Credit Cards’ Hidden Costs by Kathleen Day
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The report by the Government Accountability Office found many consumers do not understand that if a borrower is late on one payment, companies will not only impose a late fee, which can reach nearly $40, almost triple that of a decade ago, but also significantly raise the interest rate on past and future charges, possibly to as high as 30 percent.
Credit cards can be a convenient tool but if you do not pay the balance off every month on time that is a very bad sign for your financial health. And leaves you open to onerous fees from credit card issuers. If you do pay off the whole balance every month (as you should under almost all circumstances) you should have a credit card than pays you a rebate (1% of your spending is common) and has no annual fee.
Britain becomes ‘never, never land’ as personal debt runs out of control
Britain seems to be taking after the USA. Debt is not necessarily bad for the economy or individual. Too much debt is. When it becomes “too much” is one of the issues we will discuss, and link to articles discussing, in this blog.
People will benefit from understanding how debt effects their future economic life. To do this they need to gain financial literacy. To help people gain financial literacy is one of the aims of this blog. We believe that gaining financial literacy will lead people to make better economic decisions. Such as not taking on too much debt.
CNNMoney is not exactly intellectual discussion of economic and investing issues but normally it offers fairly good material for the large number of people. Especially those who really don’t want to read Warren Buffett or Brad Setser. Still the following quote in their article, Cashing in on hot real estate is just wrong:
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San Diego-based certified financial planners Christopher Van Slyke and Terry Green recommend an unconventional plan: taking out a new $500,000 ARM.
Handel and Laport can pay off their existing mortgage before the rate rises and retire their other debts. They can put the remaining $200,000 into stock and bond funds.
To be sure, borrowing against a house to put the proceeds into the market rarely makes sense. But in Handel and Laport’s case it does because so much of their net worth is tied up in their home, and the super-hot L.A. real estate market looks primed for a fall…
They can convert equity that might melt away.
They can what? In no way does increasing their leverage convert equity that might melt away. Any amount of “melting away” will still happen after this increase in leverage – no conversion has happened. They still have a full ownership interest in the real estate. If the value of their house fell $300,000 before or after this supposed “conversion” they would “lose” (on paper) the same amount: $300,000. The investment risk for the house has not changed (for the whole portfolio you could argue it has but that gets complicated and subject to debate).
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Fairly frequently I am asked, by friends, for investing advice. One topic I am asked about frequently is mortgages (locking in rates, etc.). Often they are concerned about what a Federal Reserve decision to raise or lower rates will effect the 30 year fixed mortgage rate. Essentially the decision by the Fed won’t have any predictable impact (this is not the complete truth but close enough for the question being asked – this article has more, though it still just provides a cursory view of the situation).
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Our only hope: retiring later by Jim Jubak
Jim Jubak is definitely worth reading for anyone interested in investing. This column touches on the economic problem of the aging population.
That pretty much has to be part of the solution. While the United States is rich even we are not rich enough to have people work for 40 years and not work for 40 years. Retirement at 65 was set when most people died before or soon after that date. It just is not realistic to think we can live at the standards of living we expect and only work from 25-65.
If people want to cut the standard of living during the 80 years they live that would be one tradeoff they could make. I don’t believe his contention that savings is not a reasonable significant part of the solution (if that is what he means by “The whole world is getting old pretty much all at once, so saving more and investing at higher returns won’t do the trick.”
- The Impact of Aging on Financial Markets and the Economy: A Survey by Barry P. Bosworth, Ralph C. Bryant and Gary Burtless. The Brookings Institution, July 2004
- Aging population makes this deficit scarier, Sue Kirchhoff, USA Today.
The issue of how to deal with the economic consequences of aging population is an important issue to consider today. It is something I need to continue to study. But we also need to be taking action now on things like increasing the full retirement age for Social Security, increasing the saving rate, decreasing the current yearly federal deficit (and private pension liabilities), providing ways for those in their 60’s and 70’s to participate in the economy that work well (probably part time, more flexible work arrangements, etc.).