Archive for Financial Literacy

Teaching Your Kids About Spending

Last week, we shared some fun tips to help teach your kids about saving. This week, we’re focusing on “spending”!

Elementary School:

If your kids are in elementary school, it’s a great time to talk to them about money. When children are this young, it’s important to keep everything simple and stick to the basics. Kids learn best by doing. Here are some ideas to get started:

• Discuss the difference between needs vs. wants. Help your child make a list of the things they need and the items they want. The items they want are things for which they should be saving.
• Start a weekly allowance. Kids thrive when there’s structure, but it’s important to permit freedom so that they can envision their own ways to make money.
• Teach choice. A good way to demonstrate that spending is not the only option is to utilize two storage jars — one for saving and one for spending.
• Use cash. Elementary-aged kids can’t usually comprehend the idea of credit. Teach your child about the different monetary bills and coins by paying with cash when they are shopping with you.

Middle School:

Middle schoolers are more aware of the value of money, so it’s important to emphasize the importance of saving during these preteen years. They are also able to understand more complicated financial terms.

• Demonstrate how you save. Share with your middle schooler what you’re currently saving for. When you reach your goal, allow them to take part in the celebration.
• Develop a budget.  When shopping for something for your teen (like a new winter coat or school supplies), outline how much you’re willing to spend and what your preteen will be responsible for spending.
• Introduce the concept of work. Middle schoolers can benefit from learning the concept of work and responsibility. Babysitting and lawn mowing are great things to suggest for first jobs.
• Tackle more complicated money topics. Explain to your preteen concepts like credit vs. debit cards, introduce financial terms like stock market and interest, and show your preteen how to write and deposit a check.

High School:

If your child has grown up learning the money tips mentioned above, they are likely ready to have more control over their finances. Here are some ways to empower your high schooler to embrace their financial independence:

• Accompany your teen to open up their own savings account. Allow your child to be responsible for checking up on their account and managing their payments.
• Use mistakes as teaching moments. If your teen overdrafts their account, it’s ok! It happens. Use this as an opportunity to understand the mistake and discuss how it can be avoided in the future.
• Talk about college tuition. College is not cheap, and budgeting for higher education is critical. Talk to your teen about what they are expected to pay for, including tuition, dining out, organizational fees, and the cost of social activities, as well as any loans that they might be responsible for paying back after college.

Teaching Your Kids About Saving

Teaching children about finances is important and with so many kids at home right now, it might be just the right time to do so. Marshfield Medical Center Credit Union is dedicated to helping our members of all ages, and with CUNA’s “Youth Month” approaching, we’ll be sharing tips to teach your kids about different areas of finance.

From MMCCU: For our first topic, we’re featuring SAVING. Saving money is one of the most important aspects of building wealth and having a secure financial foundation. Here are five ways to teach your child about SAVING:

Start with a piggy bank

A piggy bank can be a great way to teach your kids the importance of saving, while giving them an easy way to do it.  Tell your kids that the goal is to fill up the piggy bank with dollars and coins, until there is no room.  Illustrate that the piggy bank is for saving money for the future and that the more they save, the more their money will grow.

Open a savings account

Once the piggy bank is full, take your child to the credit union to open up a savings account for them. Have them count how much money is going to be deposited, so they can have a physical understanding of how much money they have.  Show them the final number and reinforce the idea of interest. It can provide a great source of motivation for your kids if they understand that their money will grow over time as long as they don’t touch it.

Utilize Savings Jars

When your kids really want the latest and greatest toy or a new action figure, let them know they will have to save up for it.  Give them a jar for each of their desired purchases and offer them a small allowance each week in a denomination that encourages savings.

For example, if you give your child five dollars a week, give it to them in one dollar bills.  They can save all their cash for one purchase, or they can contribute to different “jars” for various savings goals.

To encourage saving up for their short-term goals, put a picture of their desired toy or item on the jar, so they have a visual reminder of what they are working towards.

Create a timeline

As a kid, the concepts of money and time can be hard to grasp. Research has shown that the impact of a one hour financial lesson wears off after about five months. In order to make the message stick, money education should be timely and ongoing.  If you know your child receives a $50 check for their birthday each year, the moment to talk about budgeting is right before receiving that check.

One way to keep money lessons ongoing is to create a timeline so that your child can visualize when they will reach their goal.

Let’s say you give them five dollars a week and they want to save up fifty dollars.  If they saved one hundred percent of their allowance, they’d reach their goal in ten weeks, or roughly three months.

Start by getting a long piece of paper and a marker.  Have $0 on one side and $50 (or whatever goal amount) on the other side.  Create checkpoints on the paper for when they reach 25%, 50% and 75% of their goal.

Every time an amount is saved, draw a line illustrating how much was saved.  Let your kids know that they will get small rewards at each checkpoint. Small rewards can encourage kids to keep going.  Visuals are also helpful in illustrating their savings goals and how their money is growing.

Lead by example

Children learn by example, so the best way to teach your child about saving money is to save money yourself.  Have your own jar of money that you put funds in regularly.  When you’re out shopping, show your children how to discern between various prices and explain why buying one item makes better sense than another.

Reiterate the message that every time you get paid, you save a portion to help prepare for the future.

One of the most important things you can do is to start a conversation about money and the importance of saving. Money doesn’t have to be scary or a taboo.  Use financial discussions as teachable moments. An innocent question such as “Are we rich?” can be answered in a way that emphasizes family values, such as hard work and responsible spending.

Let your children know they can have an allowance, but it’s up to them to save up for things they really want.  In addition, illustrate how much their money can grow over time if they save.

Also discuss the difference between needs and wants and tell your children you are always open to talking about money and new ways to save.  Ask them about what they want to save up for.  Ask them what they want their future to look like.

Asking good questions can get them to think long-term and have a positive relationship with money.

Tips adapted from Wingate Wealth Management.

The Difference Between a Traditional and Roth IRA

What is the difference between a Traditional and Roth IRA?

David Murphy, VP of Finance and Risk, explains the difference between a Traditional and Roth IRA, and how MMCCU can help with this complicated subject….

While on the surface it may appear Traditional and Roth IRAs (Individual Retirement Accounts) are the same product, the main difference between the two lies in the tax treatment for both products.

Contributions to Traditional IRAs may be subject to special tax treatment under the IRS rules including eligibility for a tax deduction.  Contributions to Roth IRAs are not deductible.  With both IRAs, there are limits to how much and if you can contributed based on your adjusted gross income and, in the case of Traditional IRAs, participation in other retirement savings plans.  There is also a difference in when you must take distributions from your IRA depending on if it’s a Traditional or Roth IRA.

While Roth IRAs do not require you to take distributions upon reaching a certain age, owners of Traditional IRAs must begin taking an annual Required Minimum Distributions no later than April 1 in in the year following when you turn 72.

The qualifying age recently changed with the passing of the Further Consolidated Appropriations Act of 2020, which contained provisions for the SECURE Act signed into law by President Trump on December 20, 2019.

Who benefits most from each type of IRA?

While both types of IRAs have their advantage, the best way to determine which product works best for your financial situation is to talk to your tax advisor or financial planner to truly understand the nuances of each product.  While we can offer IRA accounts and provide general information, we cannot offer tax advice.

In general, contributing to an IRA allows you to grow money earmarked for retirement tax-free until distribution.  There are exceptions the IRS provides to when distributions from your IRA may be penalty-free, and again, your tax advisor would be the best resource to provide that guidance to you.  One caveat for a Roth IRA is you may take distributions anytime tax and penalty free provided the amount is equal or less than your contribution.

How can MMCCU help with IRA’s?

We provide Traditional and Roth IRAs to our members looking to build up their retirement savings outside of what they may already contribute to a 401(k) or 403(b) plan.  We offer liquid IRA savings accounts and IRA certificates, and depending on when/if you would need to access the funds in your IRA, both the liquid IRA savings and the term IRA certificates have their advantages.

We also coordinate Required Minimum Distributions (RMDs) and ensure they are handled properly for our members required to take money from their IRA accounts.  If you’re close to retirement, one consideration for members is to request a 401(k)/403(b) to IRA direct rollover, which would remove your funds with your work retirement plan and deposit the funds at the credit union.

As a federally-insured financial institution, the deposits of our members are insured up to $250,000 (more depending on the type of account), so you can worry less about the safety of your retirement funds if they are deposited with us.  Our financial service officers are ready to address your needs and help assist in setting up your IRA today.

We also work with FocusTax Solutions out of Brookfield.  Their representative, Kenneth Courts, is on site during the tax filing season to file tax returns for our members, but he can also provide financial guidance and the impact a change to your finances can have on your overall tax liability.

Remember, it’s never too late or too soon to start saving for retirement! For more information, contact MMCCU at (715) 387-8686.

What to Know About Saving for Retirement

It’s easy to believe there’s never a good time to start setting aside money for retirement. Perhaps you’ve recently graduated from college and you have student loan payments to make, or you are looking at purchasing your first home and are trying to save for a down payment. Perhaps you had your first child and are working through the expenses of raising a child.

There’s always plenty of life to get in the way of saving for retirement. However, a dollar saved today can yield so much more in retirement through the power of compound interest. $1,000 invested at age 25 earning an 8% return will be give you $21,724.52 at age 65.

“As the old adage goes, the best day to start saving for retirement was yesterday. The second best day to start saving is today,” said David Murphy, VP-Finance & Risk. “Any day you’re able to set aside money for retirement or for the future is a positive step in your financial well-being. Saving $1,000 at age 45 earning an 8% return will still give you $4,660.96 at age 65. While your investment hasn’t had time to generate the higher earnings as displayed in the example saving at 25, your $1,000 is still giving you more in retirement than saving nothing at all.”

How Much to Save for Retirement

“The amount to set aside from each paycheck boils down to how much money you wish to have when you retire,” said Murphy. “Your best bet may be to speak to an investment advisor to walk you through your plans during retirement, to account for unknown expenses, like health care, and to come up with a target balance for your retirement plan at your target retirement date.”

“Once you know how much you wish to have saved up, you can work backwards based on assumption of how many years you plan on working and what rate of return you anticipate earning on your savings to determine how much you need to save each paycheck,” he added. “If your employer offers a 401(k) or 403(b) plan, you may have access to planners or planning tools to help you make these calculations.”

There are several factors to consider when determining target retirement savings. Questions to address include: Will you be traveling in retirement? Will you be a snowbird and live your winters down south while spending summers up north? Will you continue to own a home, or will you downsize to a condo or an apartment? Do you anticipate health issues and think you’ll need more money set aside to cover health expenses?

What Does MMCCU Offer for Retirement?

MMCCU offers Individual Retirement Accounts (IRAs) and Health Savings Accounts (HSAs) to help save for the future and to account for the ever-growing costs of health care.

“Both products have tax advantages tied to them, but you will want to speak with your tax advisor to determine if these accounts can help you lower your tax liability,” said Murphy.

“In addition to the products discussed above, we’ve partnered with FocusTax Solutions based out of Brookfield and work with Neufeld Capital Management locally to provide educational seminars to help prepare individuals for retirement, what to expect with health care, and how to navigate Social Security and Medicare,” he added. “You can check with us to see when the next workshops are occurring, or feel free to reach out direct to Chris or Deanne at Neufeld Capital Management for more information.”

Buying And Selling a House at the Same Time

Selling and Buying a House Simultaneously

By Jerry Litwaitis, VP of Lending

What should be the first step financially that someone takes when they are ready to sell their home and buy a new one?

You should contact the credit union and set up an appointment to go over the process with me. The credit union can determine how much you will be netting from the sale of your current home.

We can determine how much you can afford to spend on your new home, how much of your sales proceeds from your current home you want to use as a down payment on your new home and then determine what program, terms and interest rate you will qualify for. You can sell your current home and buy a new home at the same time.

You will need to set up the closing on the sale of your current home prior to the closing on the purchase of your new home, this can also be done the same day (close on the sale of your current home in the morning and then close on the purchase of a new home in the afternoon).

This way, you will have your down payment funds from the sale of your current home to use on the purchase of your new home. Your credit union and real estate agent, if applicable, can help you with setting up the times and dates to accomplish this.

Can you buy a new home before you sell your old one?

This all depends on your affordability. Can you afford to have two mortgage payments until your current home sells? Even if your plan is to sell your current home as soon as possible after purchasing a new home, you still need to be able to afford both mortgage payments along with any additional debt you may have, until your current home sells. Not an easy task, but it can be done. Set up an appointment with the credit union to see if this is an option for you.

What loan options are available for people buying and selling at the same time?

If you will be selling your current home before purchasing a new home or selling and buying on the same day, a conventional or non-conventional mortgage is all that is needed on the new home. If you want to buy a new home prior to selling your current home and you need the equity in your current home to use as a down payment you will have to be able to afford two or more mortgages to tap the equity in your current home.

Example: You owe $70,000.00 on your current home and you will be selling your home for no less than $100,000.00. After real estate agent fees and closing fees, you will be netting $20,000.00 from the sale. In order to get the $20,000.00 equity in your current home, you would need to refinance your existing house for $90,000.00. $70,000.00 would be used to pay off your existing home mortgage and the $20,000.00 would be used for the down payment on your new home mortgage. This refinance of your current home is what is commonly called a “bridge loan”. Keep in mind that you will now have two mortgages to pay for until your current home sells. The $90,000.00 on your current home and the mortgage on your new home. You could also take out a second mortgage on your current home for $20,000.00 to use as the down payment for the purchase of a new home, however, you will now have three mortgages to pay for (your first mortgage on the home your are trying to sell, a second mortgage for $20,000.00 on the home you are trying to sell and a mortgage on the new home). Again, this will all be based on your affordability.

What happens to your mortgage when you sell your house and buy another?

The mortgage loan on the house that you sell is paid off with your financial institution and the lien on your house is satisfied with the county register of deeds office (a satisfaction of mortgage is prepared and recorded with the county to release the financial institution’s lien on your house). When you purchase a new home, the financial institution will file a separate mortgage with the county register of deeds office on the new property.

Contact MMCCU with any questions!

What to Know About Paying For College

Paying for college can be challenging, but the team at Marshfield Medical Center Credit Union is there to help. (Read some college savings tips HERE.)

“Depending on the year in school, students are capped at how much they can borrow from the Federal Government for student loans,” said David Murphy, VP-Finance & Risk. “Private student loans can help fill in the gaps between tuition costs and the amount a student and their family can cover through Federal student loans, grants and scholarships, and their own savings.”

As with all student loans, borrowers must analyze whether private student loans are a good option for helping cover these costs or if the terms and conditions of a private student loan are not helpful to the student in the long run.

MMCCU partners with Sallie Mae’s Smart Option Student Loan program to help provide an option to students who are in need of student loans in addition to what is available through the Federal Government.

“While we are presently unable to offer student loans to our members, we acknowledge our members are in need of student loan options, and the Smart Option Student Loan program is a responsible option for students and their members to consider,” said Murphy.

Once students have exhausted funds from grants and scholarships and available borrowings from Federal student loans and savings accounts, the Smart Option Student Loan fills in the gaps between tuition costs and the amount available to the student.

The student (or parent if they are applying for one of their Parent loans) would be referred over to Sallie Mae and would apply for a student loan through the program.  If approved, Sallie Mae would receive certification from the school the student is attending as to the cost of tuition, as borrowers are eligible to borrow up to 100% of the cost of attendance.

Once certification has been transmitted, Sallie Mae would remit funds directly to the school to cover the outstanding tuition balance, and the student would work with Sallie Mae to pay back the borrowed funds.

“The product offers competitive advantages over other private student loan programs with competitive rates and little to no fees charged,” said Murphy, adding that students and their families need to consider the long-term effects of borrowing to pay for schooling.

“In some situations, borrowing through student loans to pay for college is a feasible option to students and can provide an opportunity to advance their career prospects at a reasonable cost.  In other situations, the career trajectory doesn’t line up with the cost to attend the school the student is considering,” he said. “As always, we caution students and their families to weigh all options available before applying for student loans and to remain fiscally responsible in these decisions.”

What To Know About Saving for College

College tuition has seen exponential increases in the past few decades despite freezes placed on tuition for Wisconsin-based universities.  Depending on the program a student is considering, the school they plan on attending, and whether the student will be attaining an undergraduate degree or needing to go for their masters in a graduate program, the cost for college can be across the spectrum.

Marshfield Medical Center Credit Union encourages members to set savings goals as early as possible.

“There’s never a bad time to start saving for college, but the sooner in a child’s life you can begin saving, the better off you’ll be once your child is through high school,” said David Murphy, VP-Finance & Risk. “If I was personally setting a goal for how much to save for my child’s secondary education, I would target what an in-state 4-year undergraduate program is averaging today and add an arbitrary total to account for inflation.”

Depending on an individual’s financial situation, they may need the student to work to supplement the amount saved.

“I would not assume a percentage of the tuition would be covered by scholarships; rather, I’d prefer to save more and need less to cover tuition than vice versa,” said Murphy. “There are tax-sheltered savings products available in the marketplace that allow you to set aside money for certain educational purposes, but you’ll want to consult with a tax consultant to determine what amounts you’re eligible to save or what happens to the money if your child decides not to attend college.”

Murphy recalls his own college experience – without a large savings set aside, he was able to put off having to rely on student loans through scholarships he was awarded and by working summer jobs and outside of school.

“While I did have to take out student loans to get through the rest of my college, I was able to pay for the first 2-3 semesters from money I had saved up from working,” he said. “If you know what field you plan on studying in college, whether it’s a 4-year program or a technical school, I would encourage you to meet with your guidance counselor to see what scholarship opportunities are available to you.”

MMCCU provides its members with an education fund savings account that offers a higher dividend rate than their regular savings accounts and allows parents to earmark certain money for their child’s education.

“The funds can be used for any level of schooling, so if you send your child to a private elementary school, you can use the funds in this account to pay for the tuition of these schools,” explained Murphy. “As your child ages and is no longer attending school, no matter what level of schooling it may be, the funds will be turned over into a regular savings account and can be used for whatever purpose the accountholder wishes.”

Murphy added that it’s always a good idea for students and parents to be realistic about the career path a student has chosen to determine if the projected earnings for a particular career justify the costs with attending school.

“Even if a student drops out of school, any amounts borrowed for student loans must still be paid back,” he said. “Depending on the student loan program a student borrows from, these loans may not be dischargeable in bankruptcy, so no matter how dire the financial situation gets for a borrower, they may still be liable for the outstanding principal and interest of their student loans. We do not want to see students be saddled with student loan debt for their entire life post-college.”

What to Know Before Buying Your First Home

Buying that first house can be a daunting task, but Marshfield Medical Center Credit Union (MMCCU) is there to help members have the best first house-buying experience possible.

“The 1st step our members should take is to contact the credit union to set up an appointment to talk about the mortgage process, options, programs, costs and interest rates,” said Jerry Litwaitis, VP of Lending. “We know the right questions to ask to determine what program will best fit our member’s needs.”

Litwaitis and the MMCCU team will work with members to complete a pre-qualification to determine their affordability based on the different terms and rates MMCCU has to offer.

“We can educate our member so that they feel confident about the mortgage lending process,” he said, adding that members do not always know what they can afford or how much money is required for a down payment.

MMCCU can determine a member’s affordability, based off their income and current debts. They can also determine what program will fit a member’s financial needs when it comes to mortgage term and type of down payment required.

“The minimum down payment percentage for a conventional fixed rate mortgage is 5% of the purchase price or appraised value, whichever is less (10% down payment for the credit union’s in-house mortgage programs),” said Litwaitis. “You will also need to have money set aside for closing costs along with reserves (which are the principal, interest, tax and insurance payment on a monthly basis).”

If a member applies and is approved for an FHA mortgage, a 3% down payment is the minimum amount. For a USDA mortgage, no down payment is required, although the applicant will need to have enough funds in their account for closing costs.

For first-time home buyers, Litwaitis said to expect a 30-year fixed rate with little or no down payment to get started.

“This will provide our member with the lowest possible monthly payment with the smallest amount of out of pocket expenses,” he explained. “Since there is no pre-payment penalty, you can make extra payments down the road to reduce the balance and term at a faster rate.”

Each member’s situation is different, so working with a professional through this process is important.

“MMCCU has the local knowledge and expertise to get you into the right mortgage program that will fit your budget,” said Litwaitis.  “We have personalized service enabling our member to deal with one person from the start of your mortgage process until the end. MMCCU has the right products, with competitive interest rates and closing costs to complete your home buying process.”

Questions a first-time home buyer be asking their financial institution:

• What type of mortgage programs do you offer?
• What are the current interest rates and annual percentage rates on those programs?
• What are the closing costs for those programs?
• How much of a mortgage payment can I afford?
• How long does the mortgage process take?
• What is private mortgage insurance and how much money do I need to put down to get out of it?
• Is there a pre-payment penalty on the mortgage programs?
• How much of a down payment is required for each of the programs explained?
• Do I even need a down payment?
• What is the difference between a closing cost and a prepaid finance charge?
• What is the difference between an interest rate and the annual percentage rate?