Charitable Giving

It’s that time of the year again: a combination of New Year’s resolutions and the start of tax time has many of us looking for a place to donate money. It can be difficult to figure out which charity is most deserving of your money and how to make your charitable donations work best for your financial situation.  


You might have a favorite charity, like a local group or someone with whom you’ve worked for years. If not, finding the right charity can be a difficult task, both because unethical individuals may want to exploit the best intentions of others and because running a nonprofit organization is a difficult task, making many well-intentioned charities ineffective at fulfilling their mission. 

Check out the charity with an objective watchdog group 

One of the difficulties with charitable giving is understanding where your money goes. In recent memory, there might be no better example of the confusion surrounding a charity than Invisible Children, the organization behind Kony 2012. It soared into the public consciousness a few years ago behind a viral marketing campaign, followed by a very public arrest of one of its central figures after an alleged act of public indecency.

In the wake of his arrest, various reports accused the organization of diverting attention from larger human rights abuses in the region and questioning the financial background of the organization. It’s unclear, even this far removed, what happened with Invisible Children, and whether the public backlash was warranted, but various watchdog groups certainly paint the charity in a positive light. That’s why the best way to determine whether a charity is a good organization and worthy of your donation is to check with the three biggest charity watchdog organizations: Charity Navigator (charitynavigator.org), Charity Watch (charitywatch.org), and the Better Business Bureau’s Wise Giving Alliance (give.org), all of which are also endorsed by Consumer Reports. 

Verify each charity’s tax-exempt status 

Never assume an organization has tax-exempt status, even if it might seem like it does or should. For example, some universities offer tax-exempt donations for their general scholarship funds and other donations, but giving to specific departments or organizations, such as the debate team or theater department, is not tax-exempt. Even if your donation was tax-exempt last year, even if someone involved in the organization tells you that they’re tax-exempt, even if you’re 99% sure the organization is tax-exempt, check with the IRS website at https://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check 

Always give money directly 

One way that scammers will use the goodwill of charities for their own benefit is to call people and ask for donations over the phone. Don’t assume that someone who calls you actually works for the organization. Instead, finish your conversation and then donate directly to the organization. Even legitimate fundraisers often take 40 percent of the proceeds, keeping your money from the people you really want to help.

Donating directly also gives you more control over the paperwork, ensuring you get all the documents you need for a tax deduction. You can also confirm the quality of the organization and that the organization is tax-exempt. 

Make sure to request privacy 

Once you’ve given money to a charity, it’s easy to end up on countless lists with people calling constantly from other charities. If you’ve ever given money to a political campaign, you’ve probably already experienced this. Some of our members report that they’ve received correspondence from political parties for decades, even after switching political parties. So be careful! Make sure you care enough about the charity that it won’t bother you to have your dinner interrupted or get junk mail. 

Sources:

Financial Lessons Of The Big Short



A friend of mine teaches at a university where the 2008 financial crisis came up during one of his recent class discussions. He asked his students, “If you had one million dollars and a time machine, could you go back to 2008 and make a profit?” The class replied that they couldn’t.  Not one student believed he or she could have turned a profit from the financial crisis. He was troubled by that, so he asked his other classes the same question and no one indicated that they understood what happened well enough to do so. Finally, he asked his colleagues, and even they were stumped.  A few of them had vague ideas or suggested they would just buy stock in Google or Amazon while it was low. Still, none had a firm enough grasp on the events of that autumn to confidently explain how they could have made money. 

There are financial lessons to be learned from many movies and figures in popular culture, and The Big Short is no exception. Obviously, we haven’t seen the film, but the Michael Lewis book from which it is based, provides the single best explanation of how the financial system crashed. Like Lewis’ other books, including The Blind Side, Moneyball, Boomerang, and Liar’s Poker, it’s an immensely readable book because Lewis is a gifted writer who can explain difficult concepts because Lewis starts with people rather than statistics.  The people in The Big Short are some of the most interesting characters he could have chosen: He profiles the people who made an enormous profit from the financial crisis, even though they didn’t have a time machine.
Here are a few of the lessons the book (and hopefully the movie) has to offer:

Don’t avoid risk, particularly with your home.  While a generation of would-be homeowners let the financial crisis scare them away from homeownership – a surprising number of Millennials say they’d prefer not to own a home, even if they had the money. The real lesson of the financial crisis is that it’s better to be in a home than not.  It’s scary to see people lose their homes; evictions are terrible and it’s easy to see why young people who saw the wave of Americans losing their largest investments, jobs and nest eggs would be spooked.  However, the people who had taken out loans that they could afford didn’t lose their homes.  That was incredibly important, because … 
If you own your home, it’s a lot easier to lose money on paper. Lewis reports that, during October 2008, Americans lost a combined one trillion dollars.  The thing about that trillion dollars is that it was everywhere we looked: The federal government had a shortfall, so it passed it to the states, which passed it to the locals, so it cut back all government services. Look no further than spending on higher education and tuition costs.  People stopped retiring at the rate they had been, which was rough for Boomers, and it also meant that they weren’t opening up spots for Millennials in the workforce.  Even the divorce rate plummeted because people couldn’t afford to split up a household.
In the end, that trillion dollars became three trillion in government spending to start the economy back up. That is an insanely large amount of money.
But, and this is the key, most individuals who kept their jobs and homes didn’t actually lose money. In a lot of cases, they lost future income and they lost some value in their homes, but unless they cashed out of the stock market or sold their homes for less than they put in, they didn’t lose actual money; they lost money on paper.  It’s not like losing money on paper is fun, but in the worst financial crisis in nearly a century, owning a home was still the best way to keep safe.  If you lost some of the value of your home, but waited the recession out, you’re probably back to where you were before 2008, if not ahead. That’s as safe as it gets.
Something that’s equally as secure is saving your dollars at Destinations Credit Union.  We’re insured by the NCUA, so there’s very little risk and your money isn’t being invested in high-risk/high-reward propositions like mortgage-backed annuities, which brought down the economy in 2008. 

One trillion dollars is a lot of money. If you’d like to imagine that, think of a heist movie where the protagonist walks off with one million dollars in a duffel bag.  Now, imagine there are one million duffel bags, each with one million dollars in them.  Or, if you’d prefer, think of the Dallas Cowboys, who were valued at $1.7 billion in 2009, one of the few NFL franchises to gain value during the year after the financial crisis.  That same year, Cowboys Stadium, now known as AT&T Stadium, opened with a price tag of $1.2 billion.  As the most valuable NFL franchise playing in the most expensive stadium in the country, both could be had for just shy of $3 billion.  So, America lost as much money that month as it would take to purchase the entire NFL 10 times. 

Sometimes, it takes a psycho. One of the most striking things about the profiles in The Big Short is that the people involved all made big bets against the entire rest of the world.  They refused to accept common wisdom, they didn’t listen to their colleagues and investors who thought they were crazy, and they bet on an event which had never happened before and required an orchestrated failure at virtually every level of the American economy.  

The kind of person who can make a bet like that is a little bit crazy. Sometimes, that’s what it takes. As we think about The Big Short, it makes sense that all of those professors and students don’t know how they could make money in the recession, because making that money would require major antisocial and counter-intuitive behaviors. That’s why it’s important to believe in oneself, but even more important to look at the cost of being right: No one involved actually seemed to be both happy and well-adjusted. And we have to wonder: what’s the point of making a profit without that?
Sources:

The Government’s $3 Trillion Dollar Plan


So, whatever happened to that interest rate hike?  It was supposed to happen all spring, then all summer, and now we’re supposed to be fully confident that the Federal Reserve is going to raise interest rates by the end of 2015.  But so far, it hasn’t.  On one hand, that’s great news: You still have time to lock in a fixed-rate mortgage or take out a low, fixed-rate home equity loan to pay off those credit cards before the rates go up. By the way, if you’re interested, that’s only a click away.  

On the other hand, it’s a little worrisome.  Raising the prime interest rate is how the Fed tells us that the economy is doing well and it’s time to save money.  So, why haven’t we seen an interest rate hike? The answer is more interesting than you might think, because it involves a multinational chain of events and a $3 trillion gamble with your tax dollars on an interesting new idea. It’s an idea that falls somewhere between efficiently practical and boringly immoral, just as many decisions often are when they’re made by folks who have spent too much time staring at spreadsheets and not enough time breathing fresh air.

To explain what’s going on, we need to flash back six years.  At the height of the financial crisis, the two biggest concerns for the long-term future of the American economy were the resiliency of the big banks and the incredible number of home foreclosures.  If the banks couldn’t get their balance sheets straight, they couldn’t loan money, which would mean that anyone who wanted to buy a home, start a business, or go to college would suddenly find themselves without a loan to do so. Meanwhile, those on the brink of foreclosure, trying to keep their businesses afloat or finishing their education might lose everything they’d worked to acquire.  Of particular concern to the government were American homes, because our homes represent the largest part of our wealth, are essential to our well-being and buoy our retirement accounts.  Unfortunately, investment products built on inadvisable home loans were the centerpiece of the financial crisis, making the protection of our mortgages a difficult task.

The government’s solution was to bail out the banks, but to do so in a way that we hadn’t tried before.  Normally, the Fed puts money into the economy by buying government bonds from banks by using money it creates on a computer in its offices.  Fed managers tap on their keyboards, change a few spreadsheets, and poof, money is created.  In the aftermath of the financial crisis, however, they decided to create money by buying mortgage bonds, which made it easier for government money to flow to beleaguered homeowners, thereby protecting Wall Street and Main Street at the same time.  

However, the Fed can’t just create money without enduring some repercussions. Usually, it has to either remove the money from the economy over time, which can slow down an economic recovery, or watch as inflation eats away at the value of the dollar, causing people to dip into their savings and work harder for less actual pay. Neither option is fantastic.
This time, the repercussions could be even worse.  Because the Fed has tied the $3 trillion it created over the last six years to mortgage bonds, removing the money could cause a spike in mortgage rates. After all, that $3 trillion has been paying part of your mortgage for the last six years; that’s a profit for your lender that’s been passed on to you.  If the Fed chose to remove the $3 trillion and raise interest rates, we could see a spike in mortgage rates that all but guarantees young people will rent their homes for their whole lives.  If you were planning on selling your house in time for retirement, it could cripple the value of your home, because the same buyer who had $250,000 wouldn’t have more money, but they would have to pay more to their lender.  Not fantastic.

All year, the Fed has been staring down this crisis, warning us that it would have to raise rates, all the time hoping that doing so wouldn’t kill the housing market. Then, a really odd set of circumstances kept it from having to do so.  Twin financial crises in Europe and China drove international investors to the dollar. As they sought to sell other currencies, they propped up the value of the dollar, delaying the effects of inflation and buying the Fed more time.  

Now, a new plan has emerged, which is where a really interesting idea comes into play.  What if the Fed didn’t take the money out? Instead, it’s started paying the banks to keep savings with Washington, just like your savings account (except thousands of times larger).  The idea is that, as long as inflation is being kept under control through foreign investment, our central bank can pay about $30 billion a year in interest for financial institutions to store money. That money makes the banks want to save, which takes money out of the economy, which they pass on to some customers in the form of higher savings rates and making them want to save as well. Suddenly, the money has come out of the economy, inflation isn’t a risk, and everyone along the way is getting paid for doing so, especially big banks and their shareholders.  

Reminder: that’s your $30 billion per year.  Another reminder:  $30 billion was the budget request to keep Pell grants in line with inflation … over the next 10 years.  You’re paying the mega-banks 10 times what you’re paying to keep college funding from shrinking.

It’s a short-term solution, obviously.  Voters don’t love their tax dollars being spent to reward the same banks that caused the financial crisis, and those banks, by definition, are the ones being let off the hook.  Europe and China won’t buy dollars forever, particularly if it doesn’t look like the Fed is raising rates (which would help foreign investors who are saving their greenbacks).  At some point, the money is coming out of the economy.  Ten years from now, the Fed says, it will all be gone.  The only question is, how fast it will come out, which means we’re still waiting to hear when the prime interest rate is going up.

And that brings us back to today.  We’ve been told to expect a rate hike by the end of the year, and when it comes, it’ll cost you more to pay off your credit cards.  If you’re in a variable rate mortgage, your monthly payment will eventually go up.  The best move today is the simplest one, which is transferring over to fixed-rate loans.  Do it today, so you can save thousands of dollars.  Then, once you’ve locked in your rate, let your congressperson know that you don’t love your tax dollars continuing to bail out the mega-banks six years later.  

Sources:

Daily Fantasy Sports


Every Sunday, Americans gather to watch football. Wherever you are, whatever else you do, the one thing we all (it seems) have in common is this Sunday ritual. When Dr. King called Sunday the most segregated day in America, he couldn’t have imagined the unifying force football would become, dominating popular culture and conversation in a way few other forces could.  In fact, of the 50 most popular programs last year, 90 percent of them were professional football games. Perhaps, in a world of DVRs and on-demand programming, football may be our last shared live event. 

We’ve found a variety of ways to enjoy our shared obsession, from tailgating to fantasy football. Over the last few seasons, a new way to enjoy football has come to dominate every commercial break, ESPN segment and preview article:  daily fantasy sports.  Daily fantasy sports, or DFS, is similar to fantasy football, but it’s played on a weekly basis rather than being a season-long experience.  It was also just declared “gambling” by the state of Nevada, which is an interesting development for the rest of the country.  If you’re curious about DFS, either because you might want to play or because you want to know what all of those commercials are about, this article explains what DFS is, why it’s controversial, and outlines the potential pitfalls that come along with it. 

For fantasy football enthusiasts, DFS seems like a natural evolution. Traditional season-long fantasy football has some major issues. For instance, a single injury can ruin a season, no two leagues have the same rules, and the whole season can swing from a waiver wire pickup of a running back no one had heard of a week prior. Most of these issues are rectified by a universal scoring system and the one-week duration offered by the major DFS sites FanDuel.com and DraftKings.com.  If your fantasy football season has gone awry for any of the reasons listed above, joining a DFS league can seem like a logical way to ease the pain.  In addition, if your fantasy season is going great, DFS can seem like an appealing way to win some easy money. 

The controversial issue, of course, centers around money, because DFS currently exists in a legal gray area.  While it may look like gambling, it emphasizes skill over luck, so it is not technically gambling. While the state of Nevada has ruled DFS as such, that doesn’t change a whole lot, since gambling is legal in that state. 

Whether it’s luck or skill that’s the more important attribute, anyone who has played fantasy football knows that both are required for success, which is why this issue is so sensitive.  For instance, if Cleveland’s tight end catches a touchdown with his knees, that’s worth a lot of points, but it is unlikely anyone who selected him had predicted such a play.  Similarly, when the booth reviews a potential fumble at the goal line, it can be worth enough points to swing a matchup from victory to defeat – a touchdown is worth 6 more points than a fumble in most leagues, which is a substantial amount. That booth review can take several minutes to determine the result of a play that consisted of a split second or a few inches. 

At the same time, there is a lot of skill in determining which quarterback/receiver tandem will hook up for multiple scores or which defense is undervalued each week.  Because of these random occurrences, fantasy sports is what economists and game theorists refer to as a “knapsack problem” because it considers each player – in effect – a weighted random number generator. 

The MIT Sloan conference is dedicated to advanced analytical research into sports, and if you’re the kind of person who watches football with a spreadsheet open you may believe skill outweighs luck. However, one of the most interesting things about fantasy football is that the more skilled players tend to think the game is driven by luck while the less skilled think it’s driven by skill.  Matthew Berry of ESPN, one of the biggest names in fantasy sports, has argued for years that fantasy players should view each player as a lottery ticket and collect as many as they can, while his colleague at ESPN, Tristan Cockroft, has created what he calls “Fantasy Consistency Ratings” to account for the random variance from week to week. 

As we move into a new world of DFS, the issue remains whether the pursuit is more similar to free fantasy football leagues or sports gambling.  Congress will have to decide, it appears.  Powerful lobbying groups already exist to benefit DFS, so the sites may remain legal for longer than their online poker brethren.  Before you spend $200 to get a “free” entry, however, it’s a good idea to remember that even if DFS isn’t gambling, it’s still a way to spend money.  It can make an otherwise dull football game between two lackluster teams into something more exciting, but it can also fall nicely into a perfectly legal space where powerful people profit by exploiting human addictions. 

Sources: 
http://www.phil.vt.edu/JKlagge/ConductorChurch.htm 
http://espn.go.com/fantasy/football/story/_/id/13371473/fantasy-football-matthew-berry-draft-day-strategy-revealed-draft-day-manifesto 
http://espn.go.com/fantasy/football/story/_/page/consistency141223/2014-fantasy-football-consistency-ratings-entering-week-17 
http://www.nbcnews.com/business/business-news/will-ruling-daily-fantasy-sports-are-gambling-blow-whistle-games-n446111 

Straight Outta Excuses: The Financial Lessons Of Dr. Dre


With “Straight Outta Compton” being the box office surprise of the summer and a new studio album filling America’s iPhones for the first time since before iPods were invented, Dr. Dre is experiencing a late-career renaissance. While rappers’ careers are notoriously shorter than almost any other group of musicians, Dr. Dre is relevant for the fourth consecutive decade.  Perhaps even more surprising than his prolonged musical success is his financial success. With the 2014 sale of his iconic Beats headphone company for $3.2 billion, his share of the company vaulted him into uncharted territory: He claims to be rap music’s first billionaire.


Let’s take time to examine Dr. Dre’s personal narrative and see what lessons we might glean, because no matter who you are while you’re reading this, you almost certainly started with more than he did and currently have less. We could all use a prescription from this doctor.

Pursue your goals with drive and clarity.  One of the themes of Dr. Dre’s life is that he has followed his own vision, no matter what other people are doing. The biggest rap acts when Dr. Dre started were flashy pop-infused showmen like MC Hammer and Vanilla Ice, but he wanted to make serious music about the world he experienced. When he backed Eminem in the late 1990s, the idea of a white rapper was seen as a novelty, but Dr. Dre ignored appearances in favor of his faith in his ability to identify talent.  In each case, Dr. Dre believed in himself, understood what his goals were, and did what needed to be done.  

What are your goals?  Do you want to retire to the beach?  Do you want to ditch the rat race?  When you pass that billboard with the giant Powerball payout, where does your mind wander?  Let us know. We have ways to help get you there.  We may have expert advice because we’ve been there before.  Don’t be embarrassed if you think it’s crazy: It was crazy for Dr. Dre to get a local criminal, Eazy-E, to bankroll his band, but it was still the right move.  Let Destinations Credit Union be your Eazy-E (without the criminal background, of course).  Step one to your goals is call or e-mail us.

Be careful who you trust with your money.  One person who never comes out looking well in the Dr. Dre story, whether in Straight Outta Compton, Behind the Music, or even the US legal system, is Suge Knight.  The erstwhile villain of the film’s second act, Knight’s character uses violence and intimidation to force Dr. Dre to move on from his record deal with almost nothing.  Less violent is the film’s depiction of Jerry Heller, but the fictional version of N.W.A.’s manager is portrayed as similarly unscrupulous.  Everyone seems ready to steal Dr. Dre’s money.

Even among friends, money can make enemies.  The infamous early-1990s feud between Eazy-E and Dr. Dre had deep roots in questions of trust and money that poisoned the shared bond between N.W.A.’s most famous members.   

Who do you really trust with your money?  We all have people close to us to whom we might “lend” money without ever expecting it back, but how many people would you trust to hold your next mortgage payment for a few weeks? Bonds of friendship and family often fall apart when it comes to money.   As your credit union, we know you’ve put your faith in us to take care of your money.  You already know we exist by the members and for the members rather than a board of executives or stockholders, but it’s worth the reminder that our model was built to make sure you have someone you can trust.  We promise to live up to that trust every day.  

Own something that matters to you.  Dr. Dre didn’t get rich working for someone else.  Dr. Dre got rich making his own label, signing his own acts, then doing it all again.  Without releasing an album between 1999 and 2015, he still made a fortune by owning the label that released albums by Eminem, among others.  He didn’t earn his mega-wealth endorsing Beats headphones; he owned a large chunk of the company.  

What do you own?  Do you own your home?  Do you own a business? Do you own a share in your success?  Risk can be scary, and hanging out a shingle can be risky. But in exchange for risk, you are entitled to the fruits of your labor, and those can be fantastic.

If you want to own something that matters and set goals based around your family, you can offer them a home that is safe, comfortable and inviting.  You could take steps to improve the curb appeal of your house, to make your home easier to sell if you pass, add a movie room to transform those Saturday night Netflix sessions into unforgettable family experiences, or even buy a pair of Jet Skis to entice the grandkids.  You can check out our fantastic home equity rates.

Dr. Dre has been part of our lives for so long that we don’t really think about him much.  In a lot of ways, we forgot about Dre.  But his story is really extraordinary, and if we take a few minutes, we can probably learn some lessons from him for our personal financial health.

Sources:

http://www.dailymail.co.uk/news/article-3209565/Straight-Outta-Compton-wrong-says-man-created-NWA-band-s-manager-says-film-s-hero-Dr-Dre-broke-black-Beatles-Ice-Cube-joined-Suge-Knight-used-death-threats-help.html