USA TODAY reported that many auto buyers owe more on their cars than they are worth. Edmunds.com says 40% of new-car buyers are “upside down,” with an average negative equity of $2,200.
It’s a growing problem largely because of long-term loans: Five- and six-year loans make monthly payments lower, but the longer the loan the longer it takes to owe less than the vehicle’s depreciating value. The Consumer Bankers Association reports 82% of new car loans last year were longer than four years; 31% were longer than five. In California, some dealers are writing seven-year loans.
In-the-hole buyers usually add the amount they owe on their trade-in onto the loan for a new car. And they often stretch out the new loan, which keeps the cycle going.
The problem has spawned a new profit center for some dealers: gap insurance, which pays the difference between what’s owed and what regular insurance will cover if a vehicle is totaled in a wreck or stolen.
Editor’s View: All the more reason to encourage counselees to break the cycle of financing cars by keeping cars longer, buying a quality used car when one’s current car needs to be replaced, and paying for cars with cash. As people consider buying their next car, dependability should be a key factor. To learn more about how to create your personalized debt elimination plan, check out our Freed-Up from Debt Home Study Course.
This is Your Brain on Money
A New York Times article reported on the emerging field of neuroeconomics, in which researchers are looking at how the brain works when it comes to financial decisions. They’re scanning the brains of people as they play games designed by experimental economists, looking for fluctuations in neurons, changes in brain chemicals, and, perhaps most elusively, meaning.
In one study researchers took images of people’s brains as they played a game that tests fairness between two people. The first player is given $10 in cash. He must then decide how much to give to a second player. If Player 2 accepts the offer, the money is shared accordingly. But if he rejects it, both players go away empty-handed.
Most people in the shoes of Player 2 refuse less than $3. Apparently, they would rather punish the Player 1 than feel cheated even though they’d be better off with something.
Other experiments show that people often end up doing the opposite of what they know to be best for them, like choosing a small reward that arrives soon as opposed to a larger reward that arrives later. The researchers
hope to quantify how much emotion goes into evaluating economic decisions.
Editor’s View: Next thing you know they’ll be working up mathematical equations to explain how bumble bees fly or why ice cream tastes especially good on a hot day.
Marketers have long understood that emotions hold the key to separating people from their money. It was in the late 1800s when matter-of-fact announcements that a certain product was available at a certain store began giving way to psychologically based advertising, linking our self worth with the brand of car we drive or clothing we wear.
For a more hands on approach to planning your retirement, check out the Freed-Up in Later-Life Workshop. This resource provides the tools to develop a plan to prepare for later life, and the next steps to make the plan a reality.
When 0% Interest is a Bad Deal
The Wall Street Journal discussed news of another credit card industry ploy: 0% financing for life on balance transfers. Aimed at stopping people from moving their balances from card to card, chasing short-term low interest teaser rates, two issuers, Discover Card and J.P. Morgan Chase, are offering the 0% deals.
However, these issuers have not suddenly developed a philanthropic streak. The fine print is full of land mines. The Discover Platinum card, for example, charges nearly 20% interest for missing a single minimum payment and then cancels the 0% deal. For someone keeping a $20,000 balance that could add up to $4,000 a year in finance charges. Some of the deals also require customers to have at least two new transactions per month, for which they are charged standard credit card rates. The new charges stay on the books incurring interest until the transferred balances are paid off.
Editor’s View: This is the credit card industry’s version of a great deal: great for the credit card companies, lousy for anyone taking them up on their offer. All together now: “If it sounds too good to be true…..
The real budgets of McDonald’s workers
A recent article on CNN Money reveals:
These four McDonald’s workers shared their monthly budgets to show how their spending stacks up to the controversial McDonald’s sample.
A budget planning guide from McDonald’s for its employees, shown above, caught flak this past week for being out of touch. For starters, it didn’t account for food and gasoline. The second line on the sample budget leaves room for income from a second job, which many called an admission by the fast food giant that its workers can’t live on its wages alone.
McDonald’s (MCD, Fortune 500) said in a statement that the sample is a generic example and is intended to provide a general outline of what an individual budget may look like.
Four real McDonald’s workers shared their budgets with us, shedding light on how far their wages actually go.
Devonte Yates can only pay half his tuition
Devonte Yates, 21, is working to get an Associate’s Degree in criminal justice and logs in about 25 hours a week at a McDonald’s in Milwaukee. To cut down on costs, he lives with his mom and little sister. Still, he struggles to pay his $180 tuition bill each month. He’s only able to pay about $90.
He said that the school is more forgiving of him not paying his bill in full while he is still taking classes. But when he graduates next semester, he is worried about how he’s going to pay it back.
Besides tuition, some of Yates’ expenses that fall under the “other” category are $40 per month for contact lenses and $50 on clothes. Food, at $300, is his biggest monthly expense, as it is for most of the other workers interviewed.
Raising 2 kids on close to minimum wage
It’s been near impossible for Christopher Drumgold to raise two kids while making $7.40 an hour at McDonald’s. His kids attend a Detroit charter school that doesn’t have a bus. So he has to pay for bus or cab fare for them to get to school everyday.
What’s more, Drumgold said his 12-year-old son is “as big as Shaquille O’Neal,” with a size-13 shoe. He constantly outgrows his clothes or needs a haircut, all of which adds to expenses.
“I had to find a bootleg barber to get him an affordable haircut,” he said.
He pays about $15 a month for haircuts, another $100 on childcare and another $100 on prescription drugs.
Saving money by eating at McDonald’s
Each month, Kyle Steele gives half his paycheck to his daughter’s mother. What’s left is not enough to pay his gas and car insurance bills. He tries to keeps his food costs down by eating most of his meals at McDonald’s.
His gas bill, at $160 each month, eats up a big portion of his budget.
He said he often borrows money from friends and family to get by.
Struggling after 21 years at McDonald’s
Tyree Johnson works at two separate McDonald’s restaurants in Chicago to get enough hours to make ends meet. He’s worked at the fast food chain for 21 years, but said he still struggles to pay for a monthly bus pass and his prescription drugs.
“I pray to God that I can come out of this situation and try to better myself,” he said.
July 2013 Transforming Truths
“Train a child in the way he should go, and when he is old he will not turn from it.” - Proverbs 22:6
While schools teach children how to read and write and eventually make a living, very few teach them how to manage money. Therefore, it’s up to parents to teach their children about giving, saving, and managing well that which is entrusted to them.
How are parents to do that? Moses’ words in Deuteronomy 6:6-7 offer good counsel. First, God’s Word must be imprinted on our own hearts so that our lives are a reflection of God’s Word. The old adage is true: more is caught than taught.
Unfortunately, many parents are setting less than favorable examples for their kids in this area. Fewer than half of parents with school-aged children stick to a budget or pay off their credit cards in each billing cycle, according to a survey by the American Savings Education Council.
Quoted in the New York Times, Robert Duvall, president of the National Council on Economic Education, said, ”Parents are often reluctant to talk about money, and perhaps that’s related to the concern about practicing what we preach. If we talk about handling credit wisely, we have to do that ourselves, and the fact is, we are not.”
The next time we counsel parents about the importance of using a budget or living within their means, it may serve as an added motivation to remind them of the lessons such behaviors will impart to their children.
The second part of Moses’ guidance focuses on discussing God’s teachings frequently and consistently: “Talk about them when you sit at home and when you walk along the road, when you lie down and when you get up.” Clearly, teaching God’s word to our children is not to be compartmentalized, but is to be brought into all aspects of our lives, financial and otherwise.
I have just returned from my annual wilderness canoe trip up in Canada and I’m refreshed physically, emotionally and spiritually! In that setting I was reminded once again of how little is necessary to have one’s needs met and to be very content. In the words of a favorite author, “Trying to do more than enough in the wilderness is meaningless… Surplus, the engine that drives civilization, gains little traction in the wilds… When a mere tent satisfies the need for shelter, the desire is simply for a flat space. When an open fire provides the element of heat, the desire is simply for sturdy hearth and dry wood. When a canoe and paddle are the primary means of transport, the desire is simply for smooth water and favorable winds. When feet are drenched in mud and water, the desire is simply for socks that are dry.”
How different that is to the cultural milieu you and I live and serve in! While wilderness camping may not be for everyone (just ask my wife, Sibyl!) the reality is that the more stuff we have, the more complex our lives become and the more difficult it is to spend time with and listen to God. Our goal as stewardship leaders is not to tell folks how much stuff they should have (though most of us probably have too much). Our ultimate goal is to open the way for folks to have a deeper relationship to God by teaching and training them in ways of God-honoring stewardship.
Our ministries are about much, much more than developing a budget and getting out of debt. We are dealing with matters of eternal significance. Be encouraged and emboldened!
May your summer be filled with relationship building times with loved ones and may the fall season find numerous stewardship classes and workshops on your church calendar. Be sure to check out our new website and the Freed-Up series of resources. And watch for our forthcoming revised coaches training resource and our new on-line opportunities!