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Welcome to the weblog of Sacha Millstone, where you'll find wide-ranging and well-reasoned considerations for your financial life – and life in general.

August 22, 2016

Medical Privacy Law and Your College-Bound Child

By Amy Florian

A young man goes to college. Two months later he is rushed to the hospital and into the operating room for an emergency appendectomy. His mother calls the hospital in a panic and asks to know what is happening with her son. The hospital says, “I’m sorry; I cannot give you that information.” She says “But I’m his mother!” The response: “That doesn’t matter. For all of our adult patients, we can only give information to those authorized to receive it, and you are not authorized.”

You’ve educated your clients on the need for a Power of Attorney for Healthcare (aka healthcare proxy) for themselves, listing who can make their medical treatment decisions if they are unconscious or incapable of making those decisions. Clients may also be aware that HIPAA forms, which they regularly fill out at the doctor’s office when they have appointments, detail who can have access to their medical records.

What most clients don’t realize is that their kids need to have these documents in place as soon as they turn 18. At 18 they are legal adults, and no one gets access to their medical records or treatment information without express permission.

To avoid nightmare scenarios, take the following steps:

  1. Ensure all of your clients complete the Power of Attorney for Healthcare, listing a trusted person and at least one alternate in case the designee cannot serve. Also remind them that when they update their HIPAA forms with their doctors, they need to include those same trusted people and perhaps other family members as well.

  2. Keep track of clients’ children as they age. Offer to start educating the children about financial matters as soon as they are old enough, so that over time they learn about building a budget, the value of compound interest, the cost of long-term debt like a mortgage or lengthy car payment plan, the benefits of regular savings, and the realities of paying for college. Then, as soon as they turn 18, make sure the now-adult children have a Power of Attorney for Healthcare, hopefully naming the parents as their healthcare proxies, and that they fill out the HIPAA forms at their doctor’s office.

  3. When an adult child goes to college, recommend that parents ensure the child fills out a HIPAA form at the Student Health Service and at the hospital in the town, listing the parents and perhaps other trusted family members as people who can have access to medical records.

If the aforementioned young man had these documents in place, his panicked mother would have been given full access to his medical records and the details of his situation. She would also have had the right to make treatment decisions on his behalf while he was unconscious and unable to make them himself.

Especially given the state of our healthcare system, your clients and their family members need to take control of assuring who has access to medical information and the right to make treatment decisions. Addressing these areas with your clients helps you protect them and also extends your reach into the next generation. Any client who encounters such a situation will be forever grateful for your wise and prescient guidance.

If you know that a client has a college-bound adult, now is the perfect time to send them a note or make a quick call reminding them of this important information.

Amy Florian © 2016, Corgenius, Inc., all rights reserved www.corgenius.com

May 11, 2016

How I Lost a Fourth of My Annual Income to Fees

By Martial Frindethie

No, this title is not an exaggeration, and, yes, this actually happened to me. That’s right, I paid one quarter of my after tax income to my bank, one of the biggest banks in the country, and to a single payday lender.

Learning to manage money as a young adult is a struggle for many because too few of us are provided with the proper information and tools at a young age. When you are young and inexperienced there are many financial pitfalls, and I got trapped like quicksand in a destructive cycle of high bank fees and high interest loans.

The good news is that I have taken action to remedy the situation, and it was easier than I ever imagined. I want to share my story with other young people so they can learn from my experience.

Let’s look at the mistakes that I made.

#1: I Did Not Regularly Review my Bank Statements

It is easier than you’d think to lose track of your spending if you do not check your account on a daily basis. This may seem like a given, but it wasn’t to me and I know I’m not alone. Being passive about my account was dangerous because my bank allowed me to continue making purchases using my debit card, even when I didn’t have the funds in my account.

When I signed up for my debit card, I checked a box on the online application and enrolled in “Debit Card Coverage”. This agreement authorized the bank to cover my debit card transactions, even if there were not enough funds in my account. I understood that the bank would charge an insufficient funds fee of $35 for each transaction they covered, but I thought this would be a good idea as a protective measure in case I ran short every now and then. When I thought about one overdraft, the fee didn’t seem expensive for the protection it offered.

However, I had a bad habit of not reading my transaction slips when I took money out of the ATM machine. In all honesty, part of me didn’t want to check my account balance. I also did not look at my statements. In the back of my mind, I knew that I was probably overspending, but I didn’t realize the impact my overspending was having on my financial well-being.

I was swiping my card away not realizing how my negative balance was growing for over a year until one day my card was declined. The bank had been covering transactions based on my account and deposit history, but I finally hit their limit. Suddenly, I discovered that I had no money in my account, AND I had a negative balance. I had no money and no way of accessing any cash. Wake up call!

#2: I Did Not Read the Terms of My Account Agreement

Here’s how the fees added up to a fourth of my after tax income.

I routinely spent more than my net paycheck, and every time I did I racked up fees. Let’s say I made 6 purchases of $50 each in excess of my bank balance, the account be negative by $300, and each of those transactions created a $35 insufficient funds fee. In this example, that’s an extra $210 in fees on top of the $300 I owed. The fees were added to the borrowed amount. Additionally, there were extended overdraft fees. The bank charged $15 for every five consecutive days the account was negative. If my balance was negative for the whole month I would be charged another $90 in fees. Although I knew about the insufficient funds fee, I was not aware of the additional $15 fee until actually sitting down and reviewing my bank statements after my wake up call.

I went back to the website and read the account agreement. It described the fees. If I had read all the details about this type of account, I would have understood the charges. If I would have looked at even one statement, I would have seen that I was paying fees to the bank each month of $500 or more. The fees were using up such an enormous portion of my paycheck, that I fell further and further behind on my regular obligations. When it was happening I did not understand why I was always broke, but as soon as I reviewed my statements and my account agreement I understood completely.

I was shocked but I was finally paying attention.

#3: I took out a Payday Loan

At some point last year my car broke down, and I needed money for repairs. Because I was in a constant cycle of overspending, I had no reserve fund to pay for the repairs.

I felt stuck. I needed my car. I had seen ads that payday lenders offered easy access to cash, so although I had been warned about them, I went online and took out a $400 payday loan.

Getting this loan was indeed very easy. I filled out a short application and was quickly approved. I received a phone call from the lender verifying my bank information. The money was in my account the very next day with the agreement that I would either pay the loan back in full on the next payday or make an installment payment of $97, of which only $10 would actually go towards paying down the loan. The other $87 was interest - profit to the lender. This payment would extend the loan period another two weeks. If I wasn’t able to pay it off the next payday, I would have a similar payment to make for another two-week extension. I could extend the payback period as long as I made the installment payments every two weeks.

Each time I got my paycheck, paying fees seemed more achievable in the short term than paying the balloon principal. As the months went on, I continued to make these smaller payments. Eventually, the payments got down to $49 which seemed like a relatively small amount.

It wasn’t until I sat down and analyzed the entire history with this loan that I realized that I had paid over $1,200 to this lender on a $400 loan. I paid the lender three times the amount of the original loan over an 8 month period! Yes, the monthly dollar amount was small, yet the repayment proportion was gigantic.

Had I let these payments continue as installments, it would have been another ten months before the loan was paid off. Advertised as a quick and easy solution for those in a cash bind, payday loans actually make little sense. I have since learned that payday loans have interest rates ranging from 300%-1000%. I now understand why it makes sense to stay as far away as possible from payday loans. The ease of taking out the loan might be appealing, but the cost is tremendous.

How I Solved My Cash Flow Problem

Did I mention that I work for a financial services firm?

I must admit much of the neglect I showed my finances can be attributed to the fear and embarrassment I felt. Here I was working in the finance industry, making good money, surrounded by financial professionals and I still couldn’t seem to make ends meet. I beat myself up thinking, “how is it that I could have a job like mine and be in a situation like the one I’m in?” I really thought there was no way out.

The most surprising part of this story is that despite all of my anxiety, it took only a few weeks to regain control of my finances.

I asked an advisor in my office for help. She asked me to put together a spreadsheet laying out the past 12 months of my spending. This exercise forced me to look at all of my bank statements for 2015, and categorize my spending. I was shocked when l saw that so much of my hard-earned money had gone to pay bank fees every month. I immediately moved my checking account to an account that has minimal fees and no overdraft protection.

My next assignment was to make a spreadsheet of all of my outstanding debt. I had some credit card debt, medical bills and student loans. Most of the loans were in default. I called the collection agencies that held my debt and was surprised at how easily I was able to work out reasonable payment plans with all of them. I was worried about how they would treat me, but they were extremely professional.

My student loans were also in default and this really worried me. I knew this had seriously hurt my credit score. However, when I called my lender, I found I was able to enter a “Loan Rehabilitation Program” within days. The program allows me to make small monthly payments for a period of 10 months giving me time to pay off most of my other debts, and save some money. If I make all the scheduled payments, at the end of the period I will be out of default status, and I will be in a financial position to work out another payment plan with more normal payments and begin to pay down my student loans.

Once I knew how much I would need to pay on each of these debts, I was able to make a realistic budget. By simply eliminating fees and interest, it turned out that I had enough to pay my living expenses, make my debt payments, have a little bit of a personal life, and even start a savings account.

It’s been about six weeks since I asked for help, and I can’t believe how much has changed.

I am no longer living paycheck to paycheck. I feel confident about the budget I’ve created. I track my spending daily and stick within the limitations that I have set for myself. It feels so good to go to the grocery store and know that $150 is available in my bank account to buy groceries.

I set aside funds each paycheck for debt repayment. Within the year, I will be able to pay back the majority of my personal debt. I am repairing my credit score.

I keep track of my spending by category and maintain a spreadsheet which allows me to compare this year’s spending to last year’s spending and to my budgeted amount. I will be able to identify problems before they get to be too big.

I no longer sign documents without fully reading and understanding them. Lenders understand exactly how to profit from a person who has run into financial difficulties. It is imperative that we educate ourselves about the fees and interest obligations before opening any account or taking out any loan.

Payday loans are advertised everywhere: the internet, billboards, television, and storefronts in most neighborhoods. It may seem like a good idea at the time, but many payday loan customers end up taking another loan within a couple of weeks and become caught in a vicious cycle. I now understand that the costs are not worth the loan.

I hope sharing my experience helps other young adults. Learn from my mistakes and avoid them. If you are in a difficult financial situation seek help. Find a good financial advisor or consumer credit counsellor. Be sure to do your due diligence and check them out before you enter into an advisory relationship. Take heart - you can regain control of your financial situation, and it will probably happen much faster than you think.

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