Ready, Set, Go Tax Free Week!

People are starting to wind up their family vacations. With that comes returning to school. One of the pros of this time period is that many states offer a tax free week or weekend (that is if your state charges a state sales tax). So why should you care? It saves you money. People are finding it more and more difficult during this time period to make ends meet. Shopping during tax free week or weekend is one of those strategies you can use to save a little money.

Think about this. In Maryland, the sales tax is 6%. This means for every item of clothing you buy; you pay a 6% sales tax. For example, if I bought a shirt for $50, I would pay a state sales tax of $3. So let’s say, I bought $500 worth of clothes for my family during tax free week. I just saved myself $30. Some of you may think “that’s not much” but every little bit helps.

Now each state has its own set of rules when it comes to tax free week or weekend. In Maryland, it is a tax-free week that begins on the second Sunday of August. This year it begins on August 14th and end on August 20th at midnight. It applies to qualifying clothing and footwear under $100. It also applies to the first $40 of a backpack or book bag. If you are looking for a good summary, you may find this information sheet helpful. For detailed information about Maryland’s tax free week, visit the Maryland Comptroller’s website.

So, I mentioned that not all states offer a tax exempt week. That led me to look around on the internet to find out which states offered the incentive. I found two websites containing interesting information about state taxes. I am not endorsing either site. I am just sharing what I found. I encourage you to visit each state’s website for specific information. With that said, this website provides a list of states that offer tax exempt weekends or weeks. The other website I found interesting includes information about sales taxes for each state.

Well that’s my tip for the month. Enjoy the rest of the summer. Take advantages of the time now before you start your busy fall schedule.

Public Service Loan Forgiveness: Temporary Waiver and an Oct. 31 Deadline

As the “Breathing Room” name implies, this blog is intended to offer you a break from life’s deadlines, stressors, and workloads, and give you a chance to take a breath, focus on yourself, and enjoy.  But, if you….

  1. Have federal student loans
  2. Are employed by any type of government or nonprofit organization
  3. Want to qualify for loan forgiveness under the Public Service Loan Forgiveness (PSLF) program, and
  4. Want to make sure you receive maximum credit for your participation,

don’t take a break quite yet.  Now is the time act before the October 31, dare we say it, deadline.

The Public Service Loan Forgiveness Program (PSLF), was created to increase the applicant pool for government and nonprofit jobs. PSLF is a federal program designed to provide an incentive to attract job seekers to employment in much needed, but often lower paying, service work. A component of the 2007 bipartisan College Cost Reduction and Access Act, PSLF promised to forgive the outstanding federal student loan debt for qualifying workers once they have made 120 monthly payments. However, the program was created without a clear, long term plan for implementation. With legislative and executive branch turnover, problems arose.

Public Service Loan Forgiveness had strict qualification requirements (which you can read about here,) and required specific action steps (which you can read about here,) to maintain that qualification.  However, once eligibility began in 2017, many individuals had their PSLF application rejected because of missed requirements, poor guidance, and misunderstandings. Many fixes were implemented over the ensuing years.

PSLF Waiver. In late 2021, the US Department of Education announced a short term PSLF Limited Waiver. As the name implies, the Waiver, which is set to expire on October 31, 2022, waives many of the original qualifying requirements. For a limited time, payments made under the wrong loan type, payments made late, and payments made prior to a new consolidation all count.  Additionally, educators who receive teacher loan forgiveness can count their qualifying time towards PSLF, and active-duty service members can count months of deferral or forbearance toward their 120 qualifying payments.

What, specifically, has changed for the Temporary Waiver until October 31? Here are a few of the major items:

Consolidated loans. Previously, consolidating student loans restarted the 120 payment count. Under the Waiver, payments made prior to the new consolidation loans now count.

Loan type. Under normal PSLF requirements, only payments for Direct Loans counted. Through the Waiver, borrowers receive credit for payments made on FFEL or Perkins loans as well. But, they MUST be consolidated into a direct loan before the October 31 deadline.

Teacher Loan Forgiveness. Teachers have their own loan forgiveness plan which provides limited dollar forgiveness after five years. Normally, outstanding loan balances would then also be eligible for PSLF after another 120 months. The Waiver allows those two time periods to run concurrently, and payments made during the teacher forgiveness window now count toward the 120 PSLF months.

Payment Plan. Payments made under graduated or extended payment plans are now accepted under the Temporary Waiver, but the loans must be consolidated into an income-driven payment plan prior to the October 31 deadline.  

Late and Partial Payments. Previously not counted toward the required 120, late and partial payments are now being retroactively added to the total needed to qualify. This should be done automatically, but borrowers should check. Similarly, certain periods of forbearance or deferment now count. This is a particular benefit to active duty military members.

This post is not a comprehensive list of changes under the Temporary Waiver. Check with your servicer, read through the government-provided information at StudentAid.Gov, complete the required forms and other actions by the October 31 deadline.

Then, breathe!

Dealing With Inflation!

How do we deal with inflation? The cost of goods has increased around 8% over the past year. The income for most has remained constant or only slightly higher during that time. If you are not careful, you will find yourself spending more than your income. Unfortunately, many people don’t notice as they use their credit card to make up the difference or don’t notice until they receive their credit card statement. I want to share a few simple strategies to offset some of the increase.

The price of gas is one of those areas with the largest increase and therefore the first tip is to drive less. This is accomplished by planning your trips. We like the convenience of getting items when we want them. Consolidating trips can reduce the amount of gas used as well as the wear and tear on your car.

Have you ever used coupons? Maybe now is the time to start. Using coupons can reduce cost and in some cases provide you with free items. Look around coupons are out there. A simple search on the internet can provide you with a list of sources. You also get them in the mail or newspaper.

Use your merchandise cards. The gas station I use has a merchandise card. I scan the card and instantly get 3 cents off my gasoline. It also provides me with a free doughnut and coffee on occasion. Many grocery stores offer them as well.

If you are purchasing large items like a refrigerator or even a car, think about delaying those items for a few months. When it is time to purchase, compare prices. The recommendation is to compare prices at three different locations. You would be surprised how stores mark up prices on certain items to reduce prices on others. Their goal is to get you in the store. Your goal is to save money!

Think about a household audit. You don’t realize how many items you have drawing power that you are not using. Unplug it! What about those lights? Turn them off when you leave the room. Now your thermostat, adjust it a little higher in the summer and a little lower in the winter. Remember, little things add up.

I also need to emphasize the importance of a spending plan. You need to know where your money is going. Analyzing your spending plan will inform you of the habits you developed like buying coffee every morning. It may not seem like much, but every trip costs you $2-$10. 

These strategies may seem simple, but little things add up. Be savvy and save!

Confused About Crypto?

If you find cryptocurrency confusing, you are not alone. Cryptocurrency, “crypto” for short, is a form of money, or currency that only exists digitally. Crypto got its name because transactions are encrypted with complex digital codes sent over powerful computer networks. It is used very differently than other common currencies, such as the dollar, euro, and peso. However, comparing crypto to a common currency, such as the dollar, makes it easier to understand. 

Consider what gives a US dollar value. A dollar has value because it is an accepted means of buying and selling, particularly in the United States. A dollar buys a dollar’s worth of goods because the government says so. This is called fiat. The government supports the dollar’s value, and our Central Bank, the Federal Reserve, helps regulate the value. A dollar bill is simply a piece of paper that represents the ability to buy, but has almost no value in itself.

Cryptocurrency, on the other hand, is a peer-to-peer version of cash. Presently, it is not issued by a government and is primarily unregulated. Like paper dollar bills, the units of cryptocurrency have no value by themselves. It is a way for money to be sent between individuals without it going through a bank. The people that own it, use it, and trade it, determine its value, and the major cryptocurrencies have their value reported daily in financial news sources.

There are many available cryptocurrencies. Some of the more familiar names are Bitcoin, Ethereum, Dogecoin, and Tether. Bitcoin has the highest value in circulation.  Ethereum is second in total value.  At the time of this article, each Etherium unit has a much lower value than Bitcoin but there are many more in circulation. Dogecoin started as a joke between a couple of friends, and quickly became popular sue to social media. Tether is considered a stablecoin and named after its mission to tether its value to a standard currency.

Currency is what makes trading easy. In the US, we trade dollars for the items we buy. Using money to buy things means we don’t need to barter, and it is easy to determine value. We understand what it means when a box of mac-n-cheese costs $1.00, a book is $15.00, and a car sells for $15,000. 

The best way to explain how cryptocurrency works is with a simple and fun illustration. 

Suppose there are three individuals, Lamar, Olivia, and William. Lamar sells llamas, and wants to buy oats to feed them. Olivia sells oats, and wants to buy a wagon to carry them.  William sells Wagons, and wants to buy llamas to pull them. Instead of trying to barter or using their government’s established currency, they decide to create a new cryptocurrency among themselves that they can use to pay each other over the internet. They name their new currency “logancoin,” after their product types, and decide at that time that each logancoin is worth one llama, or 20 wagons, or 100 bushels of oats. As the value of llamas, oats, and wagons change, or new products are added, the value of logancoins would change. Then each can decide how many logancoins, or fraction of a logancoin, each product is worth to them. That is the general idea behind cryptocurrency.

Why is cryptocurrency so frequently in the news? Crypto is a relatively new form of currency. New currencies, and the technology that supports them, are constantly being created and rules are changing.  Crypto’s appeal has risen and fallen many times since it was introduced in 2009. The more people and business accept these digital coins as payment, the more popular these currencies become. Demand increases what people are willing to pay for each digital coin. The opposite is also true. Events such as scams, hacking, and illegal activities diminish demand as investors sell their coins and leave the networks. Cryptocurrency has quickly evolved into more of a speculative investment than a means of exchange. It will be interesting to see what the future holds.

Making Sense of Cents

With the start of summer, I thought I would share some resources available for youth about money. Teaching youth about money is like building a strong foundation for a house. The strong foundation will last a lifetime and support everything that is built on top of it. For example, early discussions about the difference between wants and needs is a simple concept that youth can understand. An individual needs to eat, but they don’t need the candy bar at the check-out line. This blog will focus on resources, especially books, that teach youth about money.

So let us begin with the Money as You Grow materials available by the Consumer Financial Protection Bureau (CFPB). The site contains materials for all ages of youth, but for this blog I will focus on resources for younger youth. There is a list of books suggested that focus on money skills which can be found at Build your child’s money skills while you read. There is also information on ideas to keep reading fun and a guide for parents.

Another great resource is the Federal Reserve Bank system. Each regional office has a host of financial resources. The two that I primarily use are the Federal Reserve Bank of Cleveland and the Federal Reserve Bank of Richmond. There include both online games as well as printed materials. I like to use the Great Minds Think: A New Guide to Money and My Money. Both are workbooks that can be ordered or downloaded which include several activities that promote personal finance.

If you would like a broader search you can use the Jump$tart coalition. There are over 100 organizations and state coalitions that make up the coalition that focuses on advancing youth financial literacy. Their site includes a list of resources. A quick search of children and money found 162 resources available.

I would also invite you to check out my Extension colleagues in 4-H and Family and Consumer Sciences. There are local offices in every county, in every state in the U.S. A resource available to you from 4-H is Reading Makes Cents. This booklet includes 53 activities focused on saving, spending, sharing, earning, and borrowing.

I encourage you to take a step forward and teach your youth about finances. As you are aware, this is a topic youth will deal with throughout their lifetime. With that said, start your youth on a solid foundation.

Should You Use an FSA?

My sister asked me the other day if she should set up a Flexible Spending Account (FSA). Of course, my answer was yes! You’re able to set aside money for healthcare or childcare/dependent expenses on a pre-tax basis when you create an FSA. In her case, she was asking this question because she is in the re-enrollment period for her company-sponsored health insurance. Many of us are in the same boat, that have healthcare plans that begin July 1st.

A flexible spending account is a great, tax-advantaged tool that can help you save for health and dependent care expenses. Tax-advantaged means you can automatically transfer money from your paycheck into the FSA, prior to taxes being taken out. It is a win-win. You save money on taxes and have money set aside for eligible healthcare and dependent care expenses.

Tax-advantaged or pre-tax dollars means that the money is set aside before taxes (Federal, FICA, and State) are taken out of your paycheck. Setting money aside in this way, before taxes, has two benefits: (1) Setting this money aside before taxes lowers your end-of-year tax bill. When the money is set aside, prior to taxes, it is though that money never existed. (2) Because the money is going into the FSA account before taxes are taken from it, you get a little extra – because the taxes were not deducted.

The draw-back to an FSA account is that it’s a “use it or lose it” account; you either use your money by the end of the year or forfeit it. Calculating how much you want to put into the FSA account is very important and if this is your first year using one, I suggest that you underestimate. Although, there is some flexibility as you roll into the next year, and you can reassess your needs during your open enrollment period. For more information, read the factsheet that I co-wrote on Flexible Spending Accounts. 

Gambling and Your Mental Health

May is mental health awareness month. The association between poor mental health and problem gambling is not frequently addressed, so let’s talk about it.

First of all, not all gambling is problematic. Controlled gambling can be a source of entertainment or social activity. However, gambling can become an addiction that requires professional intervention with a focus on recovery. Millions of Americans, and their loved ones, are impacted by problem gambling.  The good news is that recovery resources are plentiful and widely available.

What are mental health risk factors for problem gambling?  Mental health challenges such as depression, substance abuse, and anxiety are often associated with problem gambling.  Additionally, those people with attention-deficit/hyperactivity disorder (ADHD) and obsessive-compulsive disorder (OCD) are also at elevated risk of developing a gambling addiction.

On the other hand, problem gambling can worsen or complicate mental health challenges.  Complications of problem gambling increase levels of stress, anxiety, depression, and even thoughts of self-harm and suicide. 

How do I know if I, or someone I care about, has problem gambling challenges?  Gambling can be an addiction, and those who suffer from it often attempt to hide the addiction.  Signs include preoccupation with gambling, irritability or restlessness when cutting down on gambling, chasing losses, asking for bailouts, and resorting to theft or fraud for gambling money. Similarly to those with substance addictions, people with a gambling addiction have difficulty cutting back or stopping.

How can I help?  Problem gambling addiction can happen to anyone.  It is not a financial issue, so providing funds or paying off debts will not aid in recovery.  A gambler must WANT help.  Assistance and resources are available on the web from the Maryland Center of Excellence on Problem Gambling and mdproblemgambling.com, and by phone at 1-800-GAMBLER. These sites provide help for gamblers themselves, loved ones, treatment professionals, and clergy.

Gambling becomes problematic when it compromises personal relationships, work, and resource management.  Problem gambling can result in severe financial and personal loss.  If you or someone you know faces gambling challenges, know that help is available and recovery is achievable.

Investing Basics: Buy Nikes, or Buy Nike? 

Which would you prefer to own: a pair of Nike Air Jordan Deluxe Year of the Dragon™ shoes, or some of Nike Corporation? There could be many reasons to select the shoes. Clothing is a necessity, and if you play a sport, having the right footwear can help performance and protect from injury. Shoes might be desirable for the image they project or the way they look you wear them. Nike shoes could even be considered a collector’s item. But if you have an investing mindset, you might consider owning a piece of Nike Corporation instead. 

Let’s discuss what that means.

Investing is buying something with the expectation that it will make money for you, usually by increasing in value.  You won’t have the actual money to spend until you sell your investment. Investing is different than saving money. Saving is setting aside money instead of spending it, so it can be used for something later. Savings are usually safe and available when you need money to spend.

How can someone who is not a billionaire buy Nike Corporation? The answer is to buy Nike stock. Most large corporations are publicly owned, meaning individuals can buy and sell pieces of ownership in them. The ownership is represented by shares of stock.

Companies need money to grow. One way to raise this money by issuing and selling shares of stock.  They use the money to build new factories, develop new technology, hire more workers, and buy more resources for making products. Stocks in large companies, such as Nike, are traded on the stock market.  Anyone can open an account with an investment company and request to buy and sell stocks. 

Now let’s compare buying Nike shoes to buying Nike stock. The Air Jordan Deluxe Year of the Dragon was introduced around February 15, 2012. Depending on the seller, the shoes could be purchased at an average of approximately $290. The shares of stock were selling that same day for $23.70, so 12 ¼ shares could be purchased for the cost of the shoes.  Ten years later, the same shoes new could be sold for $200, but the stock was worth $1,777! 

ChoiceMoney Spent February 15, 2012Value February 15, 2022 (average)
Buy Nike Air Jordan Deluxe Year of the Dragon™ shoes$290$200
Buy Shares of Nike Stock Instead (12 ¼ shares)$290$1,777

It is important to know that buying stock can be risky, and shares can decrease in value. Shares can even become worthless. It is important to research and select stock purchases carefully. Nike was used in this example because it is a product that people like to buy. That is a good consideration when choosing an investment. 

Wise investors understand the company that they are buying, as well as their products or services.