Thursday, December 16, 2010

Social Eating: Are friends costing you too much?

by Rikki Bertagnolli, Office for Financial Success Counselor


After successfully maintaining a monthly budget, I was able to analyze where all my money went. Rent, utilities, insurance and other basic living expenses did not surprise me, but the amount of money I spend on eating out, did. Over a period of two months my largest variable expense was eating out. $5.00 here and $3.50 there really add up throughout the month. When I became more conscious of when I spent that large eating out fund, I found that two main factors were to blame. The two culprits that were to blame were; social eating and lack of time.


The amount of social time spent with friends took place in restaurants, or in a student study lounge were food and beverages were available. Even going to the movies constituted spending money on food.


Busy lifestyles, such as being a full-time student, or having a family with children that do extra-curricular activities, or just working a full time job doesn’t leave much time, more or less the energy, to cook three meals a day at home. This makes the temptation of just rushing through the drive-thru at Taco Bell seem pretty reasonable, if not economical at times.


How do we fix these problems? First of all, when it comes to socializing with friends, try hanging out in a place that isn’t a restaurant. Hanging out with friends doesn’t always have to revolve around food. Grabbing a coffee at Starbucks, or a piece of pizza at the student center with a friend just three times a week can add up to almost $20.00! Most college students hang out with their friends on a daily basis, and if these hangout sessions are costing $3-$5, that’s over $100.00 a month spent on coming up with a common interest to see a friend.


Having a busy lifestyle isn’t something that can just be eliminated in one day. Taking ten minutes every morning to pack a lunch, and a few light snacks can help eliminate the temptation to eat out. Those ten minutes packing up some food from home is less time than a drive thru would take. The $5.00 that you spend on a value meal a McDonalds could buy you a week’s worth of turkey sandwiches and granola bars from the grocery store. Not to mention the nutritional value of most fast food places are absolutely horrible, compared to a nice sack lunch.


Eating out with friends, and indulging yourself at Taco Bell shouldn’t be eliminated completely. Drive thru and food places at student unions wouldn’t exist if millions of people didn’t partake in these activities every day. But for those of us who are conscious of where our money is going, we definitely shouldn’t give into temptation multiple times a day, or even once a day. Eating out once or twice a week is what I have limited myself to, and I am saving quite a bit of money and time. I have also strengthened my friendships, since the time we usually spend stuffing our face with food, is now spent talking and exploring the activities that Columbia has to offer!

Wednesday, December 15, 2010

Before you Buy

Have you been bombarded enough yet?  The holiday season is here and the ads, catalogues, e-mails and store displays are out in full force!  My husband, who comes from a business perspective, would say that that’s good marketing.  Companies need to make money or they go out of business.

I, however, get overwhelmed by all of this sometimes…all of the choices and information.  And then many times my initial reaction is that “yes, I want to buy that”—for my kids, friends or family or even for myself.  And then I stop to think, “Do I really want to spend my money on this?  Do we really need more stuff?  What else could I use the money for?”  Or depending on the source of the ad, my thoughts may be more like, “Is this a ‘real’ company? Is this offer legitimate?”

Adults, youth, and children see and hear media and marketing information every day. Although estimates vary, the average American has 600-625 chances to be exposed to ads each day (including TV, radio, internet, etc.)[1].

So how do consumers make sense of all of the information and decide what is a good deal and what is not?  You do not have to make a purchase at that moment.  Take time to ask questions and get the information you need to make a good choice for yourself and your family.

Here are some tips to keep in mind:

Consumer Tips


         If it sounds too good to be true, it probably is.

         Do not be pressured by salespeople into buying NOW. Investigate before you buy or take time to decide if you even want to buy.

         Do not pay for something that is supposedly "free." If you pay shipping or other fees, that’s not free!

         Do not give your credit card, bank account numbers or calling card to strangers by phone, mail or e-mail unless you placed an order for goods or services.

         Before contributing to charities you are unfamiliar with, check them out with your state charity regulator, such as the Attorney General's office.

         A contract worth signing can wait until you’ve taken the time to understand it.

         Always ask for information about the company and clarification in writing about the product or service and prices.

         Hang up when you receive a call offering a fabulous deal over the phone (this is more than likely a scam).

         Guard your social security number. Avoid using it as your driver’s license number and do not carry your card with you in your purse or wallet.

         Con artists look like you and me. Even if they sound like they are your friends, take the time to investigate an offer carefully.


Source: Adapted from Hang Up On Fraud prepared by National Institute for Consumer Education, Eastern Michigan University, 207 Rackham Building, Ypsilanti, Michigan 48197, and Procter, B. and Schuh, W. (2000). University of Missouri Extension Building Strong Families Program, Consumer Beware module.


Tips for Shopping On-line

To determine if an online merchant is reputable and to have a successful shopping experience, look for Web sites that clearly disclose the following information:

         the type of business (e.g., retailer, online auction)

         where it is physically located (address)

         how you can contact the business (e.g., 800 number)

         the cost of products and services

         safeguards for protecting payment information

         the availability of warranties or guarantees

         an estimate of when you will receive an order and a clear explanation of all shipping charges

         a return policy that includes an explanation of how to return an item, get a refund, or make an exchange

Online shoppers can also look for retailers that carry the Better Business Bureau Online Seal. This seal is carried by merchants who follow specific advertising guidelines and agree to submit to binding arbitration to resolve consumer disputes.

Source: Downloaded on December 13, 2010 from


Tips for helping teens be wise consumers


Lucy Schrader
HES Associate State Specialist and
Building Strong Families Program Coordinator
University of Missouri Extension
162 Stanley Hall
Columbia, MO  65211


[1] n.a. (2007). Our rising ad dosage: It’s not as oppressive as some think. Media Matters, 21(3). Retrieved July 25, 2009 from

Friday, December 10, 2010

Your Best Asset

I’m older than most of who read this financial tip and, as I’ve aged, I’ve often been asked about where is the best place to invest?  What is the best investment?


When I was young, nobody seemed to care what I thought about investments. Like most young people, I didn’t have money to invest.  The money I did have I tried to stretch as far as I could because there was not much discretion in my budget, after I paid for food, rent, utilities, and other “must-do” purchases.  Yes, while I was in school, things like cable television began to be marketed but it was much too costly.  The good news is that I could freely dial up through a 300-baud modem and connect to the university computer – if I had a computer.  Yet, the web had not been born and email was a new toy only occasionally enjoyed by a few computer geeks and academics.  Still, as the old Bob Dylan song reminds us, “The Times They Were a Changin’ ”.  They still are.


During these years, I was finishing my doctorate and I admit to taking out a student loan.  Why?  I had a year without university funding and I correctly thought that if I purchased a first generation personal computer it might speed my time toward graduation.  With a computer at home, I could stay up as late as I wanted and work on my dissertation, program in Basic, type my manuscript in Waterloo Script, and complete my data analyses from my tiny, cold upstate New York apartment.  (If you are old enough to know the meaning of Baud or to have used Waterloo Script, you are, like me, one of Methuselah’s siblings.)  Yes, it paid off. I finished my degree and I started work at the University of Missouri within the year.  Yet, I digress…


The best investment you can make is in the only asset over which you have control.  This asset is unique.  No one else has it.  As you invest more in this asset, you never really know how that capital will mix with your past investments and create something entirely unique and highly marketable.  New capital is not simply added to existing capital, it is exponentially multiplied.  The asset is you.  The best investments you can make are investments in yourself.


If you can accept this, what are my tips to you?


First, keep making investments in yourself.  Additional education, coupled with regular doses of exercise, work together to keep your greatest asset prepared for your future. 


Second, do something to get a return on your investments.  If you don’t have a job and you want a job, go find a job.  If you are a student, a good time to do this is during your holiday break.  Do this even if the job is for next summer.  Who would you want to hire, the person who is looking in December for a job in June or the person that shows up discouraged in July, since they have waited past the last minute? If you don’t know what job you want, get some help.  What are your goals? What are your talents? What are your passions in life? What excites you?  Make a list and think of jobs that combine these positive strengths.  Read a book like What Color Is Your Parachute.  Put the suggestions into practice.


Third, along with your inventory of yourself, write a resume targeted to the job you want. Have others read your resume.  Make changes.  Have others read it again.  Make more changes. If you need help writing a professional resume, get some help.  It will be time and money well spent.  If your resume does not reflect the skills you need to achieve your goals, work on your skills and experiences….even if you have to pay for them or not be paid to receive them.   Make yourself the person you want to see in the mirror.


The younger you are, one of the best suggestions I have is to call people who are successful in the line of work you want to enter and ask them if you can interview them about their work.  You may be surprised that many professionals welcome the opportunity to help young people and most successful people like to talk about themselves!  When you go to the interview, dress for the job you want, make sure you have your resume, and be prepared for the interview.  (For a list of suggested questions, please see the attachment to this email.)  It often happens that the interview of them turns into an interview of you.  If the interview doesn’t turn toward you, do not despair.  Just go to the next interview, the next interview, and the next interview, until you find your mentor.  Yes, it is ok for you to ask them what you could do to make yourself more attractive as an employee.  You will be surprised at how more mature” people want to help young people WHO WANT TO BE HELPED!  (Have you ever thrown a life preserver to someone who wasn’t asking for help?  Me neither.)


Finally, and as I finished typing the preceding paragraph on December 9th, a student knocked on my door.  He handed me his semester paper.  It was due on November 17th.  Yesterday, another student handed in an earlier assignment.  It was due on September 8th!  Of course, this reminds us that the market looks for signals of the quality of the human capital we have built. No one is guaranteed passage on the road to financial success.  The ditches of that road are filled with those that have tried and failed.  Others have taken different roads to various destinations and everyone is free to change the road they are on.  Whatever road you choose, however, travel it well.  And, along the way, take time to enjoy the passage of time.


Happy Holidays.

Thursday, December 2, 2010

The Cost of Overscheduling our Kids

As I was contemplating ideas for the Financial Tip this week I came across an article on KSL News titled “Are we overscheduling our kids?” by Nadine Wimmer.  At first I didn’t expect it to have anything to do with finances, but was interested in the topic as this is a discussion my wife and I have on a regular basis (we both feel strongly that we want our kids to enjoy their childhood and not be overscheduled).  When I got into the article, though, I found it has very strong financial undertones. 


The story follows the Nelson family – mom, dad and six children.  “The Nelsons' daily routine gets them heading out the door for 6:45 a.m. cheerleading practice. At 7:30, the trip to different schools for different kids begins, which includes a range of AP classes, pre-college classes and preschool.


“Add in full-time work for mom and dad on different days.


“After school, several kids take soccer, one has concert choir, one has dance classes, one has sewing classes. They're even trying to get the baby of the family signed up for swimming lessons.”


The Nelson’s don’t share how much they are spending on all those lessons (but it’s got to be a few hundred dollars for all those different lessons), but share some additional costs:

·         $720 a month in gas running around to all the different lessons and to work

·         $80 a month in snacks and drinks at the gas station

·         $240 a month on fast food (it’s difficult to cook at home when you are running around so much)

Three of the children had this to say about the schedule:

"It's really stressful at times." – Breann

"It's really overwhelming." – Hannah

"It's just frustrating because I need help with my homework and my mom is usually at work or running people somewhere." – Chloe

We lived in Korea for a year and saw some of those children starting at 5:30 in the morning and being scheduled for one thing after another (school, Tae-Kwon-Do, after school English, math and science classes, then a few hours of homework each night).  Many of them were sad and stressed out, and really just wanted more time at home.

If you find that your budget is strapped or you don’t have enough time as a family, take a look at your schedule.  Are there some things you can cut?  Looking back on my childhood some of my fondest memories are of simple things we did as a family – going camping, going to the zoo, having a family movie night with popcorn, or doing any number of other simple things.  We took swimming lessons in the summer, but we would all go together and got to enjoy that time as a family. 

The Nelson family could probably easily cut their gas bill in half and cut way back on the amount spent on snacks, drinks and fast food.

Read the full article here:

Ryan H. Law, M.S., AFC

Department of Personal Financial Planning

Office for Financial Success Director

University of Missouri Center on Economic Education Director


Wednesday, November 17, 2010


Two housekeeping notes: First, the Financial Tip of the Week is taking Thanksgiving week off. Second, I am currently at the AFCPE 2010 conference in Denver, so if you are in Denver for the conference and would like to meet, give me a call: 573-234-4268.

This week, I want to try something different. I want to try sharing a short video I thought was very useful in exploring a difficult economic concept: altruism. Specifically, the video highlights the authors of Freakonomics, Steven Levitt and Stephen Dubner, and their discussion of Levitt’s colleague, John List, and his experiments concerning altruism.

I also want to introduce you to the Royal Society for the encouragement of Art, and specifically, their RSA Animate videos. Their video productions combine audio from prominent lectures with animators who take the difficult ideas and create a visual explanation as the audio is played. My explanation does not do the video justice, so the link is below with some contextual links at the bottom if you’re interested in learning more.

The Video:

(Note: We are using a link to measure the number of clickthroughs; if this is popular enough, we may consider suggesting another video about economics of personal finance that we think is worthy.)

Contextual Links:

Dictator Game

Ultimatum Game

Homo economicus

List, John A. “On the Interpretation of Giving in Dictator Games,” Journal of Political Economy, (2007), 115(3): 482-494.

Andrew Zumwalt, M.S.
Director of the MoTax Education Initiative
162 Stanley Hall
University of Missouri
Columbia MO 65211


Thursday, November 11, 2010

The Demise of Liberty

A week ago, our 14½ year old golden retriever, Liberty, passed away.  That is 100 years in “dog-years”.  It did not come as a surprise, as her health had been in decline.  While she was ailing, I was talking to one of my students who informed me that she, the student, was thinking about self-gifting herself a dog as a reward for graduation.  (I did the same thing, when I was twenty-two.)  Of course, the academic in me asked her to consider the costs of pet ownership on a young person’s budget.  Although some would argue that costs are not a consideration to this decision, I believe them to be wrong.  Carefully considering our decisions in a cost-benefit manner is always important.  Moreover, veterinarians will always tell you that they constantly examine pets where their owner cannot afford to adequately care for the pet.  So, what are the costs of owning a pet?


In terms of time you must “spend” in care, cats take less time than dogs.  Cats pretty much take care of themselves and, please, don’t waste time trying to train them.  Purchasing a cat can be as inexpensive as taking that cute kitten from the box at the shopping center to buying a purebred cat for over $1,000.  Regardless of the cat, you need to have vaccinations for feline leukemia and immunodeficiency virus and have them neutered.  A litter box, replacement litter, food, food bowls and, if you like, a collar and cat carrier and your cat is ready to rule your home.  Of course, a cat without toys is a chair needing to be reupholstered, so plan to spend $20-$30 per year on toys.  If you rent, expect some greater difficulty in finding a place to live that allows pets and, when you do, be ready to pay an additional damage deposit.  In total, estimates range from $200 to $700 per year for basic food, routine care, vaccinations and boarding for your cat.   Over the life of a cat, expect to pay from $7,000 to $15,000 for your feline friend.  If you want more information, check out the website .


Dogs are quite expensive, in terms of time - especially when they are young.  They need to be housebroken and lovingly trained to not eat your shoes, chairs, socks, or just about anything you own.  You must give them exercise which means you have to walk and play with them, as well as train them to be obedient.  This takes time, patience, and lots of love.  It is not an option in the first year to eighteen months.  You must take time to give them the opportunity to please you with their behavior.


Purchasing a dog is similar to a cat.  Great dogs can be adopted for the cost of vaccinations and neutering, while purebred dogs can cost as much as $1,000 and, if specially trained, several times more. The first year of a dog’s life is quite expensive, as dogs require many more vaccinations.  Small to medium sized dogs can cost from $700 to $1,300 in their first year; while the diets of a large dog can raise this price to as high as $2,000.  Smaller dogs live longer than larger dogs.  (Liberty was an exception to the usual life span.)  The longer the dog lives, the greater the lifetime costs of ownership.  If we assume no large unexpected costs, smaller dogs have lifetime costs ranging from $7,000 to $13,000, while larger dogs may top out at $10,000.  Moreover, if you are the type of owner that wants to indulge yourself in your dog’s appearance, groomers will gladly agree to provide the service for as much as $150-$200 per visit.


Now, let us consider the opportunity costs.  We will be conservative and assume an $8,000 total cost of ownership and assume it is spent over ten years, or $800 per year.  Do you remember that a 22 year-old student asked me the question?  So, we’ll use her as the example and we will answer the following question: “What does it cost her, in terms of her retirement savings, to own a pet?”  We will assume she chose to save the $800 per year by making $66.67, beginning of the month, deposits to a mutual fund earning 8% per year.  After ten years, she will stop making the deposits and let the balance continue to grow until she is seventy.  What would be the balance?   In ten years, she would have $12,278 in the account. By the time she is seventy, the $12,278 would grow to $228,687. Stated like this, that dog or cat seems pretty expensive….but so are lattes, concerts, football games, and clothing.  Everything we spend money on today will reduce our savings for tomorrow. 


Yet, is financial success about wealth?  Or, is it about the satisfaction we receive from managing our resources?  I loved Liberty, just like I loved Tawny, Jessica, Wendy, Lucky, and Jigs – the other dogs of my life.  Yes, the costs of pet ownership are real.  Yet, so is the love expressed by that wagging tail attached to your lumbering best friend when you come home from work.

Wednesday, November 3, 2010

Can Using Cash Help You Be Healthier?

The answer, according to a new study, may be “yes” – using cash can help you eat healthier foods.  Authors Thomas, Desai and Seenivasan researched “How Credit Card Payments Increase Unhealthy Food Purchases” in a recent issue of The Journal of Consumer Research.

The authors analyzed 1000 households actual food purchases over 6 months and found that those who bought food with credit or debit cards were more likely to buy unhealthy foods.

"Two factors contribute to this intriguing effect," wrote the authors. "First, there is a correlation between unhealthiness and impulsiveness of food items: Unhealthy food items also tend to elicit impulsive responses. Second, cash payments are psychologically more painful than card payments, and this pain of payment can curb the impulsive responses to buy unhealthy food items."

Financial author Dave Ramsey says, “When you pay cash, you can "feel" the money leaving you. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. A study of credit card use at McDonald’s found that people spent 47% more when using credit instead of cash.”

My wife and I occasionally watch the show The Biggest Loser and I have been intrigued that not once, but twice, author Suze Orman has correctly predicted the winner based on credit score (Season 8 winner Danny and Season 9 at-home winner Koli, who actually lost more weight than the show winner).  While Orman hasn’t conducted any research in the area, she says, “If you're not balancing your checkbook and you don't know where your money is going, chances are you're not disciplined about what you put in your mouth either.”

Orman talks about Season 8 winner Danny and said “He had $45,000 in credit-card debt, much of it from gambling—and he had hidden a lot of it from his wife. However, he got out of debt before becoming a contestant on the show. He went on to lose 239 pounds. When Danny came on my show after he won The Biggest Loser, he said he couldn't have gotten rid of the weight without first getting rid of the debt. And he wouldn't have been able to keep the weight off without being debt free because it changed how he felt about himself.”

Having financial problems causes stress – just ask anyone who has had a decrease in their income.  It turns out that financial stress, according to research and observations, may be contributing to larger waistlines.  If nothing else, try purchasing your groceries with cash and see if changes your buying habits.


Ryan H. Law, M.S., AFC
Department of Personal Financial Planning
Office for Financial Success Director
University of Missouri Center on Economic Education Director

239E Stanley Hall
University of Missouri
Columbia, MO 65211


Thursday, October 28, 2010

What the Economic Experts Expect in 2011

What will the U.S. economy look like a year from now?  Will the unemployment rate still hover close to 10%?  What will be the Dow Jones Industrial Average?  What about GDP?  When will things get better?


The famous economist John Kenneth Galbraith once said that “the only function of economic forecasting is to make astrology look respectable.”  There is no doubt that economic forecasting is a difficult endeavor.  But on October 21, 2010, the Missouri Council on Economic Education hosted an economic forecasting forum in Clayton, Missouri where we asked experts to predict the future. 


At this forum, economic experts provided their overview of the U.S. economy and made projections for the next year.  These experts included:


·         Emmett Wright, CFA, Chief Investment Officer, Northwestern Mutual Management Company

·         Alan Beaulieu, President, Institute for Trend Research

·         Alison Lynn Reaser, Ph.D., Chief Economist, Point Loma Nazarene University, Fermanian Business & Economic Institute (formerly the Chief Economist for Bank of America).

There was a consensus among these leading economic experts that:


·         The U.S. economy is in the midst of a slow recovery.

·         It will take several years before the economy returns to its pre-2008 level.

·         The future economic cycle will not be as manic as it has been recently.

·         The growing U.S. debt is unsustainable and will require significant policy changes very soon.

The following table summarizes their projections of key economic indicators, as of October 2011:


Expert Projections

Percent Change in Gross Domestic Product (GDP)

Percent Change Growth in Consumer Price Index (CPI)

Dow Jones Industrial Average

U.S. Unemployment Rate

Price of Crude Oil

Alan Beaulieu






Lynn Reaser






Emmett Wright







These projections paint a cautious picture of what the future holds for the U.S. economy.  To put these numbers in context, the average annual growth in real GDP was approximately 3.31 percent from 1947 to 2010, with great variation from year to year.  The Dow Jones Industrial Average is now hovering at around 11,000, and the U.S. unemployment rate was 9.5% as of September, 2010 (Bureau of Labor Statistics).  So over the next year, the experts expect the U.S. economy to grow, but slowly. 


All three experts expressed great concern about the growth of the U.S. budget deficit.  This concern is based on the growing structural budget deficit that the U.S. incurs each year—Alan Beaulieu projects that the U.S. will run a $1 Trillion deficit each year for the next twenty years (absent major policy changes). 


Tips for Using Economic Data in the Classroom

Numbers such as these, particularly figures that include the word “Trillion,” are hard to conceptualize.  It is therefore difficult to engage students in a discussion that focuses on macroeconomic statistics.  To help teachers do just that, the Council for Economic Education provides useful classroom lessons that incorporate macroeconomic data.  These lessons can be found at the EconEdLink website:


Each quarter, when economic data such as GDP, CPI, and Unemployment figures are released by the government, new lessons are available that challenge students to get to the bottom of what these numbers mean.  By using these GDP lessons, educators can teach students to:


  • Determine the current, recent and historical growth of U.S. real gross domestic product.
  • Assess the relationship of real GDP data, the indexes of economic indicators, and business cycles.
  • Speculate about the nature and impact of current economic conditions on consumers and producers, and implications for the future.

Teachers are encouraged to review economic data with students, showing them the source of this data and how it can be practically interpreted.  These lessons provide excellent opportunities for analytical thinking.  For example, students can be asked: “What recent data published by the Bureau of Economic Analysis supports the National Bureau of Economic Research decision that the U.S. recession ended in July, 2009?”

EconEdLink’s “Focus on Economic Data” series provides lessons for other economic indicators as well.  For more information, visit or email me at


**To view the presenter PowerPoint slides in their entirety, please visit MCEE’s website at


President & CEO

Missouri Council on Economic Education

Phone: 816-235-2654



Wednesday, October 20, 2010

Hope You Never Need These

Last week at our department’s student group meeting, our guest was Andrew Kaiser of The Kaiser Law Firm, PC.  He spoke about an important, yet rarely discussed topic, estate planning.  As a part of his talk he focused on estate planning tips for college students, young people that think they will never die or get sick.  Here are the key points of his talk[i].


Advanced Directive for Health Care Choices: This document allows you to express your written wishes for your health care, should you become physically or mentally unable to communicate them to others.  You may specifically state which medical procedures you do or do not want. This document is crucial for whomever you appoint as your durable power of attorney (below), for it will help them make better decisions.


Durable Power of Attorney: We should each designate someone to make health care choices for us, should we be unable to make those decisions. This is in addition to your advanced directive.  Find someone that shares your values for end-of-life care and who you can trust to fulfill your request.  Moreover, this document should allow the person to be able to request and review your medical and hospital records.  This document must be notarized.


HIPAA Privacy Authorization Form: As a father of three college students, I consider this form to be mandatory.  The medical information of any person over the age of 18 is private information and no one, not even parents, are allowed to be told this information without this form being signed by the patient.  Think for a minute about a mother receiving a phone call that her child was injured and in the emergency room at the hospital.  Without this form, legally, the hospital cannot tell that mother if her child has a broken arm or is near death.  Moreover, if a parent needs to, say, take medical records from one hospital to another to expedite care, they cannot be given the documents without having this permission granted by their child.


So, this Thanksgiving, after you’ve had your pumpkin pie and everyone is napping in the living room watching the Detroit Lions get beat again, bring this up to your parents.  Parents, bring it up to your child.  Better yet, many of the parents out there need to get motivated to get their own affairs in order and get this done!


Importantly, we have not broached the broader topic of estate planning, including wills.  In many cases, your financial success is dependent on solid counsel so you may wish to contact your lawyer or a legal service office on your college campus to help you make these decisions and to assure that you “do it right”. At the University of Missouri, our office is called Student Legal Services.


If you wish to see example forms or you want to “do it yourself”, forms for Missouri are here: .



[i] We published a Tip on this topic in June of 2008.  Yet, because the readership of this newsletter changes overtime and the fact that none of the students present at our meeting had ever acted on these matters, a refresher is due. If you’d like more detail go to .   Any mistakes in this article are mine and not Mr. Kaiser’s.

Thursday, October 14, 2010

Is Auto Leasing a Good Idea?

To lease or to buy? When you buy a car, you own it. When you lease, you pay to drive someone else’s vehicle. However, leasing can involve lower monthly payments than a loan. At the end of the lease, though, you have no ownership or equity in the car.   Many dealers and other lessors offer vehicle leases. Before you decide whether to lease or buy, remember — don’t be dazzled by so-called deals. Ask questions, nail down the details, read the fine print and shop around.


If you’re thinking of leasing, the Federal Trade Commission offers these shopping tips:


• Shop as if you’re buying a car. Negotiate all the lease terms, including the price of the vehicle.  Lowering the lease price will help reduce your monthly payments.  Get all the terms in writing.


• Learn the language of leasing.


o   In a closed-end lease, you return the car at the end of the lease and walk away, but you’re still usually responsible for certain end-of-lease charges, such as excess mileage, wear and tear, and disposition. In an open-end lease, you pay the difference between the value stated in your contract and the lessor’s appraised value at the end of the lease.


o   Lease inception fees are payments you make before the lease starts. They may include a down payment, security deposit, acquisition fee, first month’s payment, taxes and title fees. Ask for a list of all charges due at lease inception. You may be able to negotiate on the terms.


o   The capitalized cost is the price of the car for leasing purposes plus taxes and extra charges like service contracts and registration fees.


o   The capitalized cost reduction is similar to a down payment. If you’re trading in a car, make sure the dealer applies the trade-in value to the price your lease is based on. The trade-in credit may reduce your down payment or monthly payments.


• Ask whether extra charges will be assessed for excessive mileage, wear and tear, disposition and early termination, and find out the amount of these charges. Most leases allow you to drive 12,000 to 15,000 miles a year. If you put on more miles, expect a charge of 10 to 25 cents for each additional mile. You may think the ding in the door or coffee stains on the upholstery are normal wear and tear — to the lessor, it may be significant damage. Check out penalties for an early return and expect to pay a substantial charge if you give the car up before the end of your lease.


• Make sure the manufacturer’s warranty covers the entire lease term and the number of miles you’re likely to drive.


• Consider gap insurance to cover the difference — sometimes thousands of dollars — between what you owe on the lease and what the car is worth if it’s stolen or totaled in an accident.


• Before you sign the deal, take a copy of the contract home and review it carefully away from any dealer pressure. Be alert for any charges that were not disclosed at the dealership, like conveyance disposition and preparation fees.


• Federal law requires lessors to provide lease cost information before you sign the lease. Take a copy of the attached form to the dealer and ask them to complete it. Some dealers may be willing to provide the information during your shopping process. If the dealer declines, consider shopping elsewhere.


For more information about buying or leasing a car, visit the FTC’s Web site at   To file a complaint or to get free information on consumer issues, visit or call toll-free, 877-FTC-HELP (877-382-4357); TTY: 866-653-4261.


Adapted from “Look Before You Lease,” (Federal Trade Commission, May 2003),

(accessed October 6, 2010).


Brenda Procter, M.S.

Associate State Extension Specialist & Instructor

Personal Financial Planning Department

College of Human Environmental Sciences

University of Missouri-Columbia

162 Stanley Hall

Columbia MO 65211-7700

Phone: 573-882-3820

Fax: 573-884-5768



Wednesday, October 6, 2010

Seeking Shelter

Many of you are aware of the nervous US investor and how their flight to safety during the past two years has driven them increasingly toward bonds and away from stocks.  This is true regardless of the long-run track record of stocks and the trend toward lower yields for bonds caused by the increasing demand for bonds by both the government and investors.  As market yields fall, the value of outstanding bonds will increase.  Why?  Take the following example.  A $1,000 face value bond with 30 years to maturity which pays the investor $40 per year (usually paid as $20 every six months) will be worth $1,000 if market yields are 4%.  If market yields fall to 2.5%, however, that same bond would be worth $1,314.  This has been the picture we’ve seen over the past few years and is essentially what has occurred in markets from April 2010 (when the Treasury Rate were close to 4%) to today, when Treasury rates are 2.45%, the lowest they have been since December of 2008. 


We need to ask ourselves, what would happen if interest rates increase?  We can answer that by taking the above example and turning it around.  The 4% coupon rate bond that is worth $1,314 today will be worth $1,000 if rates return to 4%, resulting in a 24% loss in value. So, what should an investor do to protect their portfolio from rising rates of interest?  Here are a few options…


Treasury inflation-protected securities (TIPS) – An alternative to Treasury bonds that pay a fixed coupon rate of interest are bonds that pay a lower fixed rate of interest, set at initial auction, and whose principal value is adjusted according to changes in the consumer price index.  Thus, a part of the gain is interest – fixed – and a part is variable depending on the rate of inflation.  Since inflation is the most likely driver of higher interest rates, TIPS can provide protection from rising rates – though the rate set at auction will not change.  For more information, see: .


Dividend paying stocks – Near the end of August, AT&T had a preferred stock that paid a dividend yield of 5.94%, a bond maturing in 2029 that paid 5.49%, and AT&T’s common stock had a dividend yield of 6.24%!  Moreover, there is a promise to pay the interest on the bonds, before paying the preferred stock dividend, and a promise to pay the fixed preferred stock dividend, before paying anything to the common stock holder, yet a move toward dividend paying stocks might have benefits.  ( AT&T has the greatest dividend yield in the Dow Jones Industrial Average and may point to the risk that investors might be factoring into AT&T’s future, but it is instructive.   Yesterday, the dividend yield on AT&T was 5.80%, but the price of the stock has risen from $26.94 to $28.94 over the past few weeks.) 


In the early part of this decade, when interest rates increased, we saw equity-income stocks (or, mutual funds that focus on these stocks) increase significantly, when Treasury yields rose.   Currently, the average dividend yield for the stocks that pay a dividend in the DJIA is 2.82%, while 10-year Treasuries are yielding below 2.4%. At the same time, the value of the ownership interest, represented by the stock, could increase.  If you decide to buy stocks for income, you must remember that the dividends may cease at any time.  Thus, you need to be mindful of the quality of the company and the likelihood the dividends will continue.  You may want to simply look for an equity income index fund or ETF to provide the management expertise, while trying to minimize the costs associated with this tip.  (This site is interesting: )


Convertible BondsConvertible bonds are bonds that pay a fixed semi-annual rate of interest, lower than the rate paid on bonds that are non-convertible.  In exchange for the lower rate, they grant the holder of the bond the right to convert the bond into the common stock of the company.  The result is that convertible bonds tend to move in a positive direction to changes in the economy, while providing income, though less than non-convertible debt, until the owner is forced to convert the debt into common stock.  (I say “forced” because the holder of convertible debt should not voluntarily convert.  To do so, removes the “floor price” of the convertible debt when valued as debt, while the value of the convertible as stock will always be worth the conversion value, if the stock price continues to increase.  If you need the money from an appreciated convertible bond, just sell the bond.)  There are mutual funds that specialize in convertible bonds.


I know this is a lot of information for a “Financial Tip of the Week”.  Thus, I’m going to stop writing.  Other options might be high-yield bonds, floating-rate debt, cash, commodities, or real-estate income producing properties.  Each comes with unique risks.  Yet, as we see, the retail investor (you and I) are buying, buying, buying bonds and bond funds and selling, selling, selling equities and common stock funds.  The crowd is usually wrong and they often arrive late to the shelter, after the storm has hit.  I do not know the future for our economy and our world.  All I know is that disciplined diversification, with low-cost investments, allows anyone to find financial success in the “loser’s game”.  Diversification essentially means that you need to learn to embrace the systematic risks of investing (those that cannot be removed through diversification), rather than cower from them.  Charles Ellis wrote his book Winning the Loser’s Game in the early 1990s[i].  His thesis about low-cost diversified investing remains true today.  While past performance does not predict the future, we can still learn from it. 


[i] Charles Ellis’s original article, published in 1975, appears here:'s_Game1975.pdf .  His book continues to be sold.

Thursday, September 30, 2010

Your Credit Score

From the interest rate and features you are offered on a credit card to your ability to qualify for a mortgage, your credit score plays a large part in the bank's decision making process. A good score can have banks competing for your business when you apply for a loan. A bad score may mean that you won't qualify for your auto, mortgage or credit card – or if you do, you may only be offered high rates which will cost you extra money each month.


How is your credit score determined?  Not too many years ago the way it was calculated and the actual score was a big secret.  When I worked at a bank in Indiana we would link up with the credit bureaus to obtain credit scores and reports on people applying for a loan.  We were told very explicitly to never give a person their credit score – that it was proprietary information that the loan applicant could not be given.


Things have changed quite a bit since then.  You can now find out your credit score (for a fee, of course) through a number of different websites or when you apply for a loan your lender will usually tell you what your score is (if you ask).  Fair Isaac and Company, the company that determines your FICO score (which is the score most often used by lenders), has also released the general parts of what is called the Credit Pie.


The Credit Pie


Here is how the credit pie looks:


Payment history: 35%, Amounts owed: 30%, Length of credit history: 15%, New credit: 10%, Types of credit used: 10%


Let’s examine each of those pieces of the pie briefly.


Payment History (35%): This piece of the pie is determined by how well you have paid your debts.  Your lenders send information on your payment history every month to the credit bureaus.  If you are late it is reported on your report, and in turn takes your score down.  Negative items such as bankruptcy, judgments and liens are also factored in here.  Because this is the biggest piece of the pie you should focus on getting your loan payments in on time, every month.


Amounts Owed (30%): As the second biggest piece of the pie it is important to pay close attention to this piece as well.  While there are several factors that go in to this, the biggest one is the percentage of credit you are using.  If you have a credit card with a $1000 limit and you consistently carry a balance of $700 you are using 70% of your available credit.  You want to keep that below 25% for the best score.  On installment loans they will look at how much you owe in proportion to the original balance.


Length of History (15%): Two factors play in here – how long you have had credit and how long since there has been activity on the account.  Someone who has been using credit for 25 years is going to have a higher score than someone who has been using it for 2 years (everything else being equal).


New Credit (10%): This piece of the pie is determined by the number of recently opened accounts and the number of inquiries on the report.  What is an inquiry?  Recently I was picking some things up at JCPenney and they asked if I wanted to apply for a JCPenney credit card – just for applying I would get 10% off my total purchase.  I declined the offer, but if I had accepted they would have pulled my credit report and checked my score.  That is an inquiry.  If you have a number of inquiries that starts to pull your score down.  Don’t let that stop you from shopping for a loan, though – inquires within a short period of time are just counted as one inquiry.


Types of Credit Used (10%): Lenders like to see that you can handle several different types of loans, such as installment loans (auto loan), revolving credit (credit cards), student loans, a mortgage, etc. 

In my experience, people tend to worry about the little things; such as how many inquiries are on their report.  While it is important to watch all of this, remember that 65% of your score is determined by your payment history and amounts owed.  Focus on making your payments on time and paying your balances down.  Over time these two actions will have the greatest impact on your score.


How much of a difference will having a good credit score make?  Based on national averages, here is how much you will pay for a 36-month auto loan:


Credit Score       Interest Rate     Payment

500                         18.957%               $916
620                         12.213%               $833
720                         5.141%                  $751


Between the high and the low score you have a difference of $165, or $1280 for the year!  $1200 will go a long way for most families.


For more information visit


Ryan H. Law, M.S., AFC

Department of Personal Financial Planning

Office for Financial Success Director

University of Missouri Center on Economic Education Director


239E Stanley Hall

University of Missouri

Columbia, MO 65211