A Few Thoughhts From Phil - June 2009

[Phil Lenahan]

Greetings to you this month of June. Schools are letting out, and families are preparing for their vacations. In Southern California, we have what we call “June Gloom,” which is a weather pattern with overcast skies in the morning that burn off later in the afternoon. As you can tell by the name, some don’t like it, but I actually appreciate it since it holds back the full heat of summer at least for a little while.

Doug Munter, one of our 7 Steps small group leaders and a member of the Board of Directors of Veritas Financial Ministries, recently shared a wonderful idea with me and I wanted to pass it along. In the 7 Steps study, participants are encouraged to develop a daily spiritual plan. One of the prayers we included in the book is the Angelus, which has traditionally been prayed at the noon hour.

Doug suggests to his small groups that they pray the Angelus at noon. Even though they can’t pray it physically together, they are able to pray it in spiritual union, keeping in mind the intentions of their group members. I really liked that idea and have begun suggesting that in the groups Chelsey and I run.

Now, I’d like to take it a step further and ask all who read this E-Letter to consider praying the Angelus each day (preferably at noon) with the following intentions in mind:

· The intentions of our Holy Father.
· Personal intentions and the intentions of all those united in prayer that day.
· For the work of Veritas Financial Ministries and the development of stewards of Providence in our country and beyond.

Won’t you join me?

Current Events - Credit Card

Accountability, Responsibility, and Disclosure Act of 2009

On May 22nd, President Obama signed into law the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. The bill passed with a substantial bipartisan majority, and takes effect in February of 2010.

The law places new limits on banks’ ability to raise interest rates and how they assess fees. The legislation also enhances disclosure requirements, and provides some basic protections for young people and students. In general, these changes are positive, yet given the way these laws work, much will depend on “interpretation.” Credit card users need to realize that high interest rates and user fees will continue to be a hallmark of credit card debt, it’s just that there will be greater disclosure and fewer “surprises.”

Let’s review the major changes:

The legislation bans retroactive rate increases, meaning that any rate increases will only be applied to balances going forward.

The Act prohibits an increase in rates until a customer is sixty days past due.

Banks will be required to mail statements at least twenty one days before payment is due. This change should help people avoid “innocent” late fees that have been triggered because the bank hasn’t allowed sufficient time to make payment. I remember going on our family vacation and returning to see a credit card statement that was already past due – the bank provided almost no time for a reasonable payment turnaround. When I called to explain the situation, they reversed the charges, but it will be good to have more reasonable billing cycles.

According to Sallie Mae, the average college senior is leaving school with about $4,100 in credit card debt. Only 17% pay their monthly balances in full each month. Credit cards have been far too easy for young people to obtain. The law places strong limitations on lenders’ abilities to issue cards to people under the age of twenty one. Young people applying for the card will need to show they are in a position to make payments based on approved credit limits, or have a parent or guardian co-sign. Raising the bar in terms of allowing our young people to get into credit card debt is a good thing. Of course, this could lead to parents being on the hook for their children’s’ debts. Parents, please tread carefully.

The legislation doesn’t change the fact that borrowers have the ultimate responsibility to pay back their debt. The Catechism says, “Promises must be kept and contracts strictly observed to the extent that the commitments made in them are morally just… Contracts are subject to commutative justice which regulates exchanges between persons and between institutions in accordance with a strict respect for their rights. Commutative justice obliges strictly; it requires safeguarding property rights, paying debts, and fulfilling obligations freely contracted.” Personal responsibility continues to be your best defense.

It will take several months to get a clear picture of how the industry changes its business model in order to recover lost revenues, which you should expect it to do. Ideas include increasing annual fees and charging interest from the date of purchase rather than after the billing cycle due date.

If lenders increase costs or reduce incentives for customers who pay their balances in full every month, they run the risk of having those customers switch over to debit cards. The trend from credit cards to debit cards is already underway. Visa announced in 2008 that spending on Visa debit cards had surpassed Visa credit cards for the first time. Expect that trend to continue.

For now, there continue to be benefits of using credit cards rather than debit cards, as long as you only make purchases that are part of your spending plan, and you pay your bill in full every month. Benefits include the delay in money being taken from your account, fewer transactions cluttering your bank statement, and enhanced consumer protections for purchases or stolen cards. But you’ll want to keep an eye on what adjustments your credit card provider makes over the next several months. You may find the benefits of using the credit card being outweighed by the costs, and decide to switch to your debit card.

In summary, the legislation provided a number of beneficial and reasonable changes for the consumer, but the onus is still on the consumer to behave responsibly with credit cards.

The Responsibility to Create Wealth

A Steward of Providence has the responsibility to create wealth. That’s something you don’t hear very often, but it’s true. Section 2404 of the Catechism says, “The ownership of any property makes its holder a steward of Providence, with the task of making it fruitful and communicating its benefits to others, first of all his family.” The phrase, with the task of making it fruitful, includes the responsibility for creating wealth.

The responsibility for wealth creation is also described in the parable of the talents in Matthew 25:14-30. In this story, the two servants who grow the talents they have been given are commended and given more. The servant who buries his talent is chastised. The message is clear: the Lord wants us to grow the resources we have. Why? It’s simple. So we can provide for our families and assist with the needs of others.

Pope Benedict recently touched on the responsibility we have to create wealth while speaking about the issue of poverty. He said that trying to solve the problem of poverty solely by redistribution of existing wealth is an “illusion.” He continued by saying that, “wealth creation therefore becomes an inescapable duty, which must be kept in mind if the fight against material poverty is to be effective in the long run.”

There are many paths to creating wealth, but the key is to have a multiplier effect. Entrepreneurs start and grow businesses. They develop a business model, prove the effectiveness of that model, and then expand it. Just think Starbucks.

Only a small percentage of the population is entrepreneurs. As a result, wealth creation for most people will result from steadily saving and investing a portion of their salary over a long period of time. In this case, the multiplier effect is “Compound earnings.” Einstein called compound earnings the greatest mathematical discovery of all time.

Here’s one example of how it works. Paul and Ann save $2,000 every year for ten years, starting when they’re twenty five. While they stop making additional contributions after the first ten years, they allow the investment balance to grow at ten percent until they retire when they reach the age of sixty five. At that point, Paul and Ann’s investments have grown to $677,000.

Let’s look at another example. John and Carol don’t start saving until they’re thirty five. They contribute $2,000 per year for thirty years, so they actually contribute $60,000, or three times the amount that Paul and Ann did. Their investments also grow at 10 percent each year. But since they started ten years later, their invested savings couldn’t catch up to Paul and Ann’s. They only ended up with $377,000.

That is the power of compound earnings. To obtain its benefits, you need to save and invest consistently from an early age, and obtain a reasonable rate of return for the level of risk appropriate for you.

It’s an interesting paradox. Stewards of Providence are called to create wealth, yet the Lord’s admonitions about attachments to money remain true as ever. So the challenge is this: to use our talents to create wealth, yet remain detached from that wealth - using it for good purposes. Keeping that balance is a challenge, but a mature Christian is up to the task. God love you!

Phil

P.S. If you are looking for ways to grow as a Steward of Providence as you manage your gifts and resources, here are a few suggestions from Veritas Financial Ministries:

Read a copy of 7 Steps to Becoming Financially Free and the corresponding Workbook. Better yet, join one of our small groups around the country. If there isn’t one close to you, consider starting one at your parish. We’ll help you along the way.

Register to use the free tools available at www.veritasfinancialministries.com as part of My Veritas Plan. It provides the ability to set up your budget, track your income and spending, tools to get out of debt, and calculators to determine life insurance needs and how much you should save for college and retirement.

If you need more guidance than a small group setting will provide, consider the one-on-one counseling services provided by Veritas Financial Ministries. To learn more, visit Veritas Financial Counseling.

Speak to your pastor about signing up for our Faith and Finance parish bulletin subscription program – a great way to share Catholic teaching on money with your parishioners. Learn more at Parish Bulletin Subscription Program.

Finally, if you believe in the work that Veritas Financial Ministries is doing, won’t you consider supporting the work of this ministry? You can learn more at Veritas Vision.

[stitchesbyjulie]

VERY interesting thoughts, especially what the Holy Father said. Sometimes one might feel guilty for "making money", but I always go back to the story of the talents, and that we are to multiply. Thanks for the info. Julie (stitchesbyjulie)