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Category Archives: Student Resources

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.

Doggone Expensive

I was sitting in my office thinking about what I could write as a financial tip of the week. It is spring. Many students are graduating and some are receiving graduation presents.  Some are presents that students buy for themselves.  Just yesterday, I visited with my friend’s daughter and three of her friends.  Between them, they had three dogs – two are puppies and the “old” one is turning a year old next month.  The dogs are great fun and the most recent acquisition is a Chesapeake Bay retriever puppy who will be trained to hunt for his owner. I truly understand this, as I purchased a golden retriever for myself, as a present for my successful matriculation form Mizzou 42 years ago.  Her name was Jessica and her photograph still adorns my office, as her love filled my heart during many a day.  She lived with me in Arkansas, Missouri, Nova Scotia, California, and New York, before returning to Missouri shortly before her untimely death.  To her credit, she not only swam in both the Atlantic and Pacific, but she also paddled in the Great Lakes, the Great Salt Lake, and many rivers while perched within my canoe. Truly, Jessica was loved by many who agreed that she should have been awarded a degree from Cornell, when I received mine, as she went to campus most days with me to her be adored by others. Moreover, she costs me a lot of money in care and attention and money was scarce while I was in school!  So, in case you’re thinking about getting a dog, consider what a doggone dog costs, before you make a commitment to join your life with that of your new best friend.

To begin, and shortly after the puppy has licked your face multiple times, there are initial costs.  If you are purchasing a pedigree dog, depending on the breed and local market, a dog can cost from $200 to close to $2,000.  (Don’t make fun of that high figure.  That is about what my son, the finance professor, and his wife spent on their dog, a Golden Doodle, during my son’s last year of graduate school!)

Other than acquisition costs, you may choose (or be required) to have the pet neutered.  This may cost you $200-$400. An initial medical exam will typically be $60-$80, a collar with a walking leash $25-$30, a training leash is another $15, a shipping/travel/sleeping crate will come in under $100, and the cost of signing up for a training class $150. (The training class is for you.  It keeps you disciplined to work with your dog so you can be proud of her when she is the star of the class.)  Taken together, the initial costs, at the low-end, is $750 upward to over $2,500.  The following site estimates the first year costs of owning a dog: http://www.thesimpledollar.com/pet-cost-calculator/ .

Next, the dog will live with you for twelve to fifteen years!  These years cost money, in addition to the one-time costs. Annual costs for food for a dog will range from $120 – $360 per year, depending on the size of the dog and the quality of the diet. Annual medical exams, vaccinations, and emergency visits to the veterinarian will run from $200 to some unbelievably large number if your dog is an extreme health risk and requires surgery or overnight stays in the doggie hospital.  Of course, you will want your dog to look good and to have some dog toys.  If you only buy 3 tennis balls a month from Amazon, they will cost you $45 for the year and monthly grooming could run to $200 for the year.  Doggy treats, depending on your preferred doggy diet, will cost at least $5 per month or $60 a year.  If you chose to purchase pet insurance that will be over $200 per year and, of course, we’ll throw in another $50 per year to cover miscellaneous expenses like repairing your friend’s door when your lovelorn puppy decides to scratch her way back to your welcoming arms when you leave her there, while you go to the movie. Of course, you can’t go on vacation without taking the dog.  If you do, you will need from $40 to $100 per day in kennel expenses.  In addition, many landlords will not allow pets.  If they do, they might require a second month’s rent as a dog damage deposit. (It always took me a while longer to find a place to live that allowed pets.)

Given the above and one week of kennel, a dog has an annual cost of from $755 to $1,465, perhaps much more. If we assume you will own the dog for 12 years, when you decide to buy that dog, you’ve made an immediate financial commitment of from $8,300 (for the economy model) to over $16,000 (for a dog tinged in gold with health issues).  Of course, at the end of the dog’s life, there may be heroic measures you wish to purchase to keep your friend at your side.  You may even consider going into debt. I recommend that you consider what actions you will take, should this occur, before it occurs! This eventuality puts additional pressure on your emergency fund.

Finally, I wouldn’t give anything in exchange for those years I had with Jessica. Many called her my first wife, as she went many places with me and always helped me meet people and make friends. A dog adds much to life, but a dog is a huge commitment and a large expense.  The total commitment to training, caring, and loving a pet is a big decision.  It is a decision to spend thousands of dollars which cannot be spent on tickets to events, cars, houses, books, food, or anything else you might want. Yet, coming home to that wagging tail and those “so happy to see you” eyes can be worth every penny it costs. Just make sure that those wags fit in with your vision of financial success, before you visit the breeder or your local Humane Society.

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.

A New Student Loan REPAYE-ment Plan

You would be forgiven if you missed the news about a new Federal Student Loan repayment plan that went into effect mid-December last year.  After all, for some that time is finals week, others it’s Christmas break, there is shopping and family gatherings and all sorts of other things begging for our attention.  Hopefully, nearly a month and a half into 2016, you are back into the normal groove and feeling receptive toward some newish and potentially helpful student loan news.

December 17th 2015 was the date that a new repayment plan went into effect for federal student loan borrowers.  The new plan is called REPAYE, and can be considered a close relative to the existing PAYE income driven payment plan.  Each plan share similarities, but also have major differences which should be taken into consideration when trying to decide between the two.
Pay as You Earn vs. Revised Pay as You Earn
Let’s begin with the similarities.  They are both income driven plans, meaning, your income and household size are used to determine how much you will have to pay each month.  Income is evaluated on a yearly basis to determine if a new payment amount should be used.

They can be used to repay Direct Subsidized & Unsubsidized, Direct PLUS loans made to students, and Direct Consolidation Loans that do not contain PLUS loans to parents.  If you’re not sure what type of loans you have, visit www.NSLDS.ed.gov, select the “Financial Aid Review”, and login to review what types of loans you have.

If the loans are not repaid in the maximum repayment periods, a borrower may be held liable for the tax consequences of unpaid debt due to loan forgiveness, but both repayment plans are eligible for use when working towards the 10 year Public Service Loan Forgiveness (PSLF) plan.

Now let’s explore the differences between the two.
Firstly, the REPAYE plan does not require a financial hardship.  Anyone can apply and take advantage of the benefits.  Borrowers also do not have to be “new borrowers”, a classification based on the date the first Direct loans were received.  It doesn’t matter when your loans were received, you are eligible for the REPAYE plan.

Undergraduate and Graduate borrowers also get different maximum repayment periods.  Undergraduate, like with the PAYE plan, can take as long as 20 years to repay the loans.  Graduate borrowers however, get an additional 5 years, bringing the maximum repayment period up to 25 years.  As mentioned before, failure to pay off the loans in the maximum repayment periods will result in loan “forgiveness”, and taxation on the forgiven amount.

In the REPAYE plan, the “amount of your payment is 10% of your discretionary income” (see below for an explanation of discretionary income).  This is different from the PAYE plan, where the “maximum amount of your payment is 10% of your discretionary income”.  You may have noticed the lack of the word “maximum” in the REPAYE plan description.  Good on you, because that’s one of the key differences between these two plans.  Under the older PAYE plan your payments are capped, and you would never have a payment larger than the amount of a payment for the 10 year Standard Repayment Plan, no matter how much your income increased.  Under the REPAYE plan, there is no such cap.  Meaning, if your income increases significantly over the life of the loan (20-25 years), your payments will continue to grow.  The upside to that is, as you approach the end of the repayment period, you will likely have less debt to be forgiven than under the PAYE plan, and therefore a smaller tax liability.

Another difference, and arguably a disadvantage for married borrowers, is that REPAYE considers spousal income regardless if taxes are filed jointly or separately.  Since spousal income is always taken into consideration, this could increase a borrowers overall discretionary income, increasing the monthly payment amount.

And there you have it, a brief breakdown of the new REPAYE Federal Student Loan Repayment Plan, and how it differs from its cousin the PAYE plan.  I would encourage you to continue reading below for a quick breakdown on how discretionary income is calculated.  For more information about Income Driven Plans, please visit:
https://studentaid.ed.gov/sa/repay-loans/understand/plans

https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf
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What is discretionary income you ask?  It’s your Adjusted Gross Income (AGI – Found on your 1040 tax form) minus, 1.5 times the Federal Poverty Level for your Household size.

Household Size Poverty Level
1 $11,880
2 $16,020
3 $20,160
4 $24,300

Source: https://aspe.hhs.gov/poverty-guidelines

So, if your AGI is $18,000, and you are a single person without dependents (household size of 1), your discretionary income formula looks like this:
18,000 – 1.5*(11,880) = 18,000 – 17,820 = $180 discretionary income
Which makes for a very small monthly payment because, 10% of $180 is $18, and your monthly payment is $18/12 = $1.50.  Yes, one dollar and fifty cents is your estimated monthly payment, under the REPAYE plan with $18,000 annual AGI and a household size of one.
Something to consider about a payment this small is that interest will continue to accumulate as you go through the life of the loan, meaning the balance owed will increase significantly over what was originally borrowed.  If the loan can’t be repaid within the maximum allotted time, the tax liability due to loan forgiveness could be substantial.

Podcasts for your Thanksgiving Holiday Drive

AAA Travel predicts that 46.9 million Americans will travel 50 miles or more Thanksgiving weekend, the highest amount since 2007. For this Financial Tip, I would like to share my favorite pastime while driving: listening to podcasts.

What is a podcast:

A podcast is usually episodic media, generally audio, that is either delivered to your media player or downloaded from the Internet. Podcasts have an advantage over radio in that the content can be consumed on the listener’s schedule.

How to listen to podcasts:

If you have a smartphone, listening to podcasts is incredibly easy. For Apple phones, iTunes can serve as your podcast manager. For Android phones, there are several apps that can download, manage, and play your podcasts. The Verge recently posted a review of Android podcasting apps.

If you don’t have a smartphone, you can still listen to podcasts. If you have an mp3 player, many podcast websites will allow you to download the podcast files, and you can manually load them into the player. If you don’t have an mp3 player, you can still download the files and burn them onto a CD for playback in your car’s CD player. If your car doesn’t have a CD player, you could record the podcast onto cassette tapes for playback in your car’s tape deck.

Below is a list of my favorite financial and/or economic podcasts:

NPR’s Planet Money

From the NPR Planet Money website: “Imagine you could call up a friend and say, “Meet me at the bar and tell me what’s going on with the economy.” Now imagine that’s actually a fun evening. That’s what we’re going for at Planet Money.” The podcasts delivers content in a narrative format as the reporters interview relevant people and explore the topic of the episode. Podcasts are also short, about 15 minutes, which gives enough time to explore a topic and not overly bore the listener. The Planet Money team have produced over 650 episodes; some of the topics include:

Why Coke cost a nickel for 70 years
The tale of the onion king
The signature
The power of free
The Hydrox resurrection
The afterlife of a T-shirt
Two radio guys walk into a bar

The Planet Money team have also created several series that allow for more depth. Their most famous series follows the creation of a T-shirt. They interviewed cotton farmers in the Southern United States, workers in the yarn factories of Indonesia and T-shirt factories of Bangladesh, cargo ship captains, and more.

Freakonomics

Freakonomics was made famous by the 2009 book, “Freakonomics: A Rogue Economist Explores the Hidden Side of Everything.” Authors Steven D. Levitt and Stephen J. Dubner explore the use of economics to explain unintended consequences and examine topics generally not associated with economics. More books followed, but Freakonomics also spread to radio and podcasts in partnership with WNYC. The Freakonomics podcast also uses the narrative format that allows for easier listening.

Freakonomics podcasts are longer, generally 45 minutes or so. Recent podcasts included:

Should everyone be in a rock band
How to save $1 billion without even trying
How to win a Nobel prize
How did the belt win
The president of Harvard will see you now
The dangers of safety

EconTalk

From the website: The weekly talk show features one-on-one discussions with an eclectic mix of authors, professors, Nobel Laureates, entrepreneurs, leaders of charities and businesses, and people on the street. The emphases are on using topical books and the news to illustrate economic principles. Exploring how economics emerges in practice is a primary theme.

Compared to the prior two podcasts, the host of EconTalk, Russ Roberts, interviews one guest for about 60-75 minutes. Below is a list of interesting episodes from the podcasts almost ten year history:

Mike Munger on milk: why is milk really at the back of the store? Is it really a conspiracy?
Tim O’reilly on technology and work: discussion on the early days of the internet, how technology has changed work, and the poetry of Elizabeth Bishop.
Emily Oster on pregnancy, causation, and expecting better: Oster discusses her review of the medical literature concerning pregnancy.
Brendan O’Donohoe on potato chips and salty snacks: a look behind the scenes at how chips are made and sold in retail stores.
Joseph Stiglitz on inequality: Nobel Laureate Joseph Stiglitz discusses the increase in inequality and his prescriptions for changing the economy.
John Bogle on investing: John Bogle, founder of the Vanguard Group, discusses the early history of index funds and the disconnection between direct and indirect investors.

Marketplace by American Public Media

You may be familiar with Marketplace from your local NPR station; the show is also available as a podcast! In addition, other shows within the Marketplace brand are available:

*Descriptions from the Marketplace website
Marketplace: The flagship program examines what the day in money delivered, through stories, conversations, newsworthy numbers and more.
Marketplace Weekend: A relaxed yet informative look at where the economy collides with real life. It’s everything from the paycheck to the personal.
Marketplace Wealth & Poverty: Where class, income inequality and the growing wealth gap intersect
Marketplace Tech: An examination of the business behind the technology that’s obsessing us and changing our lives.

Listener beware: The podcasts I’ve specifically listed above are sponsored by nonprofits or not for profits. They generally do not have products to sell, but they may ask for a monetary donation. Other podcasts may be advertising channels for additional products or services. Famous radio personalities (Clark Howard, Dave Ramsey, etc…) have ported their radio shows to the podcast format for easier consumption. Several financial professionals have started their own podcast ventures. Be sure to research a product or service mentioned on a podcast before purchasing it.

From the faculty at the Personal Financial Planning Department at the University of Missouri, we wish you and your family a great Thanksgiving holiday. Hopefully some of the podcasts mentioned above will make your Thanksgiving drive feel a little shorter this year.