Home > Career, College, Personal Finance, Tribal > “Ask Dominic” – March 2005 to December 2005

“Ask Dominic” – March 2005 to December 2005

I recently talked with some individuals back home in Laguna who told me that they really liked what I had written in the local newspaper the “Kukadze’eta Towncrier” in the past, it was back in 2005 to be exact (wow, really 5 years?).

I had taken on this effort to try and give back to my home community from afar.  At the time, I was living in Tucson, AZ and still working for IBM.

I wanted the effort to be interactive with people at home, so I titled the articles “Ask Dominic”, and I was open to getting questions from the community via email or phone call and answering them in the local paper. I focused on topics like personal finance, predatory lending, college financial aid, credit agencies, one of the local tribal businesses (Laguna Development Corporation – LDC), and retirement planning.

It lasted about 10 months before the interactivity kind of died out.  Looking back, this effort was really before it’s time, we have so many ways of communicating on the reservation now vs in 2005.  Today we have facebook, twitter, wordpress, and better internet connectivity.

I searched my archive of files, and after about 4 hard drives I found the content I had written back then.  I’m sharing this with everyone now as they were written.  Just a warning, this makes for a rather lengthy blog post & some of the links may not work anymore.

Enjoy!

- Dom

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March 2005 “Ask Dominic …” Article

Hi, my name is Dominic Pruitt.

I am writing this article because I would like to help Laguna community members with access to information.  I strongly believe access to information is a vital skill to surviving in this fast paced world we have to deal with outside (and sometimes inside) the reservation.  I figured the best way to do this is to use the available resources (namely the Kukadze’eta Community Newspaper, E-mail, and the Internet).

Here is a little bit of history about me so you know where I’m coming from (some of you may already know this and some may not) … I grew up in Paguate Village, played little league with the Paguate Cubs, went to school at Laguna Elementary, went away to middle and high school in Albuquerque (Academy) and Santa Fe (St Catherine HS).  I finished college in 1995 with a degree in Electrical Engineering while working as a Software Engineer for IBM in Dallas, Texas.  I moved to Raleigh, North Carolina in 1995, and had a chance to design personal computers and software.  I worked with development groups as far away as Japan, Spain, and Australia.  I moved to Tucson, Arizona in 2000 to get closer to home.  While in Tucson, I took advantage of the paid education opportunities through work and finished a Masters of Business Administration from the University of Arizona in December 2003 while working full-time.  I currently design and write software for enterprise storage products.

Ok, now that you know a little more about me and where I’m coming from, let me get to the point of this introduction article.

I would like to use some of the space in our Kukadze’eta Community Newspaper to share what I have learned in my life on the following topics:  Computers, Technology, Internet, Personal Finance, Credit Reporting, Credit Cards, Loans, Retirement (401k), College, Financial Aid, Internships, and Career Choices.

Now, we’re all aware that one person can not know all there is about a particular subject, but I am willing to give my perspective and experience to those who are curious.  Looking back in time, I wish I had access to someone who could speak candidly about some of these subjects, but no one was easily available.  Of course, my opinion and sharing does not substitute for seeking out professionals who have expert knowledge in a specific area.

Future “Ask Dominic …” articles will have the following format:

—–

1)  I would like to write answers (and opinions) to questions submitted to me via my personal email address (dompruitt@yahoo.com).  I will select a couple top questions for print in the paper and I will do my best to respond to all questions via email.  All names and identifying information will be removed when I respond with an answer in the newspaper so all can benefit from reading the answer without anyone being singled out.  So, please feel free to send me questions about the topics I listed above, questions about previous articles, or even suggestions about topics of interest to you.

and …

2)  I will pick a topic of interest (from the list above) to write about for that month.  There are some really interesting and surprising things going on out in the world.

—–

I have thought about doing something like this for a long time.  I enjoy the work that I do, it is technically challenging and has a global business perspective which intrigues me, but I realize it also keeps me from being back home in Laguna more (especially for feast days and the other times our community gets together).  I hope with this ongoing article I can connect and give back to our Laguna in a unique way.

Thanks.

Dominic Pruitt

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April 2005 “Ask Dominic …” Article

Your Questions:

I have not received many email questions since the first article; this is understandable since it’s the beginning.  Most of the emails I have received have been from people telling me what a neat idea this is, and some emails have been from people I have not been in contact with for many years.

This Month’s Topic:  Payday Loans / Deferred Deposit Loans

Have you ever been short of cash?  Have you ever considered walking into one of those cash advance places for a quick $300 or $500 loan?

Well, let me tell you about some of these places and how they work based on some of the reading I’ve been doing.  You might think twice before trying to get into this kind of loan.

At one time or another you might have seen one of these Payday Lenders in town:

  • Ace Cash Express (13 in Albuquerque)
  • Cash Advance America (7 in Albuquerque)
  • Fast Buck$ (7 in Albuquerque)

These payday lending companies are in the business of lending small cash loans for just about any reason (unexpected bill, emergencies, get your car fixed, child’s birthday party, etc).

Most of the loans they offer are for less than $500 with a very short time to pay them back, usually by the next payday (2 weeks), and they require you to write them a post-dated check from your personal checking account.

The fee they charge for this service is usually around 20% per $100 borrowed.

So let’s do some of the math here … 20% of $100 is $20.  For example, let’s say I decide to borrow $500 until my next payday.  I walk into Ace Cash Express, and ask to borrow $500.  I write a post-dated check from my checking account for $500 plus the fee.  The fee we calculate to be $20 * 5 = $100, so the total amount I write the personal check for is $600.  After writing the check, I receive $500 from the nice person behind the counter.

One of the ways the financial industry compares different types of loans is using the Annual Percentage Rate (APR).  If you have a credit card, you have a revolving credit loan with the bank that issued the credit card.  There is an APR associated with it and APRs for credit cards as of this writing are anywhere from 10% to 30%.

Let’s figure out what the APR is for the payday loan I took out.  I know that the fee charged by Ace Cash Express is 20% per $100 for 2 weeks.  I know there are 52 weeks in a year, so there are 26 two weeks in the year.  I take the 20% and multiply by 26 to get 520%.  The APR for my $500 loan is 520%!  That’s outrageous!

I found an APR disclosure on one of the cash advance websites which confirms this … take a look at www.fastbucks.com/apr_disclosure.asp the next time you get on a computer connected to the internet.  On their web page, the company clearly states that they collect a 25% fee on every $100 loaned which amounts to a 651.79% APR!  (to calculate, multiply 25% by 26 two weeks in year = 650%)

Now let’s compare the payday loan to a cash advance with a credit card.

Credit cards have several APRs, one for purchases and one for cash advances.  The APR for purchases is lower than the one for cash advances.  Right now, one of my credit cards has cash advance APR of 30%.

First I need to convert this to a daily interest rate, I do this by taking the 30% in decimal form, which is 0.3 and dividing by the number of days in the year, which is 365. So 0.3/365 = 0.0008219 (or 0.08219%).  What this means is that I’m charged 0.08219% for each day on the money from a cash advance on my credit card.

When I take out the $500 credit card cash advance, I start paying interest on that day.  So on day one the balance is $500 + ($500 * 0.0008219) = $500.41.  For the next day, day two, the balance will be $500.41 + ($500.41 * .0008219) = $500.82.  I repeat this for 14 days (this is compound interest at work), I would end up with a balance of $505.78.  This credit card cash advance cost me $5.78 for 2 weeks ($505.78 – $500).

Now compare the credit card cash advance with the payday loan.  Which would you rather pay?   $5.78 to borrow $500 or $100 to borrow $500 for two weeks?  For me, I would choose $5.78, its way cheaper.  I personally don’t encourage taking cash advances on credit cards, I’ll discuss that in another article.

There are many dangers to using payday loans.  One is that most people cannot payback the loaned money at the end of the 2 weeks.  Usually this results in extending the loan by assessing another 20% or 25% fee.  I found examples of people who have had a really hard time with this.  Take a look at the following website to see what other people did:

Here is an excerpt from the website, one individual’s personal experience:

["As soon as you get your first loan, you are trapped unless you know you will have the 300 extra dollars in the next two weeks."
Lisa Engelkins, a single mother making less than $8 an hour, paid $1254 in fees to renew a payday loan 35 times. Lisa thought she was getting “new money” each time, when in fact she was simply borrowing back the $300 she just repaid. She paid renewal fees every two weeks for 17 months to float a $300 loan, without paying down the loan.]

An additional danger to using payday loans, is that the lender may start to threaten to bring criminal action against the person (for writing a bad check) if the loan is not repaid.

This can be a tough situation to be in.  Sadly, the only way out of this is to pay the loan off in 2 weeks or pay whatever the total amount is due at the time after 2 weeks.  For some people, like Lisa, this could be a lot of money.

Well, I hope this topic was informative and educational.  If you would like to lookup more information about payday lenders, take a look at the information sources I used or perform an internet search on “payday lending practices” using www.google.com or www.yahoo.com.

Article Information Sources:

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org
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May 2005 “Ask Dominic …” Article

Your Questions:

Question #1 – (This question is in regards to the article about payday loans.)  I would like to offer a suggestion in regards to your project with the newspaper, you’ve managed to provide some really useful information to the community but you also need to offer a solution.  The community as a whole needs to identify the problems that leads up to people having to use these types of short loans.  Many of our people don’t want to use these services, but when there is no other alternative, what can they do?  Think about the problem we have with diabetes, the health programs are finding out that they can’t make progress with just handing out brochures and flyers filled with information.  In order to make a difference they offered ways in which our people can cook healthier traditional foods, exercise etc. I think what you’re doing is a step in the right direction, but you need to provide the tools for our people to help themselves.

Answer #1 – Thanks for your question, it is a good one.  Unfortunately there is no quick solution here, much like a solution for diabetes.  One reason I cannot provide a solution is that each person’s financial situation is unique and would require an analysis of their income, spending, and debt obligations (this information also changes over time so this is analysis is ongoing).  There are tools available for helping with this in the form of books/websites and calculators, but it really is up to the individual to take the time, effort, and energy to learn more about their own situation and how money works.  Financial Literacy is not taught in our schools (not really sure why), but it is a skill each of us needs to eventually learn in order to interact with life outside the reservation.  Here are some of the more useful websites on personal finance I have found:

http://www.fool.com/ccc/ccc.htm
http://www.fool.com/calcs/calculators.htm
http://money.cnn.com/pf/debt/
http://www.spendingwisely.com

This month’s topic will also help here.

Question #2 – I read your article in the Laguna Towncrier and I think that is nice of you.  My question is:  How can I re-build my credit when it has gone terribly bad?  I need to re-establish it because, in the future, I do have to think about my family and also, if I don’t live that long my family does have to at least have something to fall back on.  Right now, I am in debt $30,000.  I do payday loans which you said was a very bad idea. And now, I can’t afford that small amount back for payment of, $48.00.  I’m waiting for my income tax.  At least it’s some little bit of relief from that but, not much.  Please help!

Answer #2 – Here are some suggestions to help you:

1.  Try and pay off and avoid the payday loans; they could get you into more financial trouble if you don’t watch out.  If you can, cut your spending somewhere or loan money from another person to pay it off.

2.  You mention your credit is “terribly bad”.  Most people think their credit report and score are worse then they think.  But to really know, you must have a credit report in hand and read through it, count all the negative parts and see where you stand.  Do you know what your credit report looks like?  Do you know that you can get your credit reports for free?  I recommend getting your credit reports to look at and dispute incorrect information.  The website http://www.annualcreditreport.com has the information you need.  I would suggest using this website link (https://www.annualcreditreport.com/cra/requestformfinal.pdf) and print the form to request your reports by mail.  Do it by mail so you are not told to sign up for some other service that may cost you money on the website or by phone.

The best way to work through this is to request 1 report from 1 credit reporting agency (Equifax, Experian and TransUnion) and work on it.  Then in 3 months request the 2nd report from the 2nd credit reporting agency.  In another 3 months do the same until all 3 reports have been analyzed and information disputed for correctness.

The book I mention in this month’s topic will help with disputing credit reports.

3.  The final suggestion is to understand all your debt obligations and the future impact they will have on your life.  I think fully understanding your debt obligations may change the way you spend money and think about what you really need in life.

The free Excel spreadsheet on the website www.understandyourdebt.com can help you understand your obligations, when they might be paid off, and how much interest you would have paid.  It’s a useful financial tool for those who have Microsoft Excel available.

This Month’s Topic:

Book review of “The ABC’s of Getting Out of Debt” by Garret Sutton, released in 2004 ($16.95), ISBN 0-446-69409-6.

Among most of the books I’ve read on the topics of Debt and Credit, this has been one of the best.  It was written by attorney Garret Sutton from Nevada.   There were several things I liked about this book.  This is one of the few books which discusses the psychology of debt and health effects of debt, which are important in helping the whole individual and not just the financial part of their life.  The book discussed the Service Members Civil Relief Act (SCRA) which was updated by President Bush on December 19, 2003.  This replaced law provides certain credit rights to military personnel (like limits on interest rates while in active service).  The book, through the many examples, makes clear your rights as a consumer under the Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), and Fair and Accurate Credit Transactions Act (FACTA).   Of course it has common topics that other debt books contain, like what to do about debt collectors, credit reporting, credit scoring, and credit counseling.  However, because the author is an attorney, he provides a different viewpoint.  The examples throughout the book were great at helping to understand these concepts, and the sample letters and credit report at the end of the book are excellent examples for anyone wanting to take action with regards to their credit and debt.  There were several references to other products in the book which provide additional information.  I suggest this book to read for those who want to improve their financial knowledge in the areas of debt and credit.

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org

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June 2005 “Ask Dominic …” Article
Your Questions:

I have received several questions on what seems to be a hot and interesting topic back home, namely the refinancing of 40 million dollars (or whatever this large amount really is) of Laguna Development Corporation (LDC) debt from a large national (probably international) bank to the Pueblo of Laguna (POL).  Some people have asked for my analysis and opinion on it.

Well, first off, I find it rather difficult to know what is really being said back home when I work and live in Tucson, Arizona.  But, what I do have is the POL annual reports from 2003 and 2004 to help.  My initial gut feeling when I heard about this was that it is not healthy from a tribal perspective, but I need more information beyond the annual reports to logically think and form an opinion.  I would think that our tribe does not have 40 million dollars just sitting idle in some account, especially when the 2004 POL revenues (considering grants too) were at 14.7 million and expenses were 7.5 million.  In addition, POL had 104 million in total assets with 55 million in the general fund (page 6 of 2004 POL Annual Report).  Like with anything in life, there are trade offs, and I would like to uncover what trade offs the members of  Laguna will have to make for the tribe taking on the 40 million of LDC debt.  I wonder what account the 40 million will be pulled out of and the impact to tribal programs if there is a decision to take on the LDC debt?  What long range impact does this mean for Laguna?  Does it mean the tribe will forgo the opportunity to expand its land base in the next 15 years? (The Land Acquisition Fund in 2004 was at $72,742)  I’m sure there are other concerns.

All I can say is, this kind of decision is a big deal, and I hope there are professionals helping the tribe in doing the due diligence required to make a well informed decision without pressure.

One interesting thing I found in the POL annual reports is how the LDC financial information is reported (now that I look at them closer).  I noticed the 2003 and 2004 LDC financials only report the next year projections, while other tribal groups report previous year(s) actuals.  I did not find the actual revenue and expense for LDC for the previous years.  I think the reporting of LDC yearly actuals, to be consistent with the rest of the POL annual report, would be good.

I hope to have more on this by next month, stay tuned.

This Month’s Topic:

I’d like to highlight a couple website articles in this month’s topic which may be very relevant to each and every pueblo member.

The article “Hosed at the gas pump — by your debit card” details the experience of what happens to an individual’s checking account when a debit card is used to pay for gas.  To summarize, when a debit card is used to pay for something, often there is a hold amount placed on the account to reduce risk on the merchant side.  So say you decide to purchase $20 in gas with your debit card, initially the merchant does not know how much gas you will buy, so a hold amount of $75 may be placed on your checking account without your knowledge (meaning $75 is inaccessible to you while the hold is in place).  Once the transaction is completed, then the actual amount is charged and the hold is lifted within a couple hours typically.  In the article, the individual experienced a hold that did not lift for 5 days which caused a couple checks to bounce and generated bank fees which added to the cost of the bounced check.  Just be aware, when using any debit or credit account, there may be holds placed on the accounts to reduce the risk of the merchant and it can affect your availability to cash or credit.

The article “The new way thieves attack your computer” details a new way that bad people are trying to steal personal information on the internet using “pharming”.  Up to now, some people are aware of “phishing” which is a method of sending mass emails to people and convincing them to click on a website link posing as a legitimate website to gather personal information (name, address, birthdate, social security number, bank account number).  Pharming is more involved, but the potential for personal information compromise is high once the environment is established.  Pharming requires the download of software on to the local computer to work, usually done through visiting a website and clicking ok to some strange prompts..  Once resident on the computer, the local software will redirect valid website requests to a computer designed to collect personal information.  Sometimes this theft can be so well orchestrated, that the user is directed back to the valid website after information is collected and the user is unaware anything happened.  One way to try and prevent this is to double check the website visited, often when sensitive or personal information is being exchanged, the company will use a secure website and you will see a padlock on the browser (usually in the lower right corner) or a https:// (instead of http://) in the beginning of the web address.

Article Information Sources:

Hosed at the gas pump — by your debit card
http://moneycentral.msn.com/content/Banking/Betterbanking/P118381.asp

The new way thieves attack your computer
http://moneycentral.msn.com/content/Savinganddebt/consumeractionguide/P117289.asp

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org

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July 2005 “Ask Dominic …” Article
Your Questions:

40 million dollar debt refinancing article continued … Ok, I did manage to get more information about the Pueblo of Laguna (POL) and Laguna Development Corporation (LDC) situation.  I still don’t have all the relevant detailed information on this to discuss all possible options, but I do have enough information to take a position, and I will make this as educational as possible for the newspaper readers.  [This information came from the POL Tribal Council Meeting #15 Minutes dated May 24, 2005]

LDC has an existing loan with Wells Fargo for the amount of $38,250,000 (the terms of the loan are not known).  I also found out LDC needed an additional $2,250,000 for business purposes.  Both of these amounts added together are $40,500,000 ($40.5 million).

LDC presented POL with the option to assume the $38,250,000 Wells Fargo loan and to borrow an additional $2,250,000 (totaling $40.5 million).  The terms that LDC would pay POL would be fixed interest rate at 7.5% for 20 years (compounded yearly for these calculations).  This works out to a yearly payment of $3,972,734 (rounded to the nearest dollar) for 20 years.

If POL accepts this option, POL would assume the original LDC loan and the additional amount, then pay Wells Fargo.  The terms that POL would pay Wells Fargo would be a variable interest rate at 3.75% for 5 years.  At the time of this writing, we are in a rising interest rate environment, so the interest rate and payment can increase accordingly, but for simplicity I will assume the 3.75% is fixed with yearly compounding.  This works out to a yearly payment of $9,033,601 (rounded to the nearest dollar) for 5 years.

Now, here is how these two loans will play out over the next 20 years.

In the first 5 years, POL will pay Wells Fargo $9,033,601 ($9 million) each year, and LDC will pay POL $3,972,734 ($4 million) each year.  This means POL will have to come up with the difference of $5,060,867 ($5 million) each year for 5 years.

After 5 years (years 6 to 20), POL would have finished paying the Wells Fargo loan, and would still be receiving payments from LDC at $3,972,734 ($4 million) per year for the remaining 15 years.

So, here is the area where most people should be concerned about … according to the 2004 annual report, the POL yearly expenditures were at $7,511,977 ($7.5 million on page 8).  If POL accepted the LDC refinance option, POL expenditures would increase by $5,060,867 ($5 million) per year for the next 5 years.  Based on 2004 expenditures, this amount is a 67% increase in expenditures.

I don’t know about this whole situation, but the biggest question here is … where will the extra $5 million per year for 5 years come from and what trade offs will the members of POL have to make?

I do realize there is a benefit of almost $4 million per year for years 6 to 20, but how does POL get there without some sacrifice or trade offs?

Now here is my opinion … This option, if taken, would be financially unhealthy for the POL.  I personally cannot handle a 67% increase in expenditures for 5 years; it would seriously impact my quality of life if not bankrupt me.  To my readers, think about your own situation, do you honestly think you can handle a 67% increase in expenditures personally?  If POL can handle a 67% increase in expenditures then it needs to be explained clearly to the people how it would happen.

Ok, I have given my two cents on this topic.

This Month’s Topic:

Do you know about the CLUE database and what it contains about you?

Now I’m not talking about Blues Clues or any children’s games, I’m talking about the Comprehensive Loss Underwriting Exchange (CLUE) database.  This database is maintained by a company called ChoicePoint and many Insurance companies contribute your personal data to it.  You probably never have heard about it, I only found out about this a couple years ago.

Back in the May 2005 “Ask Dominic …” article, I talked about Consumer Credit Reports (they report how you use loans and credit cards and how the reports can affect your life).  Well, this is another type of personal consumer report, only this one reports on how you use Insurance (more exactly your insurance claim patterns and inquiries).  I’m talking about any kind of insurance: auto, home, or renters (health and life insurance is probably not included).

The reason I’m pointing out the existence of insurance consumer reports (and databases), is this – Have you ever been dropped or denied insurance?  It is very likely that the insurance company electronically pulled your insurance consumer report to check how risky a person you might be.  The company then decided you were more likely to cost them money versus generate them money during the time you had insurance with them (records about claims tied to a home or property are also kept in a separate property report too).

As with all consumer reports today, most companies have to comply with the Fair and Accurate Credit Transactions Act (FACTA).  ChoicePoint is no different, and you can obtain your personal insurance report once a year for FREE to check for inaccuracies.

I encourage you to read the web links provided in this article and learn a little more about the electronic database information being kept about you.

Article Information Sources:

CLUE and You: How Insurers Size You Up
http://www.privacyrights.org/fs/fs26-CLUE.htm

Insurers keep a secret history of your home
http://moneycentral.msn.com/content/Insurance/Insureyourhome/P35345.asp

FACT Act compliance
http://www.choicepoint.com/factact.html

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org

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August 2005 “Ask Dominic …” Article

Your Questions:

“I enjoyed your article in the Kukadze’eta, most people don’t realize the real cost of cash advance loans.  Maybe you could do an article on retirement planning.  I think most people employed in the private sector are covered by a 401K or similar retirement plan, those employed by federal government are either Civil Service Retirement System (pre-1987) or Federal Employment Retirement System. Thanks.”

Answer:

Thanks for the great question!  Of course retirement and planning for it is a huge and sometimes complicated subject because it namely deals with the future and some type of investment vehicle.  I will try and give my perspective on what I know about retirement planning based on experience in the private sector (401k only for now) then next month cover at a high level some of the federal and other plans as I do a little reading about them.

Ok, the whole idea of retirement and retirement planning centers around this concept.

How can an individual have money to live on when they get to 60 or 70 years old and have diminished physical ability where the “prime working years” have past?

This concept becomes very important since the average lifespan of a person living in the US is around 80 to 85 years now (the average for Japan is around 90).  This means there will be about 20 years in which an individual will have to provide for themselves without the ability to work for money to live on.

It is this 20 or so years of living without the ability to earn money (work) that we have retirement and retirement planning.  The key here is determining what you earn and spend to live today, then taking that information, try to figure out what you will spend in the future when you retire while also factoring in savings, additional health related costs, and inflation.

Now most people are not too good at saving money for the future especially when one is trying to save for say 40 years in the future, myself included.  To help solve this, the government decided to help us save specifically for retirement through the use of retirement accounts.  There are many different names for retirement accounts these days and the names differ depending on who you work for or if you open your own retirement account.  But, most private sector retirement accounts have one aspect in common, you can contribute money to the account on a pre-tax basis (or at least get a tax credit when you file your taxes).  It is this pre-tax aspect which allows retirement savings to grow at a rate larger than if money was contributed on a post-tax basis (usually about a 30% difference) and it reduces your earned income for that tax year.  Of course, there is no free lunch when it comes to the IRS, the money in the retirement account is taxed when you withdraw it when you retire in the future, but one hopes your income requirements will be less due to no kids around or a paid off house/car and maybe less travel.

Some people may also receive a benefit from the company they work for in the retirement area in the form of a matching contribution.  This means the company you work for will help you contribute money to your retirement (remember the IRS says you can’t take the money out until you reach retirement age, or meet one of the exceptions).

For instance, I have a 401k and pension through my current employer.  On the 401k side, my company benefit is $0.50 for every $1.00 up to 6% of my salary.  This means when I contribute $1.00 to my 401k retirement account, what gets deposited is $1.50 (the fifty cents comes from my employer).  The neat thing with this is the account starts to earn interest on $1.50 versus $1.00, and sometimes it is immediately vested (meaning you own it and if you leave to work somewhere else, you can take the retirement money with you).

Along with the matching contribution, the 401k retirement plan has investment options that I can choose.  This means I have some control over where my retirement money is invested.  I currently have my 401k retirement money invested in the following (this is not to be considered advice for your allocation, but only for informational purposes only):  Large Capitalization Value Index, Small/Mid Capitalization Company Stock Index, Real Estate Investment Trust Index, Vanguard Pacific Index, and Vanguard European Index.  There are other options such has bonds and specific stocks available to me, and I can change the allocation at any time I feel it is appropriate.  Retirement accounts should be reviewed yearly if not more frequent.

I know this was a quick and real brief discussion on retirement and retirement planning (for private sector 401k), but it is something that all of us need to think about.  Sometimes living or being raised on the reservation, there is not a need to talk about this subject because not everyone has a retirement account, but it is a skill that can be learned by everyone and it has become necessary for life today and in the future.  We really don’t know how long we each will live, and social security will not be around forever, so making some kind of retirement plan will help for your individual future and well being.

This Month’s Topic:

Since this month’s question relates to retirement, I’d like to point you to some interesting internet reading on retirement:

CNN.com Retirement Essentials
http://money.cnn.com/retirement/

The Motley Fool – Retirement
http://www.fool.com/retirement.htm

MSN Money – Retirement
http://moneycentral.msn.com/retire/home.asp

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org

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September 2005 “Ask Dominic …” Article

Your Questions:

Continuation of Retirement Planning article from last month …

Ok, I did enough reading to understand some of the federal retirement plans, Civil Service Retirement System (pre-1987) and Federal Employment Retirement System, to get a high level idea of how they work.  In order to explain the federal plans I’ll cover two retirement concepts which will help, Defined Benefit and Defined Contribution.

Defined Benefit (DB) – If you have a defined benefit retirement plan (pre-1987 in the federal government and about the same time in the private sector with pensions), this means there will be a mathematical calculation performed at the time of retirement (or leaving the company) to determine a promised monthly amount of money (sometimes for life) to be paid for years of service and salary level.  The banking term for the type of constant payments is an annuity.  This nice thing about a defined benefit plan (for those that have it) is that there is little or no contribution to the plan by the employee and little to no investment decisions to be made by the employee (all the responsibility for this is on the employer), pretty simple huh?  Other pluses to a DB plan are cost of living adjustments and no investment risk.  A couple downsides to a DB are that they are difficult to understand (since the company determines the mathematical calculation) and are not too beneficial if you leave the company before retirement.

Defined Contribution (DC) – If you have a defined contribution retirement plan (if you have one and you started work after 1987, it is likely this type) this means the only obligation the employer has to the employee for retirement is to help the employee save money in a retirement account as the person remains employed.  There is no future promise from the employer to pay anything else for retirement (even after the person leaves the company), it is all up to the individual to save and invest the money to ensure they have enough money for retirement.  The advantage to this type of retirement plan is the person can often choose where to invest money (tax deferred), it’s easier to understand, and there is usually an employer match to personal saving in this account.  The downside is investment risk since money is invested in stocks or bonds and no cost of living adjustments (all adjustments are market driven).

<>I understand the Civil Service Retirement System (pre-1987) retirement plan is one that uses a mathematical calculation determined by the federal government to determine the size of the annuity to be paid purely by length of service and salary level.  The person retiring would receive a fixed monthly check (maybe adjusted for inflation over time).

I understand the Federal Employment Retirement System (post-1987) retirement plan is one that is made of 3 parts.  The 3 parts are Social Security, Basic Benefit Plan, and Thrift Savings Plan.  Social Security is pretty straight forward, we all pay into the social security program and when we retire, we receive a monthly check based on what we paid into the system (for some social security may be questionable).  The Basic Benefit Plan is like a mix of the DB and DC plans in which benefits are determined by length of service, salary, and contributed amount.  The Thrift Savings Plan is similar to a 401k retirement account where there is some choice to where the money is invested and a matching contribution.  The key here is that the Thrift Savings Plan is the place where an individual needs to make the decision to save more money for retirement and allow the money to grow based on market investments.

Again, I’d like to remind people there is about 20 years (after age 65 to 70) where one will need money to live on without having the ability to work.  How an individual goes about saving money for this time depends on constant future planning, and the retirement account they actively save in.

This Month’s Topic:Since this is a continuation on the topic of retirement, I’d like to point out something which if happens will affect some or maybe all of you.  I’m not sure if you have heard in the news in the last 6 months or so about the president talking about … Personal Savings Accounts with respect to Social Security?  So what does this mean to me personally?

<>It means we may one day have the option to put all or part of what we pay today in social security into a Personal Savings Account (this can be good and bad for all).  This means there will be more responsibility on us as individuals to manage the money in the Personal Savings Account for our own retirement (another account to manage).  Most companies and employers have made the move to defined contribution plans for retirement, now the government may be pushing us to do the same.  We as individuals have to learn the skill of how money is saved and compounds over time so we can retire with some security knowing we can provide for ourselves.  This would be another part of our lives where we would need to know more about money if the Personal Savings Account were to come true.

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org
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October 2005 “Ask Dominic …” Article

Your Questions:

Dom, if a person has a few high interest credit cards and receives an offer for a debt consolidation loan that has a considerable lower rate then the credit cards, do you have any advice or information on what they should look for or if they should even consider the loan?

Answer:

The decision to go forward with debt consolidation or not is a complex one which takes some time and effort to figure out.  It involves a financial aspect and a psychological one.

The financial aspect can be quite detailed and it depends on how many credit cards and/or loans.  The more accounts, the more time it will take to determine the actual interest being paid over a specific amount of time, but you can get a ballpark figure with a financial calculator or spreadsheet.  This is mostly due to the interest rates of the cards being variable (usually indexed to the prime rate) and variable minimum payments (usually 2% of the balance of the account).  When calculating the aggregate accounts over time, one can come up with a quick payoff period (which is called snowballing, pay largest interest rate first then the next), a weighted average (middle of the road in time to pay off all accounts), and lowest balance first (can be longer than both depending on the balances, but will reduce your paperwork since you are closing accounts quicker and have less things to track month to month).

I actually went through this process at one time and created a Excel spreadsheet so I did not have to keep punching a calculator and using paper.  I’ll share it with the readers here (you will need to have Microsoft Excel on a computer to run it).  The spreadsheet calculates a weighted average of up to 20 accounts entered and assumes constant payments and constant interest rate until paid in full.  It helped me see my personal finances better.  You can download the spreadsheet for FREE at:
http://pws.prserv.net/dp/calc/cclc20e.xls (almost 3mb)
http://pws.prserv.net/dp/calc/cclc20e.zip (700k)

Once you have an idea what the collective interest of all accounts is, then you can compare it to the consolidation loan terms.  This should be as simple as comparing two loans (loan amount, interest rate, and payment period), but be sure to read all of the fine print of the consolidation loan to make sure the terms don’t change on you or have any penalties for whatever reason.

Ok, last but not least, the psychological aspect.  The whole idea about loan consolidation is to move debt to a lower interest rate and keep it there until it’s paid off.  The thing to think about is this … will moving the credit card debt to a consolidation loan change any spending behavior which put one into the current debt situation?  If no spending changes occur, then it is real easy to continue spending with the higher interest cards again and get into a more difficult debt situation (having a consolidation loan and high interest debt).

This Month’s Topic:

How much does your credit card company love you?

Kind of a silly question, but I think it’s a relevant one, and it can be measured easily if you read on.

Credit card companies love people who carry balances on their accounts.  This allows them to make money monthly on the interest they charge for the privilege of using their money.

They also love people who become loyal to using their card because the credit card company gets a small percentage of the transaction each time a purchase is made (somewhere on the order of 1%).

But here is where the real credit card company love is, because little changes in this make a big difference.  It’s the INTEREST RATE they charge you.

Do you know there are different levels of customers from the credit card company perspective?  These levels are determined by many factors but a major one is customer RISK, which is linked to your personal credit report and your credit card company checks it many times a year (remember you gave them permission to do this as part of the credit card application).

There is a widely known interest rate that most credit card companies use, and that is called the PRIME RATE (this is listed in the Wall Street Journal and historical rates can be found at http://www.moneycafe.com/library/prime.htm).

Credit card companies categorize customers by adding a percentage to the prime rate to determine an individual’s actual interest rate.  This individual’s interest rate also changes as the prime rate changes.

For instance, I have a credit card which charges me 13.49% today, and the current prime rate is 6.5%.  This means the credit card company decides my interest rate will be 6.99% above prime (6.5% + 6.99% = 13.49%).   That’s how risky they think I am with my use of credit.

Now how do I determine how much my credit card company really loves me?  Some of this information can be found using a publication called the “2005 Credit Card Survey”, by Consumer Action News out of San Francisco, CA (http://www.consumer-action.org:16080/English/CANews/2005_Credit_Card_Survey/index.php).

My credit card company happens to be part of the survey and it disclosed that its consumer risk range is 3.99% to 10.99% above the prime rate for all customers.  I previously calculated that I was at 6.99% above prime rate.  This means I’m not really considered one of their best customers (it also means I’m riskier in their eyes too).  In fact, there are customers getting better interest rates than me by about 3 percentage points (which on large balances can be significant).

So, now you can figure out for yourself, how much does your credit card company love you?

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org

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November 2005 “Ask Dominic …” Article

Your Questions:

Hi Dominic, I’m a local high school student looking for grants and scholarships to help pay for college.  I’m finding it difficult to find much on the internet.  Do you have any advice or leads for someone like me?

Answer:

Great question!  I’m glad you asked, because I’m sure you are not the only one out there looking to go to college and have realized that paying for it can be difficult, especially over the four or so years it will take to graduate.  Also, with the quickly rising cost of attending college, it is important to try and get as much help as possible.

There are several resources available on the internet.  Some will ask you to fill out a profile (usually based on a major) and you will be emailed information about potential scholarships as they are made public.  The nice thing about this is it’s easy to get emails coming your way; the downside is that everyone else is probably getting the same emails.  One website in particular, I have subscribed to, is called FastWeb.com (http://www.fastweb.com).  This site emails information about some of the larger and more popular scholarships available.  There are other websites like this, but let me WARN you now, there are some websites that ask you to pay a fee for scholarship information (usually through a credit or debit card).  Please avoid these as they are most likely a scam.

One of the more prominent scholarship sources available is from the Bill & Melinda Gates Foundation (http://www.gatesfoundation.org/Education/Scholarships/).

Another internet source I have found for Native American related scholarships is a yahoo group called NativeShare (http://groups.yahoo.com/group/nativeshare/).  This email list will periodically publish digests which contain contributions from many people on the list.  At last count there were 1911 people receiving (and contributing to) these email digests.  The trick here, is the digest can be long, and the individual would need to scan through to find scholarship related information.  I get these emails also, and I forward the relevant scholarship information to the Laguna Pueblo yahoo group (http://groups.yahoo.com/group/lagunapueblo/) which exists to help Laguna members (local and remote) communicate with each other.

One other suggestion would be to think about non-typical places for scholarships.  For instance, the American Indian Science and Engineering Society (AISES – http://www.aises.org/), has native scholarships listed on their website.  But not all people are aware that the AISES Professional Chapters may themselves provide scholarship money.  Just recently, the AISES Professional Chapter in Phoenix gave out four $1,000 scholarships for students attending Arizona State University.

My last suggestion is to use search engines like Google.com or Yahoo.com.  Think of some scholarship related keywords and search these sites on a frequent basis (like once a week).  The thinking here is this – the search sites have computers scanning the nooks and crannies of the internet daily.  This means the computers could potentially come across a new scholarship and if one of your keywords matches, you might get in early on a new scholarship posted by some new group out there.

Of course, I’m also assuming you have applied with the local Laguna college scholarship resources like the Laguna Department of Education and the Laguna Education Foundation (http://www.lagunaedfoundation.org/).

Also, I remember seeing in a past Kukadze’eta Towncrier about Laguna Development Corporation (LDC) providing college scholarship money to college students (from what I remember it was a full page ad), and according to the 2004 Pueblo of Laguna Annual Report it appears that Laguna Construction Company (LCC) provided eleven $1,000 scholarships to high school seniors going to college.  I don’t have any details about these scholarships, but I’m sure the companies have application materials available if the scholarships continue in the future, give them a call.

I covered a lot of ground here, and I hope it was helpful.

Thanks for the question.

This Month’s Topic:

I’d like to use this month’s topic to forward some of the results of a new survey which just came out on October 12, 2005 from Demos.org and ResponsibleLending.org.

The Plastic Safety Net – The Reality of Debt in America.
http://www.demos.org/pub654.cfm

The results from this survey covered the low to middle income households across America (50% to 120% of local median income household – about half of the households in the country).

“The results are clear: wages have stagnated while medical and housing costs have skyrocketed, and if confronted with a layoff or health emergency there are few, if any, personal or public safety nets adequate enough to help in a crisis. Households are turning to high-cost credit cards to keep afloat.”

Some key findings from the survey:

  • $8,650 is the average credit card debt of a low- and middle-income indebted household in America.
  • Seven out of 10 low- and middle-income households reported using their credit cards as a safety net–relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs.
  • One out of three households reported using credit cards to cover basic living expenses on average four out of the last 12 months; households that reported a recent job loss or unemployment, and those without health insurance in the last three years, were almost twice as likely to use credit cards for basic living expenses.
  • 47 percent of households had been called by a bill collector.
  • Almost half missed or were late with a payment in the last year, with nearly a quarter of households reporting paying a late fee at least one or two times in the past year.
  • In addition to charging late fees ranging from $30 and $39, most issuers also penalize cardholders for late payments by increasing the interest rate on the account two- or three-fold, often after only one late payment. A household with the average amount of credit card debt in our survey ($8,650) would pay an additional $1,100 in costs each year if their card’s interest rate was increased from the typical 12 percent to the average 25 percent “default rate” for one late payment.
The full text of the survey can be found at:
http://www.demos.org/pubs/PSN_low.pdf

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org

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December 2005 “Ask Dominic …” Article

Your Questions:

Dominic, I’m a college student trying to understand the Expected Family Contribution (EFC) better.  It seems year after year the EFC is increasing for me.  Do you have any insight on how this can happen?  It seems to affect my need based financial aid more and more.

Answer:

Thanks for the great question.  I do have some experience with the EFC and can provide some idea what may be going on here.

Put simply, the EFC is the amount of money you and your family is EXPECTED to contribute for your college costs for the coming school year, for that specific college you are attending.  The EFC is calculated from various inputs, but a majority of it depends on your personal income and assets, as well as, your parent’s income and assets over the last year.

What usually happens in the financial aid office is the EFC the college uses is calculated for you (there are actually two EFCs, the Federal Methodology and Institutional Methodology).  Then a difference is calculated, the total cost of attending that particular college is subtracted from the EFC.  If there is a shortfall between the total cost of attending and the EFC, then this amount is considered need based aid.  Colleges have various ways of meeting this shortfall in aid through grants and/or loans; in my case one typical component of my financial aid package was work-study.

Now back to the question on where the EFC seems to be increasing.  Since the EFC is based on income and assets, it is possible to influence the next year EFC if you work (earn income) while in college.  While in college, I worked at the library for my work-study aid and also worked another job off campus.  The additional off campus income caused my next year EFC to increase, which meant I (or my parents) had to pay more for my total college cost versus the previous year (even accounting for the increased costs of college).  Is it possible that you are working at an off campus job and the additional income is changing the EFC for the next year?  Or is it possible that your parents had significant additional income to change the EFC?

This is a tough trade off, nowadays; employers want to hire people with relevant work experience after college.  In my opinion, what is learned from personal work experience is far more valuable than the relatively small increases in the EFC.

For more on the EFC, check out the following links:

Your Expected Family Contribution:  Frequently Asked Questions
http://www.collegeboard.com/article/0,3868,6-30-0-409,00.html

Expected Family Contribution Calculator
http://apps.collegeboard.com/fincalc/efc_welcome.jsp

This Month’s Topic:

Ok, the topic for this month is software.  I’m sure not everyone knows that there is software out there that you pay for to use, and there is software out there that you don’t have to pay for to use.

Let me introduce you to a relatively new concept called Open Source Software.  Open source software simply means the software source code can be seen by anyone interested in looking at it, fixing bugs, or developing new function.  Open source software is often free to use in finished product form, and is usually supported by the community managing the source code, and very seldom are all these people in one company or a company at all.

Now, I bet you are wondering, how does this open source software really affect me?  Well, let me tell you that it can provide options you did not realize you had.

For instance, most people know about Microsoft Office.  People use Microsoft Office for writing letters or books (Word), calculating using the spreadsheet function (Excel), or putting together a presentation using (Powerpoint).  Also, most people know that Microsoft Office costs about $400 for the full version.

There is an open source product which has most of the function of Microsoft Office for FREE.  It is called OpenOffice v2.0 (http://www.openoffice.org/).  The OpenOffice software suite has word processing, spreadsheet, database, and presentation capability without the $400 cost of MS Office.  The only cost would be the internet download time for the windows install code for OpenOffice (currently about 75mb).

This is just one example of how open source can give you software options.  Especially now that some of the lower cost and new computers don’t come with any productivity software.

One website to search for various open source software projects is SourceForge.net (http://sourceforge.net/).  I have found several useful software products there, like Audacity for voice recordings (http://audacity.sourceforge.net/).

Dominic Pruitt is a software engineer from Paguate Village currently living in Tucson, Arizona.  Questions can be sent to dompruitt@yahoo.com, and past articles of “Ask Dominic …” can be found at www.lagunapueblo.org

***** END OF ARTICLES *****
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