Ask Dr. Per Cap

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. Nimiipuu Community Development is happy to share this column as partner with Native Financial Learning Network funded by Northwest Area Foundation.

A Wild Ride

Dear Dr. Per Cap: I am turning 18 next week and will be getting my Minor’s Trust payment.  I am psyched!  I am thinking of getting a Cadillac Escalade or may just a Land Rover.  I was wondering what color do you think I should get it in – black or gunmetal grey? 

Signed, Built For Speed

Dear Built for Speed,

Whoa there!  Let’s take a step back here and take a deep breath.  You have a lot more to think about than the color of your car. You’re about to receive a large amount of cash, and you want to make sure that money lasts longer than the new car smell. Otherwise it is just “easy come, easy go.”

This is a once in a lifetime opportunity, and you should make a plan for what you are going to do with your money before spending one dime.  The plan doesn’t have to be complicated either.   Maybe write a paragraph describing how you intend to spend your money over the next few years; or draw a pie chart with wedges that represent expenses and savings.  A good rule of thumb for a young person is to save at least 50%, but don’t be afraid to sock away more.  Then put your plan somewhere where you’ll see it every day; like your refrigerator door, bathroom mirror, or even the inside of your locker at school.

Now let’s talk about car buying. But I’m gonna have to apply the brakes here, too. Getting a new car can be fun, and a car is also a necessity for many people. But keep a few things in mind. First: a car is not an investment because it actually loses value, or depreciates, over time.   In fact, some brand new cars can depreciate by as much as $2,000 the moment you drive them off the dealer’s lot!  So don’t assume your car will hold its value if you ever need to sell it.

Next, remember the words a wise man once told me: “You start paying for a car after you buy it.” (Would you believe the wise man was actually my high school wrestling coach? Yep!)   And my coach was right because as soon as the ink dries on your sales contract, and you’ll be spending more money on stuff like insurance, gas and maintenance.

The third thing to think about is that those car dealers are smart, and know how to separate people from their money – they are good at their job. So be a savvy shopper and maybe take an experienced friend or family member with you when you are looking around for the perfect car, to make sure the car salesman doesn’t take you for a ride.

Ok, so now that you have the road map in front of you, and you have your plan, think about what car best suits your needs – do you need good gas mileage, a big truck bed, or is reliability the most important thing?   Next, if your budget can afford it, you can think about your wants too – a kickin’ stereo, rims, sunroof, tint, etc. Then shop around, and take your time. And before you know it, you’ll be zooming around town in your dream car – and still have money in the bank for later. So sit back, relax, and enjoy the ride!

PS: Oh, yeah, and I vote for the color red.

Stock Market Jitters

Dear Dr. Per Cap: Last summer I opted into my tribe’s 401-K plan.  Everything was going great until February when the stock market started freaking out.  One day the market is up and the next it feels like stocks are going to come crashing down.  My account balance is down for the year and I’m worried it’s going to keep dropping.  What should I do?

Signed, Stressed in Lapwai, ID

Dear, Stressed

First off step back, take a deep breath, and relax.   I know it’s hard to watch your money rise and fall like a Tilt-A-Whirl at the state fair but remember unless you suddenly decide to sell or liquidate the investments in your 401-K you’re only looking at unrealized paper losses.  You didn’t mention your age but I’m guessing you’re still a few years away from retirement.  Meaning you’re a long term investor who won’t need to start withdrawals any time soon – more reason to relax.

The volatile market we’re in has a lot of investors worried right now and everyone has an opinion about what’s going on – rising interest rates, fears of a global trade war,  overvalued stocks coming back to earth – take your pick.  As of early April 2018 all major U.S. stock indexes are down for the year with technology stocks taking an especially hard beating.  That’s a wake up call considering  high flying tech stocks like Facebook, Apple, and Google parent company Alphabet, driving forces in last year’s strong overall market gains, have collectively lost over $300 billion of market value since mid-March.  How do they protect that data!

Another concern is that bonds, often a shelter in times of stock market turbulence, aren’t performing any better than stocks these days.  So where should an investor put her money?

I’ll respectfully dodge that question by recommending that an investor first come up with a view of where you think the bull market is heading.  A bull market can be described as a prolonged period in which stocks or other investments increase in value.  And the current bull market in stocks just celebrated its tenth birthday having officially begun in March of 2009.  To put things in perspective they were still putting cassette players in new cars when this thing started, making it the second longest bull market since the end of World War II.

So the real question is how much longer can it last?  If you think this year’s volatility is just a speed bump on the road to higher stock market gains you’ll probably want to stay the course, maybe even increase your monthly retirement contributions to buy on the dips.

On the other hand if you think the bull market is riding into the sunset like a cowboy in a George Strait ballad it might be time to re-balance.  So if you’re less than ten years from retirement consider shifting your 401 K holdings away from stocks and into U.S. Treasuries, high quality low risk securities issued by the federal government, or a cash equivalent money market fund.  Bear in mind you won’t earn much return with a money market but you also won’t lose any principal – your original investment.

If you’re not sure which way the market is heading understand that most folks currently fall into the second camp.  In fact according to the American Association of Individual Investors, only 31% of individuals expect stocks to go up over the next six months.  Yikes!  And remember what a wise person once said:  “Life is like a roller coaster.  It has its ups and downs.  But it’s your choice to scream or enjoy the ride.”

It’s YOUR Money

Dear Dr. Per Cap: It’s tax time and I have a lot of money coming to me. I was thinking of taking out a loan against my tax refund because why should I wait if I don’t have to?

Signed, Tired of Waiting

Dear Waiting: How you would feel if you loaned someone $2,000 and they waited a year to pay you back? Then, to make matters worse, they only gave you $1,700?

Sound ridiculous?  Most of us would probably think so, but if you’re like millions of Americans who pay to have their taxes prepared every year, this might be what is happening to you.  Here’s how.

The refund you receive after filing your tax return often comes from having more money withheld from your paychecks throughout the year than you actually owe in taxes.  And for many, this over payment of tax amounts to thousands of dollars.  Now you might prefer overpaying to avoid owing the IRS additional money at the end of the year.  That’s fine as long as you understand that your refund is not free money or a bonus, as some mistakenly believe.  But rather, money (that belongs to you) that the government “holds” during the year and then pays back the following year.  It’s really like giving a loan to the U.S. government … but Uncle Sam does NOT pay interest on it. 

I made the mistake one year of taking out a loan against my tax refund so I could my money sooner. When all the dust settled, I figured out I had paid $400 to someone just to get my money one week faster. Those tax preparation fees and loan fees really add up!

So watch out for those high fees that many tax preparation businesses charge to complete fairly simple returns (close to $300 in some cases).  If you choose a high-interest refund anticipation loan that promises a faster refund than direct deposit, then you’ll pay even more. 

Does this sound like free money to you? 

If you don’t like people getting a cut of your free money, consider consumer friendly tax-preparation options such as Volunteer Income Tax Assistance (VITA).  VITA sites serve many Native communities and will prepare your taxes for free if you meet certain income requirements.  And finally, stay clear of those loans against your tax refund. With direct deposit or the IRS debit card, you’ll get your money quickly in 5-7 days anyways. You shouldn’t have to pay extra to get at your free money!  

A Good Habit

Dear Dr. Per Cap: I can’t save money!  No matter how much I think about it and really want to do it, I just can’t seem to put anything aside out of my paycheck. What’s up with that?

Signed, Buffalo Nickel

Dear Buffalo Nickel:

Living paycheck to paycheck and not saving a dime is a habit – a bad one!  You need to replace it with a good one.

How about the habit of paying yourself first?

On your paycheck stub, there are always deductions made before you get your “net” pay or take-home pay.  They are things like federal and state taxes, insurance premiums, charity donations you chose to make through your company’s payroll deduction, and perhaps other things.  All of these items are getting “paid first” before you ever collect your take-home pay.

So make yourself first, too, by way of setting aside money for YOUR savings.

You can do that in a few ways, or use a combination of them. 

  • If you signed up for direct deposit into your checking account, you can probably arrange with your bank to automatically divert a portion of it into a savings account each time a paycheck deposit is made. You can choose the amount, and the bank will help you set up a savings account if you don’t already have one.
  • If your company has a retirement plan, sign up to funnel some of your pay into that plan each paycheck.  These are usually invested for you in some way so your money may even grow over time. At some companies, your funds might be matched at a certain level with “free money” provided by your employer. Take advantage of that. It truly is free and should not be left on the table.
  • If neither of those options is available, then make a conscious effort to do it yourself.  If you actually cash a paper check every payday, then take some of it and put it into a savings account right away, or at least stash it in the cookie jar or mattress at home.  If you have direct deposit, take the time to actually transfer a consistent amount into your savings account each and every paycheck.


The key is to just get used to doing it.  By repeatedly doing this, you’ll get into the habit of regularly setting aside some savings and paying yourself first.  You don’t have to start with a big amount. You can make it nearly painless by starting with a small amount that you won’t even notice, then increase that amount as you get more used to saving money while finding other ways to save on expenses.

Finally, if you don’t think you can spare even a small amount into your savings each paycheck, here’s an exercise that will help you find out that you CAN spare it.  For a week or even a month, carry a notepad with you and write down each and every expenditure you make and what it’s for, whether it’s paying the rent or buying a cup of coffee, paying on your credit card bill or plugging a parking meter. After a week or a month, look at where you are spending your money and how much of it you are spending.  No doubt you’ll see places where you can easily save a few bucks, or even a lot more, without much effort. Stop spending on those things you decide are unnecessary and begin putting that amount into savings each pay period. Remember: pay yourself first, and make savings a habit!

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.

Avoiding Payday Loans

Dear Dr. Per Cap,
I have a “payday loan” and now I can’t seem to get my head above water. What can I do to get outta this mess?

Signed, Nothing Left

Dear Nothing Left,

At first glance, those payday loan stores appear to offer easy money. I could tell you the story about my aunt Sue who took out a payday loan one month so she could have money to go play Bingo. Well, you probably know how that turned out. Three months and a couple hundred dollars in fees later, I paid it off for her for her birthday. She agrees that was not the best use of our money!

Payday loans are rarely a solution to financial problems. These loans are designed to trap you in a cycle of debt – it’s true. The fees are so high that while the loan might help you make it to payday, by the time you get there you will probably find yourself short on money and need to take out a new loan.  And then they got ya.  And once they got ya, they look forward to seeing you every two weeks to collect those loan fees, which can really add up.

Everyone experiences financial emergencies at some point or another and a payday loan might look like a good option. And usually those people at the payday loan store are happy to help. But remember there are a lot of more affordable options available to you – ones that don’t come with high interest rates and high fees. Consider these:

  1. Use your credit card, if you have one. Even for a cash advance, it will be less expensive than a payday loan.
  2. Ask family or close friends for a loan to float you to the next payday.
  3. Go to a local credit union, small bank or Community Development Financial Institution (CDFI) and borrow money at a more reasonable cost.
  4. Practice saving and budgeting your money if you can – it helps to have savings to get you through a tough time.

Just keep in mind that if you taking out a payday loan it probably indicates a bigger problem – getting your expenses to match your income. You probably signed up for one of these loans to make ends meet for regular day-to-day expenses or to pay for a sudden “crisis” expense. In any case, it now has you in its grip, and it’s not a pretty sight.

So if you have a payday loan, pay it off as soon as possible. And while you are doing that, let’s look at the bigger picture to get your expenses in line with your income. That will help you avoid the need to borrow money in the future and, hopefully, keep you out of the grip of high-interest payday loans.

You need to create a budget – I covered that in one of my previous columns. Budgets are the best way to see and understand 1) how much money you have coming in and, 2) how much is going out each month.  It also helps you see just what you are spending your money on.  If you have more coming in than going out, that’s good!  Start saving and investing that extra money (and pay down any debt you owe first, such as that payday loan). 

But my guess is the opposite is true – you have more going out than coming in each month.  That means you’ll have to find ways to cut back expenses in order to live within your means.  By tracking where you spend your money, it will give you some good ideas where you can cut back or eliminate altogether. These can be very hard choices: Can you take your lunch to work instead of eating out? Can you watch DVDs instead of going to the movies? How can you reduce or eliminate bills for phone, cable TV, electricity, water or natural gas? Do you really need more expensive “name brands” or will generics or less-costly alternatives be acceptable? Can you cut back on “impulse” purchases? To improve the income side of your budget, can you get a part-time or second job?

If there is just no way you can get ahead of your expenses, it might be time to seek the help of an accredited nonprofit credit counselor or counseling agency.  To learn more about payday loans and lenders, the Corporation for Enterprise Development has some great consumer information at http://cfed.org/. As well, First Nations Development Institute has several publications on payday lenders and a Financial Skills Workbook to learn more about taking care of your money at http://www.firstnations.org/knowledgecentre.

Good luck!