Remember when you diligently trudged to your college bookstore to acquire the multiple hardback textbooks and softcover workbooks for your classes at the beginning of the semester?  Remember the migrane when you realized how much of your precious student aid would have to go towards paying for the textbooks?  It is no overstatement to say that the cost is astronomical.  I took an accounting class at a local community college a couple of years ago and was stunned to learn that the cost of the textbooks for the class was almost $200.00.  Come on!  These publishers think we’re rich or something?  I had to laugh when I overheard the head honcho of my department complaining about his college freshman son spending over $500.00 on textbooks.  He thought his son had inflated the bill to nab some extra spending money.  Several co-workers, more recent college grads, piped in that the huge cost was no joke - indeed that is what it costs to buy books these days.  Oh yeah, forget about recouping any of the costs of your textbooks.  If you tried to see it back to your college bookstore, you were likely to only net pennies on the dollar. 

While the rest of us were complaining, a business student at Santa Clara University spied an opportunity here and started the textbook version of Netflix.  Colin Barceloux’s business, which was profiled in www.entrepreneur.com, is called www.bookrenter.com and rents textbooks for up to 75 percent off the retail price for a specified period.  Students return the books by printing out a free UPS label.  They can also request an extension or even buy the books outright, with the initial rental fee going towards the price of the book.  Taking advantage of the fact that his business reuses books and thus saves trees, Barceloux also had it certified as a “green business.”  This is a pretty ingenious idea.  For those geeks out there, there is a downside.  You can’t write in or highlight text.  But I view that restriction as a small inconvenience when compared to the vast savings achieved.  Moreover, you don’t need to deal with the hassle of hauling a growing collection of textbooks from dorm to dorm as you ascend the college ladder.

This business is just one example of how business ideas pop up frequently in our everyday lives.  Barceloux is only 26 years old, but he clearly has the guts and the wherewithall to act on his business idea.   

My mother-in-law recently asked my husband to help her look into purchasing a long-term health care insurance policy.  Her financial advisor sent us a glossy brochure from the John Hancock financial services/insurance firm touting the benefits of a long-term health care policy.  The twist on this policy was that the Hancock firm was partnering with the state of New York, where my in-laws reside, to provide some sort of hybrid insurance policy.  As I understand it, under the policy, the Hancock firm would pay the insured’s nursing home expenses up to a capped amount for 3 years.  Afterwards, the insured individual would be able to qualify for some sort of Medicaid coverage from the state of New York, even if she still had assets that normally would have disqualified her for any Medicaid coverage.  The insured would still have to pay some of the costs of the long term care, along with Medicaid, but under this policy, she would not have to spend down all of her own assets first before qualifying for Medicaid.

Sounds alright at first glance, doesn’t it?  Well, I reread the John Hancock glossy brochure and found it lacking in any details about the policy.  It had some nice pictures showing elderly seniors happy and healthy and talked in generalities about not burdening your kids when you have to go into a nursing home, but it had no specifics on the following points:

• Inflation protection.  The policy would pay a certain dollar amount now, but does that dollar amount go up commensurate with inflation?  My mother-in-law is healthy and could easily go another 20 years before she actually has to enter a nursing home.  Undoubtedly, in the year 2028, nursing home costs will be much higher than today.
• Increases in insurance premiums.  The brochure says that at her age, my mother-in-law would need to pay about $2,500 per year in premiums.  Is that premium fixed or will the insurance company raise the premium?  When she retires, my mother-in-law will be on a fixed pension and social security.  There would be no room for her to absorb significant increases in premiums.
• Qualification for benefits under the policy:  How does the insurance company pay out benefits?  Does my mother-in-law have to be completely unable to care for herself at home?  Who makes the determination that she would need to enter a nursing home?  Is there a waiting period for benefits?
• Once the long-term care insurance policy pays out all benefits, when does Medicaid benefits kick in?  How much of the ensuing long term care costs would my mother-in-law be responsible for and how much would Medicaid pay?  Could she stay at the same nursing home or would she need to move to a Medicaid-approved (i.e., bottom of the barrel cheap) home?

There are many questions and few answers from the literature provided by the John Hancock firm.  Unfortunately, it is easy for individuals to be swindled into expensive policies that they may have to drop if premiums rise significantly or end up being of little or no use because the insurance company refuses to pay out benefits. 

Interestingly, an article in the February 26, 2008 edition of the Wall Street Journal discusses the same type of policy we are talking about here.  Journal reporters Jennifer Levitz and Kelly Greene (”States Draw Fire for Pitching Citizens on Private Long-term Care Insurance”) write about the new push by states to encourage private citizens to buy long-term care insurance, after President Bush signed into law the Deficit Reduction Act of 2006, which ended a ban on partnerships between states and insurers to sell long-term care insurance.  There is a pressing fiscal incentive for states to enter into such partnerships: in 2007, Medicaid costs for nursing facilities and other long-term care rose to $100 billion.  15 states, including California, are now in marketing partnerships with private insurers to promote these policies.  What’s the problem?  According to Levitz and Greene, these policies are marketed to low or middle income people who can’t afford or don’t need these policies.  They write about a bricklayer had purchased a policy in 2003 at a premium of $1,368 per year.  His premiums jumped to $4,920 per year in 2007, an increase of 260 percent.  After complaining, the bricklayer learned that he could keep the initial premium rate if he agreed to waive the inflation protection component of his policy.  He decided to drop the policy entirely, and was able to get back only $3,000 of the $7,000 he had paid to the insurance company.

Levitz and Greene go on to discuss the difficulties that the insured have in obtaining payouts and benefits from these policies.  They cite the case of an 87 year old widow, Betty Hoff, who was paying a yearly premium of $4,080 on a meager income of $19,200 a year when she fell at her home and could no longer live by herself.  The insurance company denied her claim, stating that she was not ”impaired enough.”  Hoff had to pay for care out of her own savings until a nonprofit advocate group took on her case.  The insurance company ultimately decided to pay.  Honestly, the last thing an 87 year old widow needs when she has suffered a devastating fall is to battle with the insurance company to pay for her daily care expenses.  How ridiculous is that?  Would you want your octogenarian parents to have to suffer this stress?  The insurance company is certainly quick to take your cash, but when it comes time to pay up, suddenly, the insurance company doesn’t know who you are and could care less.

 Levitz and Greene also note that the commissions that insurance agents make on selling such policies are among the highest in the industry, making it even more likely that agents will do the “hard sell” on potential customers.  Even more troubling, some of the states that have entered into such partnerships have been found to recommend insurance companies that have previously had run-ins with state regulators.  With states promoting such policies, there may be a false sense of security on the part of potential customers that these companies are ethical and honest.  In the case of California, the pitch letters are sent to potential customers on California Department of Health Services letterhead.  However, if you dial the toll-free number listed on the letter, you are connected to a private marketing firm hired by the state.

Clearly, there are legitimate reasons for states wanting to become involved in a general push towards private long term insurance, rather than relying on public funds to pay for residents’ long-term care.  However, as the Journal article demonstrates, there are many potential pitfalls to purchasing such a policy and buyer must beware.  So, as with any insurance policy, it absolutely pays to read the fine print and to buy a policy from a reputable insurance company.

My advice to my mother-in-law (should she want to take it) is to obtain written documentation from John Hancock on the points mentioned above before she considers buying such a policy.  She should research John Hancock’s track record as an insurer in the state of New York.  She should also do an accounting of her assets to see if it is even worthwhile for her to spend what likely will be several thousand dollars a year for many years to buy a policy that she may not even need.

Saving for college has never been a more daunting task.  According to www.collegeboard.com, the 2007-08 average yearly cost of a private four-year college is now $23, 712 (an increase of 6.3 percent from the previous year) and a public four-year college is now $6,185 (an increase of 6.6 percent from last year).  Even though our child is a newborn, we realized that, with these numbers, it is not too early to start saving.

The projected future cost of college can send the savviest financial expert running for the hills.  So what to do?  The best way to stockpile savings for college is to open a state-run college savings plan, or 529 plan.  What are the benefits?

• The earnings on your investments grow federal tax-deferred, as long as the withdrawals are used to pay qualified educational expenses.  The distributions are also tax-free. 
• Your own state plan may also offer tax breaks, such as a state tax deduction on your contributions into the plan.  However, if you live in a state with no state income tax, like Florida, you might find it more advantageous to open a 529 plan in another state. 
•  You as the donor control the funds in the 529 account.  You can designate another beneficiary and you can actually reclaim the funds in the plan, if you find that you need the money later for other expenses.  However, you will owe taxes on the earnings portion of the funds that you withdraw from the account.
• 529 funds set up by grandparents are not counted in the analysis of a family’s finances for purposes of federal financial aid.
• As a donor, you can contribute up to $300,000 into the plan and you don’t need to worry about exceeding the current limit of $12,000 on tax-free gifts.  

The website, www.savingforcollege.com, contains all of this information and  more on all 50 states’ 529 plans.  It is a good place to research which plans offer the biggest bang for your buck.

With all of its tax benefits and its flexibility, setting up a 529 plan seems like a no-brainer.  However, setting up the plan is only the beginning.  The college calculator at www.savingforcollege.com, which provides comprehensive information regarding 529 college savings plans, calculates that in 18 years, it will cost a total of $312,000 for a college whose tuition is $23,712 a year.  Assuming that the 529 plan has returns of 7 percent per year, I would need to make monthly contributions of $612.00 into the 529 plan, starting right now.  All the expenses that come with having a baby may be a greater weight on you right now, but it might be a good idea to bite the bullet and start contributing now to take advantage of the longer time period and compounding returns.  If you do wait another 5 years to start contributing, your monthly contribution would rise to nearly $1,000 per month.  With all of the other expenses associated with raising a child, delaying the inevitable may be more painful financially down the road.

Usually you hear the mantra, buyer beware, when going shopping.  Well, add another dimension to that saying - gift recipient beware.  There is nothing more maddening than dealing with the tricks played by some retailers to nickel and dime their customers out of their hard-earned cash.  Believe it or not, these tricks include the gift receipt that is supposed to make it easier for the gift recipient to return or exchange the gift.  For obvious reasons, the gift receipt does not include the price paid.  However, some retailers have turned that to their financial advantage.  Case in point - a friend of mine received a Christmas gift purchased at the “lacoste” store.   She went back to the store with the friend that gave her the gift to exchange it for another item.  She picked out something else that was priced above the original item and brought both items to the cashier with the gift receipt to make the exchange.  Suffice it to say that my friend was floored when the store clerk said that she owed more than the difference in price between both items.  My friend asked the clerk why she owed more than the difference in price.  The store clerk explained that because the original item was now “on sale,” she would have to pay the difference between the sale price of the original item and the new item.  My friend naturally asked why, given that she had the gift receipt, which should show that the original item was purchased at full price.  The clerk replied “no” that was not the case and that when an item goes on sale, the store will only issue a credit for the item at the sale price, even if the customer is bearing a gift receipt. 

The interesting twist here is that my friend was able to obtain a full credit for the gift item, because the store had her friend’s credit card information/transaction history on file and the clerk was able to confirm that her friend had indeed paid full price for the gift.  There are two problems with this situation.  One, had the gift giving friend not accompanied my friend to the store, she would never had known that her friend had paid full price for the gift.  Two, if the store was so easily able to look up the credit card information regarding the price paid for the gift, why hasn’t the store tied that information to the gift receipt?  Essentially, the store is looking the other way and using the fact that no price has been printed on the gift receipt to make a FEW EXTRA BUCKS at the customer’s expense.  I shudder to think how many times this actually happened, post-Christmas.

 If asked about this practice, retailers may say that they incur costs in restocking returned or exchanged items and that this is a reasonable manner in dealing with those extra costs.  Maybe so, but the real problem here is that RETAILERS ROUTINELY FAIL TO DISCLOSE THIS PRACTICE TO THEIR CUSTOMERS, probably in the hopes that gift recipients and gift givers will never find out what happened.  As a result, retailers make a little extra easy money at everyone’s expense.  So if you are concerned that retailers may pull this stunt on your gift transactions, inquire up front when you are purchasing your gifts to find out if they have such a practice.  Learning this information gives you the choice of giving your business to a more customer-friendly retailer.

Innovative online webtools have made it easier to put your financial ducks in a row.  In the February 4, 2008 edition of Barron’s magazine, Mike Hogan, “the Electronic Investor,” writes about several websites that let you build and keep track of a personal budget.  Some of these websites are:

• www.mvelopes.com (Mvelopes Personal)
• www.buxfer.com (Buxfer)
• www.wesabe.com (Wesabe)
• www.mint.com (Mint)

Of course, as Hogan points out, a notepad and pen might do for a simple budget.  But these websites give you alternative ways of looking at your financial data, such as multiple budgets that allow you to figure out which spending scenario yields you the most cash at the end of the month.  Some of these websites, notably mvelopes and buxfer, actually allow you to download transactions from online bank and credit card accounts.  Personally, I am a bit leery of downloading personal financial information into a public website.  But it all depends on your comfort level regarding your personal financial data.

Hogan notes that another very useful feature of Buxfer and other websites like www.foonance.com and www.billmonk.com allows you to keep track of shared expenses that you may have with roommates, family, or friends.  So, if you and all your college buddies are chipping in to rent a ski condo in Vail or to buy season tickets to your favorite hockey team, these websites allow everyone to see what is owed and who has paid.  I love this feature - keeping track of and collecting cash from a bunch of people is a thankless and sometimes chaotic task.

If you are interested in trying out online budgeting, do a test run on several sites to see what works best for you.  Also, keep in mind that some sites, like Mvelopes, actually charge a monthly membership fee. 

To come out of this recession relatively unscathed, one of my priorities has been to stem the outflows from my checking account.  But what if you can increase the inflows into your checking account?  You could ask for a raise or switch to a higher-paying job.  However, the Wall Street Journal’s February 9-10, 2008 edition advocates an easier, more immediate way to boost your account balance.   Reporter Jane Kim’s “New Checking Has High Yields — and Strings”  talks about opening a “reward checking account” at a community bank or credit union, which has interest rate yields of as high as 6 %.  This compares very favorably with average bank rates on checking accounts.  Last time I checked at my bank, Bank of America, the checking interest rate didn’t even clear 1% - and that’s with a $1,500 minimum balance.  These reward checking accounts also beat the rates offered by internet banks like www.Ingdirect.com, which has followed the Federal Reserve’s interest rate cuts in lockstep and is now paying 3.40% on my savings account.

Of course, there’s a catch to earning such a high interest rate:

• You must get your bank statement delivered electronically to you
• You must have at least one direct deposit (like your paycheck) or automatic debit each month
• You must use your debit card at least 10 times a month

 The advantages are:

• There are usually no monthly fees or minimum-balance requirements
• Many banks will offer to refund ATM fees charged by other banks (Wow!)

 Why, might you ask, are these banks being so generous with their interest rate yields?  Well, if you meet their requirements, they save money on mailing statements and make money on debit card transactions.  However, beware - if you don’t follow all of the requirements for a particular month (e.g., 9 instead of 10 debit transactions), the interest rate will drop precipitously, probably to less than 1% for that month.  But, considering that the large banks are paying 1% or less on checking accounts, there’s really no downside, if you can meet the requirements without too much effort.

You might have to do some online research to see which local banks and credit unions are offering these accounts.  Some banks that the Wall Street Journal says are offering accounts nationwide include Iowa’s State Bank of Toledo and Bank of Fayetteville, of Fayetteville, Ark.  

United Airlines announced this week that it is planning to charge passengers who travel on its cheapest nonrefundable tickets $25 for a second checked bag.  This is a change from United’s old policy, which permitted passengers to check two 50 lb. bags free of charge.  Parents and senior citizens can breathe a sigh of relief: car seats, strollers, and wheelchairs don’t count as a second checked bag.  Additionally, if you have Premier frequent flyer status or higher or you have bought a refundable ticket, you’re exempt from the $25 charge.

With the airlines’ financial woes and the ever rising cost of fuel, charging for luggage was only a matter of time.  Free food was the first victim, seat choice was next, and now luggage is the latest sacrificial lamb.  What’s next?  Probably that can of Pepsi or Mott’s apple juice that you count on to quench your thirst as you wait for hours on the runway.  However, unlike the food or seat choice, you can easily cut down on your luggage haul, and it will save you money throughout your trip.  How?  Here are some examples of what dragging around two huge suitcases will cost you:

• Tipping the skycap extra dollars for picking up all your luggage, because you can’t balance your carry-on bag, laptop and suitcases as you enter or exit the airport
• Paying the cabdriver an extra luggage fee plus additional gratuity
• Tipping the bellman more to handle all of your bags
• Instinctively buying more stuff that you really don’t need on your journey because you have so much room in your luggage
• Letting the airline handle your luggage and thus lose your luggage.  With twice as much stuff, you run twice the risk that the airline is going to send one of your bags to Omaha, Nebraska and the other to your final destination (assuming you don’t live in Omaha).  I bet that United Airlines won’t be refunding your $25 if it mishandles your suitcase. 

 Aside from the above, I’ve seen people checking in at the airport trying to balance stuff between two or three pieces of luggage because they are trying to slip under the 50 lb limit and avoid paying the overweight luggage charge.  Even if your airline doesn’t follow United’s lead and charge $25 for additional pieces of luggage, why have your underwear sprawled out for the whole airport to see because you packed so much that you busted the 50 lb limit?  Finally, not only is it cheaper to carry less luggage, your shoulders will thank you for the lighter load. 

Grappling with high gas prices, dropping home values and an uncertain economc future is enough of a burden.  But what about your credit report?  Everyday, there are news stories about laptops containing personal information of thousands of customers, students, veterans, etc., being swiped out of some careless employee’s car trunk.  The difficult financial straits that a lot of us face probably make it even more tempting for crooks to commit identity theft.  Recently, a friend of mine had her purse brazenly snatched out of her car while she was driving!  The friend was waiting at a red traffic light, and her passenger side window was rolled down.  The robber casually strolled over to her car, grabbed her purse and ran the other way.  My friend later found out that her credit cards were used at a nearby gas station to fill up the tanks of five different cars within 15 minutes of the robbery.  She promptly contacted all three credit reporting agencies (Experianm Equifax and TransUnion) to put a fraud alert on her credit.

In today’s world, you can never be too vigilent about your credit.  To check for inaccuracies or unauthorized activity regarding your credit, get a copy of your credit report asap.  To pull your credit report free online, go to www.annualcreditreport.com.  You can get one free credit report from each of the three credit report agencies once each year.  You can’t beat this deal!

I went to a local store today to buy an infant mattress.  This local store also has an online store that is run out of the same location.  The particular mattress that I wanted cost $100 online, but $120 in the store.  The $20 discount off the normal price was only available online.  I asked one of the store employees who turned out to be a manager about getting the online price in the store.  She reiterated that the online price was only available online.  After I asked for the online price again, she asked me where I live.  I only live about 10 miles from the store.  She did a quick mental calculation and realized that if I went home and ordered the mattress online, she would collect $100 plus tax from me.  Orders $100 and more get free shipping.  That means that she would then have to eat the shipping cost.  If she sold me the mattress right now, she would save the shipping cost.  We would both win.  I would get the mattress instantly at the price I wanted, and she would maximize her profit.  What I admired about the manager was that she wasn’t being rigid in her policies.  She saw an opportunity to maximize her profit, please a customer, and most importantly, make a sale.  This type of flexibility and common sense thinking is crucial for small business owners.  Consumers should also realize that everything’s negotiable, especially in today’s tough times.  Retailers are hungry for business.  If there is a way that both the business and consumer can both win, then smart business owners will jump at the opportunity.