Financial institutions make a great deal of money providing easy access to credit. They don’t want to slow it down. While they do want to reduce fraud, they are perfectly happy to allow a fair amount of fraud while they can still make a lot of money.

What this means is the financial system has less incentive to eliminate identity theft than the people that have to clean up after it happens to them. There should be better ways to make identity theft much more difficult.

At a lessor level it should also be more difficult to steal one credit card (which also creates a big hassle for us, in trying to clean things up after fraud occurs). I suggested a way to make credit cards more secure and useful. When Apple Pay was announced I learned they are doing basically what I suggested.

Apple Pay doesn’t share information that can be used to steal your credit card. Apple Pay gives the retailer a 1 time use code for that purchase. It can’t be used, even if someone steals it to use your credit card for more purchases. I also believe Apple Pay doesn’t share other details with the retailer, though maybe I am wrong – I think it is just like you giving them cash (they don’t have your name, address, phone number, etc.).

Much of the information businesses share in the USA is considered private in Europe and companies are not allowed to share that personal information. This makes identity theft and invasions of your privacy more difficult. I wish the USA would move more in that direction.

If you have details stolen (a wallet…) you can put a note with credit agencies that results in them be less free to make it easy for financial institutions to give credit without sensible protections against misuse. But you can’t do this just as a matter of course. I believe we should have the ability to protect ourselves from the massive headache caused by businesses providing credit in our name. But we don’t have such protection now, because of the big money in keeping credit super easy (and thus fraud fairly easy).

Having to clean up after identity you may well have to hire someone to help clean up your credit report. To do so, look for credit repair companies with good reviews and a good reputation.

I would imagine choosing to put in extra protections against identity theft would mean we would have less easy access to credit. For example, I wish I could say you cannot provide a new credit under my name that isn’t using my address on file and without confirmation from my email. Also you are required to send an email, send a text message and send a postal letter, and update my credit agency file (in a way I can view) one week before credit is allowed.

There should also be options such as you must get a positive reply from me. A citizen choosing to have better protection against identity theft would give up immediate access to credit. But I would happily do so. I believe millions of others would too. And given how many people are victims every years, millions or hundreds of thousand a new customers for such a service would likely result.

Based on the Federal Reserve’s 2013 Survey of Consumer Finances the Center updated the NRRI results (the entire article is a very good read).

from the NRRI report.

The lower the risk number in the chart the better, so things have not been going well since the 1990s for those in the USA saving for retirement.

As the report discusses their are significant issues with retirement planning that defy easy prediction; this makes things even more challenging for those saving for retirement. The report discusses the difficulty placed on retirees by the Fed’s extremely low interest rate policy (a policy that provides billions each year to too-big-too-fail banks – hardly the reward that should be provided for bringing the world to economic calamity but never-the-less that transfer of wealth from retirees to too-big-to-fail banks is the policy the Fed has chosen).

That exacerbates the problems of too little savings during the working career for those in the USA. The continued evidence is that those in the USA continue to spend too much today and save too little. Also you have to expect the Fed and politicians will continue to make policy that favors their friends at too-big-fail banks and hedge funds and the like. You can’t expect them to behave differently than they have been the last 50 years. That means the likely actions by the government to take from median income people to aid the richest 1% (such as bailing out the bankers with super low interest rate policies and continue to subsidize losses and privatize their winning bets) will continue. You need to have extra savings to support those policies. Of course we could change to do things differently but there is no realistic evidence of any move to do so. Retirement planning needs to be based on evidence, not hopes about how things should be.

Related: How Much of Current Income to Save for Retirement – Save What You Can, Increase Savings as You Can Do So – Don’t Expect to Spend Over 4% of Your Retirement Investment Assets Annually – Retirement Planning: Looking at Assets (2012) – How Much Will I Need to Save for Retirement? (2009)

via wikipedia

The chart shows USA household debt in the 60% range of disposable income in the 1980s. It isn’t as if the 1980s in the USA were some low debt era. Personal debt was high then. It rose into the 120% range in the last 10 years and in the last few years dipped to the 110% range.

Given the large amount of debt falling into collection managing that debt has becoming increasingly important to local banks and credit unions. Companies like, Intelligent Banking Solutions, are helping those institutions deal with collections while building a strong business themselves.

As consumers we need to use debt sparingly and without our means or be trapped in a personal financial crisis. It is hard enough to get ahead today without creating problems such as paying high interest rate debt or penalties and fees for failing to pay back your obligations as required.

While too much mortgage debt is an issue, mortgage debt is less bad than other personal debt in my opinion. Student debt levels have been increasing dramatically over the last 10 years.

Low interest rates today can tempt consumers into unwise borrowing. That should be avoided. Other charts will show debt payments compared to disposable income. I believe those charts do not provide a good view at this time, due to low interest rates. If interest rates increase the debt payments required could increase dramatically very quickly.

Related: The USA Household Debt Overhang – Consumer and Real Estate Loan Delinquency Rates from 2001 to 2011 in the USA – Good News: Credit Card Delinquencies at 17 Year Low (2011)

Health insurance is critical in the USA. One insurance that people often don’t think of however is disability insurance. It is very

Disability insurance is a very important insurance that too many people don’t consider (many jobs offer it, though not all, and some may take a year before you are covered). Studies show that a 20 year old has a 30% chance of becoming disabled before reaching retirement age. In the USA, the Social Security Administration provides disability benefits for total disabilities.

In the USA you may be eligible for social security disability payments but it is a small amount (so not sufficient by itself). But if you are living overseas and not paying social security I am not sure if you are covered, even for the limited coverage it provides.

I am not sure what the situation is for citizens of other countries, maybe they have better safety nets for people (I would imagine Europe does, but many places probably don’t).

I had been living in Malaysia for several years and am now going nomadic (an increasingly popular choice for a small but determined group of people) and insurance is important for people living overseas and traveling. For nomads or frequent travelers global health insurance is good (though usually it will exclude the USA if you are not a “USA 1%er”(or world .2%)/very-rich as the extremely broken USA health care system is crazy – you can be covered globally excluding the USA for about 1/6 of that same coverage excluding the USA, depending, of course on your coverage). Special care for travelers and nomads should be paid to coverage to return you home if you are very sick or injured.

Disability insurance is something thing digital nomads should pay attention to. But it is normally ignored. And it is a bit tricky as insurance companies are generally extremely slow to catch up to what the world is doing and disability insurance seems to be stuck in the old notions about how tied people were to one country (as are other things – demanding physical addresses even if they know you are nomadic…, basing rules on silly ideas about where you happen to be at some point in time with customer hostile breaking of internet services that have been paid for etc.).

Related: Personal Finance Basics: Long Term Disability Insurance – The Growing Market for International Travel for Medical Care – Long Term Care Insurance: Financially Wise but Current Options are Less Than Ideal

Of course, not every student will earn that, some will earn more and some less.

The Value of a College Degree

So a college education is a great investment for most people. This can create a problem however, when people then assume that all they need to do is go to college and they will do well no matter what. The same thing happens in other markets. Real estate has proven to be a great investment. that doesn’t mean every real estate investment is good. It doesn’t mean you can ignore the costs and risks of a particular investment. The same goes for stocks.

In education there is a sensible case to made that the more people getting degrees the more risky it is. If very qualified people get degrees and that is limited to 10% of the population it isn’t hard to imagine those people will do well. Partially if they are selected somewhat effectively based on merit and potential (lets just say that it works out to 50% of the top 20% of the population for capability and potential) they would do well even if all you did was select them for college and nothing else (they never went to college).

Now if you start getting to the people with the 50th to 60th percentile capability and potential there is a reasonable case that these people are less likely to thrive economically. So if the costs of college for them are just as high as those in the top tenth percentile it is reasonable to expect they may take longer to pay it back or fail to do so.

I believe this is more a thought experiment than something to definitively measure. I think you can classify people to some degree by merit and capability but it is a measure prone to much error. Over large population however I think it is possible.

Another point is while I can imagine the payoff for college would be lower for people below the 50th percentile of this made up merit and capability measure it may be this expectation is just wrong. Maybe those people would benefit economically just as much or maybe even more. Some data could be collected on this (and I imagine is). I imagine it is not studied too much as there would be lots of political incorrect baggage about data showing people on some measures have less potential to earn back the costs of higher education.

I question for example the benefit of many of these for-profit “education” organization that seem much less focused on education and much more focused on their profit. Frankly I am very disappointed with the lack of education focus at those schools we think of as the best of the best. These schools often seem to lose themselves in vanity ego projects, hiding intellectual advances behind pay-walls and other bad practices.

But taking all the failures of these schools into account I am much more worried about others taking advantage of students to encourage unrealistic expectations about taking on debt for students that are less capable or even interested in academic pursuits.

Still for those with reasonable capability and interest the Fed study shows the payoff of education is still strong. It is sad that the costs have risen so much (again due in large part to the actions of educational institutions focusing on playing to the leaders egos instead of focusing on education for students at a reasonable cost). But even with the poor management by education leaders making the burden on students higher taking on that burden is wise for most students.

A second post by the Fed looks at that question: College May Not Pay Off for Everyone

I made the last sentence bold.

Related: The Value of Various College Degrees –
Engineering Graduates Earned a Return on Their Investment In Education of 21% (annual rate of return) – The Global Workplace and Your Career

Update, study finds: “The marginal admission yields earnings gains of 22% between 8 and 14 years after high school completion. These gains outstrip the costs of college attendance, and they are largest for male students and free-lunch recipients.”

Also credit card providers should let me generate credit card numbers as I wish for use online (that are unique and can be stopped at any time I wish). If I get some customer hostile business that makes canceling a huge pain I should just be able to turn off that credit card “number.”

Laws should be adjusted to allow this consumer controlled spending and require that any subscription service must take the turning off of the payments as cancellation.

For some plan where the consumer agrees up front to say 12 months of payments then special timed numbers should be created where the potentially convoluted process used now remain for the first 12 months.

Also users should be able to interact with there credit reports and do things like turn on extra barriers to granting credit (things like they have to be delayed for 14 days after a text, email [to as many addresses and the consumer wants to enter] and postal notification are sent to the user. Variations on how these work is fine (for example, setting criteria for acceptance of the new credit early at the consumers option if certain conditions are met (signing into the web site and confirming information…).

Better security on the cards themselves are also needed in the USA. The costs of improvement are not just the expenses credit card and retailers face but the huge burden to consumers from abuse of the insecure system in place for more than a decade. It is well past time the USA caught up with the rest of the world for on-card security.

The providers have done a lousy job of reducing the enormous burden of fraud on consumers. As well as failing to deal adequately with customer hostile business practices (such as making canceling very cumbersome and continuing to debit the consumer’s credit card account).

Related: Protect Yourself from Credit Card Fraud – Personal Finance Tips on the Proper use of Credit Cards – Continued Credit Card Company Customer Dis-Service – Banks Hoping they Paid Politicians Enough to Protect Billions in Excessive Fees

As I have written before: Avoiding Hedge Fund Investments is One of the Benefits of Being in the 99%.

This is pretty well understood by most knowledgeable investors, financial planners and investing experts. But funds that charge huge fees continue to get away with it. If you are smart you will avoid them. A few simple investing rules get you well into the top 10% of investors

• seek low fees
• diversify – pay attention to risk of portfolio overall
• limit trading (low turnover)
• use tax advantage accounts wisely (in the USA 401(k)s and IRAs)

From a personal finance perspective, saving money is a key. Most people fail at being decent investors before they even get a chance to invest by spending more than they can afford and failing to save, and even worse going into debt (other than to some extent for college education and house). Consistently putting aside 10-20% of your income and investing wisely will put you in good shape over the long term.

Warren Buffett put his money (a tiny bit for him, just $1 million) on the idea that hedge funds can’t outperform the market given the huge fees they charge. After 6 years he is well up on his bet with his pick (Vanguard S&P 500 index soundly beating a portfolio of hedge funds selected by the opponent in the bet).

I do wonder at what point the huge amount of index investing creates opportunities that can be exploited profitably. I actually think that point has been passed. The question now is can you profitably and reliably find active investing managers that are wise and charge relatively low fees? Passive investing may now account for over 60% of investments in the market.

Also in certain market environments where the market is likely to ignore useful data (bubbles or fads) or where data is questionable and smart digging can provide useful and profitable insight (China may fit this idea now – I pay for actively managed Templeton developing market funds and have for 20 years, I also have Vanguard developing market index type fund – VWO). I think most investors should primarily use index funds (REITs, etc.) but I think the prospects for investors picking their own stocks may be better as more investing is based solely on index funds mass buying and selling.

I am worried about the price level of the overall market now. I am less worried about some stocks; this means I am more comfortable holding Apple, Google, Toyota, Abbie etc. (not so much – Amazon) than I am the S&P 500 right now.

Related: Trying to Beat the Stock Market – Lazy Golfer Portfolio Allocation

This is another interesting portfolio choice. I have discussed my thoughts on portfolio choices several times. This one is again a bit bond heavy for my tastes. I like the global nature of this one. I like real estate focus – though as mentioned in previous articles how people factor in their personal real estate (home and investments) needs to be considered.

Related: Cockroach Portfolio – Lazy Golfer Portfolio – Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation – Looking for Dividend Stocks in the Current Extremely Low Interest Rate Environment

I think sites like oDesk provide a potentially great way for people to lead productive and rewarding lives. They allow people far from rich countries to tap into the market demand in rich counties. They also allow people to have flexible work arrangements (if someone wants a part time job or to work from home that is fine).

These benefits are also true in the USA and other rich countries (even geography – there are many parts of the USA without great job markets, especially many rural areas). The biggest problem with rich country residents succeeding on something like oDesk is they need quite a bit more money than people from other countries to get by (especially in the USA with health care being so messed up). There are a great deal of very successful technology people on oDesk (and even just freelancing in other ways), but it is still a small group that is capable and lucky enough to pull in large paychecks (it isn’t only technology but that is the majority of high paying jobs I think on oDesk).

But in poor countries with still easily 2 billion and probably much more there is a huge supply of good workers. There is a demand for work to be done. oDesk does a decent job of matching these two but that process could use a great deal of improvement.

I think if I became mega rich one of the projects I would have would be to create an organization to help facilitate those interested in internet based jobs in poor countries to make a living. It takes hard work. Very good communication is one big key to success (I have repeatedly had problems with capable people just not really able to do what was expected in communications). I think a support structure to help with that and with project management would be very good. Also to help with building skills.

If I were in a different place financially (and I were good at marketing which I am not) I would think about creating a company to do this profitably. The hard part for someone in a rich country to do this is that either they have to take very little (basically do it as charity) or they have to take so much cash off the top that I think it makes it hard to build the business.

But building successful organizations that can grow and provide good jobs to those without many opportunities but who are willing to work is something I value. I did since I was a kid living in Nigeria (for a year). I didn’t see this solution then but the idea of economic well being and good jobs and a strong economy being the key driver to better lives has always been my vision.

This contrast to many that see giving cash and good to those in need as good charity. I realize sometimes that is what is needed – especially in emergencies. But the real powerful change comes from strong economy providing people the opportunity to have a great job.

I share Dr. Deming’s personal aim was to advance commerce, prosperity and peace.

Related: Commerce Takes More People Out of Poverty Than Aid – Investing in the Poorest of the Poor – I am a big fan of helping improve the economic lives of those in the world by harnessing appropriate technology and capitalism – A nonprofit in Queens taught people to write iPhone apps — and their incomes jumped from $15k to $72k

I realize some people see risk in what sites like oDesk make possible to create a market that means people can’t earn a decent living. I do actually see that risk and think it is real. I don’t think trying to block commerce because of this risk is an effective strategy. I do think many millions of people can be helped (and some will be hurt). I think we are better off trying to help those that want to work in such a way to do so.

I do worry that we may well not have decent work for people that are not interested in highly valuable skills and/or are not willing to work (just expect to be given the rich life many of those in places like the USA got to have the last 70 years without much effort). As long as we have corrupt politicians selling out the country to those giving them cash the richest 20% in the USA will have huge trust funds to live off, so they will be rich. Those that aren’t living off trust funds or inheriting huge windfalls will have risks to survive.

They are still economically super lucky to have been born in the USA so I don’t really feel very sorry for them. But yes, there are real risks to the easy riches that we have had (and even so many in the USA struggled even while we have the richest middle class the world has ever seen in the richest country the world ever saw). But it is going to be harder going forward (at least comparatively to the rest of the world contemporaneously) – compared to the struggles people had 100 years ago I am not at all sure it will be more difficult for the average kid born in 2010 than it was for the average kid born in 1910 (especially if average doesn’t mean white boy but everyone and both boys and girls).

The correct decision depends on your personal financial situation and your life expectancy. The social security payment increases are based on life expectancy for the entire population but if your life expectancy is significantly different that can change what option makes sense for you. If you live a short time you won’t make up for missing payments (the time while you delayed taking payments) with the increased monthly payment amount.

The “normal social security retirement age” is set in law and depends on when you were born. If you were born prior to 1938 it is 65 and if you are born after 1959 it is 67 (in between those dates it slowly increases. Those born in 1959 will reach the normal social security retirement age of 67 in 2026.

The social security retirement age has fallen far behind demographic trends – which is why social security deductions are so large today (it used to be social security payments for the vast majority of people did not last long at all – they died fairly quickly, that is no longer the case). The way to cope with this is either delay the retirement ago or increase the deductions. The USA has primarily increased the deductions, with a tiny adjustment of the retirement age (increasing it only 2 years over several decades). We would be better off if they moved back the normal retirement age at least another 3 to 5 years (for the payment portion – given the broken health care system in the USA retaining medicare ages as they are is wise).

In the case of early retirement, a benefit is reduced 5/9 of one percent for each month (6.7% annually) before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month (5% annually).

For delaying your payments after you have reached normal social security retirement age increases payments by 8% annually (there were lower amounts earlier but for people deciding today that is the figure to use).

Lets take a quick look at a simple example:

Social security increases the monthly payment each year by the calculated inflation rate – I am going to ignore that in the example (to make my life easier).

Lets say your normal retirement age is 65 and your calculated monthly payment was $1,000. If you start collecting at age 65, after 13 years you have received $156,000. If you delayed for 2 years and started collecting when you were 67 after 11 years of payments (so to the same age of 78) you have received $153,965 (and your monthly payment each month is 16% higher than under the original scenario – so the longer you live the more you make).

So in this example it takes a bit over 13 years to break even for delaying by 2 years (while in reality thing are a bit more complicated this is a decent estimate). The life expectancy of for a man in the USA at age 65 is 19 years and for a woman is 21 years. So on average people will make a great deal more by delaying the start of social security payments, given the current rules (Congress can change the rules so this may change in the future). If someone is sickly and unlikely to live to the standard life expectancy that may mean delaying the start of payments is not a wise move.

One of the great benefits of delaying the payments is that the higher payments until death addresses a big risk in retirement planning – outliving your savings. Since you may have hundreds of more dollars every month for decades that decreases the amount you have to dip into your retirement principle. Since we don’t know how long we will live, a higher monthly annuity payment will provide the most benefit at the time when you face the largest risk for retirement planning, that of outliving your savings. It provides a bit of insurance against outliving your savings – or at least pushes the date at which that happens further into the future.

Can you pass a Social Security test?

Related: How Much of Current Income to Save for Retirement – Top Nations for Retirement Security of Their Citizens (USA is 19th) – Save What You Can, Increase Savings as You Can Do So – 401(k)s are a Great Way to Save for Retirement – Social Security (USA) Disability Insurance – Our Only Hope: Retiring Later

Take this 8 question social security quiz to test out your knowledge.