Banking – Page 2

Cards Declined in Copenhagen: Lessons in Travel

In the last edition of my newsletter, you heard about our amazing trip and how we were able to pay for almost everything with points and some smart pre-planning. (You’ll see photos today).

Now, you will hear what didn’t work. This was big lesson for me.

To stay on budget, we used mainly cash. We even bought foreign currency before leaving home. We were able to purchase Crown, Kroner, Euro and Rubles at our local exchange in Connecticut.

But we knew we would want to use credit occasionally, so we called our credit and debit card companies to let them know where we’d be travelling and on what dates (as I’ve told you to do many times).

Imagine our surprise when our cards were declined in Copenhagen. We had dinner with friends and asked the restaurant split the bill between us – half on their card and half on ours. Ours was declined. We knew it wasn’t the machine because they processed our friends’ card first. We could see that theirs worked because the staff at the restaurant actually processes the credit card at your table using a portable machine.

We wondered if it was because we were using our US debit card with a pin. So we ask them to do it again as a credit card. It still didn’t work. The staff said that a lot of US credit cards are declined for some reason.

And, it wasn’t just the restaurant. We tried using the credit card when we checked out of the hotel. Again, declined! It was very embarrassing.

When we returned, I called the credit card company to ask why they wouldn’t accept our transactions. After a lengthy conversation, and several people, they realized that they couldn’t see any of the attempted transactions in their system. Fortunately, I kept the receipt as proof, but even with the evidence right in front of them, they still couldn’t give me an answer.

The mystery continues. Thank goodness for our American Express card. It saved the day.

Remember, no matter how prepared you are. Things can go wrong. Make sure you have a back-up plan when you travel.

Update: A big thanks to Heidi for giving us an explanation! Apparently, their credit card machines are programmed to accept cards originating from countries in the European Union – and nowhere else. I guess that makes things easier for Denmark, but not for tourists! Read her full comment below.

Shop around before opening an IRA

retirement-IRA-acct1

Opening your own IRA is a great idea, but do your research first.

Make a few appointments to interview banks and investment companies. What are their fees? What types of investments do they offer? There are many options to choose from.

Facts about College Kids that Scare Me

Where do kids learn about banks and credit? I have gone into many schools and spoken with many teens about money. There are always a handful who say things that startle me. I have heard things like…

Do I really need to pay credit cards back?
If paying bills bothers people, why don’t they just throw the bills away?
I know I have money left in my checking account because I still have checks.
Why do people need to work when they can get money anytime they want with an ATM card?

Sound unbelievable? Not only are these ideas commonly believed by kids, but there’s a logical thought process behind each one. If you don’t explain what you’re doing, your kids will make assumptions about money based on what they hear you say and what they see you do.

Take the idea that money from the ATM is free for you anytime you need it. The boy who believed that probably heard his parents complain about not having any money, then watched as they took money from the ATM. What other conclusion could he have drawn?

The idea that you don’t have to pay your bills back comes from a general assumption about the world based on ideas of fair play. You don’t have to run laps in gym if you have a sprained ankle. You can take a make-up test if you have a sick day. Why can’t you just put off the bills if you don’t have money because you got sick? If you can’t pay, they shouldn’t expect you to. That’s fair, right?

But kids grow out of these crazy ideas, don’t they. It’s not like they hold them onto them into adulthood. Trust me, they may not believe the exact same things, but their misconceptions and ignorance can still hurt them.

Here are some scary facts about college kids and credit cards from credit.com:

91% of undergrads have at least 1 credit card
Undergrads have an average of 4-6 credit cards (that means more than half have more)
$3,173 is the average amount of undergrad credit card debt (that’s not including student loans)
25% of undergrads have paid late fees
15% of undergrads have paid over limit fees

Does this scare you? It scares me! Don’t let your kids make assumptions. Teach your child about money and credit by speaking with them. You don’t have to be perfect (no one is), but showing your child the process behind your decisions can be eye-opening.

Start Small to Have It All

This is Part 2 of my “Having it All” series. The first part is “Step One to Having it All”

Everyone has a different definition of Having it All. In the first article, I asked you to list a few goals based on what you want out of life. Now, I want you to pick one for this exercise.

Living Debt Free with Enough Money for Expenses

That’s part of the “Having It All” dream for many people, so I’ll use it to illustrate how to start small and take action steps towards your goals.

As an example, I am going to use “Save $20 per week to build $1,000 in emergency savings in 1 year.” See how specific this goal is? That lets you check your progress and feel good about your success.

It’s also a good example of starting small. It may not seem like much, but $1,000 can cover a leaky roof or a brake repair. The less often you use your credit cards, the more your savings accounts will grow. One thousand in emergency savings is a good base for building the “debt-free” dream.

Now let’s break down the goal into action steps by first asking a simple question…

Do you have $20 a week to save?

If the answer is Yes…

Step 1. Set up a separate savings account in a different bank or credit union than the one you normally use. This way you won’t have easy access and it won’t be linked to your ATM/debit card.

Step 2. Visit your HR department to set up an automatic transfer from your paycheck, or, visit your bank to have $20 per week transferred from your checking account to your new savings account, or if you do online banking you can set this up yourself.

If the answer is No…

Step 1. Reduce expenses until you can save $20 per week.* (I’ll write more on this below.) Can you bring your lunch to work? Can you cut out the impulsive shopping? Think of how you can reduce your spending to come up with the $20.

Step 2. Return to the top and take Steps 1 and 2 above.

Step 3. Tracking and celebrating your success

I want you to check in on your progress throughout the year. Are you on track to meet your goal or did something happen to throw you off? We all want to be perfect, but that’s not real life. Things happen that get in our way. You have to understand this and get back on track as soon as possible to achieve your goal.

Keeping track also allows you to celebrate and feel good about what you’re doing. This is your baby that you’re nurturing – your future, your wealth, and the beginning of your dream life.

*Just a note about personal austerity measures. “What…” you might ask, “…does giving up eating out and impulse shopping have to do with having it all!? That’s my dream lifestyle!”

First, I’ll have you know that a lot of millionaires are pretty tight fisted. They spend their money selectively instead of blowing it on any old thing that comes along. So, I challenge you to think like a millionaire.

Second, many successful entrepreneurs like Bill Gates, Mark Zuckerberg, Julia Childs, Martha Stewart and Oprah Winfrey started with small budgets. They built their fortunes by working hard and investing their money back into their businesses, making a little bit go a long, long way. They had the discipline to put off luxury living until after they had money.

Third, cutting back doesn’t mean living unhappily. Take joy in building your dream life from the ground up.

I used saving money as an example. I challenge you to break down one of your goals into simple action steps. Let me know what you’re working on and join the discussion.

You may have a savings bond and not know it

Have you ever received a savings bond as a gift? In my family, that was what you received as a gift for most birthdays and holidays. My parents always gave savings bonds even to their grandchildren. It was a big thing in my family.

The US Treasury began issuing saving bonds back in the 30’s. Now, many of those bonds have stopped earning interest. If you remember receiving these as a child, you should locate them and cash them in. You may have been too young to remember receiving a bond as a gift when you were a child, so check with your parents and family members to see if they remember.

If you have the physical bond(s), you can look up the current value with the serial number. If you are not sure, you can check if you have a bond by going to Treasury Hunt at http://www.treasurydirect.gov/indiv/tools/tools_treasuryhunt.htm. You will look up bonds by your social security number. Back in the day when I was younger, my savings bonds were purchased with the purchaser’s social security number, so you may need to know their social security number to check. You may need several family members to check their social security numbers to check for unclaimed bonds.

For more information, you can contact the US Treasury by calling 800-722-2678 or through the website www.trasurydirect.gov. Also, paper savings bonds will not be issued anymore (as of January 1, 2012).

Double Your Savings with Matching Funds

I get this question all the time: “How can I make my money grow faster?” I’m not an investment broker, so I can’t give you advice on buying stocks or bonds. And, personal savings accounts don’t pay as much interest as they used to, so I can’t help you there either.

But, there are two types of savings plans that offer matching funds, which means that your employer, or your state, will put their own money into your account to increase the money you put into the account. Never turn down FREE money! (Normally, I would tell you that there is no such thing as free money, but with these 2 plans there really is.)

Employer Matching Funds in Employee 401K Plans

If you work for an employer that offers a 401K or retirement savings, participate in the plan as soon as you are eligible. If you are eligible and you haven’t signed up yet, find out how soon you can start. Many companies offer to match your contributions. Not only that, but you will be putting your pre-tax dollars into this account, which means you can report less income for income tax purposes. That could mean a bigger tax refund or a smaller tax bill.

If you think you don’t have enough money to contribute, start out small and then increase your contributions. I have clients who did just that, who haven’t felt the loss in their monthly budgets. Remember: the first decision is to start to save. After that, you’ll find a way.

State Matching Funds from an Individual Development Account (IDA)

Another way to get matching funds is from an Individual Development Account (IDA). These accounts were designed to promote good money management and to teach savings habits. To open an IDA account, you need to have a specific goal in mind, such as saving for a home down payment, starting a small business, tuition for post-secondary education, etc. Once you meet eligibility requirements, you will put money in your IDA account on a regular basis, and your funds will be matched. Check with your individual state for eligibility and participating organizations.

But, what if you aren’t eligible for a 401K or IDA?

Don’t be discouraged. If you’ve made the decision to save on a regular basis, set it up to happen automatically. It’s the best way to make your money grow. If you have to go to the bank to put cash into savings, something will come up and you will decide to spend it instead. You will tell yourself that you’ll save next week, then next week comes and goes and you still won’t deposit the money into savings. When you have it taken out of your paycheck automatically, you never see the money, so it’s less tempting to spend it. With interest and time, your money will grow.

Should you move your money?

Since the Credit Card Act of 2009, banks have been looking for ways to make up for lost revenue. Has your bank increased fees or even added new fees? Look for changes in…

overdraft fees
inactivity fees
annual fees
ATM fees

This past month, a major bank decided against adding a debit card fee. I believe that negative consumer response was the only reason they changed their plan. Their customers did not want to pay to use a debit card and they made their voices heard.

But what if the protests hadn’t worked? Being a consumer means you have a choice. You don’t have to stay with the same bank. You can choose a bank, or even a credit union, that has no fees or minimal fees.

It’s very simple to move your money. If you are unhappy with your bank, do some research and change banks. There are plenty of banks and credit unions that will give you a free checking account with no ATM fees.

Some banks have investment policies or divisions that made them more vulnerable during the crisis. These banks are going to have to make up lost revenue. Even though that particular bank did not go forward with the new debit card fee, they may find a less controversial way to increase their fees.

You need to be aware that fee increases could be coming your way. Look at your monthly statements and the inserts. Be aware of what is going on at your bank so you can be proactive.

Debit or credit?

Which should you use: a debit card or a credit card? You all know the difference between the two – a debit card uses your own money and a credit card means borrowing with interest.

Here is what I recommend:

Use a debit card when…

You make everyday purchases in person. These are items that are part of daily living: groceries, doctor co-pays, restaurant meals, etc.

Use a credit card when…

You are purchasing big ticket items, anything with a warranty, travel reservations, online purchases, etc. Using a credit card will (usually) give you extra consumer protection for little or no additional cost.

More about that added layer of protection:

When you travel, certain credit cards give trip insurance for items such as lost luggage protection. If you are purchasing electronics, some credit cards extend the warranty period. If you purchase something online and it never arrives (or arrives broken), you can dispute the charge with your credit card company after you have attempted to resolve this with the merchant. You should check with your credit card issuer to see what benefits you have with your credit card. Then make your purchases where you will get the most benefits.

Making Your Money Grow

Last week, I spoke to a class of Accounting I students at a local high school, and an interesting topic came up when we were talking about saving for the future. I asked if they knew what interest rate their bank account was paying.

There were a variety of answers, but one took me by surprise. He said he kept his savings at home. How many of you do this?

For teens and adults, the benefits of saving in a bank account is twofold – both time and compound interest. He was missing out on the second. Yes, he has easy access to the money when he needs it (that may, or may not, be a good thing). But, he was missing out on interest payments. Interest is what makes your money grow.

Compound interest is defined as “interest added to interest previously earned on a principal balance”, according to Barron’s Dictionary of Banking Terms. So, if you were to save $10 a month for a year without interest you would have $120, but with an interest rate of 2% you would have $131. Add the power of time and after five years it would be $600 versus $642 and finally after ten years $1,200 versus $1,341.

You should be saving as much as you can by using a bank account that pays you the highest interest rate without paying fees. You may have to shop around and look at many banks, credit unions, online banks etc. to find the account that is best for you.

A Child Finds Money on the Sidewalk…

Here’s a trivia question: What would a child do if he found money that didn’t belong to him? (The answer is at the bottom of this post.)

Unclaimed Money: Are you missing any money? Would you know if you were? Banks and financial institutions do find themselves in the strange position of having to deal with what appear to be abandoned checking or savings accounts. Unlike the child in our trivia question, banks don’t have to ask themselves any moral or ethical questions, they just have to follow the law. If the account is unclaimed for three years, they are required to turn the money over to the State.

Sometimes “unclaimed money” isn’t lost at all! For example, let’s say you opened a savings account to store the $1,000 your grandmother gave you when you graduated high school. You assumed you could just let the money sit there earning interest until you were ready to use it. You would be wrong. Interest going into a bank account is NOT considered activity. After 3 years, your money would be transferred to the state.

To avoid having your money declared “unclaimed”, make a small deposit or withdrawal from your bank account annually.

Savings accounts aren’t the only accounts that can be categorized as unclaimed. Make sure that you cash checks you receive in a timely manner – even paychecks can be considered unclaimed money. Safe deposit boxes also fall under unclaimed money – make sure you access that safe deposit box at least annually.

To find out if you have any missing money, go to www.unclaimed.org and check each state that you have lived in to see if you have unclaimed money.

Answer to my trivia question: According to a NY Times article, 64% of children who found money either tried to return it to its rightful owner or turned it in to authorities. And, 82% of children who hadn’t found money said they would to the same. That makes you feel good, doesn’t it?