The Great Risk Shift by Jacob Hacker presents some interesting data. I don’t always agree with his conclusions but I think the information he presents is interesting.
The most interesting piece of data to me: The chance of a 50% drop in income in 1970 was 7% for any person. By 2002 it had grown to 16%. While this seems to include some questionable “data” such as divorces, retirees… Still the fairly steady climb (see chart page 31) from 1970 to 2002 shows this is one factor that should be a consideration in saving and spending plans. Don’t assume you will earn more and more every year. You will likely have some fairly large drops in income during your lifetime. Plan for it.
Some more interesting data in 1992 7.9% of 25-34 year olds in the USA had debt payments over 40% of their income. In 2001 that rose to 13.3%. In 1984 median wealth for families with a head of household 55-64 was 4 1/2 times as wealth as those of 25-34 year olds, in 2003 it was 13 1/2 times as great. (page 99)
While the average 401(k) balance is $47,000 the median balance is $13,000 (a relatively few large balances skew the average to make it much higher).
Overall I tend to look at the data he presents and think people better consider these realities and plan knowing them. Jacob Hacker seems to more often say that this is unreasonable and show the hardships faced by those that either could not plan better (it was out of there hands which I would agree is part of the problem and requires some public policy changes) or who choose not to (which I would find the case more often than he would). Well worth reading in my opinion.
Boomers on brink of retirement wonder if they can afford it:
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Scholz doesn’t go that far, but he does question the popular notion that most baby boomers are “blowing it” in their preparation for retirement. He says the group’s research showed that, by and large, Americans born between 1931 and 1941 were faring quite well financially during their retirement. “That was very surprising to us,” he says. “So then an interesting question is, does the experience of that generation carry over to households that are younger?”
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“They’re like, ‘Well, I finally got a cell phone.’ They use a computer but it’s one that’s eight years old. Their cars run forever.” That mindset is far different from most baby boomers, Haunty argues. To them, items once viewed as luxuries are now considered necessities. And, he adds, this “propensity to consume” is even more prevalent among Americans in their 20s and 30s. Haunty says he’s not advocating that baby boomers “save every penny and wear the same jeans they wore 10 years ago. But they’ve got to strike a balance.”
Well said. If you have enough money to afford whatever you want and can maintain an emergency fund, buy disability insurance, buy health insurance, save for retirement, avoid personal debt, save for children’s education… great. If not, then choices need to be made about what is most important and then you get to live with the consequences of those choice.
Walgreens: $117, Eckerd: $115, CVS: $115, Sam’s Club: $15, Costco: $12
Those aren’t typos. Walgreens charges $117 for a bottle of the same pills for which Costco charges $12.
It pays to comparison shop for you prescription drugs.
If the card company’s representative initially balks at, say, waiving a late fee, ask to speak to the manager, Arnold says. If that doesn’t work, tell the company you want to cancel the card. At that point, you’ll likely be transferred to the retention department, whose job is to keep you as a customer, Arnold says. It’s expensive to replace customers, so you may be able to negotiate a waiver of fees or a temporary reduction in the interest rate. If not, prepare to shop around for a new card, Arnold says.
Related: Curious Cat Credit Card Tips – Credit Card Currency Conversion Costs
The Real Threat Isn’t Housing by Michael Mandel:
The massive amount of additional production is a key reason why the U.S. has not faced upward pressure on prices. And good productivity gains gave the economy enough momentum to fight off the disasters of 2001–the terrorist attacks, the stock market crash, the collapse of Enron–with only a minimal recession.
But the bonanza starts to disappear if productivity growth drops much further below its current level. Such a decline is a lot more possible than most economists realize or are willing to accept.
Related: Manufacturing Productivity – Be Thankful for Lean Thinking – Manufacturing Jobs Data: USA and China
It is difficult to imagine trying to live without the convenience of credit cards. Yet many get into financial trouble in part due to their misuse of credit cards. By following a few simple rules you can avoid the missteps and use credit cards to improve you personal finances instead of falling into the credit card traps.
First, don’t use your credit card for loans. Pay off your balance each month. Pretty obvious advice but way way too many people don’t follow it. If you use your credit card for a loans – 98% of the time that is a mistake and big risk to your personal financial future. Don’t do it. There is a reason pretty much all the advice from financial advisers on credit cards starts with this – it is the most important advice.
Second, if you don’t follow the advise above pay off your loan as soon as possible. Payment the minimum payment is huge mistake. You should not be making any discretionary purchases if you are not paying down your credit card debt substantially each month.
Continue reading credit card tips.
Housing sales drop in 40 states:
While there is no agreed upon definition of bubble bursting, a almost 3% decline certainly can’t be seen as a “bursting bubble” can it?
Again hardly data of bubble bursting proportions.
Related: Coming Collapse in Housing? – Beginning of the End of Housing Bubble? – Colored Bubbles
The main point of this article is the increasing evidence of problems due to loose underwriting for mortgages of the last few years. Mortgage defaults: Latest woe for housing:
The overall mortgage delinquency rate was 4.7 percent in the third quarter, just slightly above the 4.4 percent rate of a year earlier, when it was a historic low.
The problem of loose credit is real and important. But isn’t it really amazing how 4.4% is the historic low for mortgages over a month late? That seems really high too me. Obviously 13.2% for sub-prime loans shows how risky it is to take out such a loan. In my opinion, the delinquency rate for over 90 days late is a more important figure (but these numbers can serve as a leading indicator).
Related: articles on investing – investment dictionary – How Not to Convert Equity
Kodak Debuts Printers With Inexpensive Cartridges. I don’t know anything about the printers but normally companies charge exorbitant amounts for ink cartridges. They rely on the tendency of consumers to only look at the purchase price and ignore the much larger operating expenses.
There are few investment opportunities as valuable as IRAs (tax sheltered retirement accounts) – nor many more critical to successful personal financial success (for younger or older really). Roth IRAs a smart bet for younger set by Tami Luhby.
The beauty of the Roth IRA and 401(k) is that there’s no tax on the capital gains in the accounts, so the longer you have to accumulate those gains, the better.
Mathematically, if the tax rate in the year of the contribution and the tax rate at the year of withdrawal are equal a Roth IRA and regular IRA provide the same value. However, in addition to earning less money in while young and therefor being in a lower tax bracket there is also the benefit from a Roth IRA of eliminating the risk of an increasing tax rate structure. Since money withdrawn from a Roth IRA is not taxable. This is a huge benefit.
So add to your IRA for last year if you have not already and add to your IRA for this year now. Also add to any employer matched 401(k) for your long term retirement savings. Few investments will have the long term impact of adding to retirement accounts early and often.
Related: Saving for Retirement