Friday, June 26, 2009

Educating our way to a better economy

Andrew Zumwalt, State Extension Specialist
Robert O. Weagley, Ph.D., CFP®

“We have to educate our way to a better economy”
- Arne Duncan, United States Secretary of Education

Mr. Duncan’s quote comes from a statement he made in reference to imminent changes with how students complete the information on the Department of Education’s Free Application for Federal Student Aid (FAFSA). The goal is to increase the number of students from low- and middle-income households that attend college by making the FAFSA more “user friendly”. In the process, it is likely that some criteria, that limited families’ eligibility, might be relaxed.

The key elements of the changes:
  • Available summer 2009, a shortened and streamlined application. (Enhanced skip-logic is used, if that means anything to you). This new, web-based FAFSA will reduce user navigation for many applicants by about two-thirds.

  • Starting in January 2010, students applying for financial aid for the spring semester will be able to seamlessly retrieve their relevant tax information from the IRS for easy completion of the online FAFSA. The Department of Education and the IRS will be working together to examine the possibility of expanding this option to all students in the future. This will make it much easier to complete the FAFSA and should increase applications. The American Council on Education estimates that close to twice as many Pell grants will be awarded if the process is easier.

  • The Administration will also introduce legislation seeking statutory authority from Congress to eliminate financial information from the aid calculation formula that is not available from the Internal Revenue Service (IRS). (Note: This is only proposed. It is not yet the law.) This may have implications for those with assets, as twenty-six financial questions will be removed from the FAFSA form that have little impact on aid awards but that make the form difficult to complete. Only questions that rely upon information that applicants must already provide to the IRS would remain. The answer to these questions are often difficult to verify and they add very little to the rest of the aid formulas. The six questions related to assets, for example, only have an effect on the awards of 3 percent of Pell grant recipients. In the process the questions penalize families who have saved for college, while opening up loopholes for sophisticated applicants to attempt to game the formula.
These changes join the rest of the Obama-Biden agenda for making education more affordable for Americans. Their agenda includes:
  • The goal of America being the nation with the largest proportion of the population with a college education.

  • Expanding Pell grants and college tax credits.

  • Expanding the Perkins loan program, to an additional 2,600 schools and an estimated 2.7 million students.

  • Asking the Treasury Department to look for ways to make 529 savings plans more efficient and effective.

  • Provide incentives to increase college enrollment and graduation rates.
We have previously written about the importance of education, as a means to achieve financial success. It appears that the current administration is acting on the same premise and, for that, we are grateful. (Why shouldn’t we be, education is our industry!) One word of speculative caution, however, is in order. If the education industry has more money headed its way, the demand for education will increase. As the demand for education increases, institutions will admit more and more students and, perhaps, admission and performance standards will be lowered. This, combined with the fact that a larger numbers of college graduates could create a situation where a college degree may cease to be an effective signal of the productivity of potential employees. Could it be that the jobs that now require a bachelor’s degree will soon require a master’s degree, in order to support an efficient labor market? The answer to this question will be known soon enough but, for today, we agree with Secretary Duncan. Education continues to be the best equalizer and means to achieve financial success, as well as a better economy. (Bottom line: If you are a college student and have not completed a FAFSA, do so. Many institutions require a FAFSA prior the receipt of a scholarship or fellowship, particularly if the donor even so much as hinted that financial need was to be a criteria.)

The Department of Education news release is located at: and more information may be found at: .

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211

Friday, June 19, 2009

Energy Entrepreneur

By Jeff Barber1 and

Robert O. Weagley, Ph.D., CFP®

In these economic times, finding a safe and productive place to save or invest our money is challenging. However, while this is a little dated, research done at the Lawrence Berkley National Laboratory in 2001 demonstrated that 10 common home energy efficiency improvements (investments), including appliances, can result in a 16 percent average annual return. To put a 16% return in perspective - it is better than the Dow Jones Industrial Average performance of 14% for the “go-go” years of 1990 to 1997. Importantly, by investing in the efficiency of our home and home appliances, we can realize returns that are safe, tax free, totally in our control, as well as being profitable. Besides, the money we save is able to be added to our retirement plan, our educational plan, used to reduce indebtedness, or to realize any one of our many goals.

So, what is the Energy Entrepreneur Top-10 List?

1. Changing lights to new fluorescent lamps and fixtures averages a return of 41 percent. (Consumers have been slow to adopt to these lamps, although the evidence in their favor is overwhelming. Watch for sales or a special promotion by your local utility company.)

2. Sealing heating and cooling ducts averages a return of 41 percent. (Air leaks are everywhere in your home. While some ventilation is a must for protection from molds and radon, focusing on the most common problem areas for lost air will cause no ill effects.)

3. Upgrading to Energy Star when replacing a clothes washer averages a 37 percent return. (Consider the new energy and water efficient upright Energy Star washers and dryers.)

4. Upgrading to an programmable thermostat has an average return of 30 percent. (Raising the temperature a few degrees in the summer and lowering it a few degrees in the winter can add considerably to these savings. If you’ve a sweater, wear it. If you’re sweating, take a break and have a nice glass of ice water.)

5. Installing an R-12 water heater insulation jacket averages a 28 percent return. (You wouldn’t want your water heater to be improperly attired, would you?)

6. Upgrading to Energy Star when replacing a refrigerator averages a 37 percent return, assuming the old one is no longer used. (If you keep the old one for storing that extra case of soda, the moldy meatloaf, or the egg-salad that smells like a sulfur spring, forget the savings and remember to buy some baking soda.)

7. Upgrading to an Energy Star heat pump when replacing the furnace and air-conditioning system, averages a return of 19 percent. (Make sure you plan to live in the house long enough to reap the savings or that your market prices for homes reward the installation of a heat-pump.)

8. Upgrading to Energy Star when replacing a dishwasher results in an average return of 18 percent. (Using fewer dishes or running the dishwasher without the heat element can save even more money.)

9. Weatherizing and sealing the home to limit air changes to less than 0.5 per hour has an average return of 9 percent. (Be careful to not overly seal your home and add the problem of excessive condensation to your list of issues.)

10. Increasing wall and attic insulation to 1997 Department of Energy recommended levels has an average return of only eight percent. It does, however, represent the greatest dollar savings – but insulation is also the most costly change. (As energy prices rise, so will the return on insulation. Of course, buying home improvement items during a housing market slow-down is like buying your new lawnmower in October – it will cost much less.)

It is important to remember that the Lawrence Berkley study used 1997 costs. In the twelve years since that study, fuel costs have increased and the cost of many technologies have dropped, as well as new and better technologies have been introduced. That means a person can realize an even greater return on wise energy saving investments. Other opportunities can be realized by taking energy efficiency tax credits and utility rebates. For a list of the current energy tax credits look here.

The conclusion is very simple. An investment ranging from several hundred to several thousand dollars can have a very good return. While your return may vary from those found by the Berkley Lab, the return will be positive and it comes with no risk. Sounds like an opportunity for financial success…and it only comes in one color, “green”.
- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

Friday, June 12, 2009

Financially Stressed Frosh

This week, I was preparing a document supporting the need for a faculty position in our department. In the process, an administrator pointed me in the direction of the 2009 National Freshman Attitudes Report, conducted by Noel-Levitz (2009). The full report may be found at Noel-Levitz report.

Here are some bulleted highlights that I believe are worthy of thoughtful consideration:

  • Less than half of incoming freshmen (46.4%) report having adequate financial resources to finish college.

    • Yet, fully 95.0% have a “very strong desire to continue my education and I am quite determined to finish a degree”.

    • Also, 90.0% “are deeply committed to my educational goals…prepared to make the effort and sacrifices needed to attain them”.

  • While students are committed to “make the effort and sacrifices” in order to graduate, they are more interested in seeking scholarships (64.6%) than getting a part-time job (47.3%) or getting a loan (31.5%). (There is good news in this bite!)

  • Overall, 56.8% of all freshmen students expect to work over 10 hours per week to help finance their college education, while only 22.4% have no plans to work.

  • Financial challenges were reported to be “very distracting and troublesome” to 29.3% of the sample of college freshmen.

  • A greater proportion of first-generation college freshmen (38.3%) report greater levels of financial stress than non-first-generation college freshmen (25.5%).

  • Finally, students would like to receive assistance from their institution with respect to taking exams (74.8%), selecting courses to prepare them for a job (67.6%), getting a summer job (44.3%), or to receive tutoring (41.4%).
What should we take away from this glimpse into the Noel-Levitz survey? First, students are worried about their finances and it is a “teachable moment”. Universities/colleges are in a unique situation to improve the financial literacy of their student body, if they are willing to devote resources to the task. It is clear that the financial success of alumni is a direct reflection of the quality of their education, as well as their skills in the management of their financial resources. (Successful alumni can make coveted donors!) Moreover, students are challenged in areas other than financial and they admit to needing help. As a faculty member at a large public university I have often told students to go talk with professors - their own as well as those that they find interesting. (Trust me, with 30,000+ students on campus, faculty don’t go looking for students!) In my twenty-five years of being a faculty member, I know of only one professor who has ever refused to meet with a student, or to refer them to someone else, if they ask to talk. You never know, asking a professor for some ideas on a term-paper or for career advice might lead directly to your future life. It did for me and, frankly, I remain grateful to Dr. Gordon Bivens for that hour on that spring day many, many days ago.

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211

Friday, June 5, 2009

Losing the American Dream

Rebecca J. Travnichek, Ph.D., AFC[i]
Robert O. Weagley, Ph.D., CFP®

The last thing a homeowner wants to think about is losing their home, particularly following foreclosure. Focusing on the foreclosure process, however, allows us to help you recognize actions you can take every day, in order to address potential problems – even if those problems seem as remote as the Arctic Circle.

What is foreclosure?
Foreclosure is “a legal action that ends ownership rights in a home when the homebuyer fails to make the mortgage payments or is otherwise in default under the terms of the mortgage” (Freddie Mac Glossary 2008). In the contract signed by the homeowner with the mortgage lender, the borrower agrees to make house payments to repay the loan. If they do not pay the monthly mortgage payment, the mortgage is in default and, while state laws may vary, any loan secured by real estate that is delinquent - as little as one day - can be considered for foreclosure, in order to transfer ownership to the lender. When foreclosure is complete, the lender can sell the property and keep the proceeds to pay off the mortgage, as well as all legal costs.

Warning signs of foreclosure
Unexpected life changes often contribute to foreclosure (and bankruptcy) — especially those that impact your finances including:

  • Loss of employment or reduction of hours

  • Major illness or injury

  • Divorce or separation

  • Death of a spouse

There may be financial signals to potential troubles with your mortgage. You may have a difficult time managing your finances. Financial difficulties in one area can, and often do, spill over to other areas. Talk to a housing or financial counselor immediately if you see any of the signs below. Signs to watch for include:
  • Maxing out credit cards
  • Using credit cards to pay for day-to-day expenses, like groceries and utilities
  • Being unable to pay your bills in full and on time
  • Paying only the minimum amount on credit card accounts
  • Applying for new credit cards after maxing out existing ones
  • Having to choose which bills to pay each month

Steps to prevent foreclosure, as well as other financial tragedies
Over the years, the Financial Tip of the Week has focused on behaviors designed to prevent financial casualties. As a reminder:
  • Save money - Build an emergency fund of three to six months of household expenses.

  • Reduce expenses - Reducing your expenses, perhaps to only necessities, allows you to save money — every little bit helps.
  • Make a budget - Think about the changes you can make if you find yourself facing financial difficulties. Think about the changes you can make to ensure that financial difficulties never arrive!
  • Call your lender - Lenders want borrowers, not properties. They prefer that you keep your home. Most will work with you while you get back on your feet.
  • Be honest - Each situation is handled on a case-by-case basis and it’s important for the lender to have all the facts for each case. Honesty truly is the best policy.

  • Know who and what you owe - Do you know exactly how much principal you owe on your mortgage and other debts? You need to know what you owe on all of your debts and make your mortgage the priority if you have to make choices and you want to keep your home.
  • Talk to a housing or financial counselor - A housing counseling or consumer credit counseling agency may be able to help you restructure your bills so it’s easier to pay them. To find an agency or counselor that is approved by the U.S. Department of Housing and Urban Development, go here.

  • Contact a nonprofit housing group - A housing nonprofit group can provide valuable advice. A toll-free telephone hot line (888-995-HOPE) funded by the Homeownership Preservation Foundation provides free foreclosure prevention information and counseling in both English y EspaƱol.

Do not wait until you are in financial trouble to assess your options. The time to develop a plan is now, when things are going well and you can prepare for the unexpected. Do not wait until you’re thrown overboard to learn how to swim! If, however, you realize you are having trouble with your credit, in particular your mortgage, take steps to prevent foreclosure and to keep on your path toward financial success.


FindLaw. 2008. Foreclosure by Judicial Sale. .

Freddie Mac. 2008. Avoiding Foreclosure. .

Freddie Mac. 2008. Full glossary of housing and credit terms.

The Office of the Comptroller of the Currency. 2008. OCC Consumer Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams.

U.S. Department of Housing and Urban Development. 2008. Tips for Avoiding Foreclosure.

Personal Interviews with local bankers in Savannah and St. Joseph, Mo.

- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211