HART CASE STUDY Spring 2018 Martin and Jade Hart have been married for 18 years. They are currently living in Draper Utah. Martin was a counselor but recently became a mathematics professor at the local community college and Jade is a nurse practitioner at the hospital near their home. They have three children: Giselle, Elliana, and Christopher. Recently, both Martin and Jade went back to college to obtain an advanced degree. Martin always wanted to teach mathematics while Jade wanted to advance her nursing career. They both had to take out loans to pay for their advanced degrees. They know they can pay them off with the higher income they now have, but want some help on what debts to pay off first. The Hart s fell in love with the area and plan to remain here even during retirement. Recently, some of their extended family members have had some negative financial experiences (Jade s sister had a nasty divorce and lost the majority of her assets and Martin s brother became disabled and lost half of their income). These events have caused the Hart s to take a closer look into their own financial management. The Harts have many hobbies including hiking, camping and traveling. They like to take several family vacations throughout the year. This year they experiences several emergency expenses they could not cover with their savings. They decided to take out a few loans and charge their credit card. They are having difficulty meeting more than the required monthly payments on the debts. Jade just received a substantial inheritance from her grandmother of $37,000. They are unsure of how to use this money. The family has several goals including paying off debt. They would also like to take a 20 th Anniversary family vacation in 2 years. They want to save for their children s college education, prepare for emergencies, and would like to purchase a vacation condo on the beach. They feel like they have plenty of time to save for retirement and don't feel the need to start immediately. They don't feel this will make a significant difference in the amount of money they needs to save. They do not know where to begin for these goals and are looking for some help. Martin and Jade attended a financial seminar at the local bank. They filled out the forms provided at the seminar and attached them below. Read the information the Hart s provided so that you can get acquainted with them. As you first read the case, you probably will not understand all of the vocabulary or why certain information is included. But remember, this is just the beginning of the course. In a few weeks, the client s financial data will be very familiar to you and you will feel comfortable with this material. *** Throughout the entire case, you will assume it is January 1, 2018. *** *** You will use this case throughout the semester. *** 1
PERSONAL FINANCIAL INFORMATION Client Information Name Martin Hart Jade Hart Age 46 47 Education B.S. in Psychology in 2008 M.S. in Mathematics in 2015 B.S. in Biology in 2008 M.S. in Nursing in 2017 Occupation Math professor Nurse practitioner Children Giselle (age 16) Elliana (age 13) Christopher (age 8) FINANCIAL GOALS Short Range (1 Year) Intermediate Range (1-5 Years) Long Term (over 5 years) What is your single most important financial objective at this time? Pay off debt Reduce discretional spending Establish an emergency fund Start saving for a beach condo Start saving for a 20 th Anniversary vacation Travel frequently in the RV Begin a college savings plan for the kids Start saving more aggressively for retirement Go on an international vacation for 3 weeks Pay off debts OTHER INFORMATION 1. Are you able to save regularly? The contributions to our employer s 401(k) plans are our only savings. 2. How much do you save annually? We both contribute to our 401(k) accounts and our employers match, but I do not know the details of the plans. 3. Do you invest regularly? I have dabbled in some investing but it s not regular. We are willing to sell some of the stocks if needed. 4. Do you feel you are financially organized? Not really. We should probably hire a financial planner. 5. Do you budget your money? No, we often overspend because of emergencies. 6. If you were to die, could your spouse handle the finances? Yes. 7. How do you feel about saving for retirement? It is important, but we like to live now. Plus, we want to pay for the kid s education before our retirement. 8. If you had an extra $5,000 what would you do with it? Take a vacation with the kids. 9. How do you feel about taking investment risks? Moderately aggressive risk taker 10. How is your health? Both of us have very good health. 2
RETIREMENT INFORMATION Person Covered Martin Jade Type of pension plan 401(k) plan. Employer contributes 50% of the first 6%. Employee contributions limited to 6% of base salary. SIMPLE IRA. Employer contributes 3% of employee s salary. Employee contributions limited to $12,500. Beneficiary Jade Martin Other plans available N/A N/A Current Value $28,905 $34,338 Contributions 4.5% of salary per year 2.5% of salary per year EDUCATION FUNDING INFORMATION The Hart s estimate that college costs at the local University will be $16,500 per child, per year in today s dollars for tuition, fees, room and board (all in). The couple both enjoyed college and wants to provide the same opportunity for their children. With the family s income, they don't think they will qualify for financial aid to send the kids to college. ESTATE PLANNING INFORMATION The couple would like to leave all of their assets to the children and leave them debt free in case of death. Martin and Jade would like Jade s sister, Caroline, to be children s legal guardian. Other than an outdated basic will with guardianship for the kids, Martin and Jade have no formal estate documents or plan. 3
ASSETS As of January 1, 2018 LIQUID ASSETS BALANCE RATE OF INTEREST MATURITY Checking Account $589 N/A Savings Account $3,580 0.9% N/A Money Market Account $15,580 1.1% N/A Certificate of Deposit $12,000 2.7% 9/1/2020 Certificate of Deposit $10,500 1.4% 9/1/2018 Cash on Hand $126 SECURITY INVESTMENTS # Shares Security Cost of Basis Current Value (calculate as of 1/2/18) Date Acquired Price Per Share Total Price Per Share Total 100 General Electric (GE) 01/2009 10.11 300 Twitter (TWTR) 05/2014 32.26 150 Coca-Cola (KO) 10/2004 20.82 400 Fidelity Magellan Fund 07/2012 74.82 (FMAGX) 75 Oracle (ORCL) 06/2011 32.72 VEHICLES Year Make Model Cost Current Value 2016 Toyota Sequoia $48,000 $44,400 2016 Toyota Camry $23,500 $16,050 2016 RV $64,500 $60,000 HOUSE Built in 2010 the cost was $252,000 in 2016, the current market value is $325,000 and the replacement value is $355,000. REAL & PERSONAL PROPERTY Market Value Replacement Value Furniture $52,000 $70,700 Clothing and Jewelry $37,000 $42,050 Electronics $14,250 $20,000 Toys and Equipment for Hobbies $15,750 $19,000 Miscellaneous household items $17,000 $21,850 4
Lender Beginning Balance Loan Purpose LIABILITIES Interest Current Rate Balance Amount Frequency Total # of s Date of First BB&T 225,000 Home 3.25% $ $ Monthly 360 8/1/16 Mortgage UCCU (H) 15,000 Undergrad 6.0% $ $ Monthly 120 1/1/09 Education Federal 50,000 Graduate 5.5% $ $ Monthly 120 5/1/15 Loan (H) Education Federal 35,000 Graduate 4.25% $ $ Monthly 120 1/1/17 Loan (W) Education Wells Fargo 20,500 Toyota 4.5% $ $ Monthly 60 9/1/16 Camry Bank of 45,000 Toyota 7.5% $ $ Monthly 60 3/1/16 Utah Sequoia Chase Bank 60,000 RV 8.25% $ $ Monthly 72 2/1/13 *Calculate the amounts that are missing using TVM calculations. * The payments are made and due on the 10 th of each month. Credit Cards As of January 1, 2018 Annual Fee Interest Rate Credit Limit Outstanding Balance Min. Texaco $0 12.0% $1,000 $200 20% of Balance or $70 Capital One $135 21.5% $25,000 $10,215 7.5% of Balance or $50 Visa $0 13.0% $15,000 $0 5% of Balance or $25 Home Depot $0 19.0% $4,000 $200 10% of Balance or $20 Discover $75 24.9% $40,000 $22,419 4% of Balance or $55 * All credit cards except for the Capital One and Discover Card are paid in full every month. Assume these are the typical amounts they charge each month to the Texaco and Home Depot cards. They keep the Visa credit card for emergencies. * There are no pending charges on Discover or the Capital One Card and they do not intend to make any additional charges on these cards. They are paying down the balance of these cards by making the minimum monthly payment. GROSS INCOME (January 2017-December 2017) Martin s Salary $100,000 Jade s Salary 125,000 Bonus 8,000 Interest 15 Dividends 84 Capital gains distributions 389 Sale of Securities 1 Victory Strategic Allocation Fund (SBALX) 10,132 1. 100 shares purchased May 16, 2004 at $55.37/share and sold May 19, 2017 at $101.32/share. 2. The inheritance is not included as income, but it should be added to fund goals. 5
EXPENSES (January 2017-December 2018) Cash Flow Monthly Mortgage Utilities 400 Telephone 120 Cable TV and internet 115 Groceries 500 Food away from home 400 Daycare 450 Auto maintenance (gas, repairs, etc.) 225 Medical/dental expenses (not covered by insurance) 120 Undergraduate loan payment Graduate loan payment (#1) Graduate loan payment (#2) Auto loan payment (#1) Auto loan payment (#2) RV loan payment Minimum payments on Discover 897 Minimum payments on Capital One Card 766 Other credit card payments 400 Auto insurance 200 Homeowner s insurance 225 Life insurance 45 Disability insurance 150 Medical insurance 225 Federal and State Income Tax Withholding 5,500 Contributions to 401(k) plan 635 Clothing 350 Personal Care 250 Appliance, furniture and equipment 80 Entertainment 450 Camping Vacations 300 Emergency Expenses 350 Charitable contributions 350 Gifts 300 After School Activities 400 ** Calculate the blank fields using TVM calculations. Cash Flow Annually 6
FIN 3060 Spring 2018 EDUCATION FUNDING PROJECT #3 Your client s need your assistance with setting up an education fund as well as determining the amount needed to save for their children. Your goal for this project is to A) recommend an education funding vehicle that meets the client s goals, B) provide complete justification as to why that funding vehicle is appropriate, and C) to create a sinking fund in Excel to calculate how much the client needs to save to meet this goal. A sinking fund is an excel tool that helps you calculate accumulation and decumulation over a specific period of time to accomplish a specific goal. Use the example created in class as a template. 1. Review all education funding vehicles and determine the most appropriate vehicle for the client. Provide recommendations on which funding vehicle would be the best option (e.g., 529 plan, Coverdell, brokerage account, IRA, etc.). If you suggest a 529 plan, you should review the case and choose among the available 529 plan options to find the most appropriate plan. Compare all state plans and go into detail on your selection. You may find it helpful to use www.savingforcollege.com or any other source that you would like (please cite your sources). i. For your preferred funding vehicle, you should use answer the following (and any other appropriate criteria): Costs - Providing other criteria is met, the lower the better? What are the contribution limits? Are there state tax benefits? Is the Plan Suitable for a Particular Client who lives in a Particular State? Is the website user friendly? Underlying Investments - Easy to understand? If the plan changes their allocation is the investor stuck in that investment for a while? What kind of offerings do they have? Agebased only or can they select own investments? How easy is it for the sponsor to move or change providers? What are the management fees, account fees and underlying fund expenses? Who determines the investment selections? How often can an investor change his or her allocation? 2. Why did you choose that vehicle compare to the others? 3. Calculate how much do the client needs to save for the children s education for 5 years, each beginning at age 18. They want to fund $16,500 per child for each year of college. Assume education inflation is expected to be 4.5%. You can also determine if you want to use any of the current assets to start funding this goal. In order to find the investment rate of return, you must choose a funding vehicle and research possible returns. 4. Last, write your analysis and recommendations in a professional document to the clients as if you were their financial planner. Your write-up should have your funding recommendations, the amount they need to start saving, the timeline to meet the savings goal, and any other suggestions you can provide. Your summary should point out if they are able to meet the goals they have set and if they cannot, give them a revised goal that they will be able to meet. Be professional and explain things in a way that a client could easily understand. Include information from your excel sheet and give instructions so that your client knows exactly what to do to accomplish their goal. Don t forget to review your previous assignment to make sure they can meet all of the goals. The UVU Writing Center and the WB Writing Lab can help with grammar and writing issues. ** Make sure you complete your work within your group! Do not share documents outside of your group (including Excel spreadsheets). 1