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Author Archives: Graham McCaulley

Teaching Children About Money

If you’ve spent much time on social media, you’re likely aware of the tendency for social media feeds to showcase users at their high points. For example, carefully constructed vacation selfies or clever captions highlighting expensive purchases (Ugh, I just want to bluetooth my iphone7 but I’m not techy enough to figure out BMW’s touchscreen!). Although some adults may be getting better at seeing through others’ (or curtailing their own) humblebrags, regular brags and all of their derivatives, children may still be socialized into thinking mindless consumerism is the norm, especially if their parents involve them in these behaviors.

What children might not realize is that parents are working long hours, or that they are stressed out paying for that consumerism. While the ability to buy on credit has made initial purchases easier, it doesn’t give children the whole picture. They may see big houses full of luxury items, but what they don’t understand is whether or not there’s money in retirement accounts.

The topic of money (other than showing that we have it) is often taboo and something many don’t talk about. But it can be framed as a fairly simple, logical concept, even for younger children. Although parents and children will make financial mistakes, it’s important to take advantage of intentional, teachable moments while children are young. Here’s three basic topics to be aware of.

Wants vs. Needs, Modified

Helping young children understand what is a need and what is a want by discussing the differences. Needs include food, shelter, utilities and clothing. You don’t want to buy your wants at the expense of your needs or of the future. Though easy to use, credit cards shift spending into the future, which can sometimes be a bad financial move.

To make money more concrete than swiping a credit card through a machine or waving a smartphone over a reader, make it a point to use cash once in awhile to demonstrate the value of the dollar.

For example, if a child has been given a dollar or two, let them physically hold it while shopping and talking about prices. Let him or her decide to use the money for a store’s product or opt to keep the cash for a later purchase. If you’re doing a monthly budget at home, involve children enough to understand that the work you’re doing on the computer now is connected to later swiping a card or uses a phone to purchase something.

Just make sure to keep the discussion developmentally appropriate- children shouldn’t be given too much information or worry about their family’s finances, just enough to understand that there’s intentionality behind spending money.

Opportunity Costs

Opportunity costs are the value of something that is lost because you have chosen an alternative course of action. Youngsters can begin to pick up on this as they age. In the cereal aisle of the grocery store (often designed to be extra eye-catching to young children), a parent or caregiver may say, “You can have one thing on the shelf. Pick one but give up the rest.” In a good way, this forces children to weigh their options.

As a child ages, parents can say, “Here’s $2 or here’s $5, but there’s no more.” On the other hand, if a parent gives in to a tantrum at the store, this can reinforce an immediate gratification mindset as well as teach that tantrums or pleading works. The reality, however, is that things cost money and there are tradeoffs.

Pick Your Battles

Taking children shopping can set up difficult situations, but can also get children used to the idea that “you don’t get something every time we go to the store.”

Conversely, times with children in stores become teachable moments. If they bring up the topic, it’s more effective than if the parent does. Rather than saying no, present a choice: You can have this or that, a tradeoff. Take your child’s questions and turn them into something more.

Overall, giving your children “a sense of agency,” a sense they have power and control in making financial decisions, is a positive.

One Way to Get Student Loan Forgiven

Recently a Financial Tip reader shared some great topics she was interested in having covered in future tips, and this is one of those topics- breaking down student loan forgiveness programs (note, we always appreciate feedback from readers! Please feel free to send ideas for future tips or topics you want more information on to financialsuccess@missouri.edu).

For many students this time of year marks graduation, and for many of them graduation prompts thinking about student loans. Those graduating high school may be anticipating the disbursements of their first student loans in a few months to cover new tuition expenses. Alternatively, those graduating college may be expecting the end of student loan deferment and the beginning of repayment in the coming months. No matter where one is on the continuum of student loan debt, it is always important to think about the long term realities of student loans, including repayment options. This tip will outline one possible option for students who may go into careers in public service jobs.

Public Service Loan Forgiveness Program

What’s a public service job?

The definition of what is considered a public service job is fairly broad. Any employment with a federal, state, or local government agency, entity, or organization or a non-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for PSLF purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes. Some private, non-profit employers that are not tax exempt (i.e., 501(c)(3) status) can even be considered qualifying employment for the PSLF program, provided the employer provides certain public services (e.g., public health, safety, etc).

What types of loans are eligible?

Loans are either:

  • Federal- Made and/or regulated by the government, including Direct Loans, Federal Family Education Loans (FFEL), and Federal Perkins Loans; or
  • Private- Made by a bank/private lender and generally carry higher fees and interest rates than federal loans. For more information about avoiding deceptive private loans, visit http://missourifamilies.org/features/financearticles/cfe63.htm)

Private loans are not eligible for loan forgiveness programs, and not all federal loans are either. For a list of debt cancellation/forgiveness programs and which types of federal loan types are eligible for each program, visit https://studentaid.ed.gov/sa/sites/default/files/public-service-loan-forgiveness-common-questions.pdf. Regarding the Public Service Loan Forgiveness Program (PSLF), only direct loans are eligible (i.e., loans you received under the William D. Ford Federal Direct Loan Program). Federal Family Education loans and Perkins loans are not eligible, however, they do become eligible if you consolidate them into a direct consolidation loan.

What do I have to do to get my debt forgiven?

  • Work full-time: At least an annual average of 30 hours per week. For purposes of the full-time requirement, your qualifying employment at a not-for-profit organization does not include time spent participating in religious instruction, worship services, or any form of proselytizing. If you are a teacher, or other employee of a public service organization, under contract for at least eight out of 12 months, you meet the full-time standard if you work an average of at least 30 hours per week during the contractual period and receive credit by your employer for a full year’s worth of employment. If you have multiple eligible jobs, you must work a combined average of at least 30 hours per week.
  • Make 120 on time, full, monthly loan payments. Basically, you have to put in 10 years of full, on time payments before you can be eligible for the remainder of your loans to be forgiven. On-time payments are those that are received by your Direct Loan servicer no later than 15 days after the scheduled payment due date. Full payments are payments on your Direct Loan in an amount that equals or exceeds the amount you are required to pay each month under your Direct Loan repayment schedule.
  • Be paying back your loan through a qualifying repayment plan. You cannot necessarily choose a repayment plan that will greatly lengthen your repayment period so that you are eligible for most of your loans to be forgiven. For example, 30-year extended repayment plans are not eligible for the PSLF program. However, income-driven repayment (IDR) plans are eligible. Check out https://studentaid.ed.gov/sa/repay-loans/understand/plans to see the full list of repayment plans, which includes the four main IDR options (also, you may want to check out this recent Financial Tip for info on a newly released IDR planhttp://ofsmizzou.org/a-new-student-loan-repaye-ment-plan/). The 10-year Standard Repayment Plan is also eligible, however, after meeting the PSLF requirement of 120 consecutive payments, there would be no debt left to forgive!
  • Stay on top of your record keeping. When using an IDR plan, borrowers will need to re-certify their income annually. Your lender will communicate with you on when and how to do this, but missing this communication or not completing the re-certification process can take you out of an IDR plan and default you into the standard 10-year plan (which doesn’t help you maximize the PLSF program). Also, you will need to file a form certifying your public service employment (https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf). Each time that form is received, your past payments will show up as qualifying for the PSLF program. So, be sure to file the form as soon as you have a public service job, if you change public service jobs, or anytime your lender or the PSLF program prompts you to re-certify your employment eligibility.

Deciding whether or not the PSLF program is right for you depends on many factors, mainly how much student loan debt you have and how much money you will make during the first 10 years of your public service career. The more debt you have and the less you will make, the more attractive an option the PSLF may be for you (as payments tied to your income will be less when you make less money). Alternatively, if you make a high income you may very well have paid off, or be close to paying off, your student loans by the time you get to the end of the 10 year requirement under the PSLF.

There are many repayment options for student loans. A good first step would be to visit the Federal Student Aid repayment calculator at https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action to see what all your options may be. You can also look at past financial tips (achieved at http://mufinancialtip.blogspot.com/, especially the September and October 2011 tips).

Again, whether you are just starting to take out loans or have been paying them back for years, it is always good to consider your repayment options and realities. Even though the PSLF program may help some (and does encourage public service jobs), you will still end up paying back a substantial amount of the debt you take out, so never take out more loans than you need.

Consider Checking Out Options During Open Enrollment

For Some, It’s That Time of Year Again…

Autumn means two things: falling leaves and the annual open enrollment through the Affordable Care Act Marketplace. This year the enrollment period will start November 1, 2015 and continue until January 31, 2016.

The Affordable Care Act created the Missouri Health Insurance Marketplace. To find it, go to healthcare.gov and select Missouri, which will take you to the state’s health insurance marketplace.

If you want your health coverage to start on January 1, 2016, you’ll need to be enrolled by December 15, 2015. If you sign up on December 16th or later, your coverage won’t start until February 1, 2016.

That 15th of the month cutoff applies whenever you enroll in a health plan. In general, if you sign up by the 15th of the month, your coverage will begin on the first of the following month. If you sign up on the 16th or later, you’ll have to wait until the month after that.

It is important to note that although you may be enrolled for the purposes of avoiding a tax penalty, you’re not actually covered until you make your first month’s premium payment to the insurance company. So, when you’re ready to enroll make sure you have banking or credit card information so you can initiate that first payment.

It’s important to make you have insurance for many reasons, but a big motivator for some may be to avoid the fee for not having coverage. As we enter 2016, those without insurance could pay a fee for every month over three months that you were without health insurance. That fee will be
either be 2.5%  percent of your annual household income that’s above the filing threshold or a flat fee of $695 per adult ($347.50 per child under 18), whichever is higher. However, the penalty is calculated month-to-month, so you only pay for those months when you were uninsured.

The Affordable Care Act does offer exemptions from paying a penalty. Some of the hardship exemptions include being homeless, having your individual insurance plan cancelled, or being ineligible for Medicaid because your state didn’t expand eligibility for Medicaid.

Someone could file for a hardship exemption based on a series of events connected to losing a job. But, just losing a job isn’t necessarily going to be a trigger for getting an exemption.

For example, if someone worked half of the year, and then collected unemployment for the other half, combined wages and unemployment could put them above the poverty line and they would not get an exemption.

You don’t have to have a job to get coverage through the Marketplace. Estimate what you’ll earn for the year, both wages and unemployment. You could get a tax credit that makes insurance very affordable.

If you think you may qualify for an exemption from paying a fee, you will need to go to healthcare.gov to get the documentation that the Internal Revenue Service will require.

If you had a healthcare plan in 2015, you will be automatically renewed to a plan that is “most similar” to your existing plan, but comparison shopping is still a good idea. Prices, networks and other things might change, and checking the Marketplace to be sure you still have a plan that’s best for you is a good idea.

If you are interested in learning more about what type of health insurance plans may be available to you through your state’s Health Insurance Marketplace, or if you want to ask about an exemption from the individual mandate, a good place to start would be;

– Graham McCaulley and Brenda Procter
University of Missouri Extension Health Insurance Education Initiative (extension.missouri.edu/insure)

Buying a Home? Consider Homebuyer Assistance Programs

by Graham McCaulley, Extension Associate, MU Personal Financial Planning Extension

You’ve examined your monthly budget and determined how much home you can afford. You’ve been house hunting and have an idea of what you’re looking for. You’ve even begun to shop mortgages. All these are necessary steps that most people take before buying a home, but not everyone checks into homebuyer assistance programs. For certain people, such as first-time homebuyers, those with low- to moderate incomes, veterans, or those living in rural areas, these programs can make getting into a home a little less costly.

Overall, the main benefit most homebuyer assistance programs provide for homebuyers are lower down payments, lower interest rates, and lower mortgage insurance costs than some may encounter with traditional mortgages. For example, with traditional financing (e.g., bank or credit union not participating in a homebuyer assistance program) you will usually have to come up with a minimum of 3% of a home’s value for a down payment as well as various closing costs ranging from about 1-4% of a home’s price. Also, if your down payment is less than 20%, you will have to pay for private mortgage insurance (PMI). The PMI premium is paid monthly as part of your mortgage payment and will be more expensive the smaller your down payment is.

The chart below outlines some homebuyer assistance programs that help cut down on the costs associated with buying a home:

Program Backed By Benefits Who’s Eligible? Down
Payment
Requirement
General
Requirements
Good Neighbor Next Door Program US Department of Housing and Urban Development (HUD) HUD owned homes in revitalization areas may be purchased for only 50% of their appraised value. Law enforcement officers, teachers (pre-Kindergarten through 12th grade) firefighters/emergency medical technicians. If you qualify for any FHA-insured mortgage program, your down payment is only $100 and you may finance closing costs. You must commit to living in the home as your sole residence for 3 years. During this time, you must have a second mortgage and note for the discount (i.e., 50% of the home’s value), although no interest or payments are required.  After 36 months the second mortgage is released.
First Place Homebuyer Program (Missouri) Missouri Housing Development Commission Two types of loans offered:1) Cash Assistance: 3% of house price to use towards down payment or closing costs

2) Non-Cash Assistance: no cash assistance, but loan offers a lower interest rate (currently 3% on 30-yr fixed loan).

First-time homebuyers and qualifying veterans who meet household income limits and have qualifying credit. None for cash assistance loan. Must live in home for 5 years. Cash assistance will be in the form of a 0% interest second mortgage that requires no payments and will be forgiven after 5 years of occupancy.
Rural Development Loans US Department of Agriculture (USDA) Low- and moderate-income individuals purchasing homes in rural areas. 100% financing, lower interest rates, and low cost PMI. The USDA offers guaranteed loans (for more moderate-income borrowers) as well as direct loans (for lower-income borrowers). No down payment requirement. Loan amount can include 100% of purchase price as well as closing costs Home must be in an eligible rural area, as determined by the USDA. It’s important to note that many areas just outside major metropolitan areas will still qualify as rural. You will have to pay a one-time USDA fee of 3.5% of the loan amount, which can be added to the loan.
HomePath Fannie Mae Available to those who will live in the homes as well as investors (occupiers have the chance to purchase homes before investors). HomePath mortgages are available on homes owned by Fannie Mae (usually foreclosed homes). These loans offer a low down payment, no lender-requested appraisal and no mortgage insurance 3% If buying the home as an owner-occupier (i.e., buying before investors are allowed to), you must live in the home as your primary residence for 1 year.
VA Home Loan Program US Department of Veterans Affairs (VA) Veterans, active duty personnel, certain reservists and National Guard members, surviving spouses of persons who die on active duty or die as a result of service-connected disabilities, and certain spouses of active duty personnel 100% financing and no PMI required. VA rules also limit the amount you can be charged for closing costs. No down payment requirement. You will be charged a VA funding fee that will range from .5 to 3.3%. This fee can be included in your loan amount. If you receive service-connected disability payments each month, you’re exempt from the fee. You must live in the home as your primary residence.
FHA 203(b) Mortgage Insurance Federal Housing Administration (FHA) Provides mortgage insurance for those purchasing or refinancing a principal residence. The mortgage loan is funded by a lending institution, and the mortgage is insured by the FHA (which is part of HUD) so your lender can offer you a better deal. Wide availability- You don’t have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan. 3.5% of purchase price. 3.5% of purchase price.

The above chart is not an exhaustive list of homebuyer assistance programs. Home loan and down payment assistance programs vary by state, as many are sponsored by state/local governments or other organizations. For a list of specific programs by state, visit http://www.hud.gov/buying/localbuying.cfm.

No matter where you are in the home buying process, it’s a good idea to familiarize yourself with common buying and financing procedures as well as to think critically about how much home you can afford. You can find articles on these issues in the housing section of MU HES Extension’s Money Matters website (http://missourifamilies.org/features/financearticles/housing.htm).

For more information on the assistance programs outlined above, including how to apply for the programs, visit the following links: