Millennials want to spend and save in balance

Park State Bank logoBy Dale Lewis

There’s a new generation of savers in America, according to several recent studies by the banking industry.

Millennials, those mostly 30-somethings so named because they entered adulthood right around the year 2000, want to save, realize they need to save and in some cases have begun doing so.

This is the generation of student loan debt. This also is the generation that ran smack dab into the Great Recession not long after they entered the workforce. Not surprisingly, their trust of big financial institutions has waned.

Indeed, this generation has had more than its share of wind in its face when it comes to personal finances. But some of those difficult experiences are prompting Millennials to put more emphasis on traditional savings tools.

Those tools include certificates of deposit. CDs are term contracts in which a bank commits to a pay a higher rate of interest if the depositor commits to a longer period of time. CDs are insured, and the interest payment is guaranteed.

They’re safer than the stock market, and your return on investment is certain. They never lose value, and some banks will even increase the interest rate during the term of the certificate. This reduces the investor’s interest rate risk.

To anyone taking a new look at savings, I say congratulations. The question is not whether to spend or to save but how to do both in balance. Maintaining healthy personal finances has always been about striking the proper mix of spending and saving and finding the right tools to accomplish financial goals smartly and efficiently. The goal, after all, is to constantly grow your personal net worth.

You don’t have to start your savings plan with a large amount. I suggest starting small. Open an account at your local bank that pays interest and that won’t eat up your balance in fees. A traditional savings account is a good option. But a CD is worth considering also, for the reasons already mentioned.

Consider adding to your savings with regular automatic withdrawals from your checking account or, better yet, directly from your paycheck. Most employers allow you to directly deposit a portion of each paycheck into a savings plan.

If you never see the money to begin with, chances are you won’t miss it. And you will quickly build up a savings balance that will allow you to join the new generation of savers. Even saving $50 or $100 a month is plenty to get started. The point is to get started.

Saving for retirement through a 401(k) program at work also is a great idea, especially if your employer has a program to match your contributions. An Individual Retirement Account, or IRA, is another way to build a retirement nest egg. I also advise anyone struggling with debt to get that under control as a first step in a smart savings plan.

In all of this, the encouraging news is that more Americans, including the generation of Millennials, recognize the importance of saving and want to save more. My advice is to create a plan, start saving and stick with it.

You’ll be surprised how quickly you’ll become a saver.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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Animal Allies wins February ATM Charity Challenge; March contest has begun!

Park State Bank Animal Allies logo 01-17-2015Congratulations to Animal Allies Humane Society, winner of the February Park State Bank ATM Charity Challenge, with 274 logo “likes” on our Facebook page. Animal Allies will receive a $250 donation from Park State Bank, representing one day of bank proceeds from our ATM network. As a previous winner, Animal Allies will rotate out of the contest for one month, but please vote for your favorite local charities in the March contest on the Park State Bank Facebook page. And don’t forget to “like” our page!

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What’s the best way to spend your tax refund?

Park State Bank logoBy Dale Lewis

It’s tax season, and if you believe the advertisements of the tax preparers, we’re all getting a refund.

Many of us will, indeed, receive a refund when we’re done with our state and federal tax forms. A refund can make a big difference in the health of our personal finances if we spend it right. By the same token, spending a tax refund on less-than-optimal options not only can squander a great chance to enhance our personal finances but it also can waste good chunk of money.

In the end, each of us must be the judge of what constitutes good and not-so-good spending. But from my perspective—that of a banker who spends a lot of time reviewing the finances of people trying to achieve life goals—the best way to use a one-time windfall such as a tax refund is to spend it on needs that will make a difference. And remember, a refund this year is not a guarantee of a refund next year or down the road.

It makes sense to use a refund to pay down high-interest debt, especially the kind accumulated from credit card purchases. Credit-card debt, and the high interest that comes with it, is one of the fastest and most dangerous ways to damage one’s personal finances. Letting credit card debt linger only compounds the problem. That’s why using a one-time windfall to reduce or eliminate high-interest debt tops my list of good ways to spend your tax refund.

Similarly, a refund is a great way to pay down or eliminate debt from minor financial emergencies incurred in the past year. Did your refrigerator or car need repairs, forcing you to go into debt or dip into savings to buy a replacement? Did an unforeseen medical problem for you or a relative rack up a bill at the hospital or with the doctor? Unforeseen medical expenses, even small ones, are one of the biggest reasons that people get into financial difficulty and struggle to get out.

A tax refund is one way to recover from such a jolt. It’s also a great way to start a “rainy day” savings fund that allows you to more easily handle future emergency spending should that be necessary. I strongly endorse setting up a savings account like this as a “buffer zone” for your long-term savings accounts.

But remember that if you do this, be serious. Put your money in an interest-bearing account at a bank where it can grow and where it will be protected by deposit insurance as well as somewhat shielded from temptations to raid this account for less-than-vital needs.

Another great idea is to use your tax refund to start an Individual Retirement Account or to add to one you’ve already established. All of us will need retirement savings at some point. Starting sooner allows the saved amounts to grow over a longer period. Retirement savings also may afford a deduction in the next tax year, and this could enable you to receive another refund, or a larger one. In many ways, saving in an IRA is a gift that keeps giving.

What uses might not be the best for your tax refund? Beauty, of course, is in the eye of the beholder—or the spender in this case. But in encouraging you to take a long-term view, I suggest not spending your refund on a big-ticket purchase, especially one that obligates you to future payments.

I also don’t recommend using a refund for an expensive vacation or to enjoy the quick-fix of a tax-refund loan. Both of these options can put you further in debt instead of allowing you to step up and perhaps out of debt with your refund. In addition, I suggest that vacations should come out of annual income because your refund is not perpetual but your vacations should be.

Remember that a tax refund is money you have now. It’s not a promise of a refund in the future. Don’t assume that your work, personal and financial situations will be the same and that you’ll receive a windfall again next year, much as that may seem likely now.

Paying down high-interest debt, saving for a rainy day or setting aside funds for retirement with your tax refund may not seem as exciting as a tropical vacation. But in the long run, these choices can greatly improve your financial health and your peace of mind.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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Join the Park State Bank ATM Charity Challenge!

Park State Bank logoWe have so many wonderful nonprofit organizations doing important work in the Northland. That’s why we’re starting 2015 by honoring them with the Park State Bank ATM Charity Challenge.

Each month, we will donate a full day’s proceeds from our ATM network to the charity that receives the most “likes” on its logo in our contest gallery, posted on our Facebook page. To participate, simply go to our Facebook page, click on the gallery and “like” the charity you like the most. At the end of each month, the charity with the most “likes” wins.

We’ve started our first round of the contest with six local nonprofits. It will conclude Feb. 28. Between now and then, you can vote and also increase the size of our donation by making your cash withdrawals from ATMs in the Park State Bank network. The more ATM activity, the bigger our donation!

Thank you for participating and helping us honor the good work of excellent charities in the Northland!

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