Meet the Marcottes, Martin and Luz Marcotte that is. Martin is a successful graphics designer who is 38 years old, while Luz is a counseling psychologist, 35 years old, and is working at a State facility in Kansas. They have an 11-year-old daughter Paloma, who is in the fifth grade, and a three-year-old son Joel, who goes to the nearby daycare center. The Marcottes will be facing numerous challenges as the financial planning topics progress, which will require you to practice sound financial decision-making, and in other instances where there is a sufficient time horizon, some prudent financial planning. Currently, Luz is finishing her doctoral program in Psychology, while maintaining a part-time status at the Rehabilitation Center where she works. The Marcottes own a home, and two cars, have approximately $10,000 saved up in various savings and investment accounts and own some assets around the house. They are also vested in their 401ks, totaling $15,000 that they maintain at their respective places of employment. Presently, there are some financial issues facing this couple, they have not addressed.

Although they both have jobs where they make decent salaries, they have not really thought about their children’s educational needs. Inflation in the cost of a college education is a reality for most parents, which has to be kept in mind when planning for the future. Moreover, Martin’s mom who is in her late seventies, has been facing declining health, and will not be able to live by herself, like she has been, for very long. Luz, who is originally from Peru, also sends regular amounts of money to her family, but her folks are also aging and may need some financial assistance in the future. Lastly, since they lead a fairly hectic lifestyle, they have not given much thought to their own retirements, or the possibility of how they would handle a layoff from work.

QUESTIONS –5 pts each

1. Presently, what are the areas of financial concerns that the Marcottes are facing?

2. Marcottes are making some financial decisions that will help them in the future. What are those in your estimation?

3. Presently college education is increasing at the rate of 7% per year. If currently college cost is running at $21,000 a year, what will the Marcottes need to have saved up for Paloma in 7 years and for Joel in 15 years? Assume that the Marcottes are in the 25% tax bracket, and 6.5% for the State taxes. Furthermore, you can assume that the Marcottes can earn 1% on their investments. You can use a financial calculator or the TVM formulas to find answers to the following:

a. How much will they have saved given their current $10,000, assuming they presently can only save $100 per month for educational funding? i. By the time Paloma leaves for college?

ii. By the time Joel leaves for college, assuming they do not use savings for Paloma?

iii. How much would college cost for Paloma’s first year?

iv. How much would college cost for Joel’s first year? v. What is Paloma’s college cost shortfall?

(iii. – i.) vi. What is Joel’s college cost shortfall? (iv.-ii.) vii. What are some saving programs and tools that the Marcottes might consider for these goals?

Referring back to the Marcottes, consider the situation where Martin has been told by his boss that due to lower sales the company is anticipating layoffs. After getting the word Martin came home and talked to his wife and the kids. They decided to make up a list of 3 things.(1) bills they have to pay each month (2) areas where they can reduce their spending and (3) sources of funds to help them pay current expenses. Each family member has several ideas on how to cope with the impending financial situation. Currently, Marcotte’s monthly take-home pay is $3,165. Each month, the money broadly goes for the following items: Rent $880 Utilities $180 Food $560 Auto Expenses $480 Clothing $310 Insurance $280 Savings $250 Personal Items $225 After Martin is laid off, the monthly income will drop to $2,250 from his wife’s income and his unemployment benefits. The Marcottes have $10,000 in various savings and investment accounts for the children’s education. Besides this, they have about $15,000 in their retirement accounts and investments.

Questions: -

1. What items might the Marcottes consider reducing to cope with their financial difficulties? Show their REVISED Budget, with identified cuts, for full credit!

2. How should the Marcottes use their savings and retirement funds during this financial crisis? What additional sources of funds might be available to them during the period of unemployment?

3. What other current and future financial actions would you recommend to the Marcottes?