Friday, July 25, 2008

Real Friends Loan Money (and other myths)

Real Friends Loan Money (and other myths)

Drs. Cynthia Crawford[i] and Robert O. Weagley

You may have heard some horror stories about college roommates. Most of them are true. One way to reduce the trauma from this stage in your life is to have some agreements with your roommates, from the beginning.

One of the first topics to agree on is how you’ll share costs of things you might need for your room (for example the cost of a dorm refrigerator and stocking it with snacks) and whether you will lend money to each other. The National Endowment for Financial Education (NEFE) recommends that you have a policy of not lending money to your roommate or anyone else who goes to school with you. This is the only way you will avoid hard feelings, when you do not get repaid. A big caution is to never leave your debit card or credit card laying around the dorm room or apartment. No matter who uses it, you’ll be the one receiving the bill. (It is a great idea to read your statements (DUH!), either on-line or in hard copy, to make sure you are paying for only those items that you purchased. If there is a charge you are not certain of having made, contact the debit/credit card company.)

These ideas go double when you are sharing an apartment with friends – who sometimes become ex-friends. Negotiate how (or, if) you will share the costs of utilities, internet services, newspapers, and basics like food. Will you shop together and split the food bill or will each of you buy your own food? What if one person likes a toasty warm apartment in the winter and the other would rather dial the thermostat down and save money? What if one person damages the apartment and jeopardizes the security deposit for all? Talk about this at the beginning before there is a problem. Once the problem exists, it will be difficult to have the conversation and the conversation could turn ugly.

One thing that works for many students is to make a list of all agreed-upon common expenses. Then, each month have roommates keep the receipt for every common bill that they pay, sign it, and put it in the glass on top of the refrigerator. Then, when the monthly rent is due, calculate all that has been paid by each person and make adjustments to each person’s rent check to assure that each is paying their own way. (This worked great for Dr. Weagley when he was a roommate. He and his roommates actually included everything that they purchased, except for alcoholic beverages, and he did the calculations at the end of the month…as well as most of the cooking. His roommates, however, did all the dishwashing and cleaning, in repayment for his Hamburger Helper© induced culinary skills.)

What happens if a roommate moves out early? If a roommate moves out before the lease expires, the landlord likely can hold the remaining tenants on the lease responsible for the full amount of the rent. Do you think this can create hard feelings? When tenants sign a lease, generally each tenant agrees to be fully responsible for the rent. If a tenant moves out, the landlord often looks to the remaining tenant(s) for the rent because they are close at hand. They are the bird in hand. An option is to check to see if the landlord will allow individual leases for each resident. The downside, of course, is that the landlord can replace the tenant without your agreement – unless it is written otherwise into the rental contract.

Having a written roommate agreement, signed by all, is a great way to address all of these issues. In the agreement write out your agreed upon expectations for payments, cleaning, cooking, late night visitors, long-term visitors, etc. Don’t make it so stultifying that you remove all the fun form your college years but focus on those things that you’ve seen cause problems in your or others’ past.

Importantly, when leasing property, respect the property of the landlord. Treat it as if it were yours and always maintain a businesslike relationship with the owner of the property and/or her management representatives. How you begin your success in your financial life, as evidenced by how you treat others and the property of others, says a lot about how you will live when you’re the landlord and some person-to-be-named-later is your tenant


- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

Friday, July 18, 2008

You’re Out! Missouri’s Landlord Tenant Laws

Drs. Cynthia Crawford and Carole Bozworth[i]

“Youuu’rree Outttttttt!” isn’t a shout heard only at the baseball park. It can also be part of a loud conversation between a landlord and her tenant.

The Missouri Attorney General wants you to know the laws, regardless of whether you are a landlord, a tenant, or a person advising a landlord or tenant. If you are not a resident of Missouri, this article can pique your interest about the laws in your state. Landlord tenant law is state specific.

Let’s try a quiz:

  1. Which of the following actions of a tenant would be grounds for eviction?

a. Damage to the property

b. Failure to pay rent

c. Violation of the terms of the lease

d. Allowing drug-related criminal activity on the premises

e. All of the above

  1. You return to your apartment one day and find that all of your belongings are outside and the locks on the door have been changed. Your landlord says that she had the right to evict you for failing to pay rent. Is this true or false?

True False

  1. You ask the landlord to make a repair to your apartment. She fails to do so, allowing you to legally quit paying rent. True or false?

True False

  1. You are late paying your rent so your landlord decides to turn off your electricity and water until you pay the rent. The landlord is legally allowed to turn off utilities to punish late rent payments? Is this true or false?

True False

  1. You have given your landlord proper notice that you will be terminating your lease. You wake up in the middle of the night to find your landlord inspecting your apartment for damages. The landlord tells you she is allowed to inspect for damages anytime during the last month of the lease. Is this true or false?

True False

  1. Your landlord discovers that you are selling illegal drugs from your apartment. You receive a written court order from the local county court ordering you to immediately vacate the apartment. You argue that you are entitled to more notice. Is this true or false?

True False

  1. If you are evicted from a rental property, that eviction will likely show up on your credit report in the future. Is this true or false?

True False

8. Your landlord withheld 100% of your security deposit to cover damage that you can prove was due to normal use. You may sue to recover up to double the amount that was withheld.

True False


  1. All of the above
  2. False! While failure to pay rent is grounds for eviction, a landlord may not evict a tenant without a court order. The tenant will receive notice that an eviction lawsuit has been filed and is entitled to the opportunity to be heard in court.
  3. False! While you should expect landlords to make needed repairs, withholding rent is a mistake. Failure to pay rent is grounds for eviction. In very specific cases a tenant may make repairs and deduct the cost from the rent only if very specific conditions have been met. Investigate these conditions carefully on the Missouri Attorney General’s website.
  4. False! The landlord cannot interrupt utility service, unless it is for health and safety reasons.
  5. False! The landlord must notify the tenant of the time and date the landlord plans to inspect the dwelling. The tenant has the right to be present at the inspection (and you want to be there) and the inspection must be at a reasonable time.
  6. False! You’re immediately able to be evicted. The law authorizes county courts to order the quick removal of tenants involved in drug-related criminal activity or violence, even when there is no arrest. Prior written notice is not required to remove a tenant.
  7. True! An eviction is a legal proceeding and, as such, it will likely show up under the public record information on your credit report. That’s one reason prospective landlords often want to check your credit report. Being evicted can make it tough to get into rental property in the future.
  8. True! The tenant has the right to sue to recover double the amount that was wrongfully withheld.

You can learn more about Missouri’s Landlord-Tenant laws by ordering a free booklet from the Missouri Attorney General’s website:

Or, take an additional set of quiz questions: .

PS: Don’t forget to forward this to your friends, wherever they may be. Your high school personal finance teacher might find the financial tip series to be useful for educating tomorrow’s college students. Thanks.

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

Friday, July 11, 2008

Mid-Year 2008

I must apologize for last week’s absence of a Financial Tip. I spent the first part of the week at Boy Scout camp with my youngest and then the Fourth of July just kind of crept up on me. Regardless, given that we’re at the half-way point of a very eventful year, I think it wise to take stock of where we are. So, here’s a take on the subject…

Financial Markets

Financial markets have been rough. Each of the following stock market indices are down and, frankly, they are not very “up” over the past ten-years, eking out a return less than the, roughly, 2.9% rate of inflation over those ten years. We’ve been hurt by market risk, the risk inherent in marketable securities, which have driven prices down.

Returns through 7/8/2008

2nd Quarter

Year to Date




Dow Jones Industrials






NASDAQ Composite






Standard & Poor's 500






Source: Wall Street Journal, July 9, 2008.


Oil prices rose 37.8% in the second quarter of 2008 and nearly 46% in the first half of the year. Gasoline prices hit a record high of $4.086 on June 30. Gold prices have risen about 11% for this year, silver is up more than 17%, copper is up 27%, while platinum is up more than 35%. These increases are hitting the manufacturing sector and depressing their earnings, further pressuring stock prices.

For the twelve months ending May 2008, inflation stood at 4.2% (Labor Department). That is outside of the Federal Reserve’s comfort zone of 1 to 2%. Speaking of the Federal Reserve, they are in a predicament for, under normal circumstances, raising interest rates would help squash inflation and increase the value of the dollar. Unfortunately, economists increasingly concur that we’re in a recession, so greater interest rates could lead to even more economic malaise.

Credit Markets

The subprime problems appear to be spreading. Credit problems are moving into home equity lines of credit and other forms of credit. With home prices falling, homeowners have less equity and that makes prudent lenders increasingly more conservative with respect to lending. It is interesting that the Federal Reserve has cut the rate at which member banks borrow from 4.25% (end of 2007) to 2.0% (end of April 2008). In response, the average rate on a 30-year fixed rate loan only changed from 6.2% to 6.0% and has recently risen to 6.4%! This reluctance to lower rates by financial institution is closely tied to their inflationary expectations, as well as current credit conditions (i.e., consumer indebtedness).

Housing Markets

According to the National Association of Realtors, the median sale price of housing has decreased across the U.S., with the exception of the North East. Bloomberg reports that April saw price decreases in 23 of 25 metropolitan markets. Prices in Sacramento, CA decreased 31.7% between April 2007 to April 2008! Charlotte, NC prices fell the least with a decline of 0.1%. The economy needs for housing prices to stabilize but potential homebuyers are sitting and watching. When prices level off, they will enter the market.


The U.S. economy has lost jobs but our unemployment rate, while at a four-year high, is only 5.5% at the end of June (Labor Department). As such, our economy is not damaged beyond repair but it is, frankly, not what we’d like it to be as many of those working are working at jobs that pay less than what they were earning at their prior job. Also, one should be clear that not all industries are suffering, as there are winners in the commodity and energy-related sectors. The devalued dollar, perhaps the biggest reason for the increases in the price of oil, is helping the export sector by making American goods less expensive to purchase.

International Winners and Losers

By broadening our horizon, we find that there are winners and losers throughout the world’s stock markets. Here is a partial list of year-to-date performance ranked by U.S. dollar returns. During the same time period, the Standard & Poor’s 500 index of large U.S. industrial firms returned a -13.3%.


YTD Return


YTD Return





















Source: Wall Street Journal, July 9, 2008.

For the Year-to-Date, ending July 8, 2008, the Dow Jones World Index is down 14.0%. The decline is somewhat worse than the decline over that same period in the S&P 500. While we whole-heartedly believe in diversification in our investments, there are times when stock markets around the world move together. Having said that, there is some solace in the fact that the U.S. market, while hurting, has not been damaged as bad as other markets.

Bottom Line

Yes, good financial news is hard to find and I’ve no inside scoop on how to recover the losses you may have experienced in your portfolio. Having said that and reflecting on my time at Boy Scout camp we must Be Prepared for whatever the future has in store. This requires us to stay diversified and, particularly if your goals are in the distant future, keep a long-run perspective. On the other hand, if today’s markets have turned your world upside down, take a moment to recognize that others are in the same boat. Moreover, try your best to not make any rash decisions that could further imperil your future. I strongly believe that things will eventually turn around. I have to. To think otherwise is to admit defeat and signals that I accept the demise of our society. I will not think that. Once housing and commodity prices begin to stabilize, we just might see a powerful rally in markets and being a participant in that recover is key to each of our Financial Success.

Post Script: Several of you asked about the condition of “Patti”, the subject of our piece entitled Durable Power of What. While the name is fictitious, the person is real and, ironically, the piece you received was sent on her 22nd birthday. She is responding well to experimental treatments but has not been able to return to university.

- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211