Reader Mailbag: Independence Day

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Impact of credit limit increase
2. Christmas clubs
3. Retirement gamble?
4. Trying not to judge
5. Materials for high schoolers
6. Spouse replaces nearly new items
7. Identity theft worry
8. Selling collectibles
9. Shopping for health insurance
10. Summer reading

I didn’t really appreciate the picnics and fireworks of Independence Day until I had children. Their enthusiasm and excitement when it comes to fireworks is just infectious.

This year, we plan to spread out a blanket on the edge of a lake, have a picnic, do a bit of fishing, and watch the fireworks after the sun dips over the horizon. Our two oldest children will clap and laugh. Our youngest will probably fall asleep on the blanket before the fireworks start.

A beautiful evening, indeed.

Q1: Impact of credit limit increase
I’m 26 years old with two credit cards. One is a crappy card I’ve had for about 4 years; it has a limit of $750 and no rewards. About 8 months ago I applied for and got a Barclay Rewards Card with a credit limit of $2,200. Since it gave cash back, I’ve been using it for all my spending (but of course I still budget), and I usually charge about $500 a month to it. I recently bought cruise tickets, and even though I have the cash in hand and could pay it all in one go, I’ve been using my credit card to pay in order to rack up points. I never carry a balance, always paying in full at the end of the month. So for the past two months I’ve been charging about $1,000 to the card, and paying it off immediately. I checked my balance today to find that my credit line limit has doubled to $4,400. Is this a good thing or a bad thing? It won’t change my spending habits, but I worry I might have hurt my credit score. (BTW, if it helps, my credit score has been around 735-740, but that was all before the credit limit increased.)

- Jeremy

The doubling of your credit limit shouldn’t hurt your score unless you’re looking at tens of thousands of dollars in credit limit. Given the numbers you describe, it’s likely a positive, not a negative.

One major factor in determining your credit score is your debt-to-credit ratio. The higher your debt limit, the easier it is to have a nice low debt-to-credit ratio.

Let’s say you have a $500 balance on a card and your total limit across all cards is $1,000. That’s a 50% ratio, which is okay, but it’s probably having a minor adverse affect on your credit score. Now, let’s say the credit card company doubles your limit to $2,000. Now, your ratio is 25%, which is much better.

Q2: Christmas clubs
When I was younger, our local bank used to offer a “Christmas club” where if you paid in a certain amount each week – $5 or $10 or $20 – for 49 weeks, they would make the 50th payment for you and you could withdraw the balance after week #50. So people would start these at the end of December and they’d finish up in the middle of next December and that is what people would use for their Christmas money. My quick math says that this would give me about a 3% return on my money so I called around to some local banks to see if they still offered it and none of them do. Do Christmas clubs still exist?

- Beverly

Some small town indepenedent banks still offer them, but these types of “clubs” are mostly the domain of credit unions – and not even all credit unions use them.

You’re right that these accounts mean roughly a 3% return for the person using the account, but in an era where it doesn’t make much sense for a bank to pay out interest on a savings account of more than half a percent or so and CDs are stuck in the 1% doldrums, paying out 3% on an account like this doesn’t make a whole lot of sense.

Also, many people just put their Christmas purchases on a credit card these days (unfortunately, at least if they can’t pay off a full balance), so I would imagine such Christmas clubs were becoming less popular anyway.

Q3: Retirement gamble?
Frontline did a piece on the “Retirement Gamble” that discusses the fees associated with your average 401(k), and how the standard 2% fee stands to eat up potentially more than half of retirement savings over a person’s work life due to compounding costs. I’m curious as to what you think about this. There currently aren’t any responses or listed alternatives to what would be a viable (and broad reaching) option to the 401(k). Your thoughts on the matter would be greatly appreciated.

- Shawn

The advantage of a 401(k) is that you should be receiving a nice healthy employer match when you contribute. If you contribute 5% of your income, then your employer matches it with 5% (or something like that). In effect, you’re getting a 100% return on your contribution immediately. That takes care of the fee loss, for the most part.

There are other options for retirement savings with much lower fees – a Roth IRA through Vanguard, for example – but there’s nothing that’s completely fee-free.

If your employer isn’t providing matching into your company 401(k), it’s probably not worth it. You should be funding a low-cost IRA instead.

Q4: Trying not to judge
Two of our neighbors have just stopped paying on their mortgages. In each family, there was a job loss around the start of the year and they simply haven’t been able to make payments. We had both couples over along with several others for a neighborhood barbecue and they were kind of laughably telling people good bye. I couldn’t help but think they were idiots for getting themselves in that situation. Am I being judgmental?

- Darren

They might not be making the best decisions in terms of their finances (it’s really hard to tell for sure), but treating others differently because of their financial situation isn’t cool, either.

The only time I really care about what other people are doing is when it directly affects me in a tangible way. Someone else’s overconsumption and poor financial practices really don’t have anything to do with me, so why should I care?

I do find that the friends I hold dear tend to have values and financial practices pretty similar to my own. So, while I might know and occasionally pal around with people who spend foolishly, they’re not part of my core social circle.

Q5: Materials for high schoolers
I am writing to see if you could help with guiding me on how to prepare my students financially for after high school. I am a Government teacher of seniors and with costs and cutbacks I am not working on personal finance as well. I actually enjoy helping kids with money and giving them the knowledge that will keep them successful here in the future.I was wondering if you knew of any good curriculum guides, textbooks or areas for me to focus. I want to use some parts of yours, but obviously I can’t teach high schoolers that brewing their own beer is a way to save money (ha!).

- Lisa

My recommendation for you is to pick up a copy of Please Send Money by Dara Duguay, which speaks almost perfectly to high school seniors and college students. Read it yourself over the summer and see if it inspires any ideas for the classroom.

I think this is the best “first book” for people in that age range who are just learning the basics of personal finance.

I don’t know whether you can get copies of it for your classroom or not (probably not, knowing the poor state of public school funding), but you can certainly draw upon it for classroom use.

Q6: Spouse replaces nearly new items
I am newly married and I have found that my wife and I have vastly different perspectives on when you should get rid of things. A great example is toothbrushes. She goes through a new one once a month with daily brushing. I use one for six or seven months, replacing mine only when the dentist gives me a new one. She does the same thing with razors, using them only once. She seems to understand this is throwing money away but to her there is some big disadvantage to using a slightly worn item like this and I don’t get it. How can I keep from getting frustrated with this?

- Adam

You can certainly let her know that it frustrates you, but this isn’t a major spending crisis. I wouldn’t cause a major conflict because she uses toothbrushes or razors more often than you do.

In terms of use, I’m closer to you than to her. I reuse razor blades all the time and I often use my toothbrush for months. As long as it still does the job, I’ll keep using it.

Just remember that this is a small expense and it’s hygiene related. Pick your battles. Save your efforts for other things that actually matter a lot more.

Q7: Identity theft worry
My daughter need some financial info for federal aid. First the college wanted my social security card (which I refused) then a copy of my husband’s w2 and a tax transcript. (it also had my younger children s.s. numbers on it) They had this information for at least a month or two. They told us that they knew from the start that she would qualify for financial aid….so why would they need this? The school just tried to bs their way out of it. I’m concerned that our social security numbers are out there anything I can do so we don’t become victims of identity theft?

- Angie

Assuming you have a bank account and you have a job, your Social Security numbers are already out there. That’s just modern life.

The best thing you can do – and you should always be doing this – is to keep an eye on your credit report. Use the federal government’s tool for checking your credit report at annualcreditreport.com.

I agree that many organizations are a bit too overzealous when it comes to asking for personal information, but they’re often doing it in an effort to cover their own tracks.

Q8: Selling collectibles
I have a collection of older trading cards from the 1910s through 1930s. These are mostly baseball cards depicting players I’ve never heard of (no Babe Ruth or Lou Gehrig or anything like that) but there are some other cards too with movie stars and football players on them. I took them to a sports card show where people made all kinds of different offers on the whole collection and a few offers on individual cards, but I had this feeling that even the highest offers were lowballs compared to what I could get. I didn’t anticipate they’d be worth a whole lot but the experience at the show made me think there’s some value here but I don’t know how to figure out what they are worth. What should I do next? I know you have or had some vintage baseball cards so I thought you might know.

- David

You’re probably correct in that even the high offers you received at the show were lowballs. However, think of it from that dealer’s perspective for a minute. They don’t just take that card, put it in the “trading card ATM,” and receive cash for it. They have to find a buyer willing to pay whatever price they put on it – if they don’t, then they’re out that money. They also likely have to pay to have it professionally graded, too.

The only way you’re going to beat those offers is by selling your item directly to a collector. The best way to do that is on eBay, but in order to do that, you need to at least be able to identify what it is. That means researching each of the cards carefully.

I’d start with any individual cards with people you recognize on them. See if you can use years and company identifiers on the card to figure out what they are and get a sense of what they might be worth. If something is worth quite a lot, you may want to have it professionally graded yourself before selling it.

Once you know exactly what a card is, then I’d take it to eBay. Set a minimum (make sure it’s quite a bit lower than what the price guides suggest, as they’re often inaccurate) and a “buy it now” (make that one a little higher than the price guides) and see what happens.

Q9: Shopping for health insurance
My husband recently switched from a company with a health insurance plan to working as a consultant so now we need our own insurance. Cobra will switch to a high premium next month so I’m looking to find health insurance for our family.

I know Sarah works so maybe you have insurance through her employer but still, you are probably more informed about looking for a plan on your own. Please advise.
- Irene

This is actually a difficult question to answer right now because of the gradual rollout of the elements of the Affordable Care Act (and the potential that it could be overturned in some fashion).

Your best bet is to start at http://finder.healthcare.gov/, which will help you figure out what’s going on with this in your own state and point you in the right direction.

That site does a really good job of walking you through the options that are available to you right now and help you figure out what’s next.

Q10: Summer reading
What’s on your summer reading list, big guy?

- Nathan

The three new releases I’m reading this summer are The Ocean at the End of the Lane by Neil Gaiman, Surfaces and Essences by Douglas Hofstadter and Emmanuel Sander, and Revolutionary Summer by Joseph J. Ellis.

I’m also knee deep in Steven Erikson’s ten book fantasy series, Malazan Book of the Fallen. I’m currently reading the second book, Deadhouse Gates.

I have a few books stacked on my bedside table for reading before the end of the summer: The Shallows by Nicholas Carr, The Signal and the Noise by Nate Silver, The Future of Life by Edward O. Wilson, and The Joy of x by Steven Strogatz.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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