When someone who has accumulated debt across a number of credit cards embarks on the journey to rid himself or herself of this debt, and when that person is generating enough monthly income to cover all expenses and the minimum payments due on all cards with additional funds left over, there are two main philosophies describing the best way to achieve this goal. Although all approaches are good, there is no question where I stand on this issue.

I suggest following the path that affords the opportunity to get rid of debt as quickly and as cheaply as possible. This method has many names, but I’ve called it the Debt Avalanche in the past. The opposing viewpoint is the Debt Snowball, popularized by author and guru Dave Ramsey. This method suggests paying off debt in such a way that it might take more time and be more expensive but offers “quick wins” which help some people gain encouragement and momentum at the earliest stages of the process. And there are, of course, many points of view that present a compromise between these two extremes.

The snowball approach to debt reduction

By ordering your credit card debts from lowest balance to highest balance and paying the minimums to all except the first on the list each month, you will pay off your first debt sooner than by following any other method. If you need encouragement to continue your journey as you pay off debt, you can celebrate after your first credit card has a zero balance.

Not everyone requires this type of extra motivation for paying off debt. Additionally, even those who need extra motivation may not suffer by choosing a cheaper and quicker method of paying off debt. The “quick win” of paying off the first debt could come just as quickly by using the Debt Avalanche. But even if the first payoff doesn’t come as quickly, you can redefine your first milestone to allow yourself helpful celebrations as explained in the next section.

J.D. Roth from Get Rich Slowly has seen success with the Debt Snowball approach, as have many others. It is the most widely marketed philosophy.

For an illustration of the monthly process of sending minimum payments to all credit cards except the one on top, regardless of how the debts are ordered, see this visualization from No Credit Needed.

One major problem I have with the above snowball approach is that your largest balance may be significantly more expensive than your smallest balance. Today it is not difficult to find a default interest rate on a credit card north of 30%. There is no way in good conscience I could recommend holding off on eliminating a debt this expensive in favor of paying off a small balance with a 7.9% interest rate. The same goes for payday loans, whose fees can border on usurious if interpreted as interest rates.

The avalanche approach to debt reduction

There is no question that anyone who follows this alternate approach to its conclusion will have emerged from debt sooner and by paying the least amount of interest possible. Some people argue that it is not as likely for someone to follow the Debt Avalanche through, but there are no data to support this. By ordering your credit card debts from the most expensive (highest interest rate) to the least expensive and paying the minimum each month to all cards except the first on the list, you reduce your interest payments quicker.

Since this is a mathematical approach, critics say it doesn’t take into account the emotions that come into play when dealing with money. It is true that emotions — your feelings about money — play an important role in financial decisions, and although this is a mathematical approach, how you feel about money still is represented in this method.

• If you follow the Debt Avalanche method, you can feel good knowing that you’ve made a sound decision and will spend less money than others who take a different approach.
• You can motivate yourself throughout by creating your own milestones for achievement, including paying off your first credit card, paying off $1,000 (or some other meaningful amount), or consistently reducing debt for six months (or some other meaningful time frame).
• Your emotions may be the cause of your debt in the first place. While they obviously cannot be eliminated, learning to focus on the best mathematical approach for certain financial decisions can improve your overall relationship with money.

Here I outlined the details of the Debt Avalanche. Trent from The Simple Dollar also likes the Debt Avalanche approach and Five Cent Nickel explains how Dave Ramsey is bad at math.

Other approaches to debt reduction

The hybrid approach. Somewhere between a snowball and an avalanche lives this hybrid. The concept here is simple. Order the credit cards from highest interest rate to lowest, like the Debt Avalanche, but move the card with the lowest balance to the top. This will provide a “quick win” if necessary but could still save significant money and time when compared to the Debt Snowball approach.

Pay the most annoying debts off first. This approach plays directly into the human psyche. The urge to eliminate a persistent itch is strong enough to motivate anyone to scratch, just ask any kid with chicken pox. Stephanie from Poorer Than You is a fan of this approach. This works well when you include debts other than credit cards. If you have a personal loan from a family member, I usually suggest paying that debt off the quickest while paying minimums to your credit card to help retain good will within close relationships.

Baker from Man vs. Debt says the same thing slightly differently: Pay off the debt with the highest emotional impact first. The argument here is simple. For some people the debts with the highest emotional impact are simply the debts with the highest interest rate, while others have a different psychological composition requiring alternate focus. You can’t go wrong by this approach which if continued will help you feel better quicker.

So what is the “right” answer?

It is easy to say, “Do what works for you,” and allow the debtor to come to his or her own conclusions. This can be a dangerous approach as it invites people to skip the consideration of all the options. Many people I’ve talked to who have successfully eliminated debt by using the Debt Snowball method not only found themselves back in debt after some time but did not realize that they could have saved hundreds of dollars and been out of debt sooner just by ranking their credit cards in a different order. They simply followed a guru’s advice without any critical thinking. Not only did they not learn to approach money from a more stable viewpoint but they paid extra money in the form of credit card interest for this “feature.”

Would they have succeeded if they were simply presented the idea that they could save money on their debt reduction journey by following a more mathematical approach? It’s certainly possible.

There is no approach that does not have some sort of merit. Getting out of debt in any way possible is better than not getting out of debt at all. All that I ask is that the details, including the total cost and time differences, are fully explained before a method is prescribed for someone else.

Here’s a calculator that will help inform anyone in debt about the timing and bottom-line differences between the various approaches to eliminating debt. In some cases, the cost of one method over the others will be striking.

An informed decision is the best type of decision. With a full understanding of the differences and is familiar with their own psychological tendencies, someone with debt can make an intelligent choice that is right for the individual or family.

Photos: House of Sims, Joe Shlabotnik

Debt Reduction Methods and Philosophies: Snowball, Avalanche and More is a post from: Consumerism Commentary

Today on the Consumerism Commentary Podcast, Tom Dziubek speaks with Aloysa, founder of the personal finance website My Broken Coin about how her mother came to America by becoming a mail order bride. She talks about the decision to find an overseas husband, what the search process was like, the risks involved and how the decision turned out. Aloysa also talks about how she came to America and how the transition from the former Soviet Union affected her spending habits.

Table of contents

[00:00] Introduction from Tom Dziubek
[00:38] Interview with Aloysa
– [00:51] Life in Lithuania
– [02:17] Becoming a mail order bride
– [04:02] Risky business
– [05:06] The costs involved
– [06:59] The types of people who solicit mail order brides
– [09:33] The dating process
– [10:33] What could happen if a marriage doesn’t work
– [11:32] Achieving American citizenship
– [13:02] Aloysa’s mom finds her husband
– [15:58] The husband’s first visit to Lithuania
– [18:50] Their current marital status
– [19:10] Aloysa comes to America
– [20:07] Personal finances: going from communism to capitalism
[25:04] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

Podcast 161: My Mother Was a Mail Order Bride is a post from: Consumerism Commentary

Occasionally, Consumerism Commentary readers send in questions about handling their finances. I am not a financial planner, so I have no certification claiming I’m qualified to give financial advice. I am not an investment adviser, so I certainly won’t be recommending stocks. I like the opportunity to address financial questions that other readers may be concerned about, and if I have an opinion or two on the matter, I’d be happy to share.

Readers may disagree with my opinion, or they may agree. Addressing these questions is also an opportunity to instigate discussions. As with any advice you may receive, it’s always good to check with a professional beforehand, particularly if the decision could have significant effects on your financial condition.

Here is a question I received from Steve:

I’m 24 years old and I haven’t started any retirement savings, but I know I need to start. My company offers a 401k benefit but does not offer any match. I was wondering, would this 401k’s tax benefits still be worth taking advantage of over other retirement investment vehicles? Would a Roth IRA be wiser? Or something else?

There are two primary tax benefits to investing in a 401(k) plan. You contributions and earnings grow tax-free until you retire, and your contributions can be deducted from your income for tax purposes if your income is low enough. I describe and explain the 401(k) contribution limits here.

Taxes are a distant second next to the best benefit of most 401(k) plans: matching contributions from your employer. Employers can structure the matching contributions in a variety of forms. One of the most common is for your employer to match 100% of your contribution up to a certain percent of your salary. For every dollar you take out of your paycheck to invest in your 401(k), your employer might also contribute a dollar of its own money. This is an immediate 100% return, much better than what you can expect from any of your investments. If your employer matches your contributions, find a way — any way — to contribute to your 401(k) at least enough to take advantage of the maximum matching benefit. Don’t turn down free money.

The choice to invest in a 401(k) gets more difficult when there is no matching contribution from your employer. At that point, your 401(k) becomes just another tax-advantaged investment account. Unless your 401(k) gives you access to low-cost investments, this account should no longer be a priority. Most 401(k) plans include fund choices that are not as inexpensive as choices you can find elsewhere, like at Vanguard or Fidelity. Low costs correlate to better investment results over long periods of time, and at age 24, this particular reader could be waiting many decades before accessing this money.

You can compare costs by reading the prospectuses for the investment choices in your 401(k) and comparing the expense ratios and other fees with similar funds managed by Vanguard.

Without an employer match, consider maximizing your IRA before contributing to your 401(k). A traditional IRA offers the same tax benefits as a 401(k), and a Roth IRA forgoes the tax deduction for your contributions today for a tax deduction in retirement. That’s a good choice if you expect that you’re in a lower tax bracket today than you will be in retirement. Considering the economy today, it’s probably a good bet that all taxes will be higher in thirty or forty years as the country struggles to pay its expenses, but you never know without a crystal ball.

While your investment choices in your 401(k) are limited, you can invest in almost anything in your IRA, depending on how you open the account. Your investments in IRAs are subject to an annual limit. If you have a strong enough cash flow to schedule your IRA investments throughout the year to the maximum and still have free cash flow, then you should consider investing what you can in a 401(k) without an employer’s matching contribution if your income isn’t above the maximum for taking advantage of the tax deduction. Otherwise, just invest using a taxable (regular, non-retirement) brokerage account. You can name the account “For Retirement” and leave it alone for forty years.

I wish I had been thinking like Steve when I was 24. I’m not sure I knew about the existence of 401(k) plans when I was that age. My employer didn’t offer a 403(b) plan — the non-profit version of the 401(k) — until the following year or two, and my cash flow was so tight, there was no matching contribution, and the investments were so expensive I just laughed. My only investment was in the form of a recently-converted UTMA or UGMA invested with what was probably savings bonds I received as gifts as a kid.

In reality, just making any choice for investing is better than making no choice. Whether you invest in a 401(k), IRA, or taxable account, just the act of putting money aside for retirement puts you ahead of half of all Americans in taking steps to ensure you have a stronger future.

Do you agree or disagree with the strategy outlined above? Share your thoughts on what you might do if your employer were not to offer a matching contribution on your 401(k).

Reader Question: Should I Invest in My Non-Matching 401(k)? is a post from: Consumerism Commentary

In discussing unbanked and underbanked American consumers, we tend to focus on low socioeconomic status communities. The mainstream opinion is that building wealth and long-term financial stability relies on the use of traditional banking and investing products and the knowledge to use these products effectively. The financial industry tends to avoid low socioeconomic status communities for a variety of reasons, but the bottom line is that these customers have not been proven to be profitable. Taking the place of these mainstream institutions are check-cashing facilities and payday loan outfits, designed to be very profitable while providing the immediate services required in these communities.

These “low-class” financial product purveyors are part of a growing industry. As with any burgeoning industry, there is beginning to be more research into its consumers. The unbanked and underbanked consumer is becoming better defined, and traditional banks see this as an opportunity to create products that directly compete with the successful check-cashing and payday loan market.

With this new research comes some interesting findings. Prepaid debit cards are products designed for consumers with low or no credit scores, a condition that is more common among low-income households, though there are many reasons anyone in any income bracket could have damaged or undefined credit. Think Finance has determined that the use of prepaid debit cards is the same regardless of income level. Among the consumers surveyed, a representative sample of the Millennial generation, someone earning up to $74,999 a year is just as likely to use a prepaid debit card as someone earning less than $25,000 a year.

The statistics pertaining the check-cashing services show a similar trend. For a fee of usually 1 to 4 percent, a check-cashing storefront can immediately give you cash. So can any bank branch, but you often need to open an account first, and that requires patience, the willingness to share your personal information and submit to a ChexSystems verification, and the openness to endless marketing. In many cases, it’s just easier to just pay the fee. 34 percent of Millennials with the lowest income make use of check-cashing services outside of traditional banks, only 5 percentage points higher than those with the highest income.

An article in USA Today addresses what might representative of the fact that the status of unbanked or underbanked is pervasive in this age group regardless of income:

Ammy Orozco, 30, who works as an executive assistant at a Check Cashing USA branch in Miami, has a checking and savings account with Bank of America but often chooses to cash checks at work instead. She says she’d rather pay to cash a check immediately than pay for gas to drive to the bank. She has also taken out payday loans in emergencies. She’s tried to get a loan from the bank, but it was “stressful.”

“They wouldn’t confirm right away… You’re there sitting and you need the money, and you’re like, is this going to happen or not?”

Millennials expect instant gratification and are willing to look past fees and unnecessary expenses in order to feed this desire, regardless of income. For a generation whose defining economic moment has been the Great Recession, the credit crunch, and high unemployment, as well as the media environment dominated by stories about bank executives behaving badly, poor use of taxpayers’ money, and class-action lawsuits pertaining to anti-consumer practices, it’s understandable that a mistrust of the mainstream financial industry keeps people away from banks regardless of income. Half of Americans are not saving for retirement, and while unemployment certainly plays a role, lack of trust in the industry and in markets in general is an important factor.

With the proliferation of services targeted to the unbanked and underbanked reaching a wider set of customers — that is, popularity and use has moved beyond low socioeconomic status communities — regulators have begun to take notice. (In other words, these products and their negative effects were acceptable when they took advantage of only the poor and whoever you might assume is more likely to live in poor neighborhoods, but now that the middle class is targeted, it’s an issue worthy of consideration.) The Consumer Financial Protection Bureau is looking into designing regulations for these products. Meanwhile, traditional financial institutions are taking advantage of this regulatory grey area to create products that compete with check-cashing storefronts and payday loan issuers, and to use these products as profit centers with the intent of eventually mainstreaming these customers into other profitable services.

Are you a Millennial who prefers immediate services like check cashing, payday loans, and prepaid debit cards instead of checking accounts, bank loans, and credit cards? This is not the primary audience of this website, but I’d love to hear some feedback from the millions of Americans who fit this description.

Photo: Daquella manera
USA Today

Young Americans Likely to Be Unbanked Regardless of Income Level is a post from: Consumerism Commentary

A new survey takes a look at the critical state of today’s recent college graduates. The survey questioned a nationally-representative sample of 444 recent college graduates between the ages of 22 and 29, about their employment situation and experiences. The questions also lightly touched upon these graduates’ financial condition. I’ve included a link to the full survey at the bottom of this article.

The necessity of choosing a major in college can put quite a bit of pressure on any student, particularly those who have either a wide variety of interests and talents as well as those who may not feel themselves pulled in any particular direction. There’s always the hope or the expectation that the bachelor’s degree will define a career path for the rest of one’s life, and that career path will follow a straight line or an exponential curve.

An economist’s opinion is that students, who often go into debt to obtain their degrees, should simply look at the expected rate of return. I can’t tell you how many times I’ve heard or read that students should choose majors like engineering, physics, computer science, or applied mathematics to guarantee high salaries and easy job placement. Not everyone is interested or talented in these areas, and the pure financial approach says that those who aren’t shouldn’t bother spending money for a college education. The return on investment for an education is about more than just money, but that opinion doesn’t exactly make me popular in certain communities.

The financial reality is dire according to this survey. And as much as a college education has value beyond the expected return in the form of salary, no one can ignore the money-related part of the equation. Many decades ago, a college degree was a sign of differentiation, and gave holders the ability to market themselves well and qualify for the best jobs. At the same time, culture put such an emphasis on higher education that as it became available to more people — through grants and loans, not through lowered costs — it’s become less of a distinction. Colleges are basically unchecked in their tuition increases because they know that students will keep coming and the government will continue providing opportunities.

In good economic times, that can be ignored. With a low level of unemployment among graduates, former students can receive jobs, healthy incomes, and can pay down their student loan debt. In difficult times — when Baby Boomers aren’t retiring and there aren’t opportunities for younger workers, for example — the buy-now-pay-later model of education begins to fail. And it always fails for those with degrees in fields that take longer to recover their costs, like the arts and humanities.

Mark Cuban offered an apt analogy. College education is similar to the practice of flipping real estate. In the heyday of oversized, abnormal growth in the real estate market, any fool could make
money by buying a house relying heavily on debt, selling it to a bigger fool, and using the proceeds to repeat the process. There was a promise of success, and it worked well for a while — until the real estate market meltdown, followed by the Great Recession and credit crunch. A similar experience is happening today with the investment in a college education. Cuban argues that it used to be able to “flip” a college degree for a good starting salary and a solid opening to a life-long career, but the investment no longer performs so well.

With the run-up in real estate prices, it became very easy to access credit. Banks would give loans to as many customers as possible, with the knowledge the banks could repackage and sell those loans to reduce their apparent risk. The credit crunch required banks to tighten up their lending standards to the point where credit wasn’t available anywhere. Cuban believes this is where we are heading with student loans.

Years ago, policies were designed to ensure that everyone who wanted to become a homeowner could afford to do so. Taxpayers subsidized a great expansion in homeownership, and the real estate industry thrived. Education for all has been just as much a part of the American Dream, and taxpayers are subsidizing college educations for those who can’t afford it on their own. When it’s so easy to get an education for little money down, and everyone is taking advantage of free-flowing credit, we should have expected that making a return on that investment has become more difficult.

There is more student loan debt in aggregate in the United States than credit card debt, and Mark’s conclusion is that the economy won’t improve until this student loan bubble bursts. He promotes non-traditional universities — though not diploma mills, as he later warns — as the answer, because they can provide a better deal.

While colleges and universities are building new buildings for the English, social sciences and business schools, new high end, un-accredited, branded schools are popping up that will offer better educations for far, far less and create better job opportunities. As an employer I want the best prepared and qualified employees. I could care less if the source of their education was accredited by a bunch of old men and women who think they know what is best for the world. I want people who can do the job. I want the best and brightest. Not a piece of paper.

The competition from new forms of education is starting to appear… You would think traditional university educators would take notice. Beyond allowing some of their classes to be offered online, they haven’t. They won’t. Its the ultimate Innovators Dilemma. They don’t believe they should change and they won’t. Until its too late. Just as CEOs push for that one more penny per share in EPS, University Presidents care about nothing but getting their endowments and revenues up. If it means saddling an entire generation with obscene amounts of school debt, they could care less. This is how they get their long term contracts and raises.

It’s just a matter o[f] time until we see the same meltdown in traditional college education. Like the real estate industry, prices will rise until the market revolts. Then it will be too late. Students will stop taking out the loans traditional Universities expect them to. And when they do tuition will come down. And when prices come down universities will have to cut costs beyond what they are able to. They will have so many legacy costs, from tenured professors to construction projects to research they will be saddled with legacy costs and debt in much the same way the newspaper industry was. Which will all lead to a de-levering and a de-stabilization of the university system as we know it.

Just over half of recent college graduates have jobs. Many of those who do have jobs settled for a position for which their four-year degree was not necessary. 40 percent of recent graduates haven’t even begun paying off their student loan debt. Most recent graduates, while happy with their time in college, would have chosen a major after more consideration, taken different courses, or sought out more working or internship opportunities.

Photo: NazarethCollege
Blog Maverick, John J. Heldrich Center for Workforce Development

The College Education Bubble and Crash is a post from: Consumerism Commentary

We live in an era of cheap, disposable goods. My closet full of clothing, much of it rarely worn, even though I sort through my wardrobe about once a year to eliminate items I no longer need, is a good indicator of this situation. For a good period when I was a kid, I wore hand-me-down clothes — as the eldest child, I received clothing from a family friend — and when an item became damaged, my mother fixed it with her sewing machine.

Prices for clothes have certainly increased over the last few decades, but clothing is not expected to last. When a piece of clothing becomes damaged, it’s easier and cheap enough to replace.

Broken kitchen appliances, lamps, and other household devices past their warranty periods can’t be fixed with a sewing machine. Many would need specialized care by a professional, and with today’s disposable consumer culture, many people just opt for replacement rather than finding a repair shop and paying nearly as much money as they would to buy a new item.

Additionally, retailers and manufacturers have embraced the concept of planned obsolescence. To keep manufacturing costs low and to maximize profits, there is little concern for making products that last as long as their owners. This is a primary feature of high technology — a house phone sold fifty years ago may still function properly today, but a cell phone purchased five years ago not only doesn’t keep up with the latest technology, but it likely doesn’t work at all. Furniture built in the eighteenth century was made to last in a family for generations; IKEA furniture might last a few years under regular stress of use.

In Amsterdam, there is a small movement in opposition to this disposable consumer culture. The community has come together to repair its members’ broken items. Volunteers bring their tools and sewing machines to an open building several times a month and offer to fix any broken item brought to the gathering. This Repair Café helps reduce waste by encouraging reuse of broken items, and makes fixing an affordable alternative to replacement.

The government in the Netherlands, private groups, and individual donors have helped the Repair Café Foundation raise $525,000 over the past few years, and these funds have helped the organization create these gatherings at various locations across the country. These Repair Cafés provide a chance for consumers to make better use of their goods and for volunteers, particularly those with repair skills that might no longer be in demand, use those skills for a good cause.

Would Repair Cafés; be welcome in the United States? It’s not exactly a profitable business venture, and as such, is unlikely to draw much attention. The model, however, could easily be recreated, perhaps in low socioeconomic neighborhoods, to provide a money-saving alternative for spending money to replace slightly damaged items. Strong marketing encouraging consumers to exist in a cycle of buying and replacing comes at a price to retailers and manufacturers. If these expenses were redirected towards making better, durable products without planned obsolescence, consumers might lose the desire to constantly have new items, and would be able to hold onto the same products for a longer period of time. There would be less waste. Companies and their shareholders would find they have more loyal, life-long customers. Customers would shop with a focus on the differentiation in quality rather than with their tunnel-vision focused solely on price. Companies that build their products to last would succeed while those focused on the short-term would fail.

Could Repair Cafés be an answer to the consumer culture of disposable products? Would the availability of free repairs in the United States change the way consumers buy goods, and thus force companies to build products that are made to last rather than go obsolete? Is the trend towards disposability reversible at all?

Photo: phozographer
New York Times

Repair Cafe: Bring Your Broken Doodads and Gadgets is a post from: Consumerism Commentary

In April, LIMRA, a think-tank for the financial industry, completed a survey intended to focus on the savings and investment preferences of those living and working in the United States. After receiving responses from 2,697 Americans, a representative sample of the country, LIMRA was able to determine that 49 percent of the country is not saving for retirement. Additionally, more than half of Americans between the ages of 18 and 34, at 56 percent, are not saving for retirement.

Saving for retirement — and receiving the associated tax benefits through typical investment types like 401(k) plans and IRAs — requires a public trust in the financial industry. On one side, financial planners, investment salespeople and brokers, columnists, and bloggers are encouraging the use of financial products that, through both apparent and hidden fees, enriches the industry, while on the other side, investment firms are the beneficiaries of massive taxpayer bailouts and frequently in the news for using taxpayer money for paying their executives bonuses that defy the laws of gravity.

It may be true that the reason many Americans do not save for retirement is ignorance. There are typical excuses for not saving for retirement, such as the lack of good, seemingly trustworthy information about the options that are available, the lack of knowledge about the benefits of investing in 401(k) plans and IRAs, or the belief that during tight personal economic times, not a cent is available to save for the future. After the recession, however, many people just see the financial industry as unworthy of trust. Organizations like LIMRA, working for the industry and promoting financial products, are unlikely to bring this attitude to the public attention.

The industry is more interested in shaming people unwilling to get on the boats rather than analyzing the leadership capabilities and trustworthiness of the boats’ captains.

I’m saving for retirement with 401(k) plans and IRAs. When possible, I choose plans that have low fees, but the choice is not always up to me. Employees may be able to choose from a selection of investments inside their 401(k) plan, employees can’t choose their company’s 401(k) administrator and broker without a coordinated effort among a large portion of employees. That would be nearly impossible in a large company. Unions are intended to solve some of these issues, but it can often reach the point where being a member of a large union is much like working for a large employer. The power of any individual is limited.

The 401(k) is ingenious for the financial industry, particularly now that it’s automatic. In a perfect world, every single employee is enrolled in a 401(k) plan on their first day on their first job. The investments may not perform well over time, but that’s not particularly relevant for the financial industry. As long as every American is investing a portion of their paycheck every week, two weeks, month, or other period, 401(k) administrators and brokers will continue to thrive. The employee probably benefits when retirement approaches, but that is by no means guaranteed. All you need to do is look at the portion of Americans who planned to retire in recent years but saw their nest eggs trampled on during the recession.

Investors bear the responsibility for changing their risk profile as they near their planned retirement, but there is a mixed message. The financial industry says you need to stay invested in stocks (highly volatile, highly risky) as you approach retirement because most people need their funds to last several decades throughout retirement while at the same time warning people to risk only what they can afford to lose. When people receive conflicting information, making decisions becomes more difficult. And when the conflicting information is coming from the same source — that is, the financial industry — the default reaction is the lack of trust.

Does the financial industry wants to do American citizens a favor by providing options for saving for retirement? No. The financial industry wants its companies to not only stay in business but to profit as much as possible. And to that end, it sells products — investment opportunities — designed to enrich the companies and their shareholders. There’s nothing wrong with this, because consumers will only buy products they need or desire enough. Companies will sell towards that need. And when only half of Americans have discovered retirement savings vehicles like 401(k) plans and IRAs, the industry will resign itself to doing a better job in explaining to the country why their products are needs, not wants.

Saving for retirement is important. For most people, stocks are the only investment type that can grow wealth quickly enough to provide the dream retirement so impressed upon Americans through media. It’s risky, as recent would-be retirees have seen. Thanks to the cognitive dissonance resulting in the understanding that the promotion of retirement is a result of the financial industry trying to increase profits on a large scale rather than corporate concern for the well-being of a nation and the knowledge that Americans must do something drastic to save money in order to fulfill the dream of quitting work, some Americans choose to invest while others would sooner give away their firstborn rather than drink the financial industry’s Kool-Aid.

LIMRA may be right — that most people who do not invest for retirement with 401(k) plans and IRAs have not done so because the industry’s message hasn’t successfully penetrated their consciousness. That may be due in part to a lack of education, but for others, it’s a lack of faith and trust in the industry.

Photo: zoonabar
LIMRA

Half of All Americans Are Not Saving for Retirement is a post from: Consumerism Commentary

Today on the Consumerism Commentary Podcast, Jay Frosting and Luke Landes talk with Tavis Smiley, host of Tavis Smiley on PBS. With Dr. Cornel West, Tavis Smiley is the co-author of The Rich and the Rest of Us: A Poverty Manifesto. The interview in today’s podcast was scheduled to include Cornel West as well, but a court appearance prevented him from participating.

They discuss the causes and possible solutions of the growing problem of poverty in America, which Tavis says is a threat to democracy itself. Read this Consumerism Commentary article for more discussion about poverty with Tavis Smiley.

Table of contents

[00:00] Introduction from Jay Frosting
[00:33] Interview with Tavis Smiley
– [01:08] How many Americans are affected by poverty
– [04:03] Who poverty affects and why
– [06:55] The social safety net and austerity
– [10:26] The role of education
– [13:58] How to fix poverty
[18:33] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

Podcast 160: The Rich and the Rest of Us is a post from: Consumerism Commentary

Tavis Smiley and Dr. Cornel West have been working hard to bring the issue of poverty into the consciousness of the citizens and political discourse of the United States. As a team, Smiley and West have been touring city to city, speaking to audiences concerned about the increasing wealth gap in this country. Their book, The Rich and the Rest of Us: A Poverty Manifeseto, is the culmination of their observations of American citizens throughout these travels.

While the economy is technically in recovery from the Great Recession, a vast slice of Americans have not experienced a real recovery. A “jobless recovery,” where the beneficiaries of an improving economy are the wealthy while the middle class struggles with unemployment, is not a real recovery. Despite this disadvantage, the prevalence and pervasiveness of poverty is still astonishing. According to Smiley and West, 150 million people in this country are in or near poverty. That number represents one out of every two individuals — half the country.

The issue of poverty, affecting this number of individuals, is bigger than poverty itself. The government tallies 46 million Americans living in poverty according to the 2010 census and the government’s own definitions of poverty. Many more individuals are affected by poverty because they are living dangerously close. Many middle class households, particularly those already living in debt or in a paycheck-to-paycheck situation, are one lost paycheck away from a dangerous financial situation, and many families are already experiencing a personal decline due to the inability to find gainful employment.

Poverty has traditionally been a problem classified as urban or rural. Minorities have been and are disproportionately affected by poverty, but poverty is not a suburban problem, too. With white, middle-class families now facing the issue of poverty, whether by losing a job or being dangerously close to not being able to afford their homes, the issue is gaining more attention. While poverty is making life difficult for an increasing number of Americans, those in or seeking office, whether Democrats or Republicans, are not concerned. In order to receive a voice in political discourse, you need money. While the United States may have been founded on the ideals of freedom and liberty, these have generally only been granted to an elite selection of its inhabitants. The distribution of social power is expanded only by revolution among the disenfranchised.

Smiley and West contacted Consumerism Commentary with an interest in speaking to me about these issues — to defend their position, and to open my eyes to the realities faced even by the middle class in this country, many of whom are the “new poor.” We arranged an interview for the Consumerism Commentary Podcast, airing Sunday, May 13. Unfortunately, Dr. West was unable to participate in the interview at the last minutes as he was in New York waiting for a verdict after a conviction related to a political protest in that city. Tavis Smiley was able to participate, but our time together was short. We weren’t able to address all the questions I had prepared, but the discussion was valuable.

Listen to the entire discussion with Tavis Smiley, podcast host Jay Frosting, and myself, Luke Landes, once it is available this weekend. Smiley is the host of Tavis Smiley on PBS and The Tavis Smiley Show on Public Radio International. Update: Listen to the podcast here.

In the interview, Smiley dispelled many of the myths about poverty. One such myth is the idea that those in poverty are entirely to blame for their financial situation.

On Consumerism Commentary, I’ve written that taking personal responsibility for your decisions, financial and otherwise, plays the biggest role in achieving financial security and independence. This is today’s American promise: “Anyone can make it in America.” The media love rags-to-riches stories, even if it doesn’t reflect a reality for the majority of Americans. It’s true that this country’s brand of capitalism is favorable to the situations European immigrants left behind. Religious intolerance, a caste system based on ancestry, and an economic system wherein generally only the first-born male would have rights to any property drove pioneers to create a new society or join a country with a promise to create a better life for yourself. Never mind that doing so displaced others who occupied the land here.

Even in this new society, you had to be a member of the elite to receive the rights as endowed. Not everyone begins on equal footing. The lack of early educational opportunities throughout this country is one of the strongest causes of generational poverty. As Smiley addresses in the podcast, Washington state is the home to large multi-national corporations, providing a huge advantage to those who reside in Washington thanks to the tax these companies pay. The educational opportunities in Washington state far outshine the opportunities in Washington, D.C., for example. Until a quality education for the entire country is given priority, generational poverty will continue to exist.

In the interview, we also address the issue of austerity. The concept of reducing the deficit and national debt is and should be a high priority for policymakers, but the timing of austerity measures, such as reducing funding to societal programs, is just as important. Smiley argues that we cannot cut the budget for these important issues when the economy is not “flowing,” saying that the budget is being balanced on the backs of poor people. Budgets are moral documents, and you can determine a country’s real priorities by evaluating where the money is going. If this country does not address the economy for the 99 percent — those who have seen no benefit from this “jobless recovery” — rather than the “1 percent,” Smiley warns of the downfall of the United States as a world leader.

No empire in the history of the world that at some point did not falter or fail. Every empire had its day. Americans don’t want to think we could be dangerously close to the edge… Poverty is the moral and spiritual issue of our time.

Time did not permit us to explore all the topics I would have liked to cover in the interview with Tavis Smiley. For example, I would have liked to talk more about the Occupy movement and getting a national stage for the issue of poverty. In recent weeks, civil rights are again receiving national attention, from the perspective of same-sex marriage. Not to minimize that issue of equal treatment under the law for all individuals, poverty deserves the same attention from our nation’s leaders.

Be sure to subscribe to the Consumerism Commentary Podcast to hear the interview with Tavis Smiley, where we address more topics related to poverty than are outlined above, as soon as it is available. Be sure also to read The Rich and the Rest of Us: A Poverty Manifesto. Update: The interview is now available as a podcast here.

Photo: DC Central Kitchen

Tavis Smiley: Poverty Is a Threat to Democracy is a post from: Consumerism Commentary

Last month, I received the news that Aurora Bank deposits would be assumed by New York Community Bank. Aurora Bank is yet another online bank that increased its marketing efforts leading up to a sale. For a while, Aurora Bank was a branch of Lehman Brothers, and part of that company’s bankruptcy proceedings required the bank we sold by May 2012.

With that date now here, and with New York Community Bank as the designated buyer, the acquiring bank has sent all Aurora Bank customers more information on how their accounts will be converted.

This is bad news for Aurora Bank customers, who as a group have done well to avoid fees. Aurora Bank’s online money market account has not been completely free; if a customer’s balance were to drop below the minimum balance of $1,000 or if a customer were to leave the account dormant for three years, there would be $5 fees to contend with. These fees are easy to avoid, but New York Community Bank is raising the barriers.

Beginning June 4, 2012, as long as the bank receives regulatory approval for the acquisition (which is very likely), Aurora Bank online money market accounts will become New York Community Bank’s “My Community Gold Money Market Checking” accounts. Among the features are the following:

• Minimum initial deposit amount: $2,500
• Minimum balance to earn interest: $2,500 (up from $1,000 at Aurora)
• Minimum balance to avoid monthly service charge: $2,500 (up from $1,000 at Aurora)
• Monthly maintenance charge: $15 per cycle if balance is below $2,500 any day during the month (not an average daily balance, not a monthly ending balance)
• Tiered interest rates ranging from 0.05% to 0.30% APY

The schedule of fees beyond the above, including the other types of accounts at New York Community Bank, is extensive. This bank may have community in its name, but its policies seem more like a large regional or national bank. The “welcome package” I received from New York Community Bank also included the funds availability policy, explaining how some funds you deposit in the form of checks might not be available until the ninth business day after the deposit. The consumer agreement and disclosure statement is 52 pages. The privacy policy is included in a short pamphlet.

I don’t really need an excuse to close one more of my dozens of online savings and money market accounts, but within five minutes of receiving and reading the letter I received with this information, I scheduled a transfer for my entire balance (just north of $1,000, Aurora’s minimum, plus earned interest) from Aurora to my linked checking account.

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New York Community Bank Adding Fees For Former Aurora Customers is a post from: Consumerism Commentary

There is a perception among many families that private elementary and high schools are worth the costs of tuition even though public school is comparatively free to attend (not including taxes and bake sales). That’s a debate that will never end. Parents, who always want what’s best for their children, will take advantage of every opportunity possible to provide them with an advantage.

Similar to higher education, private grade schools and high schools make financial aid available for certain students whose families may not be able to pay the full tuition. An increasing number of families are applying for financial aid at private schools, and I was surprised to read that families with incomes as high as $350,000 a year were asking for help paying for their child’s tuition. In fact, when the financial aid is awarded, it’s going mostly to these high-income families rather than low-income families who truly need financial assistance. As schools dedicate more financial aid to their wealthier students, less is available for families who are on the lower end of the income scale.

This type of financial aid is more like a grant than a loan. Families who qualify for financial aid from private schools, for the most part, do not need to pay back what they receive.

• If a family can pay half of the tuition bill while requiring the rest from financial aid, that family stands a greater chance of receiving what they need. Meanwhile, families who could afford to pay only a small portion of the cost of tuition will not receive the financial help needed to bridge the larger gap.
• When the family a student who has previously attended a private schools loses liquid assets as a result of the recession, schools would like to see that student stay in the program.

The financial advantages one has in life, while mostly earned, not inherited, beget more financial advantages. The school-based grant type of financial aid is focused on those who can afford to contribute a significant portion of the tuition, while lower-income private school attendees need to increasingly turn to loans. The need for financing changes the calculation of whether private school is worthwhile.

Does your family receive financial aid for private school? Should school-based grants be offered to more low-income students? Should those who can’t afford private school be satisfied with the public school system?

CNN

Wealthy Families Apply for Private School Financial Aid is a post from: Consumerism Commentary

This is a guest article by Jennifer Calonia, Junior Editor at GoBankingRates. In the article, the author offers suggestions for staying fit without breaking the bank.

It’s that time again: Beach season is fast approaching and franchise gym promotions are in full swing to lock you and your checking account into a pricey workout regimen. It may be tempting to jump on board the latest exercise trend, but expensive programs and spa-like facilities are not only unnecessary, they’re a hazard to your financial well-being.

Instead of signing up for a pricey membership, consider low-cost fitness options and free workout routines that don’t muscle hundreds of dollars out of your pockets monthly.

Skip the treadmill

Purchasing a treadmill can cost at least $400 (or much more) and an annual gym membership runs about the same amount for a mid-level fitness center. A frugal alternative to the treadmill routine is simply running outdoors. If your neighborhood isn’t necessarily runner-friendly, seek out jogging paths near park facilities or visit your community track (typically you can use a local community college or high school track during off-hours) for a free run.

At most, you’ll want to purchase a quality pair of running shoes (which costs anywhere from $75 to $150) to withstand the rougher elements of the outdoors. Not only do you save hundreds by avoiding a gym contract with free workout routines like this, you also get a more challenging workout due to the added wind resistance and have interesting scenery to look at as opposed to the back of someone else’s head.

Editor’s note: See ten things your gym won’t tell you.

Tap into the web

The internet offers a range of free exercise videos that focus on a variety of muscles and help raise your heart rate. These videos are also a great alternative to specialized exercise studios, which charge upward of $100 per month for workouts.

For example, unlike the financial demands that yoga studios can inflict upon your budget, YouTube can satisfy all your yoga needs with beginner to advanced poses at no cost. A simple search using the keyword phrase “yoga workout” bring up a list of 20-minute to full 45-minute yoga classes at varying skill levels. This workout routine will, at most, require you to buy a yoga mat at under $10 from a local sporting goods store.

If you really must have a more standardized yoga practice, try visiting YogaVibes.com, which offers unlimited yoga class streaming for $20 a month. While this option requires that you join a membership program, it is at least cheaper than the $100 or more you’d pay monthly at a boutique yoga studio.

Join the community

For active bodies that are motivated by the perseverance of others, a community fitness event may be more to your liking. Joining group activities like trail hiking or a community basketball league are great ways to get engaged in a fun workout while meeting new people.

These group settings typically come at a low out-of-pocket cost. For example, I joined a paid basketball league and the registration fee was only $20 for the three-month season. To get the same group atmosphere, you can also visit your local recreational park for a free pick-up game at the basketball or tennis courts.

Keep on swimming

If your apartment facility already has a pool, or if your home has the luxury of an average size swimming pool, you might as well use it as an in to free workouts. You’ll get a low-impact workout that is great for muscle definition, just in time for the summer months.

Workout junkies who don’t have a pool at home can visit public swimming pools in the area. Generally, a low entrance fee of about $5 is collected at the door for each swim.

Preparing yourself for a beach-ready physique doesn’t have to topple your finances. There are legitimate and effective free workout routines and free exercise videos that can be used to achieve comparable results and maintain the motivation you need to reach your fitness and health goals.

How to Work Out Without Over Working Your Budget is a post from: Consumerism Commentary

If you’ve ever flown British Airways long-haul from the U.S. to London, you’ve probably lingered when walking past those sleeper seats in the “Club World” section. They don’t just recline, they lay fully flat. You won’t run the risk of a small child kicking the back of your chair for hours before you endure the endless escalator rides at Heathrow. Thanks to this spring’s special offer from Chase’s British Airways Visa Signature Card, you can treat yourself to this luxury for about the same price as a standard coach class ticket.

Right now, Chase offers a staggered signup bonus for new British Airways Visa Signature cardholders. British Airways calls their frequent flyer miles “Avios,” and you’ll earn 50,000 of them as soon as you use your new Visa card. Make $10,000 in purchases, and BA credits your Executive Club account with 25,000 more Avios.

Land your final bonus of 25,000 more Avios once you’ve cleared $20,000 in purchases during your first year. After that, you can spend 80,000 Avios and about $1,100 in upgrade fees to book yourself that luxury flight.

Saving Avios and flying on the cheap

You don’t always have to splurge on a sleeper chair, though. Your 100,000 bonus Avios are plenty to cover the cost of two “World Traveller” round trip base fares between London and any of BA’s stateside hubs in New York, Philadelphia, Chicago, and Washington, D.C. This isn’t a discount airline you’re flying, either. British Airways’ coach seats on these flights resemble other airlines’ business classes. You get a private entertainment system, hot meals, and impeccable service from a flight crew that only gets testy if you don’t give them the chance to serve you.

The special smart chip you won’t see on other travel credit cards

Only a handful of American credit cards include the embedded smart chip that you’ll need to make routine purchases in Europe. Chase puts that “EMV chip” front and center on the British Airways Visa, and you’ll appreciate it when your travels take you off the beaten track. To combat fraud, many European merchants won’t accept American magnetic stripe credit cards outside of common tourist areas. The EMV chip saves you time and hassle, especially if you want to use any automated parking meters or vending machines during your visit.

No foreign transaction fee

Your $95 annual fee buys you another important perk that you’ll find on few travel rewards cards: no foreign transaction fee. Chase makes the process easy for frequent U.K. visitors: charge your card in pounds sterling at no extra fee, while enjoying Chase’s best currency conversion rate for the day of your purchase.

Rewards and risks of airline credit cards

Of course, British Airways is still a traditional airline, with a typical frequent flyer system. Regular BA travelers say that the 2012 Olympics and London’s business boom have made reward seats scarce, unless you plan your free trip far in advance. You’ll also have to pay redemption fees, airport service fees, and other taxes on each reward ticket.

If you value flexibility in a travel credit card, consider the Capital One Venture Rewards Credit Card instead. You’ll earn as much as 2 percent back on your everyday purchases, in the form of statement credits that you can redeem against any of your travel expenses. Still, given the high price of transatlantic airfare, the British Airways Visa Signature offers tremendous value, if you’re willing to jump through a few hoops.

To take advantage of the 10,000 Avios offer, apply for the British Airways Visa Signature Card from Chase today. You will need excellent credit in order to be approved, and be aware of the $95 annual fee.

British Airways Visa Signature Card from Chase Review is a post from: Consumerism Commentary

Yes, it’s frustrating to need to reach for my wallet and type in my credit card number every time I want to complete a purchase online. According to a recent MasterCard and Harris Interactive survey, 58 percent of consumers agree with me. Consumers even abandon their online shopping carts when the check-out process requires too much effort.

That might be good news for consumers. If a small barrier is all it takes to prevent someone from making a purchase, perhaps that purchase was not a necessity. Leaving more money in the bank rather than spending that money on some product that does not drive enough desire to get through a relatively painless process can only be beneficial to the shopper’s financial condition. Retailers, on the other hand, will obviously see consumers’ lack of purchase consummation as a problem, directly affecting sales and revenue.

The solution is to store the details pertaining to your payment method so it can be automatically retrieved at the point of sale. Amazon.com is certainly a pioneer with this approach. This company’s one-click purchasing process using stored credit card or debit card information makes buying a smooth process, although it created an uprising about patents when this feature was introduced many years ago.

PayPal has a good solution as well. Stores that allow payments through PayPal enable users to associate a credit card and avoid the need to type in a credit or debit card number each time.

Consumers can also use browser add-ons or downloadable programs, like LastPass, to store credit card information retrievable with a click or two.

Purchasing items online is much safer and more secure than being out in the world, carrying a wallet with all your credit cards and cash, and handing your credit cards to a waiter or gas station attendant who disappears for several minutes. Online security, as long as you confirm you are visiting a secure website, is trustworthy. No one is going to intercept my secure internet connection when I’m buying something online, and for the most part, I trust companies not to expose a database of credit card numbers to the public. That exposure is just as likely to happen when shopping in brick-and-mortar stores as when shopping online. The situation is unlikely, and shopping online does not add to that risk.

There is no universal solution, a one-click purchasing experience like that on Amazon.com, available to all retail websites. But there is also no equivalent to the one-click purchasing experience when you shop in store locations, either. Swiping a payment card or transmitting a secure wireless signal from your mobile phone gets close to the experience, but you still need to take out your wallet or your phone.

While retailers want to make it easier for consumers to pay money, consumers should be careful about making this process to automatic. Trading money for an object of some type should involve at least some opportunity to stop and consider the purchase. Technology makes it incredibly easy for consumers to part with their cash or increase their debt burden, and retailers want to make it easier. Consumers should be working against that trend and moving in the opposite direction.

If not, retailers will soon be able to simply reach into consumers’ pockets and take that money. Some companies offer free trial periods for their products and services without making it blatantly obvious that customers will be charged at the end of the trial period. Some create significant barriers to canceling the service in advance of the ending of the trial period. Consumer groups often criticize these policies, and some might be considered scams. If consumers make it increasingly easy to give up money without thought, then we’re just as much to blame.

Photo: Håkan Dahlström
BusinessWire

Consumers Want Easier Online Payments is a post from: Consumerism Commentary

Today on the Consumerism Commentary Podcast, Jay Frosting speaks with John Graves, author of The 7% Solution: You Can Afford a Comfortable Retirement.

They discuss the unique challenges baby boomers face when planning for retirement.

Table of contents

[00:00] Introduction from Jay Frosting
[00:33] Interview with John Graves
– [00:44] The four money lessons baby boomers probably already know
– [03:08] 40% of people close to retirement aren’t prepared
– [04:19] Make the most of your last years of work and put off Social Security income
– [06:12] Look at income sources aside from a typical salary
– [07:11] Managing your own portfolio vs. using a financial advisor
– [10:34] How to research stocks and be a value investor
– [14:21] This system isn’t right for everybody
– [15:34] Health is more important than wealth
– [17:35] Giving back through volunteer work
[18:17] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

Podcast 159: The 7% Solution is a post from: Consumerism Commentary

A few weeks ago, a Consumerism Commentary reader asked me on Facebook whether it would be a good idea to purchase shares of Facebook at $48 a piece. I do not give stock buying advice, but I mentioned that shares had recently been sold for $44.10 on the secondary market, so if someone were to accept an offer to buy shares at $48, they’d have to believe that the value had increased since the auction.

Interest in buying shares of Facebook has increased as rumors about the company’s going public continued, and when Facebook finally filed for its initial public offering (IPO) in February, shareholders (mostly company employees and investors willing to buy in the secondary market) celebrated. The company now plans to become a public company on May 18, though that date is somewhat flexible. Also flexible is the target range for the initial share price when the company goes public.

Facebook has set its open share price to be between $28 and $35. With the shares Facebook’s famed CEO, Mark Zuckerberg, plans to sell at the opening, he will personally cash in $1 billion, while the company raises at least $12 billion through new shares. The total valuation of the company could lie anywhere between $75 and $98 billion, according to CNN Money.

There is no doubt that Facebook is the biggest success story in technology in this century so far. Those who invested early, friends of Zuckerberg since the beginnings of the company and employees who received significant amounts of stock options, stand to be able to cash in their shares and retire pleasantly wealthy. Those buying shares on or after May 18 may be able to catch a star continuing to rise.

Google continued to perform well after its IPO, for example. Investors were concerned about overpaying for Google shares at about $100 around the time of that company’s initial public offering, but today’s price is over $600. Facebook’s shares will be sold at a price-to-earnings ratio of 99, higher than almost all companies in the S&P 500 index, making the investment seem to be at a high risk for its price to fall. Both Zynga and Groupon, after going public last year, are now trading below their initial share prices.

Are you planning to invest in Facebook’s common shares once you can buy them through the stock exchange? Has Facebook seen its heyday of growth or is there more to come from the company?

Update: Although average individual investors have traditionally had limited access to initial public offerings, Facebook, following a trend of other technology companies going public, will likely be opening its IPO up to E*Trade. If you have an E*Trade account in good standing, you can indicate how many shares of Facebook you would like and the maximum price you’d like to pay. E*Trade will distribute the shares it receives among its individual investors who bid high enough.

Photo: kudumomo
CNNMoney, BusinessWeek

Facebook IPO Approaching: Will You Buy Shares? is a post from: Consumerism Commentary

A few months ago, art and money were connected in the news when Andreas Gursky’s “Rhein II,” a photograph depicting a still river and walkway, became the highest-valued photograph sold at auction. The buyer paid $4 million to walk away with the larger-than-life print. Art is in the news again today, with one of Edvard Munch’s renditions of “The Scream.” At a recent Sotheby’s auction, “The Scream” was sold for $119.9 million. This price set a record, making “The Scream” the most expensive work of art ever sold at auction.

For those who have the money to spare, art is a popular investment. Trading masterpieces of art among a small subsection of the population, less than 1 percent, is not without criticism, however. Many artists do not live to see their works become valuable, and do not benefit from the high prices sought for their work. I addressed both the criticisms and the benefits of giving art a significant societal value in the article about “Rhein II.”

While it may be good for society to value art highly, is it a good investment for any one individual who has millions of dollars to spare?

Well, first of all, there is art accessible at all levels of investment. With research, you might find works available for $50 that could certainly increase in value over time at a rate better than what financial advisers offer as typical long-term stock market returns. Art is not an investment solely for the 1 percent. And with the right buying choices, your smaller investment in living artists has a more direct effect on the artist community.

Investing in art isn’t going to be right for everyone. While some consider art to be one of the best investments outside of real estate, the economy has seen would-be real estate investors struggling when the market isn’t robust. The same is true with art. The market is subject to bubbles, the latest trends play a significant role in determining prices, and you may not be able to sell your art at the price time you need the proceeds. Artists whose work have proven to appreciate and are highly recognized as masters, like Dali and Picasso, have price appreciation almost guaranteed, but the barrier to entry for investments in proven artists is too high for investors without the desire to risk large sums of money.

Outside of artists whose works have proven worth, it’s risky to invest in art with the goal of making a killing between the purchase date and the sale date. Even the best research won’t guarantee performance. To mitigate the chance of loss, when choosing art, find something you like. As long as you enjoy looking at your art collection, you won’t mind as much holding onto it until it has the ability to fetch the price you desire — which may be never. At the auction where “The Scream” sold for $119.9 million, one fifth of the pieces on the auction block failed to sell because no investors were willing to pay the asking prices.

Another problem with investing in art is the due diligence required to avoid scammers and fraud-minded people in the industry. Even experts can be wrong about forgeries. Investments in art are not subject to the same kinds of regulation that allows investors to feel generally safe and confident when investing in stocks and mutual funds.

Unless you have the financial ability to invest in artists whose names you know from high school or your college’s Art History course, you might be better off staying away from investing in art if your purpose is finding the next Rembrandt.

Photo: br1dotcom

Art Is Not a Good Investment is a post from: Consumerism Commentary

How much time do you spend in front of the television, socializing with friends, or watching movies? I freely admit that I spend too much time watching television. There are certain television programs that entertain me, and particularly during stressful times in my life, I need some type of outlet that makes me laugh, raising my spirits. As a single man living alone, I don’t have the opportunity right now to unwind at the end of the day by spending time with family.

This is, of course, an excuse or a rationalization of why I don’t just spend more time working. A new study, wherein the researchers’ intent was to reevaluate whether the consumption gap between the wealthy and the poor grew alongside the income gap between 1980 and 2010, also has indicated a correlation between education level and leisure time. The authors of the study then make the connection from education level to wealth, when asked by the Wall Street Journal.

Low-educated men saw their leisure hours grow to 39.1 hours in 2003-2007, from 36.6 hours in 1985. Highly-educated men saw their leisure hours shrink to 33.2 hours from 34.4 hours… Low-educated women saw their leisure time grow to 35.2 hours a week from 35 hours. High-educated women saw their leisure time decrease to 30.3 hours from 32.2 hours. Educated women, in other words, had the largest decline in leisure time of the four groups.

The higher a person’s level of education, the less time they spend on leisure activities like watching television, going out to see movies in a theater, socializing with friends, talking on the phone, and playing games. The study authors content that as unemployment has grown at a higher rate for lower-education individuals, that factor has contributed to about half of the change in leisure time for that segment of the sample.

How do we get from a measurement of education to a measurement of wealth? The study authors contend that education is a proxy for wealth, as level of education tends to correspond with income. There are probably some pieces missing in this leap from education to wealth in general, but if nothing else, a higher education opens more opportunities for traditional methods of earning income. (There are always counter-examples, with Ivy League dropouts forming companies that go onto being worth many billions of dollars, but that is exceedingly rare.)

No one is pointing to a causality — that working more and spending less time on leisure activities alone — will result in an increase of income. But if there is a correlation, it makes sense. There is, however, a perception that those at the top of the corporate ladder, earning more money, do not “work harder” than rank-and-file employees. On the job, employees during the grunt work may work just as hard or harder as an executive whose primary function seems to be attending meetings and farming out work to his or her underlings while consolidating reports and presenting reports to the Board of Directors, for example. This study doesn’t look at how hard one works at the workplace, but at how much leisure time is used outside of the office.

There is a message: get to work. Those with higher incomes spend less time on activities outside the office that aren’t productive. Family time is excluded, of course. Highly-educated individuals (who we’re assuming are also earning higher incomes) are more likely to spend time at home cooking and caring for children.

Do rich people work harder? Can less time wasted on leisure activities like watching television translate to higher income?

Photo: angeloangelo
Wall Street Journal, National Bureau of Economic Research

Get to Work If You Want to Be Rich is a post from: Consumerism Commentary

In just a short period of time, Consumerism Commentary will be entering its tenth year of existence. The site’s ninth anniversary is approaching, and I’ve been involved with the website longer than I’ve been involved with any other commitment in my life. Jobs and relationships have come and gone, but Consumerism Commentary remains.

I started the website in an effort to track my personal finances at a time when I was struggling financially, though I had already started a new path towards financial independence. Thanks to the readers early on who believed the website offered something unique, the growth of the community has been nothing short of amazing. Consumerism Commentary has changed character a little bit from those early years, when a blog was more about short, quick chronological updates and about sharing links to other interesting things found online. Last year, I solidified the website’s vision, mission, and purpose. While the owner of the site is now different, not much else has changed, and there are no plans to change anything in the near future, except for perhaps a more professional-looking logo and site design.

Thanks to all the readers who have continued to visit this website since 2003, our fans and friends on Facebook, and particularly those who continue to participate in discussions today. Thanks also to all the colleagues who have offered their advice and encouragement, and a big thanks to Jay Frosting (also known as Bryan J Busch) and Tom Dziubek who have held down the podcast fort for several years.

And if you’ve encountered any technical issues with the website recently, please continue to bear with me as the technical team continues to work out the bugs.

Last week, my article about The Rich and the Rest of Us by Dr. Cornel West and Tavis Smiley attracted the attention of the two men, and I’m working on scheduling an interview with the pair later this week. They are crusading across the country to elevate the issue of poverty and potential actions to move the United States is a better direction towards resolution. Do you have any questions for Smiley and West?

There are five types of purchases — well, more than five but these five are big — you should never put on your credit card. Every purchase you make is tracked by your credit card issuers and can be used against you if the companies decide you’re a higher risk than they originally thought. And they can change your risk profile based solely on the types of stores you visit.

The Carnival of Personal Finance hosted by Musings of an Abstract Aucklander last week included my article about Sprint’s $300 million tax fraud lawsuit.

Adrian from 7 Million 7 Years talks about how it may be hard to believe that someone in New York struggles on an income of $350,000 a year, but he understands the perspective. Andrew Schiff, who works for a brokerage firm, earns this salary but “feels stuck” according to an article in the Wall Street Journal.

Mike, the Oblivious Investor, argues that even an individual with a reduced life expectancy should wait as long as possible before collecting payments from Social Security. There are some specific circumstances in which it might be beneficial to claim Social Security benefits early, however. Mike explains within the article.

Thanks to the Consumerism Commentary Community is a post from: Consumerism Commentary

There are signs that the economy might be in more trouble in the near future. One of the symptoms of the recession was the credit crunch. Banks and other lending institutions tightened up their previously loose standards for extending credit, and in order to prop up their own organizations financially, banks held on to the cheap money afforded to them by the government rather than extending loans to small businesses needing the cash flow to expand or operate, extending the recession.

A number of policies were designed to help small businesses when practically-free loans from the government weren’t enough to encourage banks to do anything but prop up their balance sheets. The FDIC instituted a policy where they would insure noninterest-bearing accounts without a limit. This is different than the insurance consumers receive on up to $250,000 on savings and checking accounts. The extended FDIC coverage allows businesses to keep their operating accounts — which are mostly used for paying employees with direct deposit — at smaller banks, seen as being at risk for failing moreso than large, “too-big-to-fail” banks.

This FDIC benefit is scheduled to end before January 1, 2013. The expected reaction is for small businesses to take their operating funds out of community banks and return to larger banks, where size is assumed to correlate to strength. Small banks, which have recently begun extending more credit to local businesses, will no longer have the funds to continue this practice.

There is a chance that the FDIC program will continue, but that requires dependency on politicians being interested in changing the direction it gave the FDIC and being willing to continue the expense, whether from government (public) sources or from fees received from FDIC member institutions.

At the same time the potential shift from community banks to large, national banks hangs over the head of those who are concerned about the possibility of another credit crunch, big banks have already reined in their lending. In the first quarter of 2012, credit card and bank lending has dropped.

JPMorgan Chase, Wells Fargo, Bank of America and Citigroup cut their lending by a collective $24 billion in the first three months of the year. That was a change from last year when lending rose $34 billion at the nation’s four biggest banks in all of 2012.

Plan for the next credit crunch now

The individuals hurt the hardest during a credit crunch are people barely living paycheck to paycheck, relying on credit cards to meet their financial obligations, but by far the worst of the credit crunch is felt by small business owners who rely on bank credit, particularly during times of recession, to stay in business.

Families with the most exposure in a credit crunch can prepare by growing and nurturing an emergency fund. I’ve been promoting emergency funds during the best and worst economic times, and those who use the good times to shore up resources to survive the hard times make it through. It’s an economic policy as old as the Bible. Small business owners should take the same approach.

With a credit crunch, interest rates will continue to remain low, encouraging a money to flow as freely as possible. Those who qualify for borrowing with the stricter criteria in a credit crunch can take advantage of the opportunity to borrow money at low rates and invest in hard assets with a physical presence. Real estate and art come to mind.

Photo: mary_thompson
CNN, Fortune

The Next Credit Crunch is a post from: Consumerism Commentary

Over the twelve months ending with March 2012, the increase in the consumer price index (CPI-U) as reported by the Bureau of Labor Statistics, often referred to as the inflation rate, is 2.7 percent (2.3 percent if you exclude food and energy). While these numbers are below the historically-cited norm for inflation, 3 percent, the numbers are still troubling for some people.

Government-reported increases in the consumer price index do not tie to any individual’s experienced increase in the cost of living. No person can assume that if wealth grows by the rate of inflation that life is just as affordable as it was a year ago. For example, if my income was $100,000 in 2011 and $102,700 in 2012, although my salary would be keeping pace with inflation, it’s likely that I still would find that this year’s income would not afford me as much as last year’s income was able to afford me.

With $100,000 in a high-yield savings account, the $750 I would have earned in before-tax interest not only loses to government-reported inflation, it would be pathetic compared to any rate of increase of expenses I experienced personally.

Part of the problem is that the CPI-U is calculated by measuring the change of price of a variety of consumer goods, but each type of good is weighted according to its importance. The level of importance is taken as an average importance across all citizens based in or near cities in the United States. Thus, the weighting may not be appropriate for any one individual. For example, as of the last CPI-U calculation, gasoline for vehicle fuel was weighted 5.7 percent. 5.7 percent of the year-over-year increase in consumer prices can be attributed to the increase in gas prices.

Any one family’s exposure to the cost of gasoline could easily be greater than 5.7 percent. A household with two incomes might involve a husband and wife who both commute an hour or more to, and an hour or more from, their places of work. For a family like this, the effect of an increase in gas prices could be much more devastating to their finances than the CPI-U would indicate. The increase in this category year-over-year is 9.0 percent. So if for any family, gasoline accounts for more than 5.7 percent of all expenses, the real cost of living would have increased more than the reported inflation rate.

We are often concerned with finding investments that provide a return higher than inflation. Financial planners consider inflation one of many benchmarks. If you want to maintain purchasing power with your funds, you’d look for a low-risk investment that meets or stays on par with the rate of inflation. The government even offers inflation-protected securities, whose yields are designed to artificially keep pace with the rate of inflation, thus providing investors a method of investing with a guarantee of not losing “purchasing power.”

The comparison between investment returns as experienced by one individual and a calculation of an average increase of prices is invalid. Financial experts continue to use the average inflation rate as a benchmark for individuals because it’s easy and can seem to apply to an entire population at once — even if it really applies to no one.

The criticism of the CPI-U as a personal rate of inflation doesn’t end with the idea that an average measurement doesn’t apply to any one individual. The method of calculating inflation has changed over time, and modern calculations are criticized for masking the truth. If the rate of inflation were to be calculated the same way it had been four decades ago, the rate would be significantly higher. The public is sensitive to bad economic news, and it’s safer for the government officials who are in power to continue to report subdued numbers. The Bureau of Labor Statistics should be free from political influence, but that’s an impossible ideal, especially over the course of a generation or two.

As a result of the realities behind criticism of the inflation rate, real inflation in the cost of living is destroying your net worth. Inflation keeps investors chasing returns that, while being better than earning nothing or losing money, are not high enough to continue a standard of living. Fifteen years ago, the most popular television sets might have cost an average of about $500. This was before LCD technology and high-definition became widespread. Today, the average cost of the most popular televisions might be $1,000. Today’s LED-backlit LCD HDTVs, while $1,000 today, would have cost more than $10,000 a few years ago when the technology was new. So in one sense, advancements in technology lower consumer costs, but offsetting that reduction is the consumer demand for better equipment, and that demand outpaces the decline in prices. Nobody’s buying the first generation iPad today.

Photo: Kai Hendry
Bureau of Labor Statistics

Government-Reported Inflation is a post from: Consumerism Commentary

Last week, I acknowledged recent survey findings from the Pew Research Center showing that women are beginning to value success in their careers more than men value their own. It’s a historical twist, brought about by the idea that women entering the workforce is no longer related to a necessity, but an innate desire. Women, as a group, have a higher level of education and are increasingly choosing to pursue a successful career path.

With young children at home needing care and an increasing cost of outsourcing that care, many families need to choose a parent to stay home while the other earns money with an occupation. Women are still subject to compensation inequity — again, as a group — but in an increasing number of families, the wife is out-earning the husband. The choice is often simply financial; whoever earns the most money or has the potential to earn the most continues in their career path, while the other parent stays home to care for the child or children.

Now that more men are staying home to care for their children while their wives concentrate on their careers, it’s easier to shatter one of the long-standing myths about fatherhood. Previously, men who chose to pause their path to career success were judged inadequate to survive in the world of business.

Men are raised to value work as their main source of worth and self-esteem. Society’s underlying message is that men who make sacrifices and choose family over career advancement do it because they can’t succeed at work. But we are at the beginning of an epic shift in cultural norms. More men are finding parenthood meaningful and that is raising the status of fathers. Some men are trading career advancement for time with their family because they value the fulfillment they find in fatherhood, not because they can’t hack it in the job market. More men than ever feel that being a good father is a significant accomplishment in life.

Results from a survey performed last year by the University of Nebraska indicate that 75 percent of men consider being a parent very important, while only 48 percent had the same opinion about having a successful career. It’s possible, however, that there is a new stigma against being overly concerned with financial success, and this psychological aversion to being associated with the stereotypical careerist might prevent people from answering in a survey in a manner the respondent might think reflects poorly on themselves. There’s a tendency, also, to answer surveys as if one is an ideal. In other words, I might answer a survey as if I were an ideal version of myself rather than reflecting a true self-analysis.

Even if that is the case, it reflects the idea that stay-at-home-fatherhood is now a more respected life choice than it has been in the past.

Having a two-income family is still a luxury, and when at least one of the two incomes is significant enough to afford a solid living for a family of three or more, it’s a blessing. Most middle class families, when both parents are working out of necessity, it’s the ability to stay home with the children that is a luxury. It can be a difficult choice, particularly if one parent’s income is roughly equivalent to the cost of day care for his or her child or children.

The argument fails to consider yet another reality of life: one parent, either a father or a mother, struggling to earn an income and take care of one child or more, without a spouse for support.

For men: Would you put your career on hold — possibly forever — if it made more financial sense for you to stay at home with your children?

For women: Would you be willing to pursue your career full steam ahead while your partner develops a closer bond with children through more time spent with them during formative years?

Photo: Chris. P
Fathers Forum, CNN, BabyCenter

Men Choosing Fatherhood Over Careers is a post from: Consumerism Commentary

Today on the Consumerism Commentary Podcast, Jay Frosting and Luke Landes talk with Kim Palmer, author of Generation Earn and creator of Palmer’s Planners. Consumerism Commentary discussed Palmer’s Planners recently.

In the interview, Jay, Luke, and Kim discuss household financial planning for right-brained thinkers and money issues for young people and women.

Table of contents

[00:00] Introduction from Jay Frosting
[00:33] Interview with Luke Landes and Kim Palmer
– [00:49] Overview of Palmer’s Planners for right-brained thinkers
– [03:15] Break down your overall strategy into low-level tactics
– [04:18] Selling on Etsy to find more visually-focused customers
– [06:10] Traditional publishing vs. self-publishing
– [10:17] Becoming a mother inspired new planners and ways of working
– [11:39] Does HBO’s “Girls” reflect real attitudes about money?
– [15:53] Understand student loan rules and keep up with changes
– [17:37] Trends among women’s salaries and priorities
[21:10] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

Podcast 158: Kimberly Palmer, Palmer’s Planners is a post from: Consumerism Commentary

Banks are still struggling with the decisions executives made to maximize profit from overdrafts by rearranging the order of withdrawals to customers’ detriment. By December last year, Bank of America settled a class-action lawsuit related to overdrafts and was expected to pay $410 million. That decision is being appealed by a plaintiff, so it will still be a long time before the results are determined and class members receive compensation, if any.

Earlier this year, JP Morgan Chase settled a related class action lawsuit for $110 million.

Citizens Bank is the latest bank to come to terms with the way it took advantage of customers. This bank has agreed to pay $137.5 million to settle.

For the most part, banks continue to engage in the process of reordering withdrawals processed on the same day (whether the withdrawals be through checks, electronic direct debits, or ACH transactions) to optimize the possibility of collecting multiple overdrafts. The largest withdrawal is processed first, and subsequent withdrawals are processed from largest to smallest. Banks offer a reason for this order. They claim that the largest withdrawals are often the most important, such as rent or mortgage payments, and want to ensure these payments have the strongest possibility of being processed. That explanation doesn’t hold up for customers with overdraft protection, though, because this service allows all withdrawals to be processed — for a fee.

Furthermore, banks at the time of the lawsuit often allowed for multiple overdraft fees on a single day. With a $200 bank balance and withdrawals of $20, $50 and $300 in one day, the customer could be charged three different overdraft fees of $35. This is obviously more profitable for the bank than allowing the smaller transactions to be processed ahead of the larger withdrawal. Since the media attention surrounding the lawsuit, some banks have changed their policy to allow for only one overdraft fee per day, but many banks continue this practice.

So far, the only new regulation regarding overdraft fees requires banks make the service optional. Customers can opt to have transactions declined when the funds are not available to cover the withdrawal. Banks still steer customers towards overdraft protection as they feel it is a better experience for the customer, and, of course, a significantly profitable approach for banks.

Are you a customer of Citizens Bank? Have you ever had problems with Citizens Bank’s overdraft fees and policies?

Citizens Bank Settles Overdraft Fee Class Action Lawsuit is a post from: Consumerism Commentary

Several readers contacted me yesterday with this piece of good news. After months of promising its customers to launch the new feature soon, ING Direct now offers remote check deposit. The delay was likely caused by the efforts that resulted in Capital One purchasing ING Direct USA. Previously, in order to deposit a check into an ING Direct savings or “Electric Orange” checking account, you would have needed to mail the check to a deposit address, deposit the check in a local bank branch and transfer the money to ING Direct later, or find an ATM that allowed deposits to the online bank.

Although paper checks are heading towards obsolescence and electronic person-to-person transactions are becoming more mainstream, some people still find paper checks convenient. For self-employed individuals and business owners, checks from clients are still a very common way of doing business.

Remote check deposit, where you do not need to visit a bank to deposit a check or send it through the mail and wait, is made possible by the “Check 21″ law. With the advancement of technology, an image of a check is just as legitimate as the check itself. In the last decade, banks have been providing scanners to business customers to securely scan and email check images for deposit.

This was an expensive proposition. In recent years, the process has improved, thanks again to technology. The cameras on cell phones now have enough resolution for these purposes. Rather than sending its customers large pieces of hardware, banks offer mobile phone applications — often for both iOS and Android — that use the phone’s camera and a secure internet connection to make remote deposit as easy as snapping a photograph or two.

How ING Direct’s remote deposit “CheckMate” works

I wanted to try ING Direct’s remote deposit service, but without a check written to my personal account handy, I wrote myself a check for $10, withdrawing from my local Wells Fargo account. I downloaded the ING Direct app for my Android phone and configured my account. As expected, I needed my customer number, PIN, answers to several security questions, and recognition of my secret image, similar configuring online access on a new computer.

Once logged in, “Deposit” was an option at the top of the screen, alongside my account overview and transfers. To initiate remote deposit, the software required me to read and accept the CheckMate terms and conditions. The terms included a warning that deposits will be held by the bank for up to 5 business days. This is typical for check deposits to ING Direct, so it’s not completely unexpected. It is unfortunate, as even check deposits are often considered electronic transactions. The hold doesn’t apply to payroll checks or checks from the U.S. Treasury like federal tax refunds.

Check deposits using the ING Direct software are limited to $3,000 per check. Compared with Chase Bank’s $500 limit, this is an improvement, but could still make the service useless for some customers.

Once I agreed to the terms, the software prompted me to take a photograph of first the front of the check then the back of the check. It was difficult to focus on the back of the check, so I tried twice, changing the lighting environment to try to get a photograph that was more precise and included a legible copy of my signature.

After confirming both photographs, I entered the amount of the check and selected the account in which I wanted the $10 deposited. At the end of the process, I tapped the button to deposit the check and received this response:

All done. Your deposit will be available April 30. Hang on to your check until you get an email saying it posted. Then, void it.

ING Direct did send an email notification to say that my submission was successful, but this notification did not indicate that the funds were posted. For this, I’ll need to wait for a later email. I’ll update this article once I receive the email to indicate how long it takes to post $10. I checked my account online immediately after completing the deposit, and this appeared in my transaction history:

Notice how the total “Amount” is zero; the $10 is not available for me to use yet.

How to deposit checks without a cameraphone

The above process depends on having a mobile device with a camera and an internet connection. Not everyone has a smartphone or web-enabled, camera-equipped tablet. I didn’t see it at first, but ING Direct provides an option to remotely deposit checks without a camera. After you endorse your check for deposit, take a photograph using a digital camera of the front and back of your check. You could also use a scanner. Save the front and back as two separate JPG images. Access your account online, and click on “Image Upload” under the “Transfers & Deposits” heading. The website will take you through a process similar to the above.

Overall, whether using a mobile phone or your computer, depositing a check with ING Direct is now a simple and convenient process. If receiving checks is still a part of your life, and you’re looking for a way to exclude high-cost local banks from your personal finance system in favor of online banks like ING Direct, remote deposit is a necessity. ING Direct has made good on their promise to offer this service to their users.

Hat tip to Daniel from Sweating the Big Stuff and many others, including the bank itself, who brought the news to my attention.

Review of ING Direct’s Remote Deposit is a post from: Consumerism Commentary

Unless Congress acts soon, student loans subsidized by the government will become significantly more expensive. Mandated interest rates on subsidized student loans will jump from 3.4% to 6.8% for the 2012-2013 school year. With unemployment still high for recent graduates, increased interest rates will add to the debt burden. Tuition costs are still increasing as is the cost of living.

Without a job or in other economic hardship, an individual with student loan debt can defer payments. Student loan deferment delays the debt without increasing the amount of interest owed on the loan.

The availability of easy credit for education has certainly helped a larger segment of society obtain an undergraduate degree, but it has also encouraged institutions to raise prices. Knowing that the market can continue to bear significant increases in tuition, there is no end in sight for these climbing fees.

Going into debt to receive a college education and degree has become the norm. It is possible, however, to go to college without getting into debt. Author and University of Massachusetts alumnus Zac Bissonnette has explored this idea, as we’ve discussed on an earlier podcast.

Cancelling the planned student loan interest rate increase, scheduled to go into effect on July 1, has a cost to taxpayers. The public is subsidizing these loans — so the financial institutions that offer the loans to students can continue to profit while students are in school. According to lawmakers, this subsidy at the low interest rate costs the government $6 billion a year.

Both Barack Obama and Mitt Romney support extending the lower interest rate, with the Democrats saying they could pay to extend the lower interest rate by changing the tax code to require small business owners who file their taxes for a business entity classified as an S Corporation to pay self-employment taxes on the full business income.

Thanks to the availability of student loans and the G.I. Bill, college education is attainable for everyone who wants it. But as the percentage of college graduates within the American population has increased, the ability to use that degree to differentiate oneself in a competitive employment marketplace has diminished.

Meanwhile, the cost to attain that degree has continued to increase with no end in sight. Some might argue the quality of that degree in general has decreased as well, and question whether a degree is worth the investment of time and money. The perceived reduction of value draws students and their influential parents to better-branded institutions; if the degree itself can’t differentiate someone from a crowd, perhaps a degree branded with Harvard or Yale will set the student apart.

Extending the low interest rates will keep a college education more affordable for families who need financial aid and will emphasize the idea that a college education is important for every individual who wants the sociological and financial advantages that the degree might provide. It won’t solve the problem of ever-increasing costs to attend college.

Photo: Pink Sherbet Photography
CNN, New York Times

Student Loan Interest Rates Set for Increase is a post from: Consumerism Commentary

Dr. Cornel West is a Princeton University professor and author. Tavis Smiley is a television and radio talk show host and author as well. The two have known each other for a long time, and last year they toured the country to hear from citizens and talk about the issue of poverty in America. After their travels and discoveries, they published a new book together, The Rich and the Rest of Us.

The central concept of the pair’s appearances, including visits to news programs and public speaking, is that poverty is largely ignored as an issue. When Mitt Romney explained that he wasn’t concerned about the very poor thanks to the systemic advantages this class is afforded, Romney was speaking from the system’s perspective.

Money rules politics, and only groups with significant amounts to pledge to campaigns or lobbyists can influence public policy. It’s the way our democracy is designed, and it’s not much different than when the country was founded. The primary difference is that wealthy corporations, not just wealthy individuals, have a bigger influence today. Democrats or Republicans, the power of money is the same.

Smiley and West offer an interesting statistic. They claim that one in two Americans — half of this country’s population — deals with poverty. 150 million people are in or near poverty, perhaps just one lost paycheck away from spiraling into a financial situation that could be difficult to fix. The authors are also including “new poor” in this figure, and the “new poor” are the former middle class.

I’d like to get a chance to chat with either of the authors about this concept. Is the middle class truly poor? As a group, they are certainly better off than those in abject poverty. My understanding of middle class — and I realize that there are always ways to interpret classes differently depending on one’s perspective — is that today’s middle class is generally working, earning a paycheck, and somewhat able to spend beyond the basic physiological needs like food and shelter.

On the contrary, the middle class has faced unemployment over the last few years, and for many, this has been a struggle for families. Unemployment has enabled class mobility in a negative direction, removing families from the particular designation of middle class. Families remaining in the middle class live paycheck-to-paycheck, so the loss of that consistent source of income combined with the difficulty of replacing a middle class job could lead a family into poverty. For many middle class families, debt is a way of life, and allows people to “afford” a living that appears to be like their neighbors’.

To work towards the solution of eradicating poverty in the United States, the two authors want to see President Obama or whoever receives the office after the next election set up a conference on the issue. They would like to see the government move forward with a massive job program, investment in education, and abandonment of austerity policies. This is not a solution to poverty, and I believe the authors realize this. It’s intended as a beginning, a way to keep poverty in the forefront of political discourse, and encourage smart people to get together and work on solutions to poverty.

It’s hard not to compare Smiley and West with their hero and the hero of many others in this country, Dr. Martin Luther King, Jr. The issue of poverty of worthy of as much attention as the civil rights movement received in the 1960s. Where the comparison fails is that Dr. King had the ability to foment a revolution. The public, for the most part, saw civil rights as an important issue. The time was right, with a public ready to be involved, empowered to force a change. Dr. King took his message to the streets; Smiley and West are taking their message to the streets, selling a book, and charging admission to their talks.

For poverty to become the lead story in a system that pays attention only to the issues prescribed by those with money, there needs to be an uprising, a revolution. An apathetic public without the feeling that the issue of poverty is personally relevant will not rise up. There might be a thought that the Occupy-branded protests show that the public is ready to support a major issue like civil rights was in the 1960s, but I don’t think it’s ready yet. The Occupy-branded protests are too small and too unfocused to make the necessary impact. If Smiley and West want to influence the way Americans think about poverty, they’ll need to take a page from Dr. King’s book, and do a better job of getting people to care about the issue and see the value of change.

Here’s a clip of Tavis Smily and Dr. Cornel West on Face the Nation (sorry about the advertisement first):

The pair also appeared on Stephen Colbert’s Colbert Report recently for an entertaining interview.

Photo: DC Central Kitchen

The Rich and the Rest of Us is a post from: Consumerism Commentary

April is National Financial Literacy Month in the United States. This brings attention to the lack of a financial education young people receive in this country, both from their parents and from the education system. I disagree with most people about how to solve this issue. Many call for mandatory high school courses in personal finances, but there are many reasons why this has not been and will not be generally successful.

In the spirit of National Financial Literacy Month, I occasionally take some time to focus on some of the financial basics. This is information I would have liked to have had or to have thought about earlier in my life. It’s not necessarily the information that’s important, but having a role model — someone to emulate — who is proficient with money, to guide a young individual on a path towards financial independence. I’ve covered the basics of savings accounts, checking accounts, budgets, and interest previously, and today’s I’ll attempt to tackle the topic of investing.

Investing is a massive topic. It can get quite complicated when you look at the types of investments available, each having their own quirks, rules, and purpose. Investing means different things to different people: you can invest in stocks, invest in an industry, invest in a business, and invest in your future. You can invest your money, your effort, or your time. All of these concepts can be radically different.

There is a general theme to all investing, however. While the purpose of saving is to have a foundation or short-term financial safety, investing is the choice people make when they want to build long-term financial stability or independence. When you create a plan for investing — and it’s better to start with a plan in mind even if you don’t really know what you want to do in the future — you think about the future. The expectation when you invest is that your wealth will grow. Compare this to savings, where your expectation is that your wealth is safe.

What do people invest in?

The most common investments are stocks. Stocks are shares of a business. When business owners want to raise money to help their businesses grow, they sell to investors pieces of ownership in that business. Most of the time the pieces are very small. For example, if you invest in one share of a company like Google, you’ll become an owner of the business — but you’ll own only about 0.0000003 percent of the company. And almost always, when you buy stocks, you don’t buy them from the company. Once a company decides to sell shares, the stocks are traded on exchanges like the New York Stock Exchange. When you buy stocks, you’re buying them from another investor who happens to be selling.

Overall, stocks perform well over long periods of time. If you buy a varied collection of stocks and hold them for several decades, your investments have a great chance of increasing in value. The best way to buy stocks, especially for someone new to investing, is to invest in a pre-determined package of stocks designed to match your investing goals and needs. That’s where mutual funds come in. Mutual funds are packages of stocks (or other investments) managed by a professional investor, and these packages often have a goal or style that the manager follows.

With any investment, stocks, mutual funds, or otherwise, there is a chance that you will lose money. This is the risk that’s associated with investing. While there’s a chance of your investment increasing in value over time, increasing your wealth, the opposite might happen. You could buy shares of a company that fails one month later, losing all your money. Investing in shares, therefore, requires lots of research to protect yourself from bad investments, but even lots of research can’t help you accurately predict whether your investment will be successful. That’s why mutual funds are more attractive investments. With mutual funds, you can use the same money to spread out among many investments, so if one company fails, it doesn’t affect your investment as much.

Bonds

Besides stocks and mutual funds consisting of stocks, the next most popular investments are bonds. Companies and governments issue bonds to raise money. Sometimes a government is looking to raise money for a specific project, like building a bridge, and will seek investors, promising to pay the investors back their contribution plus interest. Like stocks, bonds are designed to raise money, but for the investor bonds are safer, meaning they’re less likely to lose value than stocks.

In exchange for that safety, the possibility of growing your wealth with bonds is less than the possibility for doing the same with stocks or mutual funds consisting of stocks. Bonds have a maturity, though. You can buy and sell most stocks whenever you’d like, but when you buy bonds, you are committing to a relationship. When you buy a five-year bond, you will receive some income from the investment over the course of five years, but you won’t get all of your money back until the five year term is complete.

Mutual funds come in handy once again; if you like the relative safety of bonds, you can buy a mutual fund consisting of bonds. These can, with some exceptions, be purchased and sold at any time. Investing is a long-term activity, though, and investors shouldn’t be too concerned about frequent buying and selling.

The best type of mutual funds

I mentioned above that mutual funds are managed by a professional investor. This is an individual who makes decisions for you about which stocks or bonds to buy and sell. All of these professional investors cannot consistently pick the best investments, however. Index mutual funds are designed to take some of the human errors out of investing.

When the financial media talk about the Dow being up or the S&P being down, they’re talking about an index. Indexes (or indices if you prefer) track the overall progress of a representative sample of investments. Most investors can’t pick investments that outperform the indexes, so you’re better off just copying the indexes. You can do that easily by investing in an index mutual fund.

An additional benefit of index mutual funds is the low fee. Whenever you invest — whether you buy or sell — you pay fees. People invest with the intent of growing their wealth, and the best investors do that by reducing these fees. The worst investors buy and sell frequently and, for the most part, make the professionals who collect the fees rich rather than building wealth for themselves over the long-term. If you choose wisely, index mutual funds are often the best investments for reaching your long-term goals while saving money. It’s a great value.

Other investments

ETFs have increased in popularity in recent years. ETFs are exchange-traded funds. The financial industry loves these investments because they have the appeal of mutual funds with the added benefit of being able to be bought and sold during the day, unlike mutual funds which trade only at the end of the day. Of course the industry loves ETFs; they encourage investors to trade investments frequently, thus increasing fees from trading. There’s no need for long-term investors to invest in ETFs. You can avoid these rather than playing into they hype.

The menu of investments is lengthy, particularly once you start looking at derivatives, stock options, and other complicated investments not particularly relevant to a beginning investor. Stick with stocks (broadly invested), bonds, and mutual funds unless you have a large sum of money you don’t mind losing. Most people don’t.

Retirement-specific investing

The government offers tax benefits for people who invest for the future. Many people working in a career look forward to the day they can leave their jobs behind and relax with the remaining decades of their lives. The government help subsidize people who no longer work, so you can be sure those in political power are interested in encouraging people to fed for themselves.

The 401(k) investment, named for the section of the tax code that contains its definition, is one of the most popular ways to invest for your retirement and receive a tax benefit for doing so. You may be automatically enrolled in a 401(k) when you start a new job, or you may need to sign up for yourself. You can reserve a portion of each paycheck for your retirement. All that you reserve must be left invested in order to receive the tax benefit (and avoid a penalty) except in certain circumstances. As a result, you’re putting some money away, untouchable, for many years.

An IRA (Individual Retirement Account or Agreement) is similar to the 401(k) in that respect, but you can also sign up for an IRA as an individual rather than as an employee of a business by contacting a broker directly.

Neither an IRA nor a 401(k) are investment types. They are not like stocks, bonds, or mutual funds. Instead, they are packages that can contain a varied array of investments. Most 401(k) plans contains mutual funds, but you can invest in almost anything within your IRA.

Points to keep in mind

• When you invest, keep in mind that the idea is not to guess which investments will make you rich in a short period of time. Investing is a long-term endeavor, and you need diversity and patience in order to succeed.
• Risk and reward are correlated. The riskier investment types like stocks can grow your wealth more, but they can also devastate your finances. Finding the right balance is a personal decision.
• Studies have shown that the best predictions of long-term performance are the fees. Always research the fees involved with any investment type or activity so you understand completely where your money is going and how much you get to keep.

Photo: Images_of_Money

Money Basics: Investing is a post from: Consumerism Commentary

A new survey by the Pew Research Center shows women have surpassed men in placing value on career advancement. Among 18 to 34-year-olds, 66 percent of women consider being successful in a high-paying career or job is one of the most important things or very important, compared to 59 percent of men. In 1997, 56 percent of women had the same response, almost even with men, at 58 percent.

This change doesn’t come at the expense of the importance of being a good parent or having a solid marriage. Marriage and family are strong priorities today for both men and women, with a score of over 90 percent. For men aged 18 to 34, 29 percent now list marriage as a top priority, down from 37 percent in 1997.

The workplace has changed throughout the last century. The shift from traditional gender roles to shared responsibility in the workplace and at home is considered a beneficial change for the country. 73 percent of Americans agree that the trend of an increased role for women across professions is better for society as a whole, and 62 percent believe that shared responsibility at home leads to a more satisfying marriage. At the same time only 21 percent of Americans believe mothers of young children working outside the home is a positive approach to life, and 37 percent believe this is bad for society.

While women’s role in careers have increased, so have their wages and salaries compared to men’s. Women aged between 16 and 34 now earn more than 90 cents for every dollar earned by men in the same age range. Women, however, surpass men in education; women are more likely to have bachelor degrees, with 36 percent of women aged 25 to 29 having advanced education compared to 28 percent of men in the same age group.

This is a significant increase for women in education over the past several decades, and it’s somewhat reflected in the increase in salary parity. But women still are more likely to pause their careers for family reasons, although this is less often the case than in the past. This likely contributes to the fact that women as a group still do not match or exceed men in compensation.

Women in today’s workforce who do marry and have children are not necessarily leaving their careers to do so. Today’s woman often balances her career with her husband and children. Fully 48% of married couples in 2010 consisted of two breadwinners. The share of dual-employed couples was slightly higher in 1997 (53%). Back in 1975, however, the share of families with both a husband and wife in the labor force was only 34%.

If these trends continue, I expect sometime in the future for women’s salaries to exceed men’s salaries. Women will continue to be higher educated and will be qualified for higher-paying careers. Women will continue to increase the value they place on their career. Men will continue to pursue a stronger role in family.

Photo: @yakobusan Jakob Montrasio
Pew Research Center

More Women Than Men Value Career Success is a post from: Consumerism Commentary

Today on the Consumerism Commentary Podcast, Jay Frosting and Flexo talk with Matt Schulz, Vice President of Content for InvestingAnswers.com.

They discuss the implications of a recent legal ruling that excludes credit card application fees from the limit on fees that credit card issuers can charge within the first year.

Table of contents

[00:00] Introduction from Jay Frosting
[00:33] Interview with Flexo and Matt Schulz
– [00:49] Challenging the 25% fee limit specified in the Credit CARD Act
– [06:00] Will application fees be more pervasive now?
– [07:14] Are these fees limited to those with bad credit?
– [09:18] A very high interest rate is worse than almost any other option
– [12:34] The CFPB is still hearing public comments on this decision
– [13:41] Application fees aren’t refundable and don’t guarantee credit
– [14:21] The CFPB is trying to get more done before a possible Executive Branch change (addressing Republican criticisms of the bureau)
– [18:33] Reduction in debt is part frugality and part banks reducing credit
[20:02] End

Update:

We were mistaken during the recording regarding whether First Premiere refunds its application fee. Here’s what the terms and conditions say:

“Right to Reject: You may still reject this plan, provided you have not used the Credit Account or paid a fee after receiving a billing statement. If you do reject the plan, you are not responsible for any fees or charges, including any Processing Fee(s) paid prior to receipt of your Account Opening Disclosures. Any such Processing Fee(s) previously paid will be refunded upon rejection of the plan.”

It also says this:

“Refund Disclosure: We will refund your Processing Fee and initial fees (those fees that are billed at the time of account opening) if (1) you have not used your Card for a Purchase or Cash Advance; and (2) you have not paid a fee after receiving a billing statement. We will refund any partial payment of the Processing Fee if you do not open your Credit Account within 85 days of approval. We will refund any Credit Limit Increase Fee charged to your Credit Account if you notify us, within 30 days of the date of the Periodic Statement on which it appears, that you do not wish to have the credit limit increase. This will result in a reversal of the credit limit increase. Except as described in this paragraph, these fees are non-refundable.”

Here are the link for the terms and conditions.

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

Podcast 157: Credit Card Application Fees is a post from: Consumerism Commentary

Do you reward your children with money for performing well in school? Do you use the promise of an allowance to ancourage appropriate behavior in the family? These are big issues, because they take appropriate behavior and can turn the incentive to financial gain. Children growing up believing that financial gain is the reward for correct social behavior rather than seeing the intrinsic benefit.

The idea that everything has a financial value seems to have become more prevalent over the last two decades, according to a new book. In What Money Can’t Buy: The Moral Limits of Markets by Michael J. Sandel, the author argues that our trend of attributing market thinking to an increasing array of behavior could be detrimental to society.

The book has not yet been released as of the time of writing this article, so I haven’t read it yet. A review in Fortune Magazine is inspiring me to pre-order the book before its release.

The author notes how Americans are now more comfortable with marketing or selling things they might have not in the past. Selling ad space on foreheads, accepting money for branded tattoos, and paying students for each book they read are a few examples of things that might have been unthinkable a few years ago. I would add that the pervasiveness of the Internet has made some of this possible, when it comes to selling ourselves. Through the democratized ability to self-publish, people can easily market themselves without much effort. If you get enough attention, some company also looking for attention would be happy to pay you to do something newsworthy, like slapping a brand on your car for a year.

With the popularity reality television, the idea that anyone can become famous — not just for fifteen minutes but for an entire television season — and wealthy (think: Kardashians) is enticing.

Here are some thoughts from the Fortune Magazine review of the book:

The price we pay for this behavior plays out in several ways, Sandel argues. First off, poorer people are impacted disproportionately by the commercialization of personal space. How many affluent people are lining up to turn their houses or bodies into billboards? In this way, the decision to sell isn’t necessarily as independent and free as it may look. In a society increasingly driven by financial power, moreover, the wealthy hold even better hands than they would otherwise. Why bother encouraging your kid to study hard if you can simply grease his path into Harvard or Yale with the promise of a massive donation?

The more emphasis we place on money in society, the more power society gives to those who have it. I don’t think that today’s plutocratic oligarchy is too much different than western society in most of recent history, however. Those with money have always had the power. We like to think of government in the United States as “of the people, for the people, by the people,” but the Founding Fathers were mostly wealthy and mostly represented the wealthy, though several did their best to be sympathetic to those who were not as fortunate.

It was difficult to leave all old-world philosophies behind; property owners were afforded more rights than those who did not own property. A subtle class distinction still persists between homeowners and renters today.

Political and societal power has always been focused on an elite group of people who have the most money. This is why social change — giving the right to vote to all adults rather than a select few, extending human rights to all citizens rather than a select few, etc. — is only successful through revolution. Those with power and money aren’t much interested in sharing.

At times, market principles put in place to make an altruistic act look even more attractive do just the opposite. Sandel cites the case of a small village in the Swiss mountains called Wolfenschiessen that was once a candidate to house a nuclear waste site. When surveyed by economists, a majority of residents said they’d accept the site as an act of civic duty. The economists then added money to the equation, offering the residents as much as $8,700 each to accept the waste site. At this point, support for the deal plummeted among the villagers. From their perspective, the cash turned a sacrifice for the greater good into a plain old bribe.

Money changes the equation, whether used to encourage someone to do the right thing — who then learns that doing the right thing should always be rewarded the compensation — or to encourage someone to do something that would otherwise give him or her pause.

Fortune Magazine laments that the book does not offer any alternatives for a way of living that does not suffer from over-commercialization. Were wealth not to provide an individual so much power, it couldn’t be used as an effective incentive for changing someone’s behavior. Is there a way for the United States to hold onto the capitalism that’s such an important piece of the success of its individuals and the nation as a whole while taking money out of the power equation?

Also, how far will you go for money? Everyone has his price. Would you sell your body parts? Your kidney for $1,000? Your foot for $100,000? Your arm for $1 million? Would you kill someone for $100,000? For $50 million? For $1 billion? Morals may stand in the way to an extent — but that extent is most likely broken at some level.

Fortune Magazine

The Over-Marketization of Social Behavior is a post from: Consumerism Commentary

The Rainforest Action Network is an environmental non-violent activist organization, working to influence corporations to consider the environment during the course of business. They’ve had Bank of America in their sights in the past, bringing attention to the way the bank puts profits ahead of the health of the communities in which it exists. The organization, with help from other environmental action groups, are planning a significant protest at the Bank of America shareholders’ meeting on May 9.

This organization may also be behind the scathing satirical website, critical of Bank of America, Your B of A. Visitors to this website are greeted by a fake statement from Brian T. Moynihan, the CEO of Bank of America, on their first visit, and are then presented with history of the corporation, the option to create their own “spokesperson” ads, and a facility for offering suggestions to the bank and voting others’ suggestions up or down.

This example spokesperson ad is one of my favorites. The idea is you create an ad that describes what your bank should do.

Your B of A is not your ordinary “Bank of America sucks” website. It many not be perfect, but it’s clear a lot of thought and effort when into the design and planning. As visitors to The Big Picture pointed out, Your B of A is hosted on the same web server as the Rainforest Action Network’s own website. While it’s not clear whether the environmental action group is behind the satire, as the owner of the domain is hidden, the fact that the site resides on the same web server is a decent clue.

Satire of this sophistication has a way of attracting attention from its target, so I wouldn’t be surprised if the site does not stay active for long. It’s worth visiting right away, so you can read the “It’s All Yours” and the “Lessons Learned” sections of the website before everything disappears.

Update: The “Your B of A” website is now offline. It was fun while it lasted.

Your B of A Satire Website Targets Bank of America is a post from: Consumerism Commentary

In order to offer better prices to customers, Sprint has allegedly under-collected and underpaid New York State sales taxes by $100 million. If the Attorney General’s allegations are true, Sprint could end up owing the state government as much as $300 million or more due to underpayment penalties. Sprint is denying the charges, claiming they’ve paid all taxes as legally required to do so.

The Attorney General, Eric Schneiderman, recognizes that if the suit is successful and Sprint must pay the penalty, it would be difficult for customers to escape the downstream effects. Just like any business, if Sprint is faced with an unplanned expense, they’ll need to come up with the difference elsewhere. That’s where customers who pay for services can help. Schneiderman says he wants the company, not the customers, to cover the cost of paying the back taxes.

That money is going to have to come from somewhere, however, and it’s not going to come from a reduction in executive salaries. While the Attorney General might have good intentions and companies should not be able to get away with deliberately and knowingly cheating on tax reporting, collection, and payment, I don’t see any way where the “company” can be penalized without hurting customers, shareholders, and employees.

Shareholders are already hurting; as of writing this article, the stock price is already down more than 4 percent. $300 million is a significant expense, even for a company that earned a revenue of $33.7 billion last year. The company actually didn’t profit on paper in 2011, and that certainly makes a $300 million fine sting more.

If a company over-collected and overpaid taxes, customers would be calling for refunds. A class action lawsuit would demand restitution. In this hypothetical situation as well as the actual lawsuit Sprint faces for underpayment, the set of customers is the unintentional third party of fraud. In both cases, the customer ends up suffering in the long run. Class action lawsuits barely benefit customers. The lawyers seem to do well, though.

In Sprint’s statement, the company claims they’re protecting their customers:

… [W]ith this lawsuit, the attorney-general’s office is claiming New York consumers, who already pay some of the highest wireless taxes in the country, should pay even more. We intend to stand up for New York consumers’ rights and fight this suit.

I find it hard to believe that any for-profit company has any interest in “standing up for consumers’ rights.” If Sprint doesn’t like the tax laws, they should do what all companies do: lobby for tax law changes that benefit them more. Of course, that wouldn’t work, because then Verizon Wireless and AT&T could also benefit from lower taxes. If the allegations are true, the company’s actions have nothing to do with Sprint’s defense of lower taxes for consumers. It’s about using any tactic possible, even illegal, to fight in a competitive market.

Give me a break. Does anyone really believe corporate marketing-speak?

Are you a Sprint customer? If so, did you choose Sprint due to their lower monthly service fees? Would you remain a customer if the fees increased — a likely result of this lawsuit, whether successful or not?

Financial Times

Sprint in $300 Million Tax Fraud Lawsuit is a post from: Consumerism Commentary

The more money you have, the more likely you are to cheat on your taxes. The rich have more opportunities to try to hide assets and income from the Internal Revenue Service, particularly through offshore bank accounts. In the United States, banks are required to report income earned by their customers on savings and investments. Many taxpayers are familiar with the 1099-INT and 1099-DIV forms for interest earned and dividends respectively. The I.R.S. can somewhat easily match the 1099 forms provided by banks with the 1040 income tax return forms filed by taxpayers to find discrepancies.

Banks located outside the United States, depending on their local laws, may not be required to provide this information fully to the United States government. Thus, the I.R.S. might not know if a taxpayer is earning money in an offshore account, making it easy to “forget” to include that income when filing taxes. Of course, this is fraud, and a bad idea.

The government is getting better at convincing banks located in tax havens to comply with I.R.S. requests for information about customers who happen to be taxpaying citizens of the United States. UBS, the largest bank in Switzerland, has ended its offshore “secret” banking service in Switzerland as a result of a settlement of a federal investigation. And this year, the I.R.S. is requiring certain taxpayers to file a new tax form, Form 8938, disclosing offshore assets and income.

Here are the certain taxpayers who must file this form:

• Unmarried taxpayers or married taxpayers filing separately living in the United States whose total offshore assets at the end of the year total at least $50,000 or whose offshore assets exceeded $75,000 any time during the year. Married taxpayers filing jointly living in the United States have thresholds that are double the amounts for unmarried taxpayers.
• Taxpayers living abroad whose total offshore assets at the end of the year total at least $200,000 or whose offshore assets exceeded $300,000 any time during the year.

Taxpayers who are otherwise not required to file an income tax return are not required to complete this form, either. The guidelines for determining who must file Form 8938 and which assets to report can be a bit complicated, so it’s best to read the rules from the I.R.S. and speak to an accountant familiar with the new law for advice.

The penalties for incorrect information of Form 8938 are steep, and even small errors can result in significant fines. Failure to file the form when required to do so can result in a penalty of $10,000, and if you continue to ignore requests from the I.R.S. to file, the penalty can reach $50,000. Even if you live offshore and your country has a law preventing you from disclosing your financial information to the United States, you can’t avoid the reporting requirement and penalties. If you file the form but underpay your taxes even due to an error on Form 8938, you will be charged a penalty of 40 percent of your underpayment.

If the government can show you committed fraud in underpaying your tax, the penalty will increase from 40 percent to 75 percent of your underpayment. Those penalties are additional to paying what you do owe, according to the I.R.S., plus interest.

The I.R.S. is also threatening criminal penalties for taxpayers who fail to file Form 8938, fail to disclose all offshore assets, or underpay their taxes.

If you look at Form 8938, you will see that reporting requirements for offshore assets and income are different than requirements related domestic bank accounts and investments. In general, you only need to report income from domestic bank accounts and investments, but with offshore accounts, the I.R.S. wants to know the value of your assets, not just your income.

As David Jolly points out in The New York Times, the information you report to the I.R.S. on Form 8938 duplicates a separate reporting requirement. Taxpayers who have more than $10,000 in offshore bank accounts must already file a Report of Foreign Bank and Financial Accounts (FBAR). The FBAR is used by the United States Treasury to identify money laundering and terrorism funding, so the I.R.S. is already receiving some of the information it needs. Form 8938 ties this information to taxpayers’ income tax returns. If the government decides to use the information filed on the FBAR to cross-check the information included on Form 8938, it could potentially identify more income tax evaders.

New York Times

IRS Looking For Your Offshore Bank Accounts is a post from: Consumerism Commentary

I finally provided my tax details to my accountant yesterday. As I expected, there won’t be enough time to work out the details before today’s tax filing deadline, so I’ll be filing extensions. In years past, when I filed for myself and my taxes were simpler, I usually waited until the last day. My procrastination has been helped by the availability of online filing. I’m thrilled to no longer need to run to the post office late at night on April 15. (This year, the deadline is April 17 due to a holiday in D.C.) In recent years, I could just as easily fill out the paperwork and file in my pajamas without leaving the house, even from the comfort of my own bed with a laptop computer.

The last few years, my taxes have grown more complicated, and my accountant now has me in the habit of filing an extension every year. This gives me six extra months to file my paperwork, a task getting increasingly complicated, having moved from an employee with only W-2 income, to a “part-time” self-employed individual with some income recorded on W-2 forms, some on 1099 forms, and some on no forms, to the sole owner of a business filing with an S-Corp status, with K-1 forms in addition to 1099s and W-2s, to an even more complicated situation in 2011.

Filing a federal extension for your personal taxes is free and simple. Before you get started, find your previous year’s final tax return (or just your adjusted gross income amount) to verify your identity with the IRS. Make sure you know your other personal information, like Social Security number, and have the information from your W-2 ready.

Step 1. Visit the IRS-sanctioned website, Free File Fillable Forms. Popular tax filing software programs also offer customers the ability to file for an extension. With the IRS-sanctioned website, you can be sure that the service will always be free and you won’t be distracted by advertisements for paid products. As of today, it’s free to file an extension using TurboTax, but there is no guarantee that this method will be free on the day you want to file your extension.

Step 2. Create your account. Whether you use the Free File Fillable Forms website (hereafter called “FFFF” for brevity) or commercial software, you’ll be required to create an account or login to an existing account. If you’re creating a new account, select a user name that will be easy to remember. With FFFF, you’ll have the opportunity to print your account username and password for reference.

Step 3. Select the appropriate form. With FFFF, you have the choice between forms 1040, 1040A, and 1040EZ. You’ll need to select the form that’s right for you. Form 1040 is the most comprehensive choice, so it is always safe. Depending on your situation, you may not be able to file your taxes using forms 1040A or 1040EZ. Keep in mind that you can still use TurboTax, H&R Block, or any other software to file your taxes before the extended deadline. Even if you file your extension using FFFF, you do not need to return to the IRS-sanctioned website to finalize your tax return. For example, I filed my extension via FFFF myself, but my accountant will be filing my tax return later this year using the method of his choosing. If you plan on finishing your return using some other method, just choose Form 1040 here by clicking the “Start 1040″ button.

Step 4. Complete your personal information. Begin by entering your information at the top of form 1040. Include just your name, address, and Social Security number. At the top right of the screen, there is a button labeled “EXT” that looks like the image included here. Click that button (on FFFF, not here).

Step 5. Estimate your tax liability. Here’s the problem with filing for an extension: the IRS won’t extend the deadline for paying any tax that you owe. Only the paperwork receives the extension. If you haven’t paid your full tax bill, you may owe money. You need to estimate how much total tax you owe for last year’s income. On the form, you will then subtract your total payments, including withholding from your job. To avoid having to pay any penalties, your total payments must be 100% of what you owe. I added up all the payments I made, included withholding from my former day job, the amount of last year’s overpayment that I applied to this year’s taxes, and the estimated payments. Since I paid more than my estimated total liability, I did not need to make a payment when filing for the extension.

Step 6. Complete the form. You’ll need to select a PIN, enter your birthday, and consent to the disclosure statement.

Step 7. Pay your tax liability. If you’ve determined in Step 7 that you need to pay when filing for an extension to avoid a penalty, you have a few options. You can print form 1040V and send a check to the IRS, or you can provide your tax filing service, whether FFFF or a private software company, with your banking information. The IRS will pull the amount you specify from your account electronically using direct debit.

Step 8. Submit your extension. Once all the information is complete, the “E-File Extension Now” button will be available at the top of the page if you’re using FFFF. With other software, you will be prompted to file your extension paperwork at the end of the process, though in some cases, you might need to pay a fee. You’ll receive responses through email twice. The first will come as soon as you submit your form to notify you that the extension has been submitted to the IRS. Within hours, if there is no problem with the information you entered, you should receive a second response to notify you that the IRS has accepted your extension paperwork and you will now have an extra six months to file your taxes.

Don’t forget to look into filing an extension for your state taxes as well. In New Jersey, where I live, this is easy. I do not need to file any paperwork in New Jersey for my personal extension. When the IRS grants an extension for federal tax returns, New Jersey will automatically allow the later deadline. If I didn’t pay enough state taxes throughout the year, I would need to pay the state when filing for the extension, just like I would need to with the federal tax extension. When I file my paperwork later this year, I can include a copy of my federal extension form and the state will not penalize me for filling late. Different states may operate differently, so always verify what you need to do before the initial tax filing deadline.

How to File a Free Income Tax Extension is a post from: Consumerism Commentary

Last year, I opened a money market account with Aurora Bank, a division of Lehman Brothers. If it seemed like an odd thing to do, it probably was. Lehman Brothers had filed for bankruptcy in 2008, yet in 2011, they were promoting their online retail bank and looking for new customers. Not wanting to associate the marketing push with their brand, the bank had the name Aurora Bank rather than Lehman Brothers Bank, as it had been known from 1999 until after the bankruptcy.

I knew at the time that Lehman Brothers had been directed to sell Aurora Bank by May 2012, and that target is approaching. If regulators approve the acquisition, New York Community Bank will be assuming all deposits (savings, money market, and checking accounts) from Aurora Bank. New York Community Bank is no stranger to acquiring “online” banks. AmTrust was a recent acquisition. AmTrust “failed” in 2009, alongside many banks that crumbled under the credit crunch and recession, and New York Community Bank became the receivor. In this case, the situation does not reflect any problem with Aurora, but a condition of Lehman Brothers’ bankrupcty.

As I pointed out in my review of Aurora Bank, with the pending sale, Aurora Bank offered higher than average rates and initiated a marketing push to build a larger customer base in advance of the banking division being sold to the highest or best bidder. The risk of acquisition is mostly meaningless to customers, particularly those who are generally blind to brands and are not concerned with being loyal to a bank with whom they’ve had a relationship for many years. The FDIC ensures that changes like these don’t affect customers, even when banks fail without being acquired by another bank.

New York Community Bank consists of several divisions, each serving a different community. Most of these communities are in the New York area, but with acquisitions, the service area has spread. With the divisions operating somewhat separately, maintaining their own branding, and keeping the word “community” in many of the division names, the bank is certainly looking to emphasize the small-town vibe of a community-focused organization despite the growing size of the company.

• Queens County Community Bank is a division of NYCB that operates in Queens County, New York.
• Roosevelt Savings Bank operates in Brooklyn, New York.
• Roslyn Savings Bank operates on Long Island.
• CFS Bank operates in Westchester County, Manhattan, and the Bronx.
• Richmond County Savings Bank operates on Staten Island.
• NYCB also operates several banks in New Jersey including the Garden State Community Bank.

New York Community Bank’s online features are not as strong as one might expect from a bank that competes for business among the best online savings accounts, but Aurora Bank customers should receive services similar to those they’ve had over the past few years, including high-yield money market accounts accessible online.

Even the bigger online banks are not immune to changes; Capital One has acquired the United States deposits of online juggernaut ING Direct. The retail banking industry has been in a state of upheaval since the recession, and while the rate of failing banks has slowed down, banks with power are seizing opportunities for acquisitions. With consolidation, there is always fear that the customer will lose, and there is some validity to that fear. Competition is good in the banking industry, motivating companies to offer products that meet customers’ needs while keeping fees low.

Here is the text of the letter I received as a customer of Aurora Bank:

Dear Bank Customer:

Please be advised that at 12 noon on July 6, 2012, the following Aurora Bank FSB (aurora) branches will close permanently…

Separately, we wish to inform you that New York Community Bank, in a transaction that is subject to regulatory approval, will be acquiring any deposit accounts you currently maintain at Aurora. In the event the required regulatory approvals have not been received prior to the branch closing date, your accounts will be transferred to, and will be serviced by, Aurora’s home office, currently located at 1000 West Street, Suite 200, Wilmington, Delaware 19801, until such time as the necessary approvals are received. New York Community Bank will contact you with additional information regarding the transfer of your account(s). No action by you will be necessary.

We thank you for being an Aurora customer. If you have any questions, please contact our customer service department at 888-522-9295.

The letter comes to me as a reminder that I have too many open bank accounts floating around, mostly as a result of writing reviews for Consumerism Commentary readers.

Aurora Bank’s Deposits to Be Acquired By New York Community Bank is a post from: Consumerism Commentary

Today on the Consumerism Commentary Podcast, Jay Frosting speaks to Joe Knight, co-author of Financial Intelligence: An Illustrated Guide to Knowing What the Numbers Really Mean.

They discuss why and how employees in non-financial roles should learn to read financial statements, largely because accounting relies on a lot of educated guesses and biases.

Table of contents

[00:00] Introduction from Jay Frosting
[00:34] Interview with Joe Knight
– [00:48] Get a good working knowledge of how to read statements
– [02:29] Why approach financial statements education through a comic book?
– [03:53] Teaching through story-telling, including the fraud at WorldCom
– [09:33] Accounting relies on guessing and biases (“cooking the books”)
– [15:24] Many companies fail a basic finance test
– [17:10] Three things that improve companies: training, access to financial data, and profit-sharing
– [19:25] What is and isn’t in the graphic novel version
– [20:02] Why Wall Street is increasingly focused on cash flow
[22:12] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

Podcast 156: Financial Intelligence is a post from: Consumerism Commentary

On CNBC a few weeks ago, Warren Buffett told the television-viewing audience, among other things, that he would purchase a couple hundred thousand single-family homes right now, if it were practical to do so.

That seems like a ringing endorsement of buying residential real estate for its value as an investment. If the buyer also benefits from having shelter, it could only make the investment better. With low interest rates — and the average rates have decreased since Buffett made this statement — and a long holding period, Buffett believes real estate presents a better opportunity for growth than stocks.

Before Buffett made this declaration on television, I pondered if the timing might be right for buying a house. I was considering this not only as a general opinion but as a plan for myself. I’ve rented my living spaces for as long as I’ve been adult, and I’ve been an adult for half of my life at this point. Some people see purchasing a house as a rite of passage or a sign of maturity, but I haven’t fallen into that societal trap.

Purchasing a house is a decision made with both financial and non-financial considerations. There are many reasons or situations in which it’s not financially smart to purchase a house. If you don’t expect to stay in the same area for a long period of time, you could find yourself needing to sell your house at a loss or reluctantly becoming a landlord with varying levels of success. From a financial perspective, most people who claim to sell their homes for a profit forget all the costs that go into buying, maintaining, and selling their home beyond the purchase price and sale price.

If you ask the National Association of Realtors, it’s always a good time to buy. It’s also always a good time to sell. The industry doesn’t care, as long as you’re buying or selling rather than not doing anything; that’s how they get paid. When Warren Buffett is the individual offering advice, that’s a good time to start listening.

CNBC

Buffett: Buying Houses Better Than Buying Stocks is a post from: Consumerism Commentary

When I first read The Millionaire Next Door by Thomas Stanley and William Danko, it didn’t inspire me. It’s not that I disagreed with the authors, but I found the book uninteresting. It was one of the first financial books I read after beginning Consumerism Commentary, and it came highly recommended from readers here and participants in The Motley Fool‘s community.

Without getting too much into my problems with the book, I will say that the idea that a “millionaire” is more likely to be your local business owner rather than someone born into a family of money was new to me.

Recently, PNC Wealth Management conducted a survey of people with more than $500,000 free to invest as they like, a fair definition of “wealthy,” and possibly “millionaire” once you begin including home equity and other assets. Only 6% of those surveyed earned their money from inheritance alone. 69% earned their wealth mostly by trading time and effort for money, or by “working.”

Here are some interesting statistics I pulled from an article discussing the survey results.

• 36% of earners and 27% of heirs are concerned about an economic recession.
• 77% of earners and 67% of heirs believe they have a lot of control of their financial future.
• 39% of earners and 21% of heirs are moderate or risky investors.
• 75% of earners and 50% of heirs have less stress thanks to their wealth.
• 51% of earners and 33% of heirs believe their wealth has led to increases of happiness.
• Heirs are twice as likely to believe that their wealth causes more problems that it solves.
• 37% of earners and 25% of heirs believe that luck played a major role in their financial success.

For me, the choice is clear. There is only one option if I want to find myself with $500,000 of investible assets: earn rather than inherit.

[Yahoo Finance, MarketWatch: Earnings Growth]

Most Wealthy Individuals Earned, Not Inherited, Their Wealth is a post from: Consumerism Commentary

This is a guest article by Gerri Detweiler. Gerri is the host of Talk Credit Radio and serves as Director of Consumer Education for Credit.com. She is the author or co-author of five books, including Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. Her next DIY project is to (finally!) roast coffee beans.

Mark Frauenfelder makes his own yogurt and sauerkraut. roasts coffee beans, and has raised chickens. He’s also tricked out an expresso machine and built his daughter a guitar out of a lunchbox. And he’s managed to complete all of these DIY projects — and many more — while contributing to the very popular blog BoingBoing, and serving as editor of Make Magazine. Oh, and he’s also written a book about his experiences: Made by Hand: Searching for Meaning in a Throw Away World.

My DIY projects, by contrast, are often utter failures. My homemade sauerkraut probably would have given me food poisoning if I had been dumb enough to taste the foul-smelling concoction, and the popcorn popper I bought on eBay to roast coffee beans has been sitting untouched on a shelf for a couple of years now. Oh, and my homemade yogurt tasted like the cheesecloth I used to strain it.

It would be easy to dislike Frauenfelder, except for the fact that he’s a really nice guy. So instead of getting annoyed every time he writes a post about one of his successful projects, I decided to interview him on my radio show, Talk Credit Radio, in the hopes of gleaning some wisdom that could help me become a more successful DIYer. Following are some his best tips (edited and excerpted) from that interview:

Don’t be afraid to make mistakes

Gerri: Tell me a little bit about what you learned from your DIY journey?

Mark: I think the most important thing I learned was that it’s okay to make mistakes, and that you can learn a lot from mistakes. In fact, a lot of research has shown that people learn fast when they do make errors because it really sticks in your mind.

As Editor-in-Chief of Make Magazine which is a technological project magazine, I hung around a lot of people that I call “alpha makers,” people who are just committed to anything and they do a great job of it. I found that it isn’t so much their skill level that’s important but the fact they have gotten over their fear of screwing up. And that is like the most important thing that I learned, otherwise you’re going to be frozen with fear.

I make tons of mistakes all the time but I hopefully learn from them so that every new box guitar I build is a little bit better than the one before. Then you can raise the bar and challenge yourself to try something a little better. It’s a fun way of looking at the world.

You do have time to for DIY projects

Gerri: Mark, let’s talk a little bit about the time factor. You’ve got two daughters, and a full-time job as a writer and editor. How do you fit in these DIY projects? Wouldn’t it be a lot easier to just go and buy a spoon (rather than carve one yourself)? Or go and buy espresso rather than try to figure out how to trick out your espresso machine?

Mark: Absolutely, it would be easier to go out and buy something and time is really precious, especially when you have small kids and you have to work for a living. And that is one of the reasons I wrote this book. I read all those books about going back to the land and making things yourself, they kind of assumed you lived in this ideal world, you have infinite time to do all this stuff.

So I took a much more realistic approach: What if I gave myself 15 minutes a day to get away from the computer and work on a project? And I think almost anybody can give himself 15 minutes a day. But it really adds up and after a month or so, that’s a considerable amount of hours that you’ve been able to devote making things.

There was a guy I was reading about in the 1700’s whose wife was 10 minutes late at the dinner table every minute so he took those 10 minutes to work on a novel and he ended up writing 3 very successful novels that way by squeezing in those 10 minutes. I think that’s the trick is giving yourself that time and scheduling it in.

Gerri: In your book, you talked about how when you were making your wooden spoons, you discovered that you could actually do that while you were on a conference call, for example, and concentrate better. So maybe there is some synergy between being able to accomplish other things whether to clear your mind, or find the relaxation that you need if you take on some of these projects.

Mark: Absolutely and you’ll see that with knitters. People who knit say that they are able to really have a much more pleasant conversation while they are knitting and I found that also that when I do work conference calls, if I just sit and carve a spoon it puts you in kind of a slow state or something and I’m much less fidgety and I can really concentrate one that conversation. It’s a pretty cool effect.

You can do this anywhere

Gerri: You aren’t living on a ranch in Montana or out of the woods somewhere. You’re living in a Los Angeles suburbs, is that right?

Mark: Yeah, I’m about a six-minute drive from Hollywood and Vine. So I’m right here in the city, basically up in the hills.

Gerri: You’re doing these kinds of projects in a very urban environment. Do your neighbors, do people think you’re crazy?

Mark: They’re amused by the chickens. When I had the chickens, they got out and were running around on the street and one of the people who lives on the block, he was one of the producers of The Waltons and he was, “hey this is just like The Waltons!” And he got hold of a cam and started snapping some pictures – he loved it.

It’s not always about saving money

Gerri: Some of these projects may involve specialized tools, or they may involve specialized materials. What have you found in terms of the financial payoff or the financial cost in your DIY projects?

Mark: That’s a really good question. It’s kind of a yes and no thing. No, it’s not going to save you money compared to something that you would buy. If you were to build your own television set it would cost a lot more money to buy the part than it would to buy the TV off the shelf. It’s usually cheaper to buy in almost every case.

But, if you look at making as a hobby that is really rewarding and a way to spend time, it’s going to be less expensive than going out at night and spending a lot of money at a nightclub or taking an expensive vacation or something like that. As leisure activities go, you can make it pretty inexpensive. If you wanted to become a wood carver, you could buy an improvised wood carver set under a $100 and it would give you a lifetime of enjoyment. In the end I think it’s an inexpensive and rewarding way to spend your time.

Gerri: And some projects like some of the food projects you’ve done, you may have an initial investment, like building the chicken coop or getting the yogurt maker if you decide to go the route. But it sounds like that in the long run, they can end up saving you money.

Mark: Yeah, definitely, one thing that I’ve started doing is roasting my own coffee. And there’s a way that you can do it using an air popcorn popper. There are tutorials online that show you how to do it and the cool thing is that green coffee beans, unroasted beans are a lot cheaper than roasted beans. They’re about $5 a pound that’s comparable to, comparable roasted beans would be about $15 a pound. And green beans will stay fresh for about a year or two so you can keep them by yourself, 10 pounds of beans and then roast a batch whenever you need fresh coffee and you will have the freshest coffee ever and you’ll save money.

Gerri: I really appreciate your book and recommend it. I also love your blog at boingboing.net. Can you give us more places that you recommend that anyone who’s interested in DIY should visit?

Mark: Sure, well I think makezine.com has a lot of really good recent resources that will show you how to make different projects, lots of tutorial videos that can help you get started, information about Maker’s Fair, which is our twice annual fair, that has a 100,000 attendees who come to see this giant-like science and creativity fair. It’s really fun.

And another really good website is instructibles.com and that’s where people upload instructions on things that they’ve made, all sorts of gadgets from beer coolers, built-in wagon to really neat kind of kites, all kinds of projects. I think those two right there will keep you busy for at least a couple of weeks.

Listen to or download the complete interview with Frauenfelder here: download

You can also listen to or download an interview with Consumerism Commentary’s Flexo here: download

Editor’s note: I’ve been a fan of Mark Frauenfelder since I discovered BoingBoing many years ago. He was a guest on the Consumerism Commentary Podcast, as well, in 2009.

How to Be a DIYer Without Time or Talent is a post from: Consumerism Commentary

Today on the Consumerism Commentary Podcast, Jay Frosting talks with Julie Clow, author of The Work Revolution.

They talk about differing energy cycles, ditching time cards & meetings, and measuring impact instead of employee activities.

Table of contents

[00:00] Introduction from Jay Frosting
[00:32] Interview with Julie Clow
– [00:42] Work is now global and 24/7, leading to over-saturation
– [04:25] We shouldn’t use rules leftover from assembly line businesses
– [06:26] Questioning assumptions about schedules, time cards and meetings
– [08:06] Work doesn’t need to seem unpleasant
– [11:10] Julie’s quiz to determine how poorly your business rates on a freedom scale
– [17:18] Measuring impact instead of activities
– [21:41] Implementing a Results-Only Work Environment as a startup vs. as an existing business
– [22:40] Employee freedom leads to more responsibility and accountability
– [25:07] Humans have different energy cycles
[29:15] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

Podcast 155: The Work Revolution is a post from: Consumerism Commentary

My recent article on Business Insider points out that more families are living in multi-generational households with the recent shaky economy. While we are technically in a recovery period, the effects of the recession are still present in families. Taking care of elderly individuals is an expensive business, and those who did not save expecting a long life or those who did save and saw their retirement funds depleted in the stock market in recent years are struggling.

Adult children are more often taking care of their elderly parents, and for many, that requires taking them into the house rather than spending money for separate housing or care facilities.

As I pointed out in the article, this is the expected relationship in many cultures, and was at one time more common among middle-class American families. An unspoken contract described the relationship between parents and children: Parents were to give all they could, financially and otherwise, to support the development of their children, and in return, when the children became adults, they were to support their elderly parents, financially and otherwise, during the time they could no longer support themselves.

Many families in today’s society are not necessarily thinking about or planning for care for their parents. They are more concerned with securing a retirement and supporting their own children. There’s often not a good amount of money left over after these priorities are accounted for. We’re expecting our parents to be able to take care of themselves.

Are you prepared to financially support your parents as they age? If you are already doing so, or if you have done so in the past, what are your suggestions?

Will You Financially Support Your Parents? is a post from: Consumerism Commentary

If you travel by airplane often, and you find that the best prices for your routes center around one airline, it can often be beneficial to join that airline’s frequent flier loyalty program. In addition, many airlines also partner with credit card companies to offer travel rewards credit cards that help you accrue frequent flier miles faster.

American Airlines is a large airline with a long history, and over that time the company has developed loyal customers. For those who fly this airline often, the Citi® Platinum Select®/AAdvantage® Visa Signature® card offers rewards for credit card users. Right now, signing up for this card means you’re eligible for 30,000 American Airlines AAdvantage bonus miles once you make $1,000 in purchases within the first three months. Here’s a review of the card’s features and how to earn bonus miles.

As mentioned above, to start you off, new Citi Platinum Select/AAdvantage Visa Signature cardholders will receive 30,000 AAdvantage bonus miles after spending $1,000 on the card during the first three months of card ownership. That’s less than $350 a month; just putting your monthly groceries on the card and paying them off before the bill is due might put you close to that amount. The 30,000 bonus miles is worth more than a round-trip economy ticket within the continental U.S. (including Alaska) and Canada, if you can book one of the restricted MileSAAver award seats. When you redeeem AAdvantage bonus miles, you also earn 10% of those redeemed miles back as new AAdvantage bonus miles, up to 10,000 bonus miles in a calendar year.

On an ongoing basis, the rewards program for the Citi Platinum Select/AAdvantage Visa Signature is fairly straightforward. Spenders earn two AAdvantage miles for every dollar spent on eligible American Airlines purchases and one AAdvantage mile for every dollar spent on other purchases. Miles earned by this card will never expire as long as one of the three following criteria are met every 18 months:

1. You redeem American Airlines AAdvantage® miles,
2. You earn miles on an American Airlines, American Eagle or AmericanConnection carrier, or
3. You earn miles through an approved American Airlines AAdvantage participant

Every card membership year in which you make at least $30,000 in purchases, you also receive a $100 flight discount redeemable towards an American Airlines, American Eagle, or AmericanConnection carrier ticket originating in the U.S., or towards a ticket booked with a oneworld partner or on an American Airlines codeshare flight.

Frequent American Airlines fliers will appreciate that this card lets you check one standard eligible bag for free (normally $25 for a domestic flight). Also free are the first checked bags of up to four traveling companions, as long as they’re traveling on the same reservation as the primary cardholder — a nice benefit for family travel. Cardholders and up to four companions on the same reservation also get priority boarding for flights.

The interest rate for the Citi Platinum Select/AAdvantage Visa Signature — currently a variable APR of 15.24% for purchases — is above the average for rewards cards. The cash advance APR is 25.24%, but for most responsible cardholders, cash advances will not be a consideration.

Unfortunately, there is a $95 annual fee associated with this card, but the fee is waived during the first year. Plus, if you usually check a bag on your American Airlines flights, the first-checked-bag-free benefit would more than cover that annual fee within one round-trip itinerary for two people.

When you look at the Citi Platinum Select/AAdvantage Visa Signature from top to bottom, the card appears to come off as average or perhaps below average. This card is best for people who can pay their balance in full each month and who are American Airlines frequent flyers, both because the bonus miles you earn for initial spending adds up to a free flight and because of the travel perks that can make each American Airlines flight a little more pleasant. Only frequent flyers of American Airlines should consider owning this card. To apply, visit the Citi Platinum Select/AAdvantage Visa Signature application.

Citi Platinum Select / AAdvantage Visa Signature Review is a post from: Consumerism Commentary

A recent article in the New York Times (linked below) synthesizes several studies about people who speak several languages fluently. I am relatively confident that the ability to converse in more than one language adds to your human capital, increasing the likelihood of earning more money over time. There are some surveys that show that bilingual individuals are valued as employees more than those who speak only one languages and are compensated accordingly, but I’m not aware of any research study that proves that learning a second language leads directly to higher income.

When a child learns to speak in a bilingual household, the brain receives more exercise in resolving internal conflicts. This is a relatively new discovery, as until recently scientists believed that a second language would cause interference and would harm children’s ability to successfully master the first language.

The benefits of learning to speak more than one languages fluently are not necessarily limited to the formative years. Adults can possibly benefit from learning a new language.

Bilingualism’s effects also extend into the twilight years. In a recent study of 44 elderly Spanish-English bilinguals, scientists led by the neuropsychologist Tamar Gollan of the University of California, San Diego, found that individuals with a higher degree of bilingualism — measured through a comparative evaluation of proficiency in each language — were more resistant than others to the onset of dementia and other symptoms of Alzheimer’s disease: the higher the degree of bilingualism, the later the age of onset.

One might take from this study the idea that those who are more resistant to brain deterioration could have more income-producing years. If bilingualism helps the brain stay competent longer, the result should be an increase in lifetime income. It has yet to be determined whether bilingualism or multilingualism can increase wealth or income by itself. According to Payscale, the data are inconclusive on this matter. There are several good signs, however, that multilingualism has the ability to open opportunities for growing wealth.

• Speaking more than one language could present more job or career opportunities.
• The act of multilingualism inspires the brain to do better work through improved cognitive ability and to work more efficiently.
• Scientists claim that bilinguals are better multitaskers. I think the idea of multitasking is mostly a myth, and what we call multitasking is actually quick task-switching, but whatever the cognitive process is called, bilinguals excel.

I’m not bilingual, but I’d like to be. As a child and teen, I studied a variety of languages, including Latin, German, classical Greek, and Hebrew, but I never learned enough to be considered fluent by any stretch of the imagination. If I were to study a new language now, I wouldn’t do so with the goal of earning more money; I’m more interested in the ability to converse with more people and perhaps feel comfortable traveling.

Has speaking more than one language provided you any benefits, financial or otherwise?

NY Times

Do Multilingual Individuals Earn More Money? is a post from: Consumerism Commentary

In 2011, the United States government lost over $60 million through the minting of pennies. One-cent pieces now cost the government 2.41 cents, each, to produce. When the American cent was introduced in 1793, a typical annual salary for a teacher may have been about $60, so a cent would represent 0.016 percent of this person’s salary. That may seem insignificant at first, but a cent today represents 0.000025 percent of a teacher’s salary of $40,000 today.

In 1793, you might have expected a loaf of bread to cost about 4 cents. Today, a loaf of bread from my supermarket’s bakery is being sold for $2.69. The cent played a much more significant role in life when it was introduced in this country alongside the other coins and currency.

A few years ago, the Federal Reserve Bank of Chicago proposed an odd solution to the problem caused by the rising costs of producing the cent. The Chicago Fed suggested revaluing the cent to be worth five cents, like the nickel. Canada has offered what is probably the best solution for this particular dilemma: halting production of one-cent pieces entirely.

This fall, Canada will no longer produce the cent. Retailers will need to adjust prices for cash transactions, rounding to the nearest five cents. Electronic transactions will continue to be processed in one-cent increments, so no rounding will be necessary for debit or credit card transactions in Canada. All cents in Canada will eventually be pulled from circulation.

One concern is that the lack of cash prices in one-cent increments and the necessity of rounding will cause prices to increase overall, but Canada’s Ministry of Finance points to other countries that have eliminated the cent and have not experienced rising prices.

This is clearly the path the United States should take. The cent is a nuisance, and is expensive for the government (and public) to produce, and should be eliminated. A price difference of one cent is meaningless in today’s economy.

Photo: Robert Couse-Baker
CoinWorld

The End of the Cent (in Canada) is a post from: Consumerism Commentary

A few years ago, I shared a statistic showing that it costs almost $200,000 to raise a child, from birth to age eighteen. If that weren’t enough of a financial burden, consider that one out of 88 children are now diagnosed with autism, according to the Centers for Disease Control and Prevention (source, pdf).

Regardless of whether this significant, 78 percent increase in occurrence since the last study is attributed to broader diagnosis, more families are paying for the services a diagnosis of autism requires. Insurance will not cover all costs for therapies associated with autism or autism spectrum disorders. Families will need to pay out-of-pocket for many medical expenses. While the cost of raising a child to age 18 might average around $200,000, dealing with autism could add another $25,000 a year in medical costs.

The expenses don’t end with therapy and doctor’s visits. Beyond medical expenses, parents with children with autism often need to pay for special education, day care, and a home for an autistic adult who can no longer live with his or her parents.

The emotional burden placed on parents of autistic children adds to the financial burden. Parents of children with autism earn significantly less than parents of children who do not have this condition, presumably because the parents have extra responsibilities in competition with the attention they give to their careers. Mothers of autistic children average earnings that are 56% lower than other mothers. Dealing with autism from a financial perspective is doubly difficult due to the increased cost of care and the parents’ lowered income potential.

As a result of the increased financial burden, many parents of children with autism need to resort to going into debt to cover their costs. Today’s expenses may crush any dreams about retirement, and with a second or third mortgage, the costs of paying for housing may last until death.

It’s all very good for financial gurus, bloggers, and authors of books about money management to extol the virtues of saving money, cutting back expenses, and earning more, but sometimes, some families are faced with realities that place them beyond the sphere of accepting mainstream financial advice to improve their financial conditions. Everyone should be out of debt, but an average family earning average salaries with extraordinary needs like those that arise out of autism can’t be addressed by mainstream financial advice.

Experts write about making sacrifices, like forgoing the $6 daily latte and saving $1,500 or so a year. Experts talk about negotiating a raise from your employer. They argue about the best method for getting out of debt. For families dealing with tough financial issues, these discussions are irrelevant. They need support groups, financial assistance, and specialized advice for making the most out of a difficult situation.

And when the biggest issue a family faces is related to health, financial issues become just a secondary concern.

Have you ever dealt with autism or another health issue in your family that required expensive care? Please feel free to share your experiences, particularly with the effect they had on your finances or your philosophy of money.

CNN

The Cost of Raising a Child With Autism is a post from: Consumerism Commentary

Last week, Global Payments confirmed a massive security breach involving credit and debit card numbers and information. Global Payments operates a gateway; when you use your credit or debit card to purchase an item — and this could be online or in a brick-and-mortar store — your card information is sent through Global Payments or one of many similar companies to the issuer to determine whether the transaction can be approved.

The breach affects all major issuers, so if you have used a Visa, MasterCard, American Express or Discover card, whether a credit, debit, or charge card, you might be one of the estimated 10 million consumers affected. Update: Global Payments is now confirming that 1.5 million card numbers were included in the breach. Issuers — either the banks that offer the cards to their customers or the credit card companies themselves — have already begun notifying customers whose information might have been compromised.

You can expect issuers to offer free credit monitoring and identity protection services to help customers feel secure about their information in the future. The services differ depending on the provider, but most focus on the same core set of benefits.

• You can receive alerts — by phone, email, or even text message — when your card is used for suspicious activity. Suspicious activity could be anything from a transaction at a store or in a location you haven’t previously.
• You can receive updated credit reports. While the government requires the credit reporting agencies to offer one free credit report per customer each year, identity protection services typically provide access to more frequent credit reports — perhaps monthly or unlimited, on demand.
• If your identity information has been compromise, you should lock down your credit file. By contacting each of the three bureaus, Experian, Equifax, and Transunion, you can inform these companies not to allow any new credit to be issued in your name. This is not going to be an issue with most incidences of credit card information compromises, if your identity is stolen, you are at a higher risk.
• Change your credit card numbers. If you were affected by this security breach, you may have received a new credit card with a new number without so much of an explanation from your issuer. Changing the number helps protect customers who have had their data stolen. Some card issuers offer options where you can receive a new number for every online transaction; this may be a worthwhile service if you have reason to believe your credit card number has been compromised.
• Don’t forget to use your credit card online only over secure connections. Different browsers have different methods of indicating a secure connection. Using a credit card over a secure internet connection is safer than handing your credit card to a waiter or gas attendant. Over a secure connection, your credit card number is encrypted while in transit, but when you hand your credit card to someone and they step out of view, there is no limit to what they can do with your card in 30 seconds.

Aside from trusting technology and employees who handle your card information, it helps to always be aware of your surroundings. While in an airport waiting at the gate to board a flight, I called a hotel to inquire about a reservation. The hotel customer service representative was happy to take my reservation, but required me to announce my credit card number. Although I had no reason not to trust the individuals who were sitting near me, I opted not to provide my credit card number to all within earshot. As a result, and with the understanding that there would most likely be rooms available when I arrived later that night, I didn’t make the reservation.

I did lose the best rate offered on the room, though. When I arrived, the rate I had been quoted earlier was no longer available. I consider it a small loss in exchange for the comfort of not sharing my credit card number publicly.

When the cause of the breach of your information is a payment processor, as in this particular announcement from Global Payments, the issuers do all that they can to protect their customers, even if communication is slow or incomplete. When fraud happens on an individual level, and you are the only customer affected, it’s more difficult to get support from the companies you deal with, without insistence.

If you are the victim of fraud or identity theft, and it is not part of a large-scale technology hack, there are extra steps you must take.

• Start keeping a log of everyone you talk to about the fraud, including credit issuers, banks, and the police.
• File a police report describing the fraud or the incident.
• Contact the credit bureaus to inquire about identity protection services and possibly credit freezing.
• Contact your issuers and explain your situation, seeking any tools they have available to protect you going forward including assigning new card numbers.

Different banks and card issuers have different policies regarding your liability in the event of fraud. For the most part, if you follow the appropriate procedures including reporting suspected fraud in a timely manner, you will have no liability. With debit cards, however, even in the case of fraud, your balance could be lower than it should be. That could lead to missed payments or overdraft fees. That’s one benefit of using credit cards rather than debit cards — your bank account won’t be affected in the event of fraud, even for a day.

Of course, if you choose a cash-only existence, you may be able to completely avoid the hassles involved with credit card fraud and identity theft.

How to Handle a Credit Card Data Breach is a post from: Consumerism Commentary

Today on the Consumerism Commentary Podcast, Bryan J Busch talks with Dr. Charles Richards, author of The Psychology of Wealth.

They discuss many aspects of the brain’s conscious and unconscious affects on spending and saving.

Table of contents

[00:00] Introduction from Bryan J Busch
[00:33] Interview with Dr. Charles Richards
– [00:45] The Family Operating System, its influence and how it works
– [03:15] Examining your background and values
– [03:50] The Singer sewing machine’s new way of buying
– [05:37] The U.S. moved from owning what you need to putting luxuries on credit
– [07:07] Are we doing it wrong?
– [08:48] Your core values might just be hand-me-downs
– [11:21] Moderate advice for solving debt problems
– [14:02] Self-esteem’s influence on wealth, and increasing it through generosity
[16:42] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

Podcast 154: The Psychology of Wealth is a post from: Consumerism Commentary

It’s time to plan your holiday travel. That may mean cashing in the travel rewards you’ve accumulated on credit cards — or it may mean starting to use a travel rewards credit card. Chances are you spend money on some necessities, and when you do, tailoring the rewards you receive to your travel needs could end up financially benefiting you and your family even more than a cash back credit card might. Keep in mind, of course, that increasing your spending just to earn rewards doesn’t make sense, and it would be worse if you had to pay interest on your balances.

When you have controlled spending that you can afford, and you pay your credit card bill in full and on time every month, you can offset your costs of travel by earning rewards. Using the travel rewards credit card that best matches your travel needs for the spending you would be doing anyway could save you hundreds or thousands of dollars over the course of a lifetime. For example, some cards offer free flights and hotels while others can soften the blow of foreign transaction fees.

Listed below are the best travel rewards credit cards available today. If you’ve got a card you think deserves to be on this list, let us know and we’ll add it.

Editor’s choice

Chase Sapphire℠ Preferred Card. The Chase Sapphire℠ Preferred Card offers a bonus if you spend at least $3,000 on the card in the first three months. That reward comes in the form of 40,000 bonus points, which can be redeemed for $500 in travel booked through Ultimate Rewards. When you book through Ultimate Rewards you can get 20% off airfare, hotels, car rentals and cruises. Additionally, you can earn double rewards on travel and dining purchases. The Chase Sapphire℠ Preferred Card carries no annual fee for the first year, $95 thereafter. There are no blackout dates or restrictions of any kind when using your rewards points.

For more about the Chase Sapphire℠ Preferred Card 40,000 bonus points introductory offer, visit my Chase Sapphire℠ Preferred Card Earn 40,000 bonus points review.

Miles by Discover® Card. The Miles by Discover Card offers the opportunity to earn 12,000 bonus miles during the first year you own the card. The card provides 1,000 miles for each month you make at least one purchase. You can earn double miles on your first $3,000 in combined travel and restaurant purchases each year and one mile on all other purchases. Unlike many travel rewards credit cards, the Miles by Discover Card carries no annual fee for the life of the card and has an introductory offer of 0% APR on purchases and balance transfers for up to six months.

Starwood Preferred Guest® Credit Card from American Express. The Starwood Preferred Guest Credit Card from American Express continues to be one of the best travel rewards credit cards you can find. 25,000 bonus Starpoints can be yours in two easy steps. First, you earn 10,000 bonus points after making your first purchase, then 15,000 more bonus points can be earned if you spend $5,000 on your new card in the first six months, which is enough for a six night stay at a category 1 or 2 hotel.

With this card you can earn up to 5 Starpoints at hotels and resorts participating in the Starwood Preferred Guest program. When redeeming your points you can select from over 1,000 hotels and resorts in nearly 100 countries and for flights on more than 350 airlines, all with no blackout dates*. The Starwood Preferred Guest Credit Card from American Express carries no annual fee for the first year, $65 thereafter.

American Express® Premier Rewards Gold Card. The American Express® Premier Rewards Gold Card offers 25,000 points when you spend at least $2,000 in the first three months. You can earn membership points three times as fast when you book airfare using this card and twice as fast when you purchase gas or groceries. The American Express® Premier Rewards Gold Card carries no annual fee for the first year, $175 thereafter.

PenFed Premium Travel Rewards American Express® Card. The PenFed Travel Rewards American Express Card is like no other in terms of rewards, offering consumers 5 points for every dollar spent on airfare. If you spend at least $650 within the first three months of card ownership, you’ll receive 20,000 points, enough for $250 toward a round-trip ticket. At least one reward point per dollar will be earned on all other purchases. The PenFed Premium Travel Rewards American Express® Card does not have an annual fee. There is an introductory APR of 4.99% on balance transfers made between April 1, 2012 through June 30, 2012, and there is no balance transfer fee on transfers made between April 1, 2012 through June 30, 2012. However transfers made after that time will cost a relatively low 3% balance transfer fee with a minimum of $10 and a maximum of $250. You must be a PenFed member to be approved for this card, but if you are not associated with the military, the American Red Cross, or any number of qualifying organizations, a one-time $15 or $20 membership donation will do the trick.

Capital One® Venture Rewards Credit Card. You earn 10,000 bonus miles on your Capital One Venture Rewards Credit Card after you spend $1,000 in the first three months of owning your card. You can earn double miles on every purchase, making this card one of the best travel rewards credit cards available today. The Capital One Venture Rewards Credit Card carries no annual fee for the first year, $59 thereafter, and Capital One is the only issuer that does not charge foreign transaction fees for any of their cards. This means if you spend money on international purchases, you won’t receive the typical 1% to 3% fee.

Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

Photo: Kossy@FINEDAYS

The Best Travel Rewards Credit Cards, May 2012 is a post from: Consumerism Commentary

This is a guest article by Jennifer Calonia, Junior Editor at GoBankingRates. In the article, the author offers suggestions for making spring cleaning work for you.

We are officially one week into spring, and many are shedding winter stagnation for more productive ways to save money — and earn money — using items around the home. Spring cleaning gives Americans an opportunity to revive their finances by playing salesman with forgotten and unwanted stuff.

Did you stumble upon a crock-pot from a Black Friday sale that you’ve yet to use? Turn impulse buys into cash in your pocket, instead of letting appliances and other belongings go obsolete or outdated. Finding items for sale in the garage or attic now can help you make as much back on your purchase as possible.

There are many ways to sell spring cleaning finds that are straightforward and take little time. Some of the most important decisions to make when selling your stuff is knowing what to sell, how to sell it and for how much — establishing these three critical factors can determine how much money ends up back in your bank account.

Have items for sale? Here’s what to do

Your selling approach can impact how much you earn on a specific product, so following the right game plan is crucial:

1. Selecting items to sell. When deciding on which items to sell, it is helpful to create three different piles for donations, yard sales and online sales. Just because you found an abandoned tea bag plate in the cupboard doesn’t mean it’s worth the time to post it on eBay and absorb packaging fees for a $5 sale. Items like a partially used spiral notebook, crayons and well-worn clothing are better served in the donations or yard sale bins, while big-ticket items like an iPhone, leather jacket, new running shoes or a coffee maker will bring higher sales online.

2. Choosing your audience. There are many ways of communicating to buyers that you have items for sale. Each of the most popular resale options have their pros and cons, so determine which is a practical selling approach for you, depending on what you’re selling and your resources.

   • Yard sales: Like other selling avenues, yard sales are typically hit-or-miss. A benefit of hosting a yard sale is that you’re able to negotiate prices with buyers in-person and can showcase your merchandise in one location, on one day, to get the sale done at once (ideally). The big disadvantage to yard sales is that it eats up a lot of your time. Not only do you have to stand guard on your lawn for potential shoppers, but advertising your sale is a time-consuming, yet necessary, factor for success. This includes posting your yard sale to the classifieds or Craigslist, making street signs and creating price tags or signage for your items.
   • Craigslist: This community listing is a great place to sel big items like a snowboard or toaster oven, when you don’t want to spend money on shipping. To save the most money and keep the profits of the sale in your wallet, try dealing with buyers in your immediate location so you don’t lose money on gas. While Craigslist is a free service, sellers must be prepared for possible haggling (unless the post clearly states the price is “firm”) and be able to meet the buyer face-to-face in a public location.
   • eBay: For over a decade, eBay has been a common selling platform for those with either valuable items for sale, or are selling new items like unwanted gifts. For example, I purchased two new brake pads at $85 each, but sold my car before I got a chance to install them. eBay was a better audience for this type of sale because there’s a higher chance I could get close to my original purchase price, and shipping costs were not budget-blowing. When dealing on eBay, however, there are a few basics to keep in mind for a successful transaction and sale.

Name your price

Before setting up a yard sale or creating a post online of items for sale, conduct a quick search online to see how much similar items are being priced. Remember, there is a difference between being flexible and being hustled. By knowing the price range of each item you’re selling and the lowest amount you’re willing to accept to part with your goods, you are setting yourself up for a fair deal.

Keep in mind yard sales and Craigslist deals will likely present the most back-and-forth price negotiations, as eBay allows sellers to set a reserve price if necessary, which is why you need to have a lowest price-point established ahead of time.

All it takes is a free Saturday to get your spring cleaning underway. Start fresh this spring with a tidy home and a robust savings account by parting with the clutter in your life.

Spring Cleaning Tips: Finding Items for Sale to Earn Money is a post from: Consumerism Commentary