“There is no such thing as a free lunch”.
I can’t tell you how many times over the last 25 years I have used this as a response to a member asking me about some investment scheme that really was too good to be true. It’s truly sound advice; to get a greater return on your investment, you usually need to take greater risk. The trick is recognizing the risk and making sure it is right for you. Now I am going to contradict myself: here’s a free lunch and then some. Last Thursday night, your Board of Directors declared another Patronage Rebate to be paid at the close of business on December 31st. I’m really not supposed to say anything about this until it is actually paid but not that many people having been reading this blog so I figure I’m pretty safe.
I’m breaking the news early because I am really excited about this, for two reasons. First, the $200,000 in rebates for 2009, puts the total for the program at over $2 million. You know the old joke about government spending, “a million here and a million there and pretty soon you’re talking real money”. Two million dollars given back to our members is definitely real money and the Credit Union is darn proud of it.
Second, during this year we have experienced the worst recession in most of our lifetimes. Many financial institutions lost money or went insolvent. Not only did NSFCU continue its strong financial performance, we did so at a level that allows us to continue our streak of Patronage Rebates issued (its somewhere around 12-14 consecutive years, I can’t remember and I am not looking it up). If there was ever a year when members could use the free money, this is the year.
Now to the free lunch part: at a bank, this rebate money would be going to the owner of the bank, who probably doesn’t need it. So, part of this is your reward for being smart and being a member of NSFCU. To make it even better, we automatically deposit the money into a special savings account called a Patronage Rebate Share (its #99999 on your statement) and that account earns a 10% annual percentage yield! This rate is fixed for 2009 and 2010 and the funds are guaranteed just like all your money at the Credit Union. The idea is to provide an incentive for members to let these rebates build in this special account as it is a great investment (no, you can’t add to this account – nice try). Over the years, it will really add up. Now I understand if you want or need to take the money, especially this year. However, if you can, let it build – it has to be the best investment you will ever make.
Really……
Mark
Wednesday, December 23, 2009
Tuesday, November 24, 2009
Breaking News.....
Well, I might be exaggerating just a little bit but I haven't posted anything in a while and thought I better see if I could generate a little interest. I do have an excuse as I just got back from a business trip to Charlotte where I worked on the newest version of the software that the Credit Union uses to do all your transactions.
This is an important part of what we do at NSFCU - namely, try and stay as current as possible with available technology in order to serve you better and offer added convenience. Our improved data processing won't be anything that you will use directly; however, it will give us more tools to serve you better.
We do have a major project that will be unveiled soon that I think you will be very excited about: new and improved Internet Teller. We are having a custom program written for NSFCU and the first phase of three will go live sometime around the first of the year. I'm not going to spoil the surprise right now other than to say that I think you will really like it, and it will get even better in the coming year as we install phases 2 and 3.
As part of this project, we will also have a new website that will be rolled out at the same time as our new Internet Teller. It has a new, fresh look and will be easier to navigate within; we hope you will like it and welcome any feedback that you have for our new web portal. I say web portal because we are working towards integrating all our electronic products so well that it will really represent complete access to your Credit Union via the web. We'll be posting updates on our current website letting you know when the transition to the new versions of Internet Teller and website will occur. We know that sudden changes like this can create doubts in people's minds concerning fraud, etc. so we will notify you well in advance of the actual change.
One housekeeping note (no pun intended): we recently completed an exterior remodeling project at our Grand Marais office. Things turned out nicely as we spruced up the building and, most importantly, dramatically improved our handicap accessibility. However, the concrete stain we used made the finish too slick, especially when wet. Last weekend, "grit" was added to the surface to give it a sandpaper like finish. This clearly helped but it is still too slippery when wet. Rest assured that we will keep working with it to make it safe. If we need to strip the stain and start over, we will do so. Thanks for your patience.
Mark
This is an important part of what we do at NSFCU - namely, try and stay as current as possible with available technology in order to serve you better and offer added convenience. Our improved data processing won't be anything that you will use directly; however, it will give us more tools to serve you better.
We do have a major project that will be unveiled soon that I think you will be very excited about: new and improved Internet Teller. We are having a custom program written for NSFCU and the first phase of three will go live sometime around the first of the year. I'm not going to spoil the surprise right now other than to say that I think you will really like it, and it will get even better in the coming year as we install phases 2 and 3.
As part of this project, we will also have a new website that will be rolled out at the same time as our new Internet Teller. It has a new, fresh look and will be easier to navigate within; we hope you will like it and welcome any feedback that you have for our new web portal. I say web portal because we are working towards integrating all our electronic products so well that it will really represent complete access to your Credit Union via the web. We'll be posting updates on our current website letting you know when the transition to the new versions of Internet Teller and website will occur. We know that sudden changes like this can create doubts in people's minds concerning fraud, etc. so we will notify you well in advance of the actual change.
One housekeeping note (no pun intended): we recently completed an exterior remodeling project at our Grand Marais office. Things turned out nicely as we spruced up the building and, most importantly, dramatically improved our handicap accessibility. However, the concrete stain we used made the finish too slick, especially when wet. Last weekend, "grit" was added to the surface to give it a sandpaper like finish. This clearly helped but it is still too slippery when wet. Rest assured that we will keep working with it to make it safe. If we need to strip the stain and start over, we will do so. Thanks for your patience.
Mark
Friday, October 16, 2009
Bloggers, Carpetbaggers and Other Undesirable Sorts……
Sometimes our little coffee chats result in one of those “light bulb goes on” moments for me about the Credit Union. They tend to happen at weird times and usually with no rhyme or reason.
My latest one occurred when a good friend of mine stopped by and we ended up in quite a lively discussion about the internet; specifically about writing, blogging and the validity of information in general that is so readily available on the web. My friend is a highly intelligent, very successful person who works in a traditional print media business. Her concern was that the decline of traditional newspapers was a great loss to people in that, without newspapers, we really don’t have reliable sources of information where editors have checked the validity and accuracy of what is being presented to the reader.
My response was (among other cracks): that proverbial horse is way out of the barn. Through my work at the credit union, I’ve had the great pleasure to work with a great many younger members and employees. It’s been a learning experience for me in many ways, including how this group of people obtains information in their world. Here’s one of the things I learned: you don’t have to worry about the loss of newspapers for these folks because nobody in this group of people even reads them.
Now to the light bulb going on part: it occurred to me that our work here at the credit union involves trying to provide products and services to a very wide range of people who view their world very strongly in their own way and have strong feelings about how they want to relate to everyone and everything, including the credit union.
OK – that may sound obvious but I don’t think it is. I will use a simple example: telephones. We have members who want to pick up the phone, speak to one specific person and have all their needs personally met; we have members who want automated phone systems because they are faster; we have members who want to use Access, our bank by phone service and we have members who never want to waste their time calling us but want to do all of their business with us “on-line” through their cell phones. This is happening in nearly every facet of our business, whether it is products, services, communication, you name it.
Sometimes we can meet all of the varying needs. Sometimes the needs compete with each other and we have to choose or place greater emphasis on one form or another. It can be tricky because you also have to anticipate what members may want in the near future and be ready to accommodate that as well.
The bottom line is that this industry is one that is changing very rapidly and so are the desires and demands of the members. This is actually the part of my job that I enjoy the most, even if it isn’t always clear.
You’ll be happy to know we did clear up our little debate. It ended with my friend stating an obvious fact: “If blogging is a valuable source of information, how come you get to do it?”
Hard to argue with that one……….
Mark
My latest one occurred when a good friend of mine stopped by and we ended up in quite a lively discussion about the internet; specifically about writing, blogging and the validity of information in general that is so readily available on the web. My friend is a highly intelligent, very successful person who works in a traditional print media business. Her concern was that the decline of traditional newspapers was a great loss to people in that, without newspapers, we really don’t have reliable sources of information where editors have checked the validity and accuracy of what is being presented to the reader.
My response was (among other cracks): that proverbial horse is way out of the barn. Through my work at the credit union, I’ve had the great pleasure to work with a great many younger members and employees. It’s been a learning experience for me in many ways, including how this group of people obtains information in their world. Here’s one of the things I learned: you don’t have to worry about the loss of newspapers for these folks because nobody in this group of people even reads them.
Now to the light bulb going on part: it occurred to me that our work here at the credit union involves trying to provide products and services to a very wide range of people who view their world very strongly in their own way and have strong feelings about how they want to relate to everyone and everything, including the credit union.
OK – that may sound obvious but I don’t think it is. I will use a simple example: telephones. We have members who want to pick up the phone, speak to one specific person and have all their needs personally met; we have members who want automated phone systems because they are faster; we have members who want to use Access, our bank by phone service and we have members who never want to waste their time calling us but want to do all of their business with us “on-line” through their cell phones. This is happening in nearly every facet of our business, whether it is products, services, communication, you name it.
Sometimes we can meet all of the varying needs. Sometimes the needs compete with each other and we have to choose or place greater emphasis on one form or another. It can be tricky because you also have to anticipate what members may want in the near future and be ready to accommodate that as well.
The bottom line is that this industry is one that is changing very rapidly and so are the desires and demands of the members. This is actually the part of my job that I enjoy the most, even if it isn’t always clear.
You’ll be happy to know we did clear up our little debate. It ended with my friend stating an obvious fact: “If blogging is a valuable source of information, how come you get to do it?”
Hard to argue with that one……….
Mark
Monday, September 28, 2009
Phone Calls and Mad Scientists.................
Most of you probably know that your Credit Union has grown substantially over the years. In fact, in 1992, the Credit Union had assets of $16 million; in the next month, we will likely reach $115 million.
Thankfully, the number of phone calls we receive each day has not grown that much. This is due to the substantial number of members who use Internet Teller (on-line banking) and Access (telephone banking). For those of you using these services, thank you very much – you really are doing your Credit Union a big favor. For those of you not familiar these products, please ask about them the next time you stop in or call. They are easy to use and allow you access to all kinds of account information at all times.
While our phone volume has not grown at the same pace as the Credit Union, it can be a challenge at times to provide excellent service over the phone. Member calls tend to come in bunches and these bunches can occur at any time. Adding to this challenge is that the purpose of member calls vary widely (40-45% are balance inquiries or transfers) and need to be responded to by different staff members depending on the situation.
This leads us to the tricky part. We’ve long prided ourselves on providing exceptional service to our members - for phone calls, this means having staff members answer the calls quickly whenever possible and having them direct you to the appropriate staff member if they cannot help you.
This method is not working well enough anymore. We are frequently scrambling to get all the phones answered during peak periods; even when we cover all the incoming calls, the person a member may need to speak to is likely unavailable because they had to grab one of the ringing lines. An example is a loan officer who can’t take a loan question because they are answering an account balance question on the other line.
So, we are going to experiment with a new system in our Silver Bay office in hopes of finding a better solution. We are going to try this new idea for about a month, review the results and go from there. The new idea does have automation which I know many people don’t care for. I promise it won’t be a system where you listen to a million options, select one and then get a million more. This will be simple: you will select one of 5 choices and go straight to the appropriate staff member, that’s it. It will help us handle the calls, but more importantly, it will allow you to go directly to the staff person you need to speak to (and there is less chance they are answering the other line). I can guarantee you that you will get to where you need to be faster than our current method.
I think this new system will be an improvement - different, yes but better. Please give it a fair shot and let us know how you feel. We are going to keep track of member opinions, review the results, make necessary changes or go to a different idea if need be. No matter what, we will make sure it works for you.
Mark
Thankfully, the number of phone calls we receive each day has not grown that much. This is due to the substantial number of members who use Internet Teller (on-line banking) and Access (telephone banking). For those of you using these services, thank you very much – you really are doing your Credit Union a big favor. For those of you not familiar these products, please ask about them the next time you stop in or call. They are easy to use and allow you access to all kinds of account information at all times.
While our phone volume has not grown at the same pace as the Credit Union, it can be a challenge at times to provide excellent service over the phone. Member calls tend to come in bunches and these bunches can occur at any time. Adding to this challenge is that the purpose of member calls vary widely (40-45% are balance inquiries or transfers) and need to be responded to by different staff members depending on the situation.
This leads us to the tricky part. We’ve long prided ourselves on providing exceptional service to our members - for phone calls, this means having staff members answer the calls quickly whenever possible and having them direct you to the appropriate staff member if they cannot help you.
This method is not working well enough anymore. We are frequently scrambling to get all the phones answered during peak periods; even when we cover all the incoming calls, the person a member may need to speak to is likely unavailable because they had to grab one of the ringing lines. An example is a loan officer who can’t take a loan question because they are answering an account balance question on the other line.
So, we are going to experiment with a new system in our Silver Bay office in hopes of finding a better solution. We are going to try this new idea for about a month, review the results and go from there. The new idea does have automation which I know many people don’t care for. I promise it won’t be a system where you listen to a million options, select one and then get a million more. This will be simple: you will select one of 5 choices and go straight to the appropriate staff member, that’s it. It will help us handle the calls, but more importantly, it will allow you to go directly to the staff person you need to speak to (and there is less chance they are answering the other line). I can guarantee you that you will get to where you need to be faster than our current method.
I think this new system will be an improvement - different, yes but better. Please give it a fair shot and let us know how you feel. We are going to keep track of member opinions, review the results, make necessary changes or go to a different idea if need be. No matter what, we will make sure it works for you.
Mark
Friday, August 14, 2009
Building a Better Mousetrap, version 627....
I am proud of how NSFCU strives to continually figure out a better way of doing things. We run a very efficient operation and this trait is one big reason why - along with employees that work hard and really care. We also take to heart any feedback we receive from members, whether it is good or not so good. This all helps in the never ending process of delivering the best service possible to you. This is trickier than it appears when you consider we don’t know when you are coming or what you might need. It’s with this in mind that we are making two changes to our daily work flow.
First, we have purchased self service coin counting machines for the Grand Marais and Silver Bay offices; these machines should be installed by the end of August. The amount of bulk coin we process has increased so dramatically that it has started to impact the normal operations of our teller lines. We purchased the machines because it will allow members to get their bulk coin processed at their convenience without interrupting service to other members. The machines are easy to use and should be a great solution to this challenge. We try to avoid charging any fees but because of the cost of the machines, there will be a small fee of 1% of the total amount.
Second, we are making internal staffing changes to make our drive up teller lanes as fast as possible. It’s always a bit of a juggling act to make sure we handle both the drive up teller lanes and the lobby traffic with equal effectiveness. We’ve received feedback from you that you want faster, express lane type service from the drive up lanes so we are going to make that happen. We will have designated people assigned to the drive up lanes for the fastest possible service. One thing I would really ask you to do is use the second drive up lane as much as possible. Because of the flow of typical teller transactions, our tellers can process transactions in both lanes much faster than if all the cars stack up in the first drive up window.
On a related note, we monitor the number of transactions we do in all our offices and break it down by branch, by day, and by time of day. You might be interested (not surprised?) to know that Mondays and Fridays are by far the busiest days of the week. Wednesdays are clearly the least busy. There are clear patterns within the day as well: the peak periods are usually at 9, noon and between 3 and 4 in the afternoon. This indicates a strong preference on the part of some members to use our lobby for all their transactions even though the drive up lanes are available far earlier in the morning and later in the afternoon.
One other area we are investigating is statement delivery. Regulations require that members receive statements; the frequency varies depending on accounts and activity (it is too in-depth and boring to go into here). However, we know that many members don’t even want a statement and others never use the statements we spend a lot of money to deliver to them. Anything we can do to make this more efficient is just more money that goes into the Patronage Rebate. So, you will likely see some changes in how we handle statements in the coming months. In the meantime, please know that we offer electronic statements and the cost savings for your credit union is huge. It’s easy to sign up for this service and it’s free. Plus, you receive your statement within hours of month end, not days.
OK then, I think that is enough inside baseball for today.
Mark
First, we have purchased self service coin counting machines for the Grand Marais and Silver Bay offices; these machines should be installed by the end of August. The amount of bulk coin we process has increased so dramatically that it has started to impact the normal operations of our teller lines. We purchased the machines because it will allow members to get their bulk coin processed at their convenience without interrupting service to other members. The machines are easy to use and should be a great solution to this challenge. We try to avoid charging any fees but because of the cost of the machines, there will be a small fee of 1% of the total amount.
Second, we are making internal staffing changes to make our drive up teller lanes as fast as possible. It’s always a bit of a juggling act to make sure we handle both the drive up teller lanes and the lobby traffic with equal effectiveness. We’ve received feedback from you that you want faster, express lane type service from the drive up lanes so we are going to make that happen. We will have designated people assigned to the drive up lanes for the fastest possible service. One thing I would really ask you to do is use the second drive up lane as much as possible. Because of the flow of typical teller transactions, our tellers can process transactions in both lanes much faster than if all the cars stack up in the first drive up window.
On a related note, we monitor the number of transactions we do in all our offices and break it down by branch, by day, and by time of day. You might be interested (not surprised?) to know that Mondays and Fridays are by far the busiest days of the week. Wednesdays are clearly the least busy. There are clear patterns within the day as well: the peak periods are usually at 9, noon and between 3 and 4 in the afternoon. This indicates a strong preference on the part of some members to use our lobby for all their transactions even though the drive up lanes are available far earlier in the morning and later in the afternoon.
One other area we are investigating is statement delivery. Regulations require that members receive statements; the frequency varies depending on accounts and activity (it is too in-depth and boring to go into here). However, we know that many members don’t even want a statement and others never use the statements we spend a lot of money to deliver to them. Anything we can do to make this more efficient is just more money that goes into the Patronage Rebate. So, you will likely see some changes in how we handle statements in the coming months. In the meantime, please know that we offer electronic statements and the cost savings for your credit union is huge. It’s easy to sign up for this service and it’s free. Plus, you receive your statement within hours of month end, not days.
OK then, I think that is enough inside baseball for today.
Mark
Friday, July 31, 2009
Credit Unions Hit the Newspapers…….
The current recession has been big news for a long time now. There has been much written in newspapers about the struggles of many industries with much attention paid to the struggles of the large investment banks who received government bailout money.
Things are starting to strike a little closer to home as the Minneapolis Star Tribune ran a series of articles in the past week identifying Minnesota banks and credit unions that are struggling in this poor economy. Most of the institutions cited were based in the Twin Cities.
The newspaper articles did a fine job highlighting problems affecting some community banks and credit unions and how these institutions brought some of the pain upon themselves with poor business practices. What it didn’t do a good job of was clarifying that the vast majority of credit unions are extremely sound and doing just fine.
This is important stuff and I want to clarify that North Shore Federal continues to perform at a very high level: we are on track to have another excellent year financially and projections for 2010 are even better. We issued another Patronage Rebate at the end of 2008 and will do so again in December of 2009. We also have the highest safety and soundness rating from our regulator.
The “secret” to our success is this: our primary business strategy is to meet the needs of North Shore Federal members, period. We don’t care about being the biggest credit union – we just want to be the best credit union we can be for our members. We don’t pursue certain loan or investment strategies simply because everyone else is doing it or because we are chasing higher returns. Rather, we focus on what our members want and need. Thankfully, the members of North Shore Federal are using good judgment in the products and services they request, meaning we can run a smart business while taking care of our members. Let’s use sub-prime mortgages as an example. Our members have never needed that risky product so we never have been involved with them either as loans or investments. Unfortunately for many other financial institutions, they were a central part of a risky strategy of pushing the boundaries in search of greater profits. NSFCU members never placed us in that situation and we are all better off for it.
You, as members, have done your part as well. We have very low loan losses because our members have a strong tradition of paying their debts, even through tough times. As well, most of our members do most, if not all, of their business with us which is the foundation of our success.
This is truly an example of benefiting from doing business locally. If you ever have a question or concern about something you read or hear concerning financial institutions, call me or send me an e-mail (marks@northshorefcu.org). I would be happy to discuss it.
Mark
Things are starting to strike a little closer to home as the Minneapolis Star Tribune ran a series of articles in the past week identifying Minnesota banks and credit unions that are struggling in this poor economy. Most of the institutions cited were based in the Twin Cities.
The newspaper articles did a fine job highlighting problems affecting some community banks and credit unions and how these institutions brought some of the pain upon themselves with poor business practices. What it didn’t do a good job of was clarifying that the vast majority of credit unions are extremely sound and doing just fine.
This is important stuff and I want to clarify that North Shore Federal continues to perform at a very high level: we are on track to have another excellent year financially and projections for 2010 are even better. We issued another Patronage Rebate at the end of 2008 and will do so again in December of 2009. We also have the highest safety and soundness rating from our regulator.
The “secret” to our success is this: our primary business strategy is to meet the needs of North Shore Federal members, period. We don’t care about being the biggest credit union – we just want to be the best credit union we can be for our members. We don’t pursue certain loan or investment strategies simply because everyone else is doing it or because we are chasing higher returns. Rather, we focus on what our members want and need. Thankfully, the members of North Shore Federal are using good judgment in the products and services they request, meaning we can run a smart business while taking care of our members. Let’s use sub-prime mortgages as an example. Our members have never needed that risky product so we never have been involved with them either as loans or investments. Unfortunately for many other financial institutions, they were a central part of a risky strategy of pushing the boundaries in search of greater profits. NSFCU members never placed us in that situation and we are all better off for it.
You, as members, have done your part as well. We have very low loan losses because our members have a strong tradition of paying their debts, even through tough times. As well, most of our members do most, if not all, of their business with us which is the foundation of our success.
This is truly an example of benefiting from doing business locally. If you ever have a question or concern about something you read or hear concerning financial institutions, call me or send me an e-mail (marks@northshorefcu.org). I would be happy to discuss it.
Mark
Monday, July 20, 2009
Feeling Appreciated
This week is Member Appreciation Week, with lots of different activities in all three offices.
The famous cookout is happening on Tuesday in Silver Bay, Wednesday in Grand Marais and Thursday in Lutsen. It is really a fun time and it is nice to see all the people that I really don’t get to see much anymore. People are always nice and put up with my less than legendary grilling skills.
I was recently asked how long we’ve been doing Member Appreciation Week and I honestly can’t remember. I believe it is about 16-17 years now but I am not completely sure. I do remember the first year using two charcoal grills thinking it would be no big deal to cook enough brats for the 40 or 50 people that would show up. Well, when several hundred showed up and the charcoal died in both grills at the same time I remember asking myself “What were you thinking?”
We now have the mongo, propane event grill that could feed an army so things have changed a little in that regard. One thing that hasn’t changed is the spirit of appreciation surrounding the week. In fact, with turbulent times for financial institutions, I personally would like to thank our members for their consistent support and patronage. It’s a “what goes around, comes around” deal; because of your support, your Credit Union continues to perform at a very high level and has maintained the highest levels of safety and soundness.
Anyway, grab some food, win a prize, and enjoy the week!
Mark
The famous cookout is happening on Tuesday in Silver Bay, Wednesday in Grand Marais and Thursday in Lutsen. It is really a fun time and it is nice to see all the people that I really don’t get to see much anymore. People are always nice and put up with my less than legendary grilling skills.
I was recently asked how long we’ve been doing Member Appreciation Week and I honestly can’t remember. I believe it is about 16-17 years now but I am not completely sure. I do remember the first year using two charcoal grills thinking it would be no big deal to cook enough brats for the 40 or 50 people that would show up. Well, when several hundred showed up and the charcoal died in both grills at the same time I remember asking myself “What were you thinking?”
We now have the mongo, propane event grill that could feed an army so things have changed a little in that regard. One thing that hasn’t changed is the spirit of appreciation surrounding the week. In fact, with turbulent times for financial institutions, I personally would like to thank our members for their consistent support and patronage. It’s a “what goes around, comes around” deal; because of your support, your Credit Union continues to perform at a very high level and has maintained the highest levels of safety and soundness.
Anyway, grab some food, win a prize, and enjoy the week!
Mark
Friday, July 10, 2009
Calling all Bloggers
I'm slacking a little bit on the blog posts as things are getting pretty busy around the Credit Union these days (which is good!).
I'm always amazed at the talented people we have as members so I think now would be a good time to tap into that talent. I think it would be fun and interesting to have a guest blog post or two from the membership.
Ideally, the post would be related to the credit union world in some fashion but it wouldn't have to be. It doesn't need to be long and your grammar doesn't have to be perfect. Just remember that we always try to keep things positive around here and that includes our blog.
If you are interested, give it a shot. Type the blog in Word or Wordperfect and e-mail it to me at marks@northshorefcu.org.
Thanks and get to work!
Mark
I'm always amazed at the talented people we have as members so I think now would be a good time to tap into that talent. I think it would be fun and interesting to have a guest blog post or two from the membership.
Ideally, the post would be related to the credit union world in some fashion but it wouldn't have to be. It doesn't need to be long and your grammar doesn't have to be perfect. Just remember that we always try to keep things positive around here and that includes our blog.
If you are interested, give it a shot. Type the blog in Word or Wordperfect and e-mail it to me at marks@northshorefcu.org.
Thanks and get to work!
Mark
Monday, June 15, 2009
Why Joe Mauer Needs To Know the Time Value of Money...
A lot of the people that stop by here are ball fans, and I’m one of them. A real treat for Twins fans is watching Joe Mauer – he is crazy good. Not to get too “inside baseball” here but for a catcher to throw out 40% of base stealers is a great accomplishment; for a hitter to get on base 40% of the time is nearly as difficult. Few players can maintain either of these feats for an entire season - Joe Mauer is averaging both for his career. It’s entirely possible that we are watching a player that will be considered the best of all time at his position.
What does that have to do with money? Well, Joe makes a lot of it and is going to make a lot more in another year when he gets a new contract (hopefully with the Twins). It’s a good thing his agent understands The Time Value of Money. And unless you are a sweet-swinging catcher with a rocket arm you better as well.
Before we get into the technical stuff, we’ll lay out a few basics. The time value of money concept applies whether you are saving money or borrowing money. In other words it will impact how much interest you will ultimately earn when you are saving money and how much interest you will pay when you have borrowed money.
In a nutshell, what matters most is how much money you have invested or borrowed and for how long. Don’t get me wrong: the rate of return on your investment does matter, as does the interest rate you are paying on your loan, but these factors don’t matter nearly as much as most people think.
Here are the two most practical examples: mortgages and retirement savings. Most people are very aware of the interest rate they have on their home mortgage but don’t think much at all about how quickly to repay the loan. Let me give you an example. Suppose you borrow $150,000 at an interest rate of 5.5% for 30 years. The total interest you will eventually pay on this loan is $155,970. If you borrow the same amount of money at a higher rate of 6% but repay the loan in 20 years, you will pay $107,335 in interest. Even though the interest rate is substantially higher you will save $48.635 in interest in the second example – almost a third of the total interest paid. Usually, interest rates will be lower when you have a shorter loan term so the benefit could be even more. Many times the difference in the payment amounts between the two examples is minimal, well worth it to save all that money.
The same thing holds true in reverse when it comes to saving money. The earlier you start saving money, the better off you are by far. Here is a very easy way to figure this out, even in your head. At a 7% rate of return, your money doubles every 10 years (at a 10% rate of return, your money doubles every 7 years). So, a hypothetical example is this: a 20 year old manages to save $5000; by the time they are 60 years old, that $5000 will be worth $80,000 without having added anything to it.
If that same person does not save the initial $5000 until age 30, the total value of their investment at age 60 is $40,000 or half as much. Same amount of money saved, just 10 years earlier. The affect is even more pronounced when there are regular monthly additions to the savings amount (principal in money terms), which is typical of retirement type savings accounts.
Bottom line is this: there is no such thing as starting too soon to save and there is no such thing as an amount that won’t grow into something substantial if you if you let the time value of money work for you.
So, when Joe signs his next contract, one of the closely negotiated aspects of the contract, in addition to the actual total amount, will be how much he will be paid at the beginning of the contract, compared to the end. And now you know why.
PS – everyone needs to pass this part of our class as our next post will use this knowledge to take it a step further.
Mark
What does that have to do with money? Well, Joe makes a lot of it and is going to make a lot more in another year when he gets a new contract (hopefully with the Twins). It’s a good thing his agent understands The Time Value of Money. And unless you are a sweet-swinging catcher with a rocket arm you better as well.
Before we get into the technical stuff, we’ll lay out a few basics. The time value of money concept applies whether you are saving money or borrowing money. In other words it will impact how much interest you will ultimately earn when you are saving money and how much interest you will pay when you have borrowed money.
In a nutshell, what matters most is how much money you have invested or borrowed and for how long. Don’t get me wrong: the rate of return on your investment does matter, as does the interest rate you are paying on your loan, but these factors don’t matter nearly as much as most people think.
Here are the two most practical examples: mortgages and retirement savings. Most people are very aware of the interest rate they have on their home mortgage but don’t think much at all about how quickly to repay the loan. Let me give you an example. Suppose you borrow $150,000 at an interest rate of 5.5% for 30 years. The total interest you will eventually pay on this loan is $155,970. If you borrow the same amount of money at a higher rate of 6% but repay the loan in 20 years, you will pay $107,335 in interest. Even though the interest rate is substantially higher you will save $48.635 in interest in the second example – almost a third of the total interest paid. Usually, interest rates will be lower when you have a shorter loan term so the benefit could be even more. Many times the difference in the payment amounts between the two examples is minimal, well worth it to save all that money.
The same thing holds true in reverse when it comes to saving money. The earlier you start saving money, the better off you are by far. Here is a very easy way to figure this out, even in your head. At a 7% rate of return, your money doubles every 10 years (at a 10% rate of return, your money doubles every 7 years). So, a hypothetical example is this: a 20 year old manages to save $5000; by the time they are 60 years old, that $5000 will be worth $80,000 without having added anything to it.
If that same person does not save the initial $5000 until age 30, the total value of their investment at age 60 is $40,000 or half as much. Same amount of money saved, just 10 years earlier. The affect is even more pronounced when there are regular monthly additions to the savings amount (principal in money terms), which is typical of retirement type savings accounts.
Bottom line is this: there is no such thing as starting too soon to save and there is no such thing as an amount that won’t grow into something substantial if you if you let the time value of money work for you.
So, when Joe signs his next contract, one of the closely negotiated aspects of the contract, in addition to the actual total amount, will be how much he will be paid at the beginning of the contract, compared to the end. And now you know why.
PS – everyone needs to pass this part of our class as our next post will use this knowledge to take it a step further.
Mark
Thursday, May 28, 2009
Of Used Cars and Other Mostly Boring (but useful) Matters…………
Russ Ege was one of the original members of the Coffee Shop. He had a great saying that I still repeat about a place where he bought cars: “I like going there because you don’t have to worry about whether you got a bad deal – you did!”
Now, not every car buying experience needs to make you feel like Russ did but it is a major purchase with lots of unknown variables. Without knowing what you are getting into, it is possible to spend money unnecessarily.
This is why most people, especially younger people just starting out, should consider buying a used car. First and obviously, the price is less (no duh as my nieces would say). But it is more important than you think because the lower price equates to a lower monthly payment. This extra “cash flow” can be used to create a source of savings. Since saving earlier makes a tremendous difference in the ultimate value in any investment, this simple decision could lead to a substantial savings balance. The reverse is too common: the payment is so high, the buyer ends up living “check to check” which puts them at risk for needing to borrow more money if something unexpected pops up. The ultimate situation is to have the vehicle long enough that the loan is paid and you can drive the car for at least a little while with no car payment. Then you really can rack up the savings.
Another very important reason: the depreciation factor (fancy word alert: depreciation is just the act of something losing value over time). A very large percentage of the total depreciation in a vehicle takes place in the first 12-18 months. In other words, when you buy new, your purchase loses substantial value (sometimes 40%) right away – kind of like a bad stock that you can drive to the coffee shop. Now, different vehicles depreciate at different rates but it isn’t hard to figure out. Just go to www.cudlautosmart.com (or click the link from our website) and look up the value of the newest model year and then compare it to the value of a vehicle that is, say 2 model years old. Do this for each of the vehicles you are considering and you will see how the rate of depreciation differs from one vehicle to the next. Regardless, buying a vehicle after the big drop in value will put you way ahead of buying new.
Want another good reason? You can get many 12-18 month old vehicles that have very low mileage and are in great shape. You still get to have the vehicle for a good long time, just like a new car and it will even have substantial warranty coverage left.
Here are a couple other good buying tips: call your insurance agent and find out what insurance will cost for each of the vehicles you are considering – it can vary greatly and really adds up over the life of the vehicle. The other thing is to make sure and shop around and compare prices for similar vehicles. This can also be done via the internet pretty quickly (again www.cudlautosmart.com is excellent) but the bottom line is that you need to have some idea of what the market is for the car before you start talking about the price. This can vary depending on the area you are in and the type of vehicle. The only way to know for sure is to check around.
If you take a little time and do the math, I think you’ll see why it makes sense to consider buying a used vehicle. You potentially can save thousands of dollars (maybe more) and still drive something with the new car smell. One more thing - you’ll get less irritated from the inevitable first door ding.
Now, not every car buying experience needs to make you feel like Russ did but it is a major purchase with lots of unknown variables. Without knowing what you are getting into, it is possible to spend money unnecessarily.
This is why most people, especially younger people just starting out, should consider buying a used car. First and obviously, the price is less (no duh as my nieces would say). But it is more important than you think because the lower price equates to a lower monthly payment. This extra “cash flow” can be used to create a source of savings. Since saving earlier makes a tremendous difference in the ultimate value in any investment, this simple decision could lead to a substantial savings balance. The reverse is too common: the payment is so high, the buyer ends up living “check to check” which puts them at risk for needing to borrow more money if something unexpected pops up. The ultimate situation is to have the vehicle long enough that the loan is paid and you can drive the car for at least a little while with no car payment. Then you really can rack up the savings.
Another very important reason: the depreciation factor (fancy word alert: depreciation is just the act of something losing value over time). A very large percentage of the total depreciation in a vehicle takes place in the first 12-18 months. In other words, when you buy new, your purchase loses substantial value (sometimes 40%) right away – kind of like a bad stock that you can drive to the coffee shop. Now, different vehicles depreciate at different rates but it isn’t hard to figure out. Just go to www.cudlautosmart.com (or click the link from our website) and look up the value of the newest model year and then compare it to the value of a vehicle that is, say 2 model years old. Do this for each of the vehicles you are considering and you will see how the rate of depreciation differs from one vehicle to the next. Regardless, buying a vehicle after the big drop in value will put you way ahead of buying new.
Want another good reason? You can get many 12-18 month old vehicles that have very low mileage and are in great shape. You still get to have the vehicle for a good long time, just like a new car and it will even have substantial warranty coverage left.
Here are a couple other good buying tips: call your insurance agent and find out what insurance will cost for each of the vehicles you are considering – it can vary greatly and really adds up over the life of the vehicle. The other thing is to make sure and shop around and compare prices for similar vehicles. This can also be done via the internet pretty quickly (again www.cudlautosmart.com is excellent) but the bottom line is that you need to have some idea of what the market is for the car before you start talking about the price. This can vary depending on the area you are in and the type of vehicle. The only way to know for sure is to check around.
If you take a little time and do the math, I think you’ll see why it makes sense to consider buying a used vehicle. You potentially can save thousands of dollars (maybe more) and still drive something with the new car smell. One more thing - you’ll get less irritated from the inevitable first door ding.
Wednesday, May 13, 2009
The Dismal Science…..
Well this is quite a change – over the years hardly anybody has asked me questions about the economy or economics; not so much as one question about the Laffer Curve – hard to believe. Not only is economics today’s coffee topic, some people are actually interested. One wise guy from the end of the table is declaring the profession worthless, and this guy was a philosophy major of all things. Talk about fishing with no bait……..
Half a lifetime ago when I was an economics major at the U of M, I had an econ professor named “Crazy Ed” Coen. He got his nickname because he had kind of a wild, Albert Einstein look to him. A frequent occurrence in his class would be this: Crazy Ed would start at one end of a series of blackboards writing some completely confusing math theorem to prove the economic theory of the day. After 45 minutes and several chalk boards, Ed would frequently come up with the wrong answer. Completely covered in chalk dust, he would turn and face his class for the second time of the day and ask “Does anybody know what the #%*@ is going on here?” The answer for nearly all of these future economists was a resounding I-have-no-idea. Of course there was always some hotshot in the front row that would eagerly point out where he went wrong (their initials were never M.S. if you get my drift), and Crazy Ed would live to teach another day.
Little did I know that his question would be so pertinent to economics a mere 28 years later. Does anybody really know what is going on here? The economics part is not easy to nail down – it’s really a messy social science much closer to sociology than people might think. The US and global economy is so intricate, complicated, powerful and just so darn big that it really is not possible to come up with neat and tidy conclusions. The simplest explanation is that econ is the study of how people react and make decisions given their economic circumstances both at the individual level (microeconomics) and at the aggregate level (macroeconomics). (Shoot, you are not supposed to use the word you are defining in the definition of something). OK, I better get to the point because the philosophy major just hung up his cup and is heading for the door.
Here’s where I am going with this: analyzing the current economy is as much about psychology as it is about numbers. Consumers’ fears become self-fulfilling prophecies as they stop buying things or making investments which, in turn, reduces demand for goods and services which lowers manufacturing and other economic activity which results in layoffs which makes consumers skittish and reluctant to spend money and you can see where this is going……
Let’s take the housing bubble. It’s clear that in many parts of the country, property values were vastly inflated before the recent downturn. Well, the “correction” as economists call it, has pretty much taken place. The excesses have been wrung out of the system and housing is now more accurately priced according to the fundamentals of supply and demand. Why no rebound in real estate activity? Media reports would lead you to believe that it is because there are not sufficient sources of mortgage credit. Coming from somebody who works in this business I clearly disagree – mortgage money is available and the credit policies are reasonable for most people. I think the real answer is people just don’t feel confident enough to make those kinds of financial decisions yet. When enough people feel confident in their lives, jobs, etc., their actions (combined with others) will finally get the economy going again, but not until. Studying that sounds like psychology to me which may have been useful in figuring out Crazy Ed Coen.
Half a lifetime ago when I was an economics major at the U of M, I had an econ professor named “Crazy Ed” Coen. He got his nickname because he had kind of a wild, Albert Einstein look to him. A frequent occurrence in his class would be this: Crazy Ed would start at one end of a series of blackboards writing some completely confusing math theorem to prove the economic theory of the day. After 45 minutes and several chalk boards, Ed would frequently come up with the wrong answer. Completely covered in chalk dust, he would turn and face his class for the second time of the day and ask “Does anybody know what the #%*@ is going on here?” The answer for nearly all of these future economists was a resounding I-have-no-idea. Of course there was always some hotshot in the front row that would eagerly point out where he went wrong (their initials were never M.S. if you get my drift), and Crazy Ed would live to teach another day.
Little did I know that his question would be so pertinent to economics a mere 28 years later. Does anybody really know what is going on here? The economics part is not easy to nail down – it’s really a messy social science much closer to sociology than people might think. The US and global economy is so intricate, complicated, powerful and just so darn big that it really is not possible to come up with neat and tidy conclusions. The simplest explanation is that econ is the study of how people react and make decisions given their economic circumstances both at the individual level (microeconomics) and at the aggregate level (macroeconomics). (Shoot, you are not supposed to use the word you are defining in the definition of something). OK, I better get to the point because the philosophy major just hung up his cup and is heading for the door.
Here’s where I am going with this: analyzing the current economy is as much about psychology as it is about numbers. Consumers’ fears become self-fulfilling prophecies as they stop buying things or making investments which, in turn, reduces demand for goods and services which lowers manufacturing and other economic activity which results in layoffs which makes consumers skittish and reluctant to spend money and you can see where this is going……
Let’s take the housing bubble. It’s clear that in many parts of the country, property values were vastly inflated before the recent downturn. Well, the “correction” as economists call it, has pretty much taken place. The excesses have been wrung out of the system and housing is now more accurately priced according to the fundamentals of supply and demand. Why no rebound in real estate activity? Media reports would lead you to believe that it is because there are not sufficient sources of mortgage credit. Coming from somebody who works in this business I clearly disagree – mortgage money is available and the credit policies are reasonable for most people. I think the real answer is people just don’t feel confident enough to make those kinds of financial decisions yet. When enough people feel confident in their lives, jobs, etc., their actions (combined with others) will finally get the economy going again, but not until. Studying that sounds like psychology to me which may have been useful in figuring out Crazy Ed Coen.
Wednesday, May 6, 2009
You Better Pay Attention to the Man Behind the Curtain…………
Mornin’,
Lots of people here - must be the morning chill that just doesn’t want to go away very fast. Coffee is fresh ‘cause we are going through it pretty good. Anyway, pull up your chair on this end of the table – they’re talking government bailouts at the other end and even the Norwegians are starting to get worked up, so steer clear of that.
Remember at the end of the Wizard of Oz when Dorothy and friends start to figure everything out and she is told to “pay no attention to The Man Behind the Curtain”?
That’s what I think of every time I’m asked to explain credit scores. For those of you who are unfamiliar, credit scores are ratings (it’s a number, the higher the better, up to 850) provided by the three major credit bureaus and they are used for many things, from loan and insurance underwriting to apartment rental applications. Incidentally, the three credit bureaus use the same company to calculate the score so, if the credit information on file is the same, the credit score will be the same no matter which credit bureau is used.
The problem isn’t that these scores are being used (they are really accurate) rather it’s the fact that they are next to impossible to explain. It kind of feels like The Man Behind the Curtain is pulling his magic strings and out pops a number. Because of that, it is easy (too easy) for people to say “I don’t get it so I am not worrying about it”. Well, you better pay attention to this number because it will affect many different parts of your life. The most direct way is that you may be denied credit or pay a higher interest rate because of your score. While NSFCU does not have different rates for members based on their credit scores, many places do and the mortgage market is now utilizing these scores in a big way after the mortgage / housing mess. It can also effect whether you are approved for insurance, how much it will cost, etc. The list goes on and on.
What to do - here’s the explaining part again. There are literally hundreds of factors that go into the score and they all interrelate in different ways. Some of it is very easy to understand: pay your bills on time, don’t have too much debt, etc. Others can be confusing like sometimes closing an account raises your score and sometimes it lowers it. Because of the complexity of the process it makes sense to go right to the source. Here’s how you can pull the curtain back – check out this brochure and get all the details:
http://www.myfico.com/Downloads/Files/myFICO_UYFS_Booklet.pdf
The most important thing to remember: know your score and protect it. You don’t want that return trip to Kansas cancelled because your credit card isn’t approved.
Mark
Lots of people here - must be the morning chill that just doesn’t want to go away very fast. Coffee is fresh ‘cause we are going through it pretty good. Anyway, pull up your chair on this end of the table – they’re talking government bailouts at the other end and even the Norwegians are starting to get worked up, so steer clear of that.
Remember at the end of the Wizard of Oz when Dorothy and friends start to figure everything out and she is told to “pay no attention to The Man Behind the Curtain”?
That’s what I think of every time I’m asked to explain credit scores. For those of you who are unfamiliar, credit scores are ratings (it’s a number, the higher the better, up to 850) provided by the three major credit bureaus and they are used for many things, from loan and insurance underwriting to apartment rental applications. Incidentally, the three credit bureaus use the same company to calculate the score so, if the credit information on file is the same, the credit score will be the same no matter which credit bureau is used.
The problem isn’t that these scores are being used (they are really accurate) rather it’s the fact that they are next to impossible to explain. It kind of feels like The Man Behind the Curtain is pulling his magic strings and out pops a number. Because of that, it is easy (too easy) for people to say “I don’t get it so I am not worrying about it”. Well, you better pay attention to this number because it will affect many different parts of your life. The most direct way is that you may be denied credit or pay a higher interest rate because of your score. While NSFCU does not have different rates for members based on their credit scores, many places do and the mortgage market is now utilizing these scores in a big way after the mortgage / housing mess. It can also effect whether you are approved for insurance, how much it will cost, etc. The list goes on and on.
What to do - here’s the explaining part again. There are literally hundreds of factors that go into the score and they all interrelate in different ways. Some of it is very easy to understand: pay your bills on time, don’t have too much debt, etc. Others can be confusing like sometimes closing an account raises your score and sometimes it lowers it. Because of the complexity of the process it makes sense to go right to the source. Here’s how you can pull the curtain back – check out this brochure and get all the details:
http://www.myfico.com/Downloads/Files/myFICO_UYFS_Booklet.pdf
The most important thing to remember: know your score and protect it. You don’t want that return trip to Kansas cancelled because your credit card isn’t approved.
Mark
Thursday, April 16, 2009
Welcome to the Credit Union Coffee Shop
Grab a mug, get some joe and pull yourself up to the table – it’s a big table so there’s plenty of room for everybody.
As far as the coffee goes, we’ve only got one kind and its strong and black, sterk kaffe as the Norsk relatives call it, so nothing will be too confusing around here. I’m sure Rena would share some cream with you because that’s how she is.
The conversation is just starting and we hope you will join right in. I know some people call this blogging but we don’t worry about what its called. It works pretty well because nobody can talk at once but I like to think of it more as a chance for everyone to get together and share some thoughts.
I guess I get the chance to do most of the talking so that means it will mostly be about the world of North Shore Federal. However, lots of things matter to the world of NSFCU so we should have plenty to talk about. The best thing is this will be a great way to share the information and questions that I get asked about the most.
Will it be interesting………….ahhh, now that’s a tough one. We’ll try but there is a good reason why I studied economics and not creative writing. I guess you’ll have to give us a chance.
One thing for sure, we’re going to make sure we are nice to people, ya know the whole Minnesota nice thing. If not, your comment will end up in the dumpster with the coffee grounds. We’ll try to post something fairly often but no promises – there’s plenty to do around here. We’ll start with a couple of items we’ve had on our bulletin board for a while and then work on something more current.
Anyway, that’s the end of my third cup so I gotta go. We’ll talk soon.
Mark (Summers)
As far as the coffee goes, we’ve only got one kind and its strong and black, sterk kaffe as the Norsk relatives call it, so nothing will be too confusing around here. I’m sure Rena would share some cream with you because that’s how she is.
The conversation is just starting and we hope you will join right in. I know some people call this blogging but we don’t worry about what its called. It works pretty well because nobody can talk at once but I like to think of it more as a chance for everyone to get together and share some thoughts.
I guess I get the chance to do most of the talking so that means it will mostly be about the world of North Shore Federal. However, lots of things matter to the world of NSFCU so we should have plenty to talk about. The best thing is this will be a great way to share the information and questions that I get asked about the most.
Will it be interesting………….ahhh, now that’s a tough one. We’ll try but there is a good reason why I studied economics and not creative writing. I guess you’ll have to give us a chance.
One thing for sure, we’re going to make sure we are nice to people, ya know the whole Minnesota nice thing. If not, your comment will end up in the dumpster with the coffee grounds. We’ll try to post something fairly often but no promises – there’s plenty to do around here. We’ll start with a couple of items we’ve had on our bulletin board for a while and then work on something more current.
Anyway, that’s the end of my third cup so I gotta go. We’ll talk soon.
Mark (Summers)
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