Larry's Dollars and Sense
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.