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3 Money Moves that Might Haunt You and How to Avoid Them

3 Money Moves that Might Haunt You and How to Avoid Them

by | Oct 26, 2016 | Blog

Not every money move is a good one, but some can come back to really haunt you.

Consider these potentially scary money moves: Borrowing money for your children’s education; helping a friend by co-signing a lease or mortgage; and, opening an account to get an attractive benefit. These money moves could be a force for good or, if they go awry, they could haunt you for years.

The good news is that with some preparation and research your employees can avoid these financial nightmares and the financial stress that comes along with them.

Here are three financial decisions that could come back to haunt your employees along with some ways they can limit the damage.

1. Accepting loan terms without crunching the numbers first

Student loans are one of the biggest financial burdens for employees. Millennials are overrun with debt but their parents have, in many cases, co-signed for those loans and often have separate loans as well.

Much of the problem comes from borrowers being unprepared to pay these loans back out of the income they’re able to earn after graduation. It’s easy for borrowers to accept student loans without thinking twice – especially when it seems like everyone else is doing the same – but without some planning and forethought, these loans can wreak havoc on your employees’ finances for years, limiting their opportunities for buying a home and saving for retirement. That’s why it’s so important to crunch the numbers before signing your name to the loan documents.

While we started off by talking about student loans, this logic applies to car loans and mortgages, too. Before accepting the terms (and the money), encourage your employees to estimate their future monthly payments and make sure it’s an amount they can comfortably afford.

Otherwise, they’ll end up having to make hard decisions years down the line, like moving back home to afford their student loan payments or having to sell and downsize to a more affordable house. It seems simple, but taking a few minutes to run the numbers can help your employees avoid committing themselves to a future they can’t afford.

2. Co-signing without understanding the pitfalls

When you co-sign a loan, it’s often to help a child, relative or friend obtain something they couldn’t get on their own, like a loan or a lease. It’s a kind, helpful gesture, but also a risky one because it makes the co-signer legally responsible for the payments – the whole payment, should the person who signed the loan default.

Your employees might think they’re only being nice by co-signing a loan for a family member or friend, but make no mistake: if the original signer defaults or even stops making payments temporarily, the co-signer will be left footing the bill.

That could mean they’re stuck paying for two homes, two cars or an education they didn’t receive. It may also affect their credit history (which will now be tied to the credit of the co-signer, and may get dinged when payments are missed) and their ability to qualify for future loans.

You and your employees don’t have to refuse every request to co-sign (many parents help their adult children this way), but they need to take the responsibility seriously and understand the ramifications. Co-signing can evoke strong emotions, but it’s OK to voice concerns if the situation doesn’t make sense. Talking through the options could lead to a solution where your workers aren’t putting their finances at such a huge risk.

3. Opening accounts on the spot

Retailers often ask customers to sign up for store-branded cards at checkout, promising a moderate one-time discount or no interest for six months. Airline-branded credit cards often do the same in airports offering large sign-up bonuses and sometimes the deals seem too good to pass up. Unfortunately, these offers almost always have a downside.

The cardholder might have to spend a certain amount – much more than they normally would – in the first few months to actually receive the points or, if the card promises no interest, they could be charged interest retroactively for not paying off their entire balance by the end of the introductory period.

Suddenly the lure of a free flight has gotten your employees deep in debt and stressed over paying their monthly bills, when a quick read of the fine print would have shown them the important deadlines and details they needed to know.

If your employees routinely open new accounts without checking the fine print, they could also put themselves at risk of having their personal information stolen. The more companies that have this data, the higher the risk of it being exposed. And when your employees get in the habit of freely giving out details like their social security number, it could simply be a matter of time before that decision comes back to haunt them.

As we’ve learned, regularly reminding your employees to make smart money decisions does make a difference, so take action to help them avoid these terrifying fates.

For more information about Best Money Moves, email info@bestmoneymoves.com.

Student Loans Are Coming Due. Are You Ready?

Student Loans Are Coming Due. Are You Ready?

by | Oct 5, 2016 | Blog

It’s the start of fall, a few weeks until Halloween, and another significant milestone as well; student loans are coming due for May 2016 graduates.

Federal student loans typically have a six-month grace period after graduation to allow borrowers an opportunity to find work, accrue some savings and prepare to start making payments.

Although this grace period sounds like a relaxing break, it can be a financially stressful time as recent graduates might be thinking about how their new monthly student loan bills will impact their monthly expenses. Studies have shown that Millennials are already more financially stressed than other working generations, so this upcoming shift could make things even worse.

Here are some of the ways student loans can impact the financial stress levels of your employees, and what you can do to help them manage this transition.

Student loan stress

Americans owe more in student loans than ever before. The average spring 2016 graduate has nearly $40,000 in student debt and many of these grads will be facing their first bill in a matter of weeks. The six month grace period is an opportunity to prepare for the higher bills that are now due each month, but for financially inexperienced recent grads it’s still difficult to anticipate these monthly payments – often hundreds of dollars – and then factor them into their budgets. The result is a shock to their system, and stress comes with it.

The more money you owe, the more financial stress you’ll feel. A 2015 study from the University of South Carolina found that the more debt a student loan borrower carries, the more likely they are to be depressed.

In the workforce, if you tend to hire younger workers, your employees are likely already paying down their student loans – 43 million Americans are – and the amount they owe could vary wildly. Even if it’s not their first payment they’re reacting to, struggling to cover them each month take its toll, especially when it’s not the only thing giving them anxiety.

Millennials are already stressed out

The American Psychological Association’s annual ”Stress in America” survey found that Millennials, including recent college graduates and young employees, have the highest self-reported stress levels of any generation in America. Student loans have a lot to do with this, as many of these young employees are handling things like a budget, an apartment lease and a full-time job for the first time on top of their loans.

To make things worse, the student loan payment process isn’t always as easy as it should be. Even if a borrower wants to make their payments on time and in full, the CFPB notes that plenty of obstacles can get in their way, like a lack of answers from their loan servicer about whether they qualify for more manageable payment plans. In some instances, loan servicers can intentionally apply borrowers’ payments in a way that causes them to pay more interest or fees in the long run, rather than helping them pay off their loans as quickly as possible. These issues, combined with debt inexperience and ignorance (in some cases), means you’ll be dealing with financially stressed employees in your workplace.

How employers can help

If your workers are showing signs of severe financial stress or depression, whether they’re less focused or productive, they’re missing work frequently due to anxiety-related illnesses or they’re worried about managing their money in the face of student loan payments, you can help. When it comes to financial knowledge, a little bit can make a huge difference.

Unfortunately, student loan burdens are common for employees today, but financial literacy isn’t. The more you can help educate your workers about setting a proper budget, maximizing their emergency savings and efficiently paying off their debt, the less stress they’ll feel about their finances. The result is more productive employees who are focused on accomplishing their money goals instead of worrying about their money fears.

College Costs Are Outpacing Most People’s Income Growth – by a Lot

College Costs Are Outpacing Most People’s Income Growth – by a Lot

by | Sep 26, 2016 | Blog

College costs a lot. In fact, today’s college students are taking on unprecedented amounts of debt to pay for an education – they hope – will lead to better career prospects down the road.

Watching Millennials struggle under this load of student debt can be confusing for older generations who could put themselves through school by working summer jobs. But it’s not that today’s students are lazy or unwilling to work; they just have to pay more for college. A lot more.

A recent study by ProPublica took a state-by-state look at median income and yearly tuition at public four-year colleges and universities, including the District of Columbia. It found that while the national median income fell about 7 percent between 2000 and 2014, the cost of college tuition rose by 80 percent!

Every single state saw a bump in tuition costs. Median incomes increased in 19 states, but none of these increases came close to offsetting the college costs in those states.

Arizona had the highest tuition increase of any state, at 202 percent, with a 10 percent drop in the state’s median income. In contrast, Wyoming had the smallest tuition hike. The cost of higher education in that state rose just 12 percent from 2000 to 2014 and the state’s median income rose 2 percent.

With numbers like that, it’s no wonder students turn to loans to fund their education and struggle to pay off their hefty tuition bills for years afterward.

Luckily, there are some things parents and students can do now to help pay for education and reduce stress in the future:

  • Save early. In an ideal world, you would start saving for your kids’ education as soon as they’re born. This is difficult to do in the real world, especially with the increased expenses that come with a new child. Still, as early as you can start putting money into a 529 account. Those funds will grow tax free in the plan as long as you use the funds for approved college expenses.
  • Search out scholarships and grants. While your child’s school of choice may offer them some scholarships to defray their attendance costs, look for outside sources as well. There are innumerable organizations offering scholarships to students fitting their criteria. There are scholarships for kids who attended a certain high school, children of people in certain professions (like the military, law enforcement and others) and children whose parents have certain illnesses or disabilities. A little bit of online digging could uncover a wealth of resources to help pay for school.
  • Start your degree at a community college. Most states have a community college program that feeds into top state universities. Investigate the community college system near your home. It’s possible you’ll be able to spend your first two years of college paying a few hundred dollars per semester and then transfer your credits and collect your degree from the big name university. That play would allow you to get your degree for roughly half price.
  • If you get offered a scholarship, take it. You’d think that with college costs as high as they are, students would jump at the chance for a scholarship. But the “brand name” college experience has been, well, branded into our brains as being something so much better that it’s worth taking on piles of debt over essentially a free or half-price education at a smaller college or university. Balderdash! It’s a far smarter move to take the scholarship and get out of college with little or no debt than it is to get that Ivy League degree. Ten years after graduation, you’ll be really happy not to have an extra $100,000 of student debt weighing you down.