The Investing For Farm Families Curriculum for Educating Farm

Families

Jason Johnson, Tim Eggers,

Bob Wells, Ruth Hambleton

The project is guided by a team of 14 members from 10 states and USDA/CSREES.

What the ultimate impacts are

Targeted audience will become more financially secure

LOGIC MODEL: FINRA Online Investor Education Project

Outcomes

Actions

InputsSituation Activities

Knowledge

What we invest

(FINRA) Financial Investor Education Foundation

Financial Security for All Community of Practice

Online Investment Education (OIE) Investing For Your Future (IFYF)

Remote-Learner (Instructional Design)

Fleishman-Hillard (Marketing Analysis)

eXtension Faculty and Staff

Annie’s Project staff

What the short-term results are

Obj. 1: 50% of participants will have an increased knowledge & understanding of investing as a path to financial security

Obj. 2: 50% of participants will understand asset-building alternatives to land ownership

To see specific knowledge questions/indicators, go to: http://tinyurl.com/IFFindicators

Description of challenge or opportunity

- Farmers face increasing challenges from a volatile and changing production environment.

-Farmers face many risks toward the continuation of their way of life: Financial; Human; Legal; Price/ Market; and Production.

- Gaps exist between available educational information and the needs of this audience.

- Objective and trustworthy information regarding financial management products and services and investment strategies are difficult to access.

EXTERNAL FACTORS - External variables that could influence this project ‘s target population include the stability of financial markets, controlling for natural disasters, Federal government regulations

What the medium-term results are

Obj. 3: 25% of participants will change at least one behavior relative to investing and improve their financial security

50% of participants will determine their long range financial goals and investment plans

50% of participants will diversify their investments to include additional off farm/ranch investments

To see specific behavior questions/indicators, go to: http://tinyurl.com/IFFindicators

Conditions

ASSUMPTIONS- This group of people will want to learn about investing and have an interest in creating wealth other than land development and usage

What we do

Partner with Fleishman-Hillard for market analysis

Partner with Remote-Learner to create online Curriculum

Pilot test IFYF with Annie’s Project participants and adapt curriculum

Deliver online curriculum

Measure outcomes

Evaluate program

Outputs

1/07/2009

Who we reach

Small farm family operators who gross sales of $250,000 to $2,000,000 per year

Owners/Operators who are Farmers, Ranchers, Forest Managers

Males/Females Ages 25-65

Have access to internet

Have limited personal investments off farm

Primary and secondary research was conducted for the marketing/audience analysis.

Total land in farms, at 930.9 million acres, decreased 1.5 million acres, or 0.16 percent, from 2006.

– Telephone survey of farm families.

• 300 farm families from 43 states, 255 counties.

• List provided by FarmMarket ID.• Once contacted, 30% agreed to

participate.• Cooperative Extension identified

as sponsor, helping cooperation rate.

• Interviewing conducted in early August, 2008.

– Two telephone focus groups were conducted following the survey.

• 14 participants• 90 minute discussions• Recruited from same list as

survey respondents• Conducted mid August 2008

The survey research interviewed farm and ranch owner/operators 25 to 65 years of age involved in household financial decisions.

The number of family farms has decreased to 155,000 in 2008 from 300,000 in 1950.

The survey sample of 300 farm families was designed to focus on operations of intermediate size ($250,000 to $2,000,000 sales).

Younger farm owner/operators were slightly oversampled.

The respondent was screened to be involved in making decisions about your household’s personal finances. As expected, a majority of participants were women.

Quotas were set to get a representative sampling by geographic region.

Two-thirds of respondents have broadband access to the Internet.

Keep in mind that all respondents were screened.

In the West, half rely on satellite.

In the North Central region, DSL is the leader.

The age of the farmer is not related to his or her use of dialup Internet services, however education does; 42% of those with no college education use dialup compared to 26% of those with a college education.

North Central

North-east South West

Dial-up 32% 28% 25% 32%

Satellite 27% 6% 29% 48%

DSL 34% 31% 28% 24%

Cable 4% 19% 6% 2%

Households just below commercial farms ($100,000-$249,999 in sales) represent 8 percent of U.S. farms and produce 17 percent of sales. (USDA)

Q25. Do you connect to the Internet through a dial-up telephone line, DSL, cable TV, a wireless or satellite connection, or a T-1 connection?

*Less than one-half of one percent

Three-fourths of respondents browse the Internet.

Since households were screened for Internet access, this level of activity is not a surprise.

Women are more engaged in the Internet than men. Some comments suggest this is an artifact of having time available near the computer to use it.

Larger operations are more likely to use the Internet for financial research.

Men Women

Read and respond to e-mail 65% 86%

Browse Internet 65% 81%

Farm sales

< $499k $500k +

Check value of investments 30% 42%

Conduct research on possible investments 27% 36%

In 2003, median wealth of farm households ($416,250) was five times

the estimated median wealth of all U.S. households ($89,578). (USDA)

Q26. Do you use the Internet regularly, occasionally, seldom, or not at all to do each of the following activities?

Three-fourths of survey households have a retirement account.

In 2008, average farm operator HH income is projected to be $89,434, up 6.3 percent from 2007. (USDA)

– This increases to 84% among those who feel they have an excellent or good investment plan in place.

– Half have individual stock, bonds, or securities, an indication of involvement in the stock market.

– One-fourth (25%) are vested in retirement accounts, stock, and mutual funds versus 15% in none of the three.

Q11. Do you or your spouse have each of the following or not?

Invested in retirement funds, stocks/bonds, mutual funds

None of them 15%

One 28%

Two 33%

All three 25%

Farm families have access to financial advisors and services.

About 50 percent of North Carolina farmers indicated they never plan to retire (NCTTF survey).

While some farmers may not have made use of financial planning resources, it is clear they are available.

Note that more have worked on a financial plan for their farm as have worked on a personal investment plan.

Two out of five indicate they have learned about investing from classes since leaving school and 33% have attended a retirement seminar.

The 38% who have learned about investing from the Internet are highly relevant to OIE.

OIE leads seven suggested methods for education on the basics of investing on willingness to use.

In Iowa, 71 percent of farmers had not chosen any successor to their operations (average age: 54 years).

– The appeal of OIE is tied to the trust farm families have in Extension and the flexibility of the online approach.

– The appeal of face-to-face interaction with people they know and trust is reflected in the second most popular option.

– The last place finish (the high-school option) may be attributed to its inconvenience and interaction with strangers.

Financial

Estimated Expenses and Emergency Cash Reserves

Worksheet

Integrate Balance Sheet / Net Worth

Exercise

Asset Allocation Worksheet

Review your Personal Credit

Report

Evaluation of Financial Account Alternatives and

Service Providers

Human

Risk Tolerance Quiz

Personal Insurance Needs Assessment

(Health, Life, Disability)

Retirement Estimator for Farm

Families

Financial Advisor Questionnaire and

Response Key

Legal

Emergency Preparedness

Document

Asset Management Transfer Plan

Estate Plan Preparation Worksheet

UCC Lending Report

Production

Crop Insurance Alternatives

Production Technologies

Price/Market

Individual or Pooled Marketing

Alternatives

Pre- and Post-Harvest Marketing

Alternatives

Futures/Options

Input Price Management

Risk Management Areas and Activities to Address Them

The Investing for Farm Families online course is organized into eight short lessons that are anywhere from 10-15 slides long.

The progression of topics is entirely consistent with the approach than just about every financial planner would prescribe.

There are differences to address the unique issues affecting farm/ranch families.

"Investing for Farm Families" was designed to address these issues and demonstrates how to addressed them within the broader financial planning framework.

Investing For Farm Families

The design enables participants to go through the short topics at their own pace or pick and choose individual topics.

While the course was designed to go from beginning to end in a sequential progression, it is not a requirement.

Within each of the eight lessons, are individual and applied

exercises that a participant can complete.

These will help the participant assess their current situation

and consider alternatives to construct an effective investment plan.

Investing For Farm Families

The Live Debt-Free Champions

The “Build Wealth” Champion

NEVER!

Beyond Step 4: (and including your contributions to Step 3) – Invest in a Diversified Mix of Stocks, Bonds, Real Estate, Precious Metals, Natural Resources through Exchange Traded Funds at a Discount Brokerage

NO! Highest Interest Rate 1st

529 Account or Brokerage

Modifications to the “Debt-Free” Path

What percentage of women end up managing their own finances at some point in their lives ?

a. 60%

b. 70%

c. 80%

d. 90%

What percentage of women end up managing their own finances at some point in their lives ?

a. 60%

b. 70%

c. 80%

d. 90% - Divorce, Widowed, Live Longer

Most Americans save what percentage of their income ?

a. 20 %

b. 15 %

c. 10 %

d. 5 %

Most Americans save what percentage of their income ?

a. 20 %

b. 15 %

c. 10 %

d. 5 %

What’s Different About a Farm Family’s Financial and Investment Plans?

• Personal and Business Resources are often Combined.

• Feast/Famine Nature and Resource Intensity of Agricultural Enterprises.

• Land Ownership and the Asset Allocation Implications.

• Estate Planning and Transfer Decisions are both Personal and Business Oriented.

What’s Different About a Farm Family’s Financial and Investment Plans?

– Many farm families do not have investment plans in place.

– Many farm families are uncomfortable investing in the stock market.

– Diversification is a difficult investment principle for farm families to implement.

Farm families are comfortable investing in farmland.

Trends in the prices for farmland reinforce their allegiance to the land as an investment over stocks.

Most farmers do not expect to retire as much as cut back the scope of their operations. This has significant implications for investing strategies.

8 Steps to SuccessfulInvesting for Farm Families

• First Things First: – Organizing Your Financial Information

• Investment Prerequisites:– Laying the Groundwork

• Debt Management and Credit Considerations for Farm Families

• Finding Money to Invest

8 Steps to SuccessfulInvesting for Farm Families

• Determining Your Asset Allocation and Risk Tolerance

• Evaluating Investment Products and Agriculture Oriented Alternatives

• Evaluating Financial Service Providers and Information Sources

• Investing for Retirement and Farm Succession Planning

Organizing Your Financial Information

Understand the importance of having organized financial records

Location of important financial documents and contact information

Adequacy of cash reservesAmount of debt being carriedPercentage of total household assets invested

in the farm business

Complete the Emergency Financial First Aid Kit.Organizational tool for important accounts, contacts, account numbers, and policies.

Beneficiaries are reviewed for relevant accounts.

Emergency fundCreate an adequate emergency reserve fund

Adequate insuranceLife insurance

coverage gaps?

Importance of crop insurance risk management as a wealth-building tool

Financial goalsDetermine specific personal/family financial goals with a date

and estimated cost“Invest with a plan" when money becomes

available

Investment Prerequisites:Laying the Groundwork

Complete the Estimated Expenses & Emergency Cash Reserves Worksheet 

Objectively Evaluate and Assess Insurance Needs (life, health, disability, etc.)

Investment Prerequisites:Laying the Groundwork

Organized financial recordsBalance Sheets

Have tools to record important household financial data including the value of assets and debts

Have a better understanding of relationships between personal and farm finances

Learn how non-farm investments can provide an opportunity for asset diversification

Complete an Integrated Business Balance Sheet & Personal Net Worth Statement.

Understand debt and credit in ag. businessesDetermine "good debt" and "bad debt”Importance of regularly examining your

personal credit reportCommon sources for farm creditKnow how to access information

describing liens against personal property

Debt Management and Credit Considerations

The Average American Family Has:• $6,892 in Credit Card Balances.• On 9 different Credit Cards.• Average consumer credit card rate: 13.88% • Average student credit card rate: 14.45% • Average business credit card rate: 10 - 11%

Credit Cards

Nearly 144 Million Americans have general purpose credit cards.

Approximately how many of them pay off their bill in full each month ?

a. 35 million

b. 55 million

c. 90 million

d. 115 million

Nearly 144 Million Americans have general purpose credit cards. Approximately how many of them pay off their bill in full each month ?

a. 35 million

b. 55 million – 38%

c. 90 million

d. 115 million

24% of cardholders make only the minimum payment each month

Obtain a free credit report detailing personal credit history and credit accounts. www.annualcreditreport.com

Obtain UCC (Uniform Commercial Code) Lending Records to determine if personal or business property has been pledged or is encumbered.

Finding Money to Invest

Understand unique cash flow considerationsDevelop investment strategies fitting cash flow

patternsLearn about investments suitable where

infrequent large sums become availableLearn strategies to "find" money to investLearn about small dollar investment products

Risk Tolerance andAsset Allocation

Personal Investment Risk ToleranceDetermine appropriate investments

Investment value of land ownershipAsset allocation and farm familiesAlternative asset classesPortfolio approach

Complete the Investment Risk Tolerance Quiz (for each financial decision maker in the family/operation).

Asset Allocation in a Portfolio Approach Framework

Complete the “Ideal” and “Current” Asset Allocation Review.

Ideal Allocation Current Allocation

Evaluating Investment ProductsAgriculture Alternatives

Equity investmentsFixed-income investmentsMutual fundsLearn about farmers' off-farm investmentsUnderstand the benefits of investment diversification

with uncorrelated assetsLearn investment strategies to hedge against the

production cost risks of an agricultural business

Evaluate alternative Individual Retirement Account (IRA) types for individuals and alternative retirement plans for businesses.

Evaluating Financial Service Providers

Checking AccountsSavings AccountsCD’s Brokerages

Match needs with best providers.Local service, best rates, best products, fees

Savings Account Options

Rule of 72Money doubles after only 1,440 YEARS!!!!

www.ingdirect.com

www.emigrantdirect.com

www.hsbc.com

On-Line Savings Banks

Evaluate “on-line” and “brick and mortar” money market, certificate of deposit, savings, and checking account options.

Evaluate local brokerage and “on-line” discount brokerage options.

Investing for RetirementFarm Succession Planning

Understand retirement planning for farm families

Available IRA retirement investment plansUnderstand the process of estate planningUnderstand generational differencesfarm transfer decisions

Understand common concerns about farm transfer decisions.

Complete the Estate Planning Questionnaire and Farm Asset/Management Transfer Plan

Complete the Retirement Estimator for Farm Families

Evaluate Potential Financial Advisors using the Financial Advisor Questionnaire

For More Information

• For course materials, enrollment, and resources, go to: www.extension.org/pages/Investing_for_Farm_Families

This project was created to reach farm families nationwide with investment information that is relevant to their needs.

It was funded with a two-year grant to the eXtension Foundation from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.