Cashflow, Collateral, and Character [audio]
Kendall and Rebecca speak with Charley Cummings, CEO of Walden Mutual Bank. They discuss the concept of "voting with your dollars" and its impact on sustainable finance and agriculture. He shares insights on lending practices, stressing the importance of long-term relationships and understanding the unique challenges of multi-generational farms. Cummings emphasized the need for farmers to understand cash flow, accrual accounting, and amortization.
Walden Mutual Bank - www.waldenmutual.com
EBITDA = Earnings Before Interest, Taxes, Depreciation, Amortization
Women in Ag Newsletter signup - https://unhoutreach.tfaforms.net/217751?CID=701Rh00000isBOY#ae
Kendall Kunelius – kendall.kunelius@unh.edu
Rebecca Dube – rebecca.dube@unh.edu
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Charley Cummings, CEO of Walden Mutual Bank
Transcript
Kendall Kunelius 00:00
Welcome to this episode of Shared Soil, a podcast dedicated to creating community, honoring challenges and encouraging personal and professional growth for all people in agriculture. My name is Kendall Kunelius, and I'm a county field specialist for agriculturalbusiness management.
Rebecca Dube 00:24
And I'm Rebecca Dube, and I provide technology and administrative support to UNH Extension.
Kendall Kunelius 00:29
So Rebecca, today, we have a very special guest with us. I'm very honored and very excited to have him on the podcast. We have Charley Cummings, CEO of Walden Mutual Bank, with us today. Charley, I'm going to ask you to introduce yourself and just tell us a little bit about you, but I also wanted to make sure that we touched on something that you emailed me about and said, Hey, I really want to talk about this, and that is the concept of voting with your dollars. So I don't know if you want to, like, tell us a little bit about you and kind of fold all that in, but I'm turning it over to you.
Charley Cummings 01:00
Well, I sincerely appreciate the opportunity to chat with you guys today and sort of spread the gospel here on how sustainable finance enables sustainable agriculture. Quick background how I came to this - so I'm not a banker by trade. About 12 years ago now, I started a company called Walden Local, which is a brand of pasture-based meat in the northeast - work with about 100 different partner farms to produce grass fed beef, pasture raised pork, chicken, lamb, etc. Grew that business over a 10 year period or so, and started to notice that all of these farms were in need of financing, and we were also in need of financing, and there wasn't a bank that was dedicated to serving that ecosystem, the entirety of the food, AG, and maybe more broadly, natural resources ecosystem. And I thought there was an opportunity to meet that gap. And to your question, similarly as a depositor, I started to understand that it turns out finances, and in particular, where you deposit your savings, is one of the most impactful personal consumptions you make as an individual. And for a lot of us, we make a big deal about clothing and food and cosmetics and cleaning products and all of these other categories where we want to be associated with brands that represent our values. And banking is sort of this out of sight out of mind thing. But just like issues when it comes to things like energy and waste, when it's out of sight, out of mind, the consequences of our choices become someone else's problem somewhere else. And banking is even more profoundly like that than food and energy. And so I think people generally understand well, the choice is sometimes a wind farm closer to me versus a coal plant in someone else's backyard, and that's that can be a hard thing to navigate. The same is true of banking: when it's your savings dollars can be here and redistributed, in our case, with a direct line towards more sustainable entities across food, agriculture, waste, energy, or they can be deployed around the world in all kinds of ways that you may or may not agree with. But the reason that's more impactful than a lot of other decisions we make as individuals is because those dollars are relent and recycled over and over and over again. So there was an interesting study that said, from a climate change perspective, where you bank is more impactful than your choices on food, clothing, etc., that I'm talking about. To the tune of just order of magnitude, $100,000 in a bank account in one of the top three banks in this country is equivalent to the average American's carbon impact for an entire year. So that's living, eating, driving, purchasing, everything is just that money sitting in a bank account. And recognizing not all of us have $100,000 in a bank account, but just to give you a sense of even half of that, even a quarter of that, is really impactful from a climate and carbon perspective.
Rebecca Dube 04:28
That's amazing. Certainly what you're saying one of the invisible ways that you're making an impact.
Charley Cummings 04:34
Exactly, and we don't wear our bank on our sleeves, and money is sort of a thing we don't really talk about very often. But I would make the case that it is one of the most important things to consider as far as your impact on the community in the world around you.
Rebecca Dube 04:50
So that certainly might be a factor, then, if a farmer is choosing who their lender would be.
Charley Cummings 04:56
The same is true of that side too. Yeah. So [I'm] happy to talk about what that looks like from a partnership perspective.
Rebecca Dube 05:02
Well, could you tell us what a typical conversation between a lender and a farmer might be like? Like, say, a farmer comes into Walden Mutual Bank in Concord to discuss lending. What can they expect and how would that conversation go?
Charley Cummings 05:19
Well, I guess as a starting point, they often don't come here. We're not a traditional bank in the sense that we don't really have a branch here. You can certainly come and visit us, and we have some displays as far as the types of farms and entities we supported and such, and plenty of people to chat with. But for the most part, we're entirely a digitally-focused organization, which means we can take accounts from anywhere. Our lending is really focused on this region of the country, which means those conversations are occurring out in the fields. So I spend a lot of time driving around the Northeast, and so does our lending team. And I guess to describe a typical conversation with you, as all things agriculture in New England, that often starts with a conversation about hay and the weather. Are you on your first cut or second cut? And how much hay have you put up this year? And sometimes you have a blockbuster year, like we did last year, but most often it's either too wet or too dry, and so you're sort of lamenting the weather patterns. But such is life, that's what makes farming difficult. There's a lot of inconsistent inputs you're exposed to, nature and commodity prices that are outside of your control, usually on both sides of the business; it's a hard way to make a living. So that's how the conversation always starts, is just trying to understand what's going on in this growing season. And those conversations are, frankly, sort of hard to come by this particular time of year, because if it's sunny, you need to cut hay! And if it's wet, that's the time to have these conversations, because you don't want to bail wet hay. So anyhow, usually we'd walk the fields, talk about the soil condition, and if it's an animal operation, check out the cows and pigs and chickens or whatever. And that's my favorite part of the job, is just understanding what's going on on the farm. These are almost always multi-generational operations, and so understanding what the farmer is trying to accomplish from a soil perspective. And that is an interesting consideration from a lending standpoint. I'm still sort of a pretend banker, because I didn't grow up in this industry. And having worked now with a lot of people who did grow up in the industry, an interesting secret amongst banks is their greatest fear, particularly in commercial real estate lending, is that when things hit the proverbial fan, if you will, which inevitably happens at some point in a lending relationship, something doesn't go as expected. The bank's fear is that at some point the operator might just give up and say, well, this building is no longer worth more than is outstanding on the loan. Really sorry, it didn't work out. Here's the keys. That's a really bad outcome for the bank. The bank doesn't want to own buildings. Interestingly, although there are many other risks, that is not the risk in agriculture. No farmer wants to do that, and usually no farmer will do that because of this multi generational aspect of of a lot of farm entities. And they won't do it to such a degree that this is why the suicide rate amongst farmers is three and a half times the general population, because I would rather leave this earth than give this property to the bank. Sorry to bring it to such a dark note, but the point is that's just a really different lending conversation and a set of risks for the bank to consider than a normal bank lending relationship might be.
Rebecca Dube 09:05
Yeah, wow.
Kendall Kunelius 09:06
I would posit in there too that some of that really is that root conversation, that question of like, why is it so hard to talk about money? Last fall or last spring, excuse me,I taught agricultural business management at UNH the College of Life Science and Agriculture, and that was the focus question of the class. We actually used Joe's article, Joe's blog, where he asks all those questions - like, if I had to wear my net worth on a hat or on my forehead all day, how would I feel about that? Or what could I separate between money and something else? If something else could be separated from money, what would it be? And I had the students work through these questions. Really though the idea of why is it so hard to confront the feeling about talking about money? Why do we have a hard time asking farmers if they know what their cost of production is or what their margin is on anything I should say, is it profit margin? Is it your overall margin for your farm? I think there's a generational, like you were saying, that generational piece that you just don't talk about money. And it's the same thing, the same reason why you talk about hay and weather when you first greet a farmer. Because no matter how well it's going, it's always not going well, because that's just kind of like how they encounter the world. Because there will always inevitably be another piece of the business that encounters the hardship based on weather, based on the economy, based on people's buying trends - factors that are often out of our control. And I just would wonder, like, in two sentences, if you could offer your thoughts on why do you think it's so hard for us as a general population to talk about money?
Charley Cummings 10:39
I'm definitely going to violate your two sentence rule, but
Kendall Kunelius 10:43
Okay, heard, go ahead!
Charley Cummings 10:46
I think the reason that that hat question is interesting is the same reason that it's difficult to talk about money, which is our popular culture is obsessed with that being the primary metric of success/productivity/the American dream/your worth as a human being. And so that makes it pretty sensitive to talk about.
Charley Cummings 11:14
I don't know that's my hypothesis, and it turns out, particularly as you age, you start to understand that's actually not the case, and success can mean all kinds of different things to all different types of people. And particularly in the US, oftentimes, what we sell or celebrate in the popular press is really divergent from the set of values that most people start to understand are most important to them later in life.
Kendall Kunelius 11:43
Interestingly enough, one of the biggest reasons the students gave me that they didn't like to talk about money is because they felt like they just didn't know enough about it to have a conversation about it. They didn't really know what questions they should be asking. They didn't really understand what a 401K was. They were like, retirement?I'm 19, why do I need to think about that? And so I say all that to just bring us around to the next question.
Rebecca Dube 12:08
Well, the next question is about that knowledge and increasing what farmers might know. So in your experience, Charley, what are the top things, say the top three things, that farmers don't know but really should know about accessing capital?
Charley Cummings 12:23
So let me start by saying most farmers are pretty savvy about the use of debt. Most farmers, I would say, are generally more savvy than the general population as far as financial planning, generally speaking. I know that that sounds hard to believe, because a lot of folks in the business world complain that farmers don't produce financial statements often enough, and they're not run like normal businesses from that perspective. But at the end of the day, most farms are run on a cash basis, so there's a balance in your account at the beginning of the month and the end of the month, and if you end up with more at the end than you had at the beginning, you're doing okay. If you go get an MBA, they will basically tell you that in most businesses, that sort of cash flow-based approach, in a much more complex and convoluted way, is ultimately what all businesses are aspiring to. So they sort of get to the same place. It's just a much simpler analysis. Nonetheless, there are a handful of things that I think most farmers could spend more time on from a financial perspective, and one is actually the opposite side of the coin I just mentioned - the difference between cash accounting and accrual accounting. Almost all farms are run on a cash accounting basis, and while that is an important lens to view the business, as I just said, it does matter how long-lived certain assets are. So if you put up a bunch of hay and that's enough to take you through the next three years, expensing that all this year is not a totally accurate way to think about what that expense is. Similarly with capex (capital expense), like buying a tractor and such. So that's one thing, is cash based versus accrual based accounting, and the derivative of that is a lot of farms could benefit from a very solid, editable, rolling cash flow forecast. So we designed a program called our Seedlings Program that gives small loans to young farm and food businesses, and the primary deliverable of that program is a below market rate loan, but it's also a cash flow forecast that they develop in partnership with their peers as part of the program. It's amazing how powerful that simple tool can be and how enlightening it can be when, for a lot of farms, they really are not producing financial statements outside of their tax preparation.
Charley Cummings 14:56
Another one that's not well understood, that we've spent a lot of time on is, in many cases, particularly as it relates to land financing - amortization matters as much or sometimes more than the interest rate. And what I mean by that is, if you can amortize a debt on land over 30, 40, or more years, versus 10 or 20, that makes a more significant difference to the monthly payments than a point or two of interest.
Kendall Kunelius 15:30
Amortization, what is that, for the people who are like, what's an amortization schedule?
Charley Cummings 15:34
Amortization is the term of the loan. So a one year amortizing loan means you're going to pay back the entire balance of that loan with interest in one year, versus a 10 year loan, you're going to pay it back over 10 years. So this is not exactly the way the math works. But think about if a piece of property were $10, spread that over 10 years, you're paying $1 a year of principal plus the interest. Or spread it over 20 years, and it's only 50 cents a year of principal plus the interest. So that's an important tool in the toolkit, and as a bank, that was a hard one for us to address, because of our deposits. We need to match our deposits with our loans, and so we needed longer term capital to be able to make longer term amortizing loans, because that was the difference between the farmer being able to make the loan work and not. So we went out and raised a hundred-year CD.
Kendall Kunelius 16:39
Yes, I saw those!
Charley Cummings 16:41
And that was to support these longer-term farm amortizations. And for the person investing in the CD, it's not quite as crazy as it seems. So one, you're obviously doing this because of the impact profile of these dollars, like it's actually moving the needle for these farms. Two is, it's a little bit more flexible than it appears, because you can withdraw the interest portion of the dollars without a penalty every year if you want. And so just to give you order of magnitude, if you just didn't do anything for 15 years, the interest rate on the CD is such that half of the money at the 15 year mark is now interest that you can withdraw as you see fit. The money doubles in 15 years. And you can keep the principal in, keep the whole thing in so it's a little bit more flexible than it appears at first glance. It was also modeled on this thing Ben Franklin did more than 200 years ago. He bought, essentially a certificate of deposit for the city of Philadelphia and the city of Boston, just to demonstrate the power of compound interest over very long periods of time. It was a 200-year note, and the only stipulation was the city couldn't cash it out until the end of the period. And so now it's many millions of dollars. So there's sort of an interesting backstory there. So that's another thing. And then lastly, you know, this is really not true of a lot of the farmers that we work with, but it's certainly true of the sort of big boys, if you will, in the Midwest, and that's generally that those farms are mostly organized around the idea of yield. So the thing that we are trying to maximize is volume per acre.
Kendall Kunelius 18:23
Corn, bean, soybeans, yeah, grains ...
Charley Cummings 18:27
As in, like bushels per acre. And how I value my success is, did my bushels per acre match or exceed my neighbors or the county average or whatever? That's kind of silly, though, because the way most businesses measure their successes is at the bottom line, not the top line. So volume times price is what revenue is. Minus your cost is the profit. Most farms we work with are much more diversified operations that are organized around a different metric, which is generally profit per acre. And so I don't really care how, like the total volume of crop x that you produce on this particular acre, as long as you're making enough profit to cover whatever the debt cost, more than cover whatever the debt cost is on that particular acre. That is, and I think should be the new paradigm, especially for smaller farms, is that it's not just a volume thing. It's if you can produce - and the reason that's true is if you can produce a value-added product, if you can produce more products from the same acre of ground, that's a much more productive and profitable activity than just trying to bang out the incremental bushel. But we've got a couple that we just financed that grosses close to six figures on less than two acres of land, which is just like unheard of in most places of the country. So that's exactly what I'm getting at is, I guess, just being careful around what the core organizing metric of the farm is.
Kendall Kunelius 20:11
I love that. I'm in complete agreement with you. So you mentioned you just financed a couple. So in that same idea, there's this great quote from Dave Bishop, who's actually from Farm Credit East. But he says that "capital is fuel that can either propel you forward or burn you down." So what are some ways that you can help a farmer understand the difference between being propelled forward by capital or burned down by it, and how can a farmer self-assess for debt capacity?
Charley Cummings 20:39
So there's definitely a thing to being over leveraged. That is possible. But I would quibble a little bit with a quote in the sense that it's usually not the debt itself that causes the problem. It's that you gave yourself a very narrow margin of error to operate within. And so again, when things inevitably don't turn out exactly as planned, then the debt becomes a problem because you can't quite make the payment. But even in that case, it's not the debt itself that's the problem the debt is supporting, usually a purchase of something, or production of something. And there was something in that math that was off in the first place. Let me say that differently. I mean, even without debt as part of the equation, there is such a thing as off balance sheet debt. In the case that - we were talking about hay earlier. So let's say you decide you've been renting a baler, a hay baler, for the last couple of seasons. And this season, you say, I'm going to actually do all of my own hay, plus my neighbors, and so I can justify buying a baler, and I have enough cash in the bank to do that. So you don't even take out debt and you go and buy a baler. But now the weather this year turns a lot drier than it was the prior year, and suddenly you're putting up 30% of the hay that you put up last year, and the whole equation falls apart. So even though you don't have any debt on that baler, you've now put up 30% of the inventory that you intended to put up, but you have 100% of the costs associated with that baler. When instead, if you rented that, you would have had about 30% of the cost of the baler, because you wouldn't have used it as much. So that's why I would argue it's not the, it's usually not the debt itself. It's more the decision to purchase a particular asset or produce a particular product. That being said, you can still- back to where I started - you can still be over-leveraged. And so the basic rule of thumb there is, you look at the actual cash flow, usually in the form of EBITDA. So that's earnings before interest, taxes, depreciation, amortization. So it's basically a proxy for how much cash did you produce outside of those types of expenses. Generally, you want to have about 1.2x more than the total of the debt payments. So in other words, you get about 20% flex as far as what you can cover on the debt side.
Kendall Kunelius 23:23
I think that there's a lot to be said about having a really good idea of where you are financially. But your point about the cash flow being one of the outstanding financial statements is really resonant with me. And especially because I think farming, like we've said, is so seasonal, so dependent on the seasonality. And I think there's a lot of decision making to be made there too, in terms of wealth-generating expenses and capital expenses. So I'm gonna kind of use that as a transition into the next question. Sometimes in the winter, if we don't have any off-season activity happening, it can look a little scary, because the cash flow drops right off. So making decisions around taking on debt even when you can afford those payments in the off season is important too, but having that context really tells you a lot. Numbers themselves don't often lie, but rather, the framing around the numbers often creates that context that shows the significance of the figures. Seth Wilner from Extension quotes Verne Grubinger from UVM Extension, and the quote is, "there's no numbers without stories and no stories without numbers." Can you give us some examples of how a farmer might look at their numbers and then craft a narrative around those figures to help give meaning to a black and white Excel sheet? That cash flow statement in December versus June is a great example of that. How do numbers versus narratives influence your decision making on a farmer's level or at the lenders level?
Charley Cummings 24:49
Yeah, that's a great question, and I think this is true of a lot of businesses, in the sense that you can't interpret the number without that broader context. However, it is particularly true in farming, because nature abhors a vacuum, and so agriculture, by virtue of being exposed to nature, is always in a state of change, and most farmers have pretty dynamic operations in which they're constantly tweaking things. They're constantly investing in one thing and and divesting from another thing. One of my favorite farmers is up in Hardwick, Vermont, and I bought pigs from him at Walden Local. And at the same time, he had an organic dairy business, and over time, he's moved away from the pig business and really focused in on growing the dairy business. And as a result, if you look at his financials in the midst of that transition, there's a lot going on. Because one, he's purchasing a piece of property as part of a generational transfer from his father. And so if you're looking at his financials, you can look at what he's paying on that lease, and that goes away as far as what you're forecasting for the future, right? But also he has a bunch of pork inventory that he gets the benefit of selling through in the following season that's already been expensed from before. So that's a sort of different consideration. So if you're looking at the past financials, you're burdening it all with that expense, but not all of that product is sold yet. So there's a lot of adjustments. And he's also growing his herd on the dairy side. And so a lot of those investments have been made, and he's got a huge excess of feed that he's put up in anticipation of growing that herd, and so you can't really interpret the financials any other way without understanding that larger context and story of what's going on. Now you can certainly take that too far, and we see this in Silicon Valley. Quite a lot companies use these crazy, made up metrics that I talked about EBITDA before, but there's EBIDAM and all kinds of other letters added on to that acronym. And remember that the acronym starts with earnings before, right? So the more letters that you layer on, the more costs that you're just pretending that they don't exist. That's historically been a pretty ripe area of corporate fraud, is going through a bunch of expenses and saying, Well, this is a one-time unusual expense, and so you shouldn't consider that material from an investment perspective, et cetera, et cetera. So sometimes that can be true of farming too, is one time expenses come up, a worker's comp thing or a random one-time capex expense that you wouldn't expect to be ongoing, all kinds of things. I just mean to say you can certainly go too far in that analysis of making it look too rosy. But on the other hand, if you don't have that context, you would often miss an opportunity to support a farm that is otherwise really sound from an underwriting perspective.
Charley Cummings 28:12
So anyway, all that is to say it is a really important consideration, and there's a big push amongst big banks in particular to increasingly automate small business and small farm loans. And I don't really see how you do that, given the particulars. As an example that I just gave you of this farm up in Hardwick, that's not something you can really tease out without understanding that there's a human behind the scenes making decisions on these types of things. And there needs to be a human on the other side of the table making a judgment around what counts and what doesn't. And maybe AI will get there to a point of being able to incorporate all of all of the stuff I just discussed, but that's certainly not today. So I'm a believer that for the foreseeable future, particularly in ag, but maybe small business lending, generally speaking, has to be this relationship-based conversation that is really trying to understand, what is the operator trying to accomplish? Do we believe the case that they're making to get from A to B and are they of good character? Lenders talk a lot about 3 C's or 5 C's or six C's, depending on who you ask. But the three core C's are cash flow, collateral and character. Cash flow we talked about is the cash flow enough to cover the debt payments? The collateral aspect is, if things go wrong, are there enough assets that could pay off the loan? And the character side of it is more nuanced. And in this particular case, the reason this farmer I mentioned is one of my favorites. He and his wife have adopted, I think, six children now, all of whom were born to drug addicted mothers. And their dream is to have at least some of the children take over the farm. And I think that would be the fourth generation on this piece of property. And so there's obviously a really strong character behind this operation. And that is not something that can be spit out of an automated model. Because like I said, it's that type of commitment. There is no risk of this particular operator just deciding, yeah, this is not going to work anymore, right? There are plenty of other risks associated with the loan, and so I don't mean to suggest that those are not present. I just mean that that particular risk is not there. And that's really what the character side of the loan equation is, is trying to assess, you know, when things get tough, is the operator gonna be a good partner in trying to figure out what's next?
Kendall Kunelius 31:05
And to add to that too, one thing that I thought was very interesting, as I was reading through your website. I went on your staff page, and I was reading everyone's bios and seeing everyone's history and experience. One thing that really stuck out to me was it seems like a lot of these folks had the type of experience or insight that they could actually empathize with the people that you're lending to, rather than just sympathize. They've either been in those shoes or they understand that kind of conversation or that nuance. And I would just wonder, from a farmer's perspective, how much feedback or what have you heard from your farmers about that aspect of lending in in farm terms. I guess what I'm trying to get at is, you know, money is such a cold, objective thing. What does it feel like to the farmer when they know that you've added a human aspect to that?
Charley Cummings 31:54
I guess I would just say they're not transactions in the same way that occurs in a lot of other areas of banking, like, if you're trying to finance a building, you might send a PowerPoint presentation to half a dozen banks and have a few meetings and present it, and either people decide they like the math or or they don't. And of course, there's some element of is the developer credible or not, but largely it's a mathematical equation, and farms are just different. These are long - I've known this farmer I mentioned for 10 years now, and farmers are, I think, sort of used to being taken advantage of by big businesses and so generally skeptical, rightfully so, of new relationships. So this multi-generational transfer I'm describing is less of a transaction and one more event in a long term partnership, as far as us just trying to be helpful in facilitating the future success of of the farm. I don't know if I totally answered your question, but there's a huge distinction between facilitating a transaction and really leaning into a relationship. I think we also - the benefit of being an ecosystem lender is trying to be helpful beyond the loan itself. So all of our individual depositors are the same folks going to farmers' markets and going to events at these farms, and they want to be engaged. They're the ones that are going to buy the t shirt at the family pizza night and come and check out the farm at the field day you host in the fall. And so being able to sort of marshal that larger community is a big part of what we're aspiring to do for our farm partners. And frankly, one of the more impactful things we are trying to accomplish as far as connecting those two sides of the bank balance sheet. So it's been a long time since people really thought about, when I put my deposit dollars in the bank, they don't just go into the safe, they go somewhere else. And this is where people tell me, I sound like Jimmy Stewart from It's a Wonderful Life, but it's literally like "her dollars are here and his dollars are here and her dollars are here, and if he pays back the loan, that's what gives you interest, which in turn gives her interest." And that's what a bank is supposed to be in its purest conception. And so in our case, it's specifically focused on this community for a reason, because it's no longer someone else's problem somewhere else. It's your dollars right here in your backyard, contributing to something that I think we all want to see in our community.
Rebecca Dube 34:49
That's amazing.
Kendall Kunelius 34:50
Yeah, it makes me think of the first time I went to a bank as a little kid. I had my bag of coins or whatever, and I'm walking up to the bank and I'm like, "Mom, what's going to happen to these?" And she's like, "Oh, well, they go into the bank" or whatever. And I'm like, "okay, but when I take the money back out, do I get the exact same coins? Like, how do they know it's my money?" I remember asking all these, little kid-type questions about finances. I'm very lucky to come from a small business family, and we talked about money a lot, so I heard a lot more of these terms. I've grown up talking about money a lot more than maybe some folks have. I'm kind of curious, for the folks who haven't grown up in that sort of business lifestyle, where would you point them to get good financial literacy help, or what resources could you - I mean, I kind of want to expand it beyond farmers, because I think, I think there's a bigger issue at play here. But where could people go if they really wanted to get savvy about financial terms, personal finances included?
Charley Cummings 35:48
That's a great question, and I don't know if I have a good, ready-made resource for you. That's something we aspire to do, longer term, is engage folks in those types of conversations. I guess I would say your local bank is a really good place to start, because that is often the mission of small banks, or a component of what they do is try to provide financial education to their members, particularly credit unions, spend a lot of time on that. Okay, the other thing I would say is, and it sounds like your family did this, you've got to start young, and no age is too young. I have three little kids, and they each have their own bank account. They're two, five and seven, and my seven year old is a saver, through and through, and so she just wants to know what is the interest, and she will never withdraw a dollar.
Kendall Kunelius 36:40
Really!
Charley Cummings 36:42
Yeah. So I think she, I think she has $200 in her account at this point. And that's not all from the tooth fairy. I think I seeded it originally with something close to that.
Kendall Kunelius 36:52
That's a lot of teeth, if not!
Charley Cummings 36:57
Our middle guy has $0 in his account, and he walks around just saying, "I spent all my money on candy!" And the little guy is still starting to get the picture of what this means and such, but seeing his brother and sister is a big part of understanding that. So it's never too young to start. That being said, I am also cautious about - this is sort of where we started the conversation and what we celebrate in this country. I'm very cautious about making that the focal point of everything. You know what I mean. So this is a conversation we have. It's important that you understand this, but especially for my daughter, because she's a saver through and through. It's like, I don't want your life to revolve around this number. At some point, you know, you actually should withdraw some money and do something that makes you feel happy, or, even better, makes someone else feel happy. It's important to communicate it as a tool as opposed to a goal in and of itself, or you risk getting lost in this being the end-all be-all goal of your your life.
Kendall Kunelius 38:14
Hmm, that's interesting. So reflecting on that and jumping in on that idea, it would be like learning the lessons along with it, right? So like the math piece of it, but also the saving aspect, or the self discipline aspect of the saving, or just good decision making. One of the other questions I posed to the students in that class I taught was, is there really such a thing as bad debt, or are there bad decisions? And so we talked about the decision-making process that goes into purchasing an item, personally or for your business, and we talked about using credit cards and the idea of building credit, but also what happens if you don't have enough money to pay that off. I think maybe what I love, what you were saying about money as a tool is everything else that goes along with it that opens up these really big conversations about how we go about our lives, how we live our lives. And then that gets me right back to the thing we started with, voting with your dollars, right? If you are going to make a decision to spend something somewhere, or some amount of money somewhere, what exactly is it that you're buying, and what impact is that dollar going to have on the item that you're then receiving?
Charley Cummings 39:19
Totally, I think that's a really good point, and I'm curious what you teach in the class, but I think there is absolutely a distinction between bad debt and bad decisions. But I think both exist. So you can make a bad decision, but if you have the right debt around that decision, it won't be catastrophic. It won't kill you. You can also make a good decision and use the wrong debt and have that somehow be catastrophic. So there's a big difference between a loan that is in the single digits and a loan that is north of 20%, and people don't realize that is the APR you are paying on your credit card. The vast majority of the time, credit cards are the worst source of debt you could utilize. Similarly, someone came and asked me the other day, "I made a few 1000 extra dollars, and I'm scared about the valuations in the stock market these days, and I think I will need the money. So I don't want to risk it going up or down by a huge amount. I'm thinking about just paying off my mortgage." We talked through it, and their current mortgage is less than 3%. You could just put that money in a high yield savings account, or even turn around and open a treasury direct account with the US Treasury and buy US Treasuries directly and make, I think, four three right now, 4.3%. So you're better off not paying off that mortgage and just earning the difference between those two interest rates until interest rates swing the other way. And then it might make sense to pay that off. But there are tax considerations of that too, like you're getting a tax credit for the interest payments on that primary mortgage. Anyhow, there are easy pieces of it: don't use a credit card to finance a long lived asset. And there are really hard nuances of it, like the one I'm going through now, of like, well, there's taxes, there's when do you need this money? What are the various interest rates? But the simple pieces are worth everyone having a shared understanding of, and I think we're probably a long ways away from that, because it's not something you really learn in secondary school or college.
Kendall Kunelius 41:38
Life is a great teacher.
Charley Cummings 41:41
It is. I think my biggest lessons were learned. I don't know why I did this. I'm a glutton for punishment, or somehow found it enjoyable, but I started filing my own taxes on a piece of paper with a pen when I was 16, when I had my first job. Actually, I might have been 14, and I was working at a fried clam shack and scooping ice cream. I'm not sure I could even do that today if, even if I just had a simple 1040 because it's gotten so complex. I'm sure you might miss something. But I would recommend all teenagers go through that exercise. Don't use TurboTax, don't use online software. Just literally go through the book with a pen, and you will be amazed at the crazy stuff that is in there, in the tax code. It's a good set of life lessons. And then you don't have to after you do it once, you don't have to do it again.
Kendall Kunelius 42:35
Actually, my husband, used to do that when I first met him. He was 26, 27 and still filing his taxes on paper.
Charley Cummings 42:42
I'm telling you, it's very enlightening.
Kendall Kunelius 42:44
Maybe taxes are a follow up episode! I don't know, Rebecca, I'll add it to the list!
Kendall Kunelius 42:53
Awesome. Well, Charlie, we are just so appreciative. Thank you so much for your insight, your really great stories, your interesting examples. I'm really excited to see what people think of this episode, because we haven't really done, a heavy business.We've done marketing, but we haven't really gotten into the nitty gritty business stuff. And this was a great first episode to dive in with it. So thank you so very much.
Charley Cummings 43:13
My pleasure. Thanks for having me. It was fun.
Rebecca Dube 43:15
Thank you. And we will be talking with all of you again on the next episode of Shared Soil.
Kendall Kunelius 43:26
Shared Soil is a production of University of New Hampshire Cooperative Extension, an equal opportunity educator and employer. Views expressed on this podcast are not necessarily those of the university, its trustees, or its volunteers. Inclusion or exclusion of commercial products in this podcast does not imply endorsement. The University of New Hampshire, US Department of Agriculture and New Hampshire counties cooperate to provide extension programming in the Granite State. Learn more@extension.unh.edu.
Transcribed by https://otter.ai. Edited by Rebecca Dube.
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