

Answer: The U.S. and foreign trading should matter to all of us. The math is simple. Our government tracks things that are imported to the U.S. versus the things that are exported out of the U.S. to other countries. For many years, we have allowed more to be shipped into the U.S. than is shipped out. Let’s use steel as an example. More steel is being shipped into the U.S. than we are shipping out. The impact on us is a loss of jobs. This scenario could be used about several industries. Earlier in the year, the Wall Street Journal reported that $50 billion dollars more is coming into the U.S. than is going out which costs us hundreds of thousands in jobs across the country. Our current President is trying to address this situation by putting a tariff on certain things brought into the country. However, he has met opposition to this plan from both parties for fear it will cause a backlash. This is an important issue and you should care about the outcome. You can decide for yourself who is right and who is wrong.

Question: At what age should parents start making their kids financially responsible?

Answer: I’m not qualified to answer your question from a psychological viewpoint but I can offer an opinion from a financial education viewpoint. If your child has the capacity emotionally and mentally, you should begin thinking about their financial development by the time they start attending grade school. I’m not referring to 10 or more hours of labor. I’m referring to them having regular chores like keeping their room clean or taking out garbage in order to receive an allowance. If they don’t do their assigned chores, they don’t get an allowance. I was 5 or 6 years old when Mom and Dad set my allowance at .25 cents a week and I had to earn it by doing little chores.  A quarter would buy maybe a little toy airplane to put together or a plastic model car kit would take two weeks allowance to buy. I really believe it taught me a lot at a young age. I highly recommend parents doing something like this as soon as your child begins asking for things that are not necessities.

Question: At what point should you stop being a financial support system to adult children?

Answer: It’s one of the most difficult things as a caring parent. I think it depends on circumstances. If your adult children are having financial problems due to mismanaging their income or wild spending, you are not doing them any favors by bailing them out repeatedly. If your child is not the cause of their problems due to lost employment, major illness or a spouse who has done something to harm them financially, I don’t know if there is ever a time when you would stop helping them. That is if you are able to do so. However, if your grown child has a good job but living beyond their means, there is no way I would come to their rescue. Maybe once but if they don’t learn their lesson, that would be it. If this sounds harsh to you, maybe your child’s spending habits are a reflection of yourself. This is not always the case but more often than not, they learned from their parents.

Dollars and Sense – July 18, 2018

Question: Has the income of the average family kept up with the annual cost of healthcare?

Answer: If you look at the increases in healthcare over the past 10 years, I would say the answer is no. There have been some years where healthcare premiums have gone up by more than 10%. I don’t know many people who have gotten a 10% increase in income in one year. If you were to look at your healthcare cost per month today versus what it was 10 years ago, it would not surprise me if your cost is up by 50% or more. Is your income up 50% over 10 years ago? I doubt it. I wish I could tell you that it will get better but it probably won’t. Healthcare costs will continue to skyrocket. For those of you who want to blame your employer for this, don’t do it. Their share of the cost has gone up right along with yours. It’s one of the single biggest issues for employers today.

Question: Is all the political fighting hurting us as tax payers financially?

Answer: There has always been political fighting between the two parties. However, it is worse now than any time in history. The name calling and ugliness is just inexcusable on both sides. However, it’s not just the politicians who are doing all the fighting. People who have no political background whatsoever are just as bad. There are various theories about why it is worse now than previously but I think the biggest reasons are overlooked. The younger generation (under 50 years of age) did not grow up respecting our country. They were not exposed to the Pledge of Allegiance or morning prayers in school and they do not respect authority. As for the politicians, they are worried about their jobs. A person with no political background was elected President and he doesn’t care what people think about him. This is not to say he is always right. Sometimes he isn’t. However, the establishment politicians are losing their minds over the fear that they are at risk in future elections and it is driving them crazy. Everyone needs to put their own agendas aside and work together. Yes, the fighting is hurting us very much from a financial perspective because things are not getting done.

Question: How is inflation good for our country?

Answer: Whether we are in an inflationary period or a recession period, there are good aspects and bad aspects to both. We are probably somewhere in between the two at the present time but leaning in the direction of inflation. The good thing about inflation is that it normally is accompanied by lower unemployment and more retail spending which is good for business. The stock market is usually higher in an inflation period and real estate values increase. The danger of inflation is when it gets out of hand and real estate values go crazy and things get overpriced and it will be followed by a correction period and people will have paid too much for housing. We don’t want that. Ideally, during an inflationary period, we have steady economic growth at reasonable levels, we are able to keep up with the growth and no correction period is needed. This is what we want to see.

Dollars and Sense – July 11, 2018

Question: At what age should I start putting my retirement funds in safer investments and get out of the stock market?

Answer: To some degree, your age should not necessarily determine when you should do this. However, I think it is a valid question. The problem is, there is no easy answer. If you are constantly losing sleep over this issue, it doesn’t matter what age you are. You should invest in those things that you are most comfortable with. Many senior citizens begin to think about becoming more conservative when they get closer to retirement and I certainly can’t argue with that. I think the best advice I can give you is to determine how much you can afford to risk losing without making it hard to live on your retirement income. If you cannot afford to lose any of your current balance, the time might be now to become more conservative. Just keep in mind when you decide to put your funds in a conservative longer-term investment with a nominal interest rate, you will no longer get the benefit of spikes in the stock market.  You are the only person who knows the right answer for your situation.

Question: How do you feel about investing in IPO’s?

Answer: Investing in IPO’s is not for the casual investor because it contains high risk. IPO stands for Initial Public Offering and it occurs when someone who owns the entire company decides to sell shares to the general public. In most cases, it is a person or persons who have a company that they started from scratch, they’ve been successful and now they want to reap the benefits of their success by selling a portion of the company. They usually sell enough stock to where they give up controlling interest but continue to run the company. In other cases, they may be experiencing tremendous growth and they need capital to keep up with growth. In any case, to the investor there is risk involved and if you can’t handle a potential loss you should stay away from this type of investment. There have been many who have gained great wealth through IPO’s. However, there have been many who have lost money on them. If you can take a loss and not lose sleep over it, maybe you can handle it. If not, don’t do it.

Question: Which causes businesses to fail most often? Is it lack of working capital or poor management?

Answer: Actually, where you have one you normally have the other. What I mean by this is, if a business owner runs short on working capital, it happened because they mismanaged the business or it never would have gotten to that point. Conversely, if a person is a poor manager, he or she will more than likely run out of cash. The failure of any business usually has multiple reasons for it failing. Although I don’t like to say it, the biggest single reason for business failure is that it probably should not have started to begin with. Proper research is not done to establish a need for the service or product and the business is doomed before the doors are opened. We’ve seen it hundreds of times and unfortunately, the business owner won’t take any advice that is contrary to what they want to hear. Countless times we’ve seen some new businesses open and we wonder what they could possibly be thinking that makes them feel it can be successful.

Dollars and Sense – June 27, 2018

Question: How often should I check on my 401K to see how it is performing?

Answer: You can check on it as often as you like. Most companies who offer 401K’s have the ability for employees to go on-line and see their portfolio. However, I would recommend doing so at least every 30 to 45 days. Your 401K Administrator would probably tell you less frequently but I would watch it a little closer for changes especially if some of it is invested in the stock market. Don’t be alarmed if you see a lot of ups and downs in the balance. It’s the nature of having funds invested in something you can’t completely control. Tell me someone who has never seen up and down movement in their retirement fund and I will show you someone who is not in the stock market.  Personally, I think it would be somewhat frustrating to check it weekly or daily but some do it that often. Just don’t become so obsessed with it that it occupies your thinking all the time. Life is too short to do that to yourself.

Question: I don’t understand why banks charge a service charge on my account when it’s my money. Why do they?

Answer: Service Charges are usually imposed when an individual keeps balances below a certain level or the customer has excessive usage in terms of checks written. Each bank does it differently.  The reason for this is simple. Individuals use banks for the safety of their money and to allow you the ability to write checks for your purchases. Each time a check is written on your account, the bank incurs a cost to process that check. There are also costs associated with maintaining records of your account and the cost of paying our personnel to provide you with the service. Banks have a process they use to determine how much an individual must have in the account to offset the level of transactions being made. We are no different than any other kind of business. If we fail to price our products and services correctly, we won’t be profitable. The process of properly charging for services has been evolving for many years to the point it is today and it was necessary for the soundness of the banking system.

Question: If I guarantee someone else’s loan and the borrower doesn’t pay, what happens?

Answer: I hope you are asking this question before you sign documents to guarantee someone else’s loan and not after you have already done so. Signing loan documents for someone else is s serious matter not to be taken lightly. It doesn’t matter whether it’s a family member or a close personal friend. You should know what you are committing yourself to do. If the primary borrower does not pay on time, the lender has every right to call on you for payment. It’s amazing how frequently a guarantor becomes upset when called upon to meet their obligation when they have absolutely no right to be upset with the lender. Claiming you didn’t understand what you were getting yourself into is no excuse. As far as the lender is concerned, you are under just as much obligation to pay as the primary borrower. If a lender calls upon you to pay on a loan you guaranteed, get your checkbook out and write the check because that’s what you agreed to do when you signed.

Dollars and Sense June 20, 2018

Question: The tax reduction has been in place for about 6 months. Can you see any positive results?

Answer: Because President Trump initiated the tax cut, a Democrat will tell you the tax reduction has been a total failure and it has hurt the country. If you ask a Republican, they will probably tell you it has been good for the country. The truth is, it’s too early to tell if it will be good or bad for our country. The first indications are that it is a positive thing. However, tax cuts are a long-term proposition and 6 months is not nearly enough time to tell if the benefits are short term or long term. Obviously, all of us enjoy getting more net pay in our paycheck. However, if the tax cut plan does not work, we will be looking at an increase in taxes in just a few years. I think the tax reduction plan is a good thing right now. Let’s hope it turns out to be a good thing for a long period of time and not just a short-term thing.

Question: Is farmland going up in value compared to a year ago?

Answer: I don’t believe land prices have changed much over the past 12 months. We’ve seen anywhere from $3,000 to $6,000 per acre which is about where it was a year ago. However, the $6,000 cannot be supported based on grain prices. We had a short period of time back a few years ago where there were some sales as high as $8,000 per acre but that didn’t last long. This doesn’t mean that you won’t see those prices again. We are just not seeing them now. Unless someone has an emotional connection with farm land, the price is usually dictated by the prevailing grain prices. To some degree, I have been involved in financing farm land for over 40 years. One thing I have learned is that there will always be ups and downs in land values. I don’t see anything that indicates that will change over the next 40 years. We will continue to see volatility in the price of farm land. If you took the emotions out of land sales and went strictly on grain prices, sales would be much lower.

Question: How does the banking industry feel about financing these new self-driving cars?

Answer: There have not been any opportunities to finance self-driving vehicles at our bank and I don’t know if they are even available to the public yet. However, my observation is this. Self-driving automobiles are going to be much more expensive than conventional autos due to the technology. Therefore, a vast majority of them that are sold will be sold to wealthy individuals who have no need for financing. I do not believe our highways are going to be taken over by these vehicles for a very long time. In addition, you will have a large percentage of people like me who do not trust the technology at this point and they want to see more testing on these cars before they buy one. It will probably be 5 to 10 years before we personally know anyone who owns a self-driving vehicle. When they do start to be popular, I’m sure we will be open to financing them.

Dollars and Sense – June 13, 2018

Question: It seems the only way you can get a mortgage loan with less than 20% down is if the bank can sell it in the secondary market. Why?

Answer: Yes, you are probably right about this. There are several government-backed mortgage programs that will allow for less than 20% down payment. When a lender makes this type of loan they are more likely than not to sell the loan into the secondary market. In other words, the lender has no plans to keep the loan on their books. The loan will then be a part of a larger package of loans which is then sold off to investors. It is rare for a bank to make a mortgage with the intent to keep it on their books if the down payment is less than 20%. The reason is simple. Any amount over 80% of value has a higher degree of risk involved because the borrower has less at risk. I can understand our government trying to stir up the housing market by guaranteeing mortgages with maybe 15% down payment from the buyer. What I cannot understand is when they have programs that allow individuals to buy homes with as little as 5% down. This is a recipe for disaster down the road.

Question: What is a reasonable growth rate in the value of a home for investment purposes?

Answer: There may be some who disagree with me but I don’t believe you should ever buy a residential property for the purpose of seeing the value increase. That doesn’t mean that it won’t increase in value but I wouldn’t buy it specifically for that purpose. A more realistic approach would be to own it in hopes of building equity. Here is an example. Let’s say you buy a home for $100,000, you make a down payment of 20% or $20,000 and finance $80,000. You will pay interest on the loan which is tax deductible. Over a period of 10 years, you pay the loan down to $60,000. The end result is you had the home for 10 years to enjoy, you got a nice tax deduction on the interest and, assuming your home is worth the same amount you paid for it, you now have equity of $40,000 on your original investment of $20,000. If you get lucky, you might see an increase in the value above the $100,000 but don’t count on that.

Question: Are there people who buy an automobile and consider it an investment?

Answer: I guess it would depend on your interpretation of an investment but, in general, I don’t consider an automobile to be an investment. It’s more like a necessity. If you want to stretch your thinking a bit and say that the vehicle makes it possible for you to go to work and make money, I suppose it is to some degree an investment. However, in all likelihood, it will never be worth as much as you paid for it and you will have continued maintenance cost to keep it running. When you go to sell it or trade it you will get less than you paid for it. So, while it is going to be used to get you to and from work, I don’t look at an automobile as an investment in the purest sense of the word. The exception to this is purchasing a vintage car in hopes that the value will rise above what you paid for it but that’s not a sure thing. Vintage cars go up and down in value as well.

Dollars and Sense – June 6, 2018

Question: This doesn’t sound right to me but someone told me my bank has to get my permission to return a check that I wrote. Is that true?

Answer: The short answer is no, we do not have to notify a customer before a check is returned for insufficient funds. The check clearing system has gotten substantially faster than it was many years ago and it is much harder to write a check without the funds in the account to cover it. Some individuals are embarrassed by their mistake and others become angry because they expected their bank to cover the check or call them and alert them to the shortage of funds which is not a reasonable expectation. Banks have literally thousands of customers and there is no way we can possibly contact each customer when they write a check that is not covered with sufficient funds. It always amazes me how many people do not keep their check register up to date to make sure they have the funds necessary to cover a check before it is written. My thought on this has always been the same. If you have enough time to write a check, you should take the time to record it and subtract it from your balance. Don’t write the check until you are sure you have the funds.

Question: You have been in banking a long time. What was the worst period of time for your customers and for banks?

Answer: I have experienced several periods of inflation and several periods of recession. Neither is good if it lasts very long. I would have to say that the most recent recession from 2002 to 2014 is the longest and worst period I have experienced. The first reason is because of the length of time and second, the devastating impact it had on real estate. Especially, residential real estate. There were times I didn’t think it would ever end. There was one other period of time that was very scary. This was back in the very late 1970’s and early 1980’s. Interest rates were out of control on both the deposit side and the loan side. In addition, residential properties were inflating at a rate that was not realistic. As a matter of fact, the inflated value of homes is partly responsible for what happened in the 2000’s. It proved that homes were selling at prices that were way too high and a lot of people and lenders suffered severe losses as a result. These two periods far exceed anything else I have ever experienced.

Question: My spouse and I don’t agree on how we should teach our children about money and finance. Do you have any tips?

Answer: I don’t know which one of you is supporting the idea of teaching them money management but whoever it is, I’m on their side. It’s one of the most neglected areas of child rearing and you are doing a great disservice to your children if you don’t do it. The big argument on this topic is, at what age should you start teaching them. I was fortunate in being raised to believe there was no such thing as an allowance because we were expected to earn whatever we got. Yes, I received money from my parents as a child but I worked for it. No free handouts in our household. There is no hard and fast rule on when to start teaching these lessons but I would think it should be by the time they are old enough to go to school at the latest. I think most kids start asking for things by the age of 6. Assigning a small task that they can do by this age isn’t out of line. There will be some who read this and think I’m being harsh. I don’t think so. Teach your kids at a young age to be responsible.

Dollars and Sense – May 30, 2018

Question: With the economy being what it is today, do you have any concerns about people buying or building new homes?

Answer: It’s all about job stability. Although we are not back to where we were 15-20 years ago in terms of the economy, I do see some good signs that it is improving. It’s easy for us to find all kinds of reasons not to do something but I do not necessarily believe this is how we should live our lives as long as we prioritize what’s important. Priority #1 is preparing for the future by putting money aside for the unexpected things that come up. If you have young children, I don’t have to tell you how expensive they are and they will be expensive until they are on their own. Also, save for retirement no matter how young you are. Once these things have been taken care of, don’t let your concerns about the economy dictate your entire life. Build or buy that new home you want. Just be sure you have job stability and there is money for the other important things in life.

Question: I got a quote on an interest rate from my bank 2 months ago to refinance my house but when I went back to start the paperwork, they said it went up. How long can you hold a rate?

Answer: Typically, rates can be locked for 30 days if you accept the rate immediately and do everything required to close within the 30 days. Interest rates are always subject to change and some lenders won’t even guaranty the rate for any length of time. Some will quote the rate and if it changes before closing, you lose the quoted rate. By the same token, if rates go down, you would typically get the benefit of the decrease. Most of what I am explaining is in reference to loans sold into the secondary market. Rates began sliding upward in the 4th quarter of 2017 and it is unlikely they will decrease anytime soon. It could be years. It would be hard for me to believe that a lender told you the rate they quoted would be good for 2 months but they should have given you some information about how long the rate would be good.

Question: I heard that banks are not really interested in lending money to buy rental properties. Is that true and under what circumstances would they lend money for rentals?

Answer: I can’t speak for other banks but under the right circumstances, our bank would lend for the purchase of rental property. There are probably some banks that have had bad experiences with rental property loans and they decided to stay away from them. There are several things that are considered in lending on rental property like cash flow, borrower experience in owning rentals and secondary sources of income should the rental property be vacant for a period of time. The lender is not going to stop expecting their payments just because you experienced a couple of months of vacancy. They still expect to be paid. Over a period of years, lenders learn what to look for in considering a rental property loan. If they begin to feel as though the applicant lacks the key elements to be a good landlord, they may be less likely to approve the loan. When bankers experience a loss on a loan, it is typically not the purpose of the loan that caused it to go bad. It’s usually inexperience, character and poor money management that causes the loss.

Dollars and Sense – May 23, 2018

Question: With the stock market going up so much the past few months, do you have any fear things will reverse?

Answer: As the old saying goes, “If there is one thing you can be sure of, it’s that you cannot be sure of anything.” It’s a funny quote but very true. Especially when you know the history of the stock market. It doesn’t matter how good you are at picking investments, it’s legalized gambling. You are taking a chance. That doesn’t mean you should not do it. We all have stocks and bonds in our retirement funds. In answer to your question, I don’t live in fear that the market will reverse because, at some point, it will. That’s the nature of investing. What you hope for is that after all the ups and downs in the stock market you come out ahead on your original investment. If you can’t handle the uncertainty of these ups and downs, you probably shouldn’t be investing in the stock market.

Question: I have a friend who claims they are making a 15% return on an investment. Does that sound possible?

Answer: Either your friend has a distorted view of the truth or, he is telling the truth but he is taking a huge risk to get that kind of return on an investment. Regardless of how good it may look on paper this doesn’t sound like a safe way to invest your money. Why would any company or business want to pay investors 15% when they could borrow money through a legitimate lender for one-third of that cost? It doesn’t make any sense. I won’t even tell you what questions to ask to get more comfortable with this opportunity. I’m sorry I can’t be more encouraging to you but a 15% return on your investment is not realistic unless you are willing to take a very big risk on not getting your money back from the investment. Many stock gamblers are boastful by nature and they love pumping up their so called accomplishments. I wouldn’t pay any attention to someone telling you they are getting a 15% or higher return. If they are, it’s not safe. I think most individuals today would be quite pleased with a 5% return on their investment.

Question: My friend and I have a difference of opinion. Is owning your home considered an investment?

Answer: It could be an investment but it isn’t a sure thing. You might have bought it as an investment and maybe you found out some things were wrong with it that cost you considerably to fix it. Maybe you paid too much to start with. It doesn’t matter what you decide to invest in. If you make mistakes in what you pay for it, you may find it was a bad investment. Most people do not buy homes for investments. They buy them to obtain a quality of life within their financial abilities. If you keep the home and pay the mortgage down, or maybe succeed in paying it off, you have an investment. I don’t think I would ever buy a home as an investment. The trick is to pay an amount that you feel you can re-sell it for should it become necessary for financial or health reasons. Don’t buy it thinking you can make a profit on it in 2 to 5 years.

Dollars and Sense – May 16, 2018

Question: I am unable to have a checking account because of past problems but the bank will let me have a Savings Account for direct deposit. Why is that?

Answer: The banking industry is allowed to share information through a 3rd party on individuals who have mishandled checking accounts in the past and they may have even lost money because of these problems. A bank is under no obligation to allow you to open a checking account if you have a history of not managing your accounts properly. However, some banks will allow these individuals to open a savings account for the purpose of direct depositing a payroll check. The reason for this is that banks do not issue checks for savings accounts. Therefore, the only way you can access your funds is to go to the bank and request a withdrawal from the account. Even then, there are restrictions on how many times you can make a withdrawal within a month’s time period. The bank usually does not allow these individuals to own a debit card because there is a risk there as well.  Banks who allow previous checking account abusers to open savings accounts for direct deposit are going the extra mile to help you but only in a low risk transaction account.

Question: Can you explain something called the Community Reinvestment Act that banks must follow?

Answer: The Community Reinvestment Act was written into law in 1977 and it applies to the banking industry. It holds banks accountable in serving their communities. The purpose of the law is to make sure a bank is adequately providing needed deposit products and services and loans. Contributions to worthwhile organizations and community involvement go a long way in proving compliance. The regulators examine banks to make sure they are serving the entire community to include low to moderate income level individuals. This does not mean that we are forced to make bad loans. It means that we must make every effort to provide opportunities to all areas. In other words, we cannot ignore certain segments in our market area that are low to moderate income levels. It’s very rare but there have been some banks across the country who have been fined for non-compliance. I’m pleased to tell you that our bank has always been given high marks for compliance. There is much more to this law but this is the basic components.

Question: It’s rare to see a bank build a new branch in another community these days. What changed?

Answer: You are correct. There has been a change when it comes to branch expansion. Many years ago, it seemed there was a new branch of some bank going up on every corner. What changed is the way people conduct their banking business. The internet, ATM’s and smart phones have made it almost unnecessary to come into your bank branch to conduct business. However, this has been developing over a number of years. I don’t care who you use as a bank, I am willing to bet that lobby transactions have gone down by as much 50% or more over the past 10 years and it is all due to technology. As a matter of fact, recent reports tell us that nearly one third of all branches across the U.S. have been closed over the past 10 years. The majority of this change is on the deposit side of banking. It is still preferable for individuals to come in to apply for credit. Once you have opened your account, there is very little that you can’t do through electronic banking. It’s rare to see new branches being built.

Dollars and Sense – May 2, 2018

Question: I’ve lived here all my life. Your answer last week about decaying properties surprised me. Do most people really see us that way?

Answer: This is a great community. We have many owner occupied, rental and commercial property owners who take pride in how their properties look. We have many who couldn’t care less how their properties look or what people think about it. If you do not believe this is a financial issue for the good property owners, you are not paying attention. When those around us do not keep their properties up, it affects the value of your property. This is not an opinion, it’s a fact. Ask any financial person or professional appraiser and they will agree. The effect on the value of good property owners could be as much as 20% depending on just how bad it is. In recent days, I have heard that the Village has been sending out notices with the possibility of fines of properties are not cleaned up. This is great news but it is just a step in the right direction. More should be done and I feel our elected officials will address it. Let’s hope so.

Question: Is it legal for a bank to charge an extra fee when a loan is paid off early.

Answer: It is perfectly legal as long as there is language in the loan documents disclosing it. Typically, early pay off penalties apply to business loans and not personal loans. However, some banks may apply penalties to consumer loans. Prepayment penalties are very common in business loans and there is a valid reason for using them. When a business asks a bank to commit to financing for a specific term, the bank is basically putting that money aside thereby taking it out of circulation. If the loan is paid back years earlier than expected, the bank then must find another investment. Often times, that new investment has a lower yield than the loan that was paid off early. Therefore, the bank suffers a reduction in income. The prepayment penalty offsets some or all of the loss of income in the new investment. Here is another way of looking at it. If we were to commit to paying you a 3% interest rate on a CD for 4 years and we suddenly called and told you we cannot pay that rate any longer, it would not go well with you. Of course, we can’t do that but as you can see, an early loan payoff has a negative impact on us just like it would you. I think prepayment penalties on loans are very fair if they are disclosed.

Question: I have a chance to buy some property on land contract but the seller doesn’t want any loan documents. Just a hand shake. What do you think?

Answer: There is not one chance in a million that I would ever buy property on a hand shake. I don’t care how well I know the seller. What if the seller dies after you have made payments for 3 years and his heirs tell you they know nothing about your handshake? I can think of a dozen other reasons not to do it but that’s the biggest reason. I don’t care if this a first cousin of yours. You don’t do business transactions this way. I won’t tell you I haven’t seen it done but I have never seen it done by someone I considered to be an intelligent individual. Some say that verbal agreements are enforceable by law. Maybe in some cases they are but it isn’t worth the risk. If the seller refuses to have a legal contract between the two of you I would walk away from the deal immediately. You should be wondering why this person doesn’t want it in writing. I would.

Dollars and Sense – April 25, 2018

Question: Do you recommend investing in Bitcoin?

Answer: I don’t make recommendations on investments but if I did, I doubt I would recommend Bitcoin. However, I will give you some thoughts. Your age should be considered. If you are near retirement, do you really want higher risk investments in your retirement fund? Another consideration is how much you can afford to risk. Also, how long can you stay in a particular investment before you need to cash it in? Another question is how much do you know about the company and do you have the knowledge to analyze the financial strength of this company? I made a determination years ago that I would not invest in anything that I don’t understand. That’s not a bad plan for anyone. As for Bitcoin, I have yet to meet anyone who fully understands it much less anyone who has invested in it. Proceed with caution and if your financial advisor recommended Bitcoin, consider finding a new advisor.

Question: Now that the stock market has rebounded, how long should I stay in it before getting out?

Answer: Ask 50 people the same question and you may get 50 different answers. No one knows the right answer to that question. The time to get out of stocks as an investment is when you start losing sleep over it. I’m not trying to be funny. This is a serious answer. Do you really want to stay invested in something that keeps you up at night? I don’t. It’s hard enough to sleep the night through as it is without adding this problem. I think most people are concerned to some degree about us experiencing another bubble in the stock market. You may recall a few years ago when most individuals who had stocks and bonds in their retirement fund lost a pretty good chunk in value when prices fell. Cycles are a permanent thing when investing. The average person does not have the expertise to know when the time is right to be in or out. However, if you are losing sleep, this might be your time to sell. Peace of mind is worth a lot.

Question: What’s going to happen to our community if people don’t fix up the run down houses and buildings in our community?

Answer: It’s one of the most frequent comments I hear and it is definitely a financial issue that could impact all of us long term. We have many residential properties that are eye sores and a few business buildings that leave something to be desired. I’m told that there are codes and/or regulations that could be enforced to deal with these issues but for whatever reason, no one seems to want to deal with it. If you are a homeowner or commercial building owner, and you keep your property in good shape and show pride in ownership, your properties will go down in value if something is not done. You are wrong if you don’t believe that. If this is not incentive enough to get you fired up about this problem, I don’t know what will. Many rental property owners keep them in good shape and require tenants to do the same when renting it. Others don’t seem to care whether it looks nice or not as look as they collect the rent. I’m sure you know which ones do and which ones do not keep their rentals in good shape. The same applies to owner occupied residential or commercial properties. If you want this to change, speak up.

Dollars and Sense – April 18, 2018

Question: Something that bothers me is that home owners pay school taxes and the renters don’t pay a thing. Is this fair?

Answer: Land or residential home owners do pay county real estate taxes in every county in Ohio and most of it goes to the schools. Renters do not pay school taxes. However, the people that own these rental properties do pay real estate taxes and it includes tax money to public schools. So, there are no properties that are immune from taxes. I suppose you could make the argument that the renters are getting off without paying taxes which is true but taxes are being paid on the home they are renting. You have a choice. You could also be a renter and avoid real estate taxes. My guess is that the privilege of home ownership is more important to you than avoiding the taxes you pay. I suspect that this process of paying real estate taxes is the same in every state. I don’t know about you but given the two choices, I would rather pay real estate taxes than to pay rent. I think most people would agree.

Question: Why does the IRS allow people to file extensions on their tax returns when they have 3 ½ months after the end of the year to get them filed.

Answer: The IRS has been fairly lenient with extensions over the years. They may have to supply a reason for the delay but I’m not sure. There is one thing to keep in mind on this subject. Most extensions are given to businesses and self-employed individuals who normally pay quarterly estimates of taxes they owe. The extension request is just to allow more time to gather up all the needed information. So, they are paying most if not all their taxes by year end and the extension is mostly for the paperwork. Due to the fact that we require financial information from businesses that have loans with us, I believe the number of extensions is up over previous years. You should visit with your accountant for specific rules in requesting an extension.

Question: The Federal Reserve raised interest rates 3 times in 2017 but the banks haven’t raised deposit rates by that much. Why?

Answer: It’s not the first time I have heard that question asked but there is a good reason for it. The rate that the Federal Reserve Bank sets is the rate they charge banks who borrow money from them. However, not many community banks borrow from the Federal Reserve. Therefore, it is not our cost of funds. For the most part, the banks that borrow from the Federal Reserve are large banks in money centers like New York City. They are not smaller town community banks. So, the rise in interest rates will not have an immediate impact on your deposit rates. Over a period of time, it will cause deposit rates to rise in small banks but not as quickly as you might think and it’s difficult to say just how long it will be before we are impacted. Don’t assume that every time The Federal Reserve Bank increases rates that there is a big immediate benefit to your bank because there isn’t. So far, the 3 rate changes in 2017 had very little impact on community banks. In time, it will and then you will see more of an impact on deposit rates.

Dollars and Sense – April 11, 2018

Question: What is your opinion of these companies that do credit counseling?

Answer: Most of them that I am familiar with have the same solution for every client. They try to get their client’s lenders to renegotiate the balance of the loan down to a lower amount. Then, they charge the debtor a fee for their services. Some individuals even go to these counselors before they attempt to work directly with the lender. Most lenders are willing to work with clients who have unexpected problems. This does not mean the lender is going to forgive the debt. They probably won’t do that. However, there may be other solutions to give some temporary relief. I think most lenders are resistant to helping the borrower through a third party. Go directly to the lender. The result will be the same as it would through a credit counselor and it won’t cost you the fee for their services.

Question: If I borrowed money for a new car and 4 months later the bank was offering a special car rate lower than mine, should the bank adjust my rate?

Answer: If you fill your car up with gas and they lower the price a few days later, would you expect a rebate? What if you bought furniture and the next month they announced a big sale? Would you expect them to send you money for the difference? What if you bought a new car and 4 months later they had a special that was $2,000 less than you paid? Would you expect the dealer to make an adjustment? I’m pretty sure the answer to all these questions is no, you would not expect it. Interest rates are subject to change at any time. The reason for the rate change usually comes from a change in the economy or the need for more loan activity. You cannot expect your lender to predict what might happen several months down the road. It is highly doubtful that your lender was even considering lower rates 4 months in advance. However, if you borrowed money to make a purchase and the next day that same lender advertised lower rates, you might have a legitimate argument for an adjustment. Otherwise, you shouldn’t expect it.

Question: I have heard that those who are in the top 10% in income pay 90% of all taxes paid and the rich are not happy about this. I don’t see how this is wrong.

Answer: This is the kind of subject that could take weeks to debate. I don’t know if your percentages are accurate but I do know that a high percentage of all taxes paid come from a low percentage of taxpayers and it probably should be that way. However, I think you may be missing the point of this information. No one is saying that the wealthy should not pay more of the total taxes paid. When this subject is addressed, it usually has to do with the fact that a high percentage of wage earners are not paying any taxes at all and it should not be this way. Everyone should pay something regardless of what their income is. We all enjoy some of the benefits of this country that is supported by tax dollars. Therefore, everyone should pay taxes at some level. I don’t care if some are collecting welfare benefits, they should pay a tax of some kind.

Dollars and Sense – April 4, 2018

Question: When you need more space in your home, which is cheaper, add on or buy a bigger home?

Answer: You need a contractor but from a financial perspective, here are a few questions to consider. How much do you owe on your current home? Have you looked at home prices to see if you could afford to replace yours and is yours in sellable condition? If you added on, would you have to refinance your home to pay for improvements? What is the interest rate you are paying on your current mortgage and what would the interest rate be in today’s market on another home? What would it cost to have a contractor add on the needed space? These are just a few of the more critical questions you need to address. There are others. As you can see, it’s not a simple matter. Answer these questions and it will put you much closer to a decision.

Question: We hear a lot about inflation and the stock market being up. Is there a downside to this happening?

Answer: Most everything has a downside and an upside including inflation. Young adults are affected more by inflation than senior citizens because they represent a high percentage of borrowers and buyers of high ticket items like real estate. When the stock market is up and we are seeing inflation, young adults will pay higher mortgage rates and higher prices for homes. Inflation impacts senior citizens in a positive way because their retirement funds grow faster than during a recession period. However, jobs are usually more readily available during an inflation period which offsets some of the negatives. I have seen just about all of the negatives and positives of both inflation and recession but how these things affect you typically depends on your age and where you are in your financial planning. It would be great if we didn’t go through these ups and downs but we will never escape them. To some degree, we will be experiencing either inflation or recession at any given time.

Question: I turned 62 and I’m still working but some people say I should start taking my Social Security benefits now instead of waiting. Do you agree?

Answer: No, I don’t agree but each individual needs to make their own choices. Unless you are experiencing some financial problems I wouldn’t even consider taking it. If you’re not having problems why take it now? Each year that you wait, your benefits grow. Actually, if you wait until the age of 70, your benefits will be substantially higher than they are now. If you are being told to take it now out of fear that it won’t be there later, I don’t believe that will happen. Some politicians have tried to scare people into believing this and it’s simply not true. It would be the end of our country as we know it if that were to happen. Just think it through thoroughly before you make that decision and while I don’t have a vote, if I did, I would vote no to taking it at 62 if you are going to continue working.

Dollars and Sense – March 28, 2018

Question: You have probably answered this one before but are U.S. Treasury Bills any safer than a bank C.D.?

Answer: If the U.S. Government lives up to their promise, there should be no difference. Treasury Bills are backed by the full faith and credit of the U.S. Government. Bank deposits, up to certain amounts, are also backed by the FDIC and the full faith and credit of the U.S. Government. The only difference in Treasuries vs. bank CD’s is that Treasury Bills will typically be for a much longer term up to 30 years. I don’t think you will find a bank anywhere that will issue a CD for this length of time. I’m not telling you this is a good or bad thing. It’s just how it is. Banks have never issued stated maturity deposits for anything longer than 5 years to the best of my knowledge. However, from a safety standpoint, I think they are equally safe.

Question: From everything I have seen or read, electric cars cost a lot more than gasoline powered vehicles. Is the cost savings enough to offset this?

Answer: My knowledge of electric powered vehicles is limited so I don’t know if the gas savings is enough to offset the additional cost. I’m not even sure how much more than a gas powered vehicle they cost. Like most things, when they are just starting to be popular, they cost more. As the technology progresses, maybe the cost differential won’t be as much. Yes, electric cars may be cheaper to operate but there are still some drawbacks. You have to charge them when not in use. Also, I don’t think a full charge on an electric car will take you as far as a tank of gas on a long distance trip. So, you have the task of finding a charging station and the cost to use it. There is no doubt that they would decrease our need for fuel. However, if you are seriously interested in buying one, I would thoroughly investigate the pros and cons of owning one.

Question: Is investing in these windmill companies a good investment?

Answer: It depends on who you ask. Some reports claim it is a very good low cost source of energy and others have their doubts. It is estimated that there are already 100,000 jobs across the country dedicated to windmills and it is considered a fast growing source of job opportunities. The federal government has appropriated a lot of tax dollars to the development of wind energy. Just using some common sense, it seems to me that it might be a better investment in the future than it has been in the past. The reason being that up until the past 5 years or so, most of the money people invested in wind energy has gone into research and development because the wind turbines were not up and running while in the development stages. Do not take this as an endorsement for investing in wind turbine companies. There are a lot of people on both sides of the argument for and against the future of wind energy. There is so much more we need to know in order to get a good comfort level on this subject.

Dollars and Sense – March 21, 2018

Question: My friend moved to the west coast. He does practically the same thing I do here but makes twice as much money. Why is that?

Answer: The next time you speak with your friend, ask him what it cost to live out there compared to here. You will probably find that after he pays his bills, he has no more left over than you do. The cost of living out there is very high compared to the Midwest. Housing is expensive, utilities are higher and just about everything else you can think of costs a lot more than here. Even gasoline per gallon is much higher than what it is for us. Don’t get all caught up in wages in other parts of the country without comparing the cost of living. I think you will find we are just as well off as your friend out west. If your friend is only making twice as much as you are, you may be better off than him after your bills are paid.

Question: It seems like my bank has raised a lot of their fees for doing business with them. Why has that happened?

Answer: I can’t speak for your bank. However, I can tell you this. Our increases in cost to provide services is no different than any other industry. Our cost keeps rising and it isn’t likely to change. Pick out several other types of businesses you frequent and compare their prices 10 years ago to what they are today and I’m certain you are paying more. Increased cost starts with wages. I doubt that you are working for the same wages you were 10 years ago. Your employer has to make adjustments in order to keep good employees. In a perfect world, everything would remain the same. Unfortunately, it’s not a perfect world. Things change. We do our best to provide the best service possible at the lowest price possible. Most businesses do this. Change is sometimes difficult to deal with but life is full of changes. If you have a particular fee you don’t understand, talk to your banker and get an explanation.

Question: What is the difference between buying a piece of commercial real estate to lease and buying a residential rental property?

Answer: There is a significant difference. However, you should know a little bit about either before buying rental or lease property. Theoretically, the commercial property will have less turnover in tenants than the residential rental. However, in either case, the key to success in owning either type of property is to develop skills in choosing good tenants. You shouldn’t turn your property over to someone without knowing about their ability to pay. In the case of a commercial property, it is not out of line to ask for some historical financial data to see how strong the company is before going into a long term lease agreement. As for the residential property, getting their permission to order a credit bureau report is reasonable to see if they have a history of repaying their debts. Stable employment is also important. Find the right tenants, determine the right amount of rent to charge and both types of property can be a good investment.

Dollars and Sense – March 14, 2017

Question: I recently found out my ex-spouse, who had always handled our finances, did not file a federal tax return for us for 4 years. What are my options?

Answer: When it comes to filing taxes, or any other tax matter, your banker is not the place to go to get answers because nothing I tell you will make a difference. However, I am going to give you the best advice you will ever get. Don’t ignore this situation. Be pro-active and contact an attorney who can advocate for you with the IRS. I don’t think the fact that your spouse was always responsible for filing the returns means you can ignore the situation but your attorney may be able to get you out of this with little or no damage. The IRS does not have a sense of humor when it comes to filing returns so it is a serious matter but it is one that can be resolved if handled appropriately. The sooner you deal with it, the better your chances for correcting it.

Question: My grandfather has mentioned how much easier it was to deal with a bank years ago compared to today. Why is that?

Answer: That can be answered in one word. Regulators. Your grandfather is absolutely correct. In my early days of being a banker, life was simple. We could lend money with a single page document and rely a great deal on our personal knowledge of an individual’s character. Thanks to our government, this is not possible today. There is page after page of disclosures and details that most customers don’t even care about. The same applies to opening new deposit accounts. Multiple disclosures and details that the average person doesn’t understand, much less care about, have made the process of doing your banking way more difficult than it needs to be. The truth is, there aren’t many things in life that are easy today compared to 40 years ago and most of it can be attributed to our Washington, D.C. politicians who think they know best. So, the next time you go to your bank to transact some new business, remember that it isn’t your banker who created all this red tape. We are just forced to comply with the laws. The penalties for not doing so are very severe.

Question: When is it safe to apply for credit after filing for bankruptcy protection?

Answer: Over the years, I have dealt with similar variations of your question. I’m not quite sure what you mean by “when is it safe” but I assume you are asking how many years after filing for bankruptcy will lenders approve you for more credit. In my opinion, unless you filed for bankruptcy due to a catastrophic illness that hurt you financially, there isn’t enough time that can pass before you are able to get credit again. Bankruptcy causes lenders to lose a lot of money and it isn’t right for someone to do this and then get more credit. I know it happens but it isn’t right. A very large percentage of bankruptcies occur due to uncontrollable spending and bad choices. A person in this group is normally forced to deal with high interest rate lenders who take risks with people like this and it’s appropriate. If you are one of a small percentage of people who was forced to file due to a major illness, it’s a different story but most don’t file for this reason.

Dollars and Sense – March 7, 2018

Question: I was told my interest rate on my loan was 8% but then the document reflected 8.12%. Why is that?

Answer: I can’t be sure about your own experience but I imagine it had to do with fees that you paid when you took out the loan. Most banks charge a fee for preparing the loan documents. By virtue of the regulation requirements in dealing with fees, lenders are required to quote the rate including the fees that were charged. For instance, maybe you paid a loan documentation fee of $150. This must be included in the Annual Percentage Rate (APR). In most cases, the fee you paid was not actually collected from you but it was likely added to your loan. It is a common practice for lenders to do this and it is perfectly legal as long as they disclose it. The only thing that is not legal is for the lender to reflect an APR excluding the fee. If you are still uncertain about this, I would suggest you visit your lender and ask them for a clarification.

Question: I bought a home with a mortgage. I looked at over 20 pages of stuff that I had to sign and didn’t understand. Why is all this necessary?

Answer: Most people wouldn’t understand all of it. Due to the housing crisis over the past 15 years, there have been many new regulations that are supposed to protect home buyers. These new rules have created a lot of additional paper and very little of it makes any sense. Unfortunately, we have no choice in the matter. We have to give you the information whether you understand it or not. There are fines imposed if we don’t do it. This new compliance has caused some to decide to get out of residential lending because they do not have the expertise on staff to track compliance with the laws. Fortunately, we do have the staff to stay in compliance. All of t has been dumped on all lenders even though most of the negative issues that created the new rules were committed by non-bank mortgage lenders.

Question: If you had to choose between investing in rental property, the stock market or farmland, which would you choose?

Answer: This is almost an impossible question to answer. All three choices have the potential to turn out well or not so well. You can receive a good return on rental property but you need to buy it at the right price and be able to do most of the maintenance yourself. The stock market can yield some very nice gains. However, you have to buy at the right time and be prepared to sell at the right time. As for farmland, it’s not a short term investment and unless you are farming it yourself, the cash rent income is not likely to give you a good return. You will have to rely on the value per acre going up over time. I guess what I’m telling you is, if you have some experience in one of these areas, that’s where you should concentrate on investing. If you don’t, your risk is going to be greater no matter which one you choose.




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