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.

Financial Influencers in Your Home

When we hear the word “influencer,” many of us think of people with large social media followings who use their prestige to sell products and services.

What do you think has the greatest influence on our money habits?

  1. TV and movies
  2. Friends
  3. Parents
  4. Social media

If you answered 3. parents, you are correct! While media and friends do influence our money choices, our parents have the most profound impact on the attitudes and values we hold concerning money. This influence begins early in childhood. 

What does this mean? First of all, “parents” in this case does not only refer to biological mom and dad.  It means the people who are doing the parenting – those who have taken responsibility for raising the child. These are the biological parents, step parents, foster, or adoptive parents, grandparents, or other family members. 

Secondly, it means that there are many ways that children learn from their parents about money. The two primary ways are through our explicit actions and through our implicit example. The characterization of learning as implicit or explicit simply refers to the parent’s level of intentionality.

Implicit, sometimes called vicarious learning, occurs when a child’s attitudes and behaviors about money develop through observation. Some examples of how this might happen include when a child sees a parent’s charitable giving, watches a parent compare prices while grocery shopping, notices a parent’s stress while paying bills, or hears money related arguments between parents. More in general, a child may learn through these implicit scenarios by observing parents’ money management practices and absorbing the level financial of well-being expressed by the parent.

On the other hand, explicit learning occurs through direct experience with money. Perhaps this happens when a parent provides an allowance and guides the child in spending. An older child with a new job might learn budgeting by sitting down with a parent to discuss spending and saving priorities. Just like implicit learning, it could also happen during parent child grocery trips, if the parent actively demonstrates the process and skills needed to compare prices and provides opportunity for the child to try. Explicit learning also occurs when parents engage their children in discussion about money values or provide direct instruction about financial products. 

Lastly, for parents, this means that your actions are being noticed, and your lessons are being remembered. It is important to be purposeful in teaching children money skills so they can more successfully manage their money when they enter into adulthood. Take them shopping with you, show them how to make good decisions. Tell them about your successes and your mistakes. If you are unsure about your own money skills, University of Maryland offers personal finance workshops for both youth and adults. For additional workshop information and tips, contact your local Extension office, check out Extension’s Financial Wellness pages, and follow the financial Facebook and Instagram accounts. 

Pass the Envelope

Envelopes and money have many associations. Tellers at the bank would traditionally give cash back to clients in a money envelope. If you were lucky, maybe a birthday card had a few dollars in it. And before we had the choice of cash transfer apps like Venmo and Paypal, coworkers might pass an envelope around to collect money for a special occasion or to help someone facing hard times. 

Envelopes are also a great budgeting tool. They are a cheap, easy, and a very effective way to plan and control spending. For parents, they can be a helpful resource for teaching kids how to manage money.  

There are many different envelope budgeting strategies, and two of the most common make use of actual paper envelopes. One system is to label an envelope for every major expense category in your budget and put enough cash in each envelope to cover that expense. Many people choose to budget by the month. However, you can choose weekly, bi-weekly (every two weeks), or any other time segment that works best for you. 

Another method is to choose to make envelopes for only two to three budget categories that involve frequent, fluctuating spending, like food, household goods, or entertainment. Either way, as purchases are made from that category, money comes only from the assigned envelope. This helps to avoid overspending. 

A third method is similar but involves using virtual envelopes on a phone or computer app to track spending, which can be helpful if you pay your bills online. There are several available for you to try.  

Budgeting with envelopes is effective for several reasons:

  • Using cash from an envelope involves multiple senses as cash is removed from the envelope to make purchase and we better experience the action of spending. 
  • It helps reinforce the fact that our money is a limited resource.
  • There is less temptation to overspend.  

The envelope method of budgeting is most effective when you commit to only spending what is in the envelope. If this becomes problematic, you may need to assess your budget and make adjustments. You can then boost the benefit by putting any money left unspent at the end of the month into additional savings.  

For kids, envelopes are a simple way to introduce budgeting and saving concepts. And we can sneak a little consumer math practice in at the same time! Have your child place spending money in an envelope and write the amount on the outside. Then teach that they should only use cash from the envelope to make purchases, recording the item and amount and subtracting each time money is spent. Do the same when cash is added — record the source and add it in. This process helps kids to understand how to track their cash flow and gives them the elementary basis for balancing a bank account.

If controlling spending is a challenge, try the envelope method — it really works!  

Teaching Youth About Money

Your kids are in the middle of summer and loving it. The thought of no classes or homework is exciting for youth. As a parent, you may be concerned about your children spending too much time in front of the television and playing video games, especially this summer with limited options for kids due to the coronavirus pandemic. 

Although kids may be a little resistant to summer learning, it’s never too early to start teaching children about smart money management. I would like to give you an option for your children between the ages of 9 and 12 to begin learning about finances this summer. If you don’t have children, keep reading, as you may want to share with others. 

The Federal Reserve Bank of Cleveland has an activity book that introduces youth to basic financial concepts. The activity book, Great Minds Think, A New Guide to Money, can be downloaded or ordered as a print workbook. The activities cover four broad concepts important for understanding responsible money management — decision-making, saving, spending, and budgeting.

This entertaining workbook is full of activities, developed for youth ages 9 to 12. This is an important age for kids who may begin earning allowances or chore money, and developing skills that will be essential when they are able to take on official jobs as teenagers. Kids are given an activity to complete, followed by an opportunity to apply that concept to their personal situations. Throughout the book are terms with definitions. At the end of the book there is a money crossword and links for additional information to include some money games available online. 

The book is relatively short with only 20 pages in total, but it is designed to act as a companion to parental help. Each of the four sections take an hour or less to complete, and after each lesson, you should take time to discuss the concepts with your child. You can share how that concept applies to your own life and your family’s budget. You may even find you learn something in the process. 

If you are interested in more books for your children about money, check out the blog that I wrote for Reading and Financial Literacy month. The blog shares information about the Money as Your Grow Bookshelf by the Consumer Financial Protection Bureau. 

Enjoy your summer!

Planning Your Finances for an Uncertain Future

Couple managing the debtCoronavirus has changed many people’s financial circumstances quickly. A loss of income can put your services, or even your home in jeopardy, but companies are working with customers right now to help ensure their well-being. 

Here are a few steps you can take if your income has decreased suddenly.  

Contact your lenders, loan servicers, and other creditors

If you are not able to pay your bills on time, check their websites to see if they have information that can help you. The Consumer Financial Protection Bureau and other financial regulators have encouraged financial institutions to work with their customers to meet their community needs. If you can’t make a payment now, need more time, or want to discuss payment options, contact your lenders and servicers to let them know about your situation. Being behind on your payments can have a lasting impact on your credit. Credit card companies, banks, and lenders may be able to offer you a number of options to help you. This could include waiving certain fees like ATM, overdrafts, and late fees, as well as allowing you to delay, adjust, or skip some payments. 

Male Shows Empty Pockets Moneyless ConceptWork with housing and credit counselors to understand your options

The U.S. Department of Housing and Urban Development (HUD) has approved housing counselors who can discuss options with you if you’re having trouble paying your mortgage loan or reverse mortgage loan.  

Contact your mortgage servicer if you are having trouble paying your mortgage

Reputable credit counseling organizations are generally nonprofit organizations that can advise you on your money and debts, and help you with a budget.  Some of the counselors are also able to negotiate with creditors.  

Trouble paying your student loans?

If your loan is held by the federal government, your loan payments are postponed with no interest until September 30, 2020.  For other kinds of student loans (such as a federal student loan held by a commercial lender or the institution you attend, or a private student loan held by a bank, credit union, school, or other private entity) contact your student loan servicer to find out more about your options. 

Flat lay of earning money conceptTrouble paying your credit cards?

Contact all credit card companies that you owe and let them know of your financial hardship and that you are unable to make a payment. Additionally, work with a reputable nonprofit credit counseling organization that can advise you on your money and debts, and help you with a budget. Some may also help you negotiate with creditors.  

Stay on top of your credit reports

Due to COVID-19 pandemic, the three national credit reporting companies are offering free weekly online credit reports through April 2021.  Use the link  https://www.annualcreditreport.com/index.action to request your copies.  

Equally important, through December 31, 2026, all U.S. consumers can also get six free credit reports every 12 months from Equifax by establishing a “myEquifax” account online or by calling 866-349-5191. That is in addition to the one free Equifax report (plus your Experian and TransUnion reports) you can get from AnnualCreditReport.com.

Filing Taxes – To Wait or Not to Wait

Time For Taxes Reminder ConceptWhen I originally thought about writing this blog, it was mid-March. My initial thoughts were to focus on what to do if one did not meet the tax deadline of April 15, but COVID-19 has changed everything.

Every year, there are individuals that wait to file their taxes until April 15, but with the new extension many will wait until July 15, 2020. Due to the extension there are a few things to consider if you decide to delay filing your taxes. 

When thinking of when to file taxes there are a few things to keep in mind. For example if you are expecting a refund or typically get a refund you may want to file sooner rather than later. In other words, get your money back as soon as you can. Even if you file now, you can pay later (July 15) if you owe money to the IRS, it is good to file early because once you get it, you have it, and you can cover current expenses or even save it if possible. 

The America Saves initiative provides some suggestions as to what to do with your refund. Some items to consider include paying debt, creating an emergency fund, saving for financial goals, and retirement. 

When paying down debt, you should come up with a plan. Some people prefer to pay their highest interest debt (debt avalanche method), while others prefer paying their smallest debt first (debt snowball method). Doing research to find which method works best for you can help you figure out how to use your refund money effectively. 

Utah State University Extension has a great program called PowerPay. It assists in developing a debt elimination plan. A good rule of thumb is “when you get out of debt, stay out.” You shouldn’t pay off one debt just to start another. 

The next item to consider is an emergency fund. An emergency fund should cover three to six months of expenses and can come in handy during times of crisis like this pandemic, or if you find yourself in a situation where you lose your job. Financial goals and retirement are your mid- to long-term plans. It always feels good to jump start your goals with a tax refund.

Another reason to file early is to avoid identity theft and scams. The longer you wait the more chance you are taking that someone else will file your taxes without your knowledge. The IRS has a site that focuses on identity theft. If you have been a victim of identity theft, visit the Federal Trade Commission’s website

If you have not filed your taxes yet, the IRS has some free file options depending on your income. For more information, click here

For information about the tax filing extension visit the IRS Coronavirus Tax Relief and Economic Impact Payments website. Many states extended deadlines, so check with your state about any changes.

Resources for Personal Response to the COVID-19 Pandemic

Risk Management Solution Crisis Identity Planning ConceptIt was March 12 when we found out that offices were closed, and the following day that schools would be closed in our state.  At that time, it was supposed to be for a two-week period, but now we have moved beyond that. While many are still working, others are laid off or furloughed. Even if you are still working, you may experience fluctuations in your income or even unexpected bills. Since the beginning, I have been keeping a list of resources shared by my friends and colleagues during this difficult time. 

Now is the time to share them with you.

Several government agencies have pulled together resources for consumers. The list is not comprehensive and focuses primarily on finance related topics. An important note is that the federal tax filing deadline is extended from April 15 until July 15. Now if you are expecting a refund, you probably should not wait to file your taxes. You should also check the filing requirements for your state. Maryland residents have a filing date of July 15.  Click on the links below for government resources in response to COVID-19.

Cooperative Extension has responded with resources available for food preservation, nutrition, mindfulness, and finance. Most of the links provided will focus on finances, as that is the role I serve with Extension. The most important item to remember is that you need a plan. Figure out your current situation and develop a plan in case your situation changes. Always seek credible resources for information. There are people out there that are trying to take advantage of you in this challenging environment. The Cooperative Extension resources listed below are credible. You should also check the Extension resources available in your state.

I am a member of the National Extension Association of Family and Consumer Sciences (NEAFCS).  The organization has pulled together a list of resources around emergency preparedness, cleaning, hand washing, and food safety, family resources, and financial wellness resources.  Click here for its COVID-19 resources.

Some parents are looking for free resources to teach your children at home. 

Colleagues have sent me other resources as pdf files.  If you are interested in them, please email me at jketterm@umd.edu.

It is important to keep in mind that this situation is temporary. Stay positive as this will pass. During difficult times, you need to take care of your mental and physical well-being. Take time to unplug and stop reading all of the negative coverage.  

Stay healthy.