Investing Curiouscatblog

Category: Personal finance

  • The Widening “Marriage Gap” is Breeding Income Inequality

    The frayed knot

    And the divorce rate among college-educated women has plummeted. Of those who first tied the knot between 1975 and 1979, 29% were divorced within ten years. Among those who first married between 1990 and 1994, only 16.5% were.

    At the bottom of the education scale, the picture is reversed. Among high-school dropouts, the divorce rate rose from 38% for those who first married in 1975-79 to 46% for those who first married in 1990-94. Among those with a high school diploma but no college, it rose from 35% to 38%. And these figures are only part of the story. Many mothers avoid divorce by never marrying in the first place. The out-of-wedlock birth rate among women who drop out of high school is 15%. Among African-Americans, it is a staggering 67%.

    Does this matter? Kay Hymowitz of the Manhattan Institute, a conservative think-tank, says it does. In her book “Marriage and Caste in America”, she argues that the “marriage gap” is the chief source of the country’s notorious and widening inequality. Middle-class kids growing up with two biological parents are “socialised for success”. They do better in school, get better jobs and go on to create intact families of their own. Children of single parents or broken families do worse in school, get worse jobs and go on to have children out of wedlock.

  • Financial Illiteracy Credit Trap

    The article is definitely worth reading, read the “related items” also – The Poverty Business from Business Week:

    “Having access to credit should be helping low-income individuals,” says Nouriel Roubini, an economics professor at New York University’s Stern School of Business. “But instead of becoming an opportunity for upward social and economic mobility, it becomes a debt trap for many trying to move up.”

    Why? Mainly due to financial illiteracy. Except in the most extreme circumstance (and then for a short time only) it does not make sense to borrow (given the current interest rates) at an interest rate above 15% (and other than large purchases – car, house… borrowing is normally unhealthy for your financial well being). If you want a new computer, new TV… “rent to own” effective interest rates are horrendous. Just save the money needed and then buy what you want. Borrowing worsens your financial position and since most making such bad financial choices already have a very weak financial position the impact is even more negative. One goal of this blog is to help people become financially literate, so they can improve their economic position by making intelligent financial choices.

    One very simple but powerful personal finance tip: save money to buy what you want, don’t borrow to buy what you want. And a related tip, save money to act as an emergency fund. If you don’t create an emergency fund it is far too easy to find yourself in need of emergency funds and then being forced to borrow and getting yourself trapped in a downward spiral.

  • Example of Mortgage Payments Depending on Credit Score

    Example 30 year mortgage rates (from myfico.com – see site for current rate estimates):

    FICO score APR Monthly payment*
    760-850 5.860% $2,362
    700-759 6.082% $2,419
    660-699 6.366% $2,493
    620-659 7.176% $2,709
    580-619 8.820% $3,167
    500-579 9.679% $3,416

    Amounts shown for borrowing $400,000 and rates as of May 7th. For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.

    FICO scores are determined by your:

    • Payment history – 35%
    • Amounts owed – 30%
    • Length of credit history – 15%
    • New credit – 10%
    • Types of credit used – 10%

    Related: 30 Year Fixed Rate Mortgage Rates – Learning About Mortgages

  • Broken Health Care System: Self-Employed Insurance

    Many of the Self-Employed Are Simply on Their Own:

    In 11 states, self-employed people have some of the same legal rights as small companies when it comes to dealing with insurers: Colorado, Connecticut, Delaware, Florida, Maine, Massachusetts, Mississippi, New Hampshire, North Carolina, Rhode Island and Vermont.

    But elsewhere, in dealing with insurance companies, the nation’s estimated 20 million self-employed are on their own. In Virginia, a state with relatively few controls on insurance rates, Clay Williams, a 59-year-old self-employed real estate agent in Falls Church, said the cost of health insurance for himself, his wife and two sons, had tripled in six years. After it ballooned last year to $1,956 a month, he angrily refused to renew.

    Fixing the health care system is not easy. But it is broken and doing serious harm to the economy and individuals and needs to be fixed. Post on our management improvement blog on fixing the health care system. In addition to the obvious harms the broken system discourages many people from taking on the challenge of self employment. It also greatly increases the friction in the economy for moving between jobs.

  • How Much Retirement Income?

    Current vs. retirement income: How much do I need?:

    some people say you need 70 percent of pre-retirement income after retiring, while others claim it’s 80 percent, 85 percent or 90 percent. But whatever version of this rule you hear, I think you need to take it with a very large block of salt. Of course, that’s true of all rules of thumb, whether it’s the percentage of pre-retirement income you need, “the 4 percent rule” on withdrawing funds from your portfolio in retirement, the “save 10 percent for retirement rule” or any other benchmark.

    After all, rules of thumb are shortcuts; they’re solutions that are supposed to work for the “average” person.

    Good advice. The rules of thumb can help you get an idea of the ballpark for a fictional “average” person in general. But your particular situation is different.

  • Dragged Down by Debt

    Dragged Down by Debt by Jane Bryant Quinn (Newsweek broke the link so I removed it):

    Payday and car-title lenders tend to cluster in low-income neighborhoods—especially around military bases, where families are young and borrowers aren’t very savvy about interest rates. Congress recently slapped a 36 percent interest-rate cap on loans made to members of the armed services. But it left out everyone else, who pay rates that sometimes exceed 700 percent, says CFA’s Fox.

    Of all the predatory loans, “exploding mortgages,” with interest rates that wing up after two or three years, are probably the most toxic and have made the most headlines. They’re typically granted to borrowers classed as “subprime”— those with credit scores under 620 (a 900 score is tops). But these are the very people least able to handle monthly payments that suddenly double or triple.

    Related: Personal Loan information – Learning About Personal Loans – articles on loans

  • Learning About Personal Loans

    Personal Loans are either secured of unsecured loans to an individual. Secured loans have some form of collateral such as a car, stocks (margin loan) or a house (home equity loan). Unsecured loans are usually involve less paperwork (which is often an attraction to the borrower – though margin loans often take no paperwork). The interest rate on unsecured loans is normally higher since the lender does not have collateral.

    Credit cards are a form of unsecured personal loan. They normally are the worst way to borrow money (though for a very short term loan – say a month or two – when you factor in the ease of use they can be the best option). The problem is many people treat their credit card as a normal source of loans. This is a bad personal finance strategy. See our credit card tips for more information.

    Personal loans often have “teaser” rates – interest rates that are low (and quoted in big bold colors) while the real rate is hidden in small type. Don’t fall for the hype. The Annual Percentage Rate (APR) helps you look through the hype to the real cost, but is still not a perfect measure of the cost to the borrower.

    A MSN money article discusses the horrendous terms of some “payday loans”: Loans with triple-digit interest. Read more about personal loan terms such as: payday loans, Annual Percentage Rate (APR), line of credit, etc..

    Related: Payday Loans = Costly Cash, FTC Alert – Learning About Mortgages – How Not to Convert Equity – personal finance articles on loans

  • Save Money on AV Cables

    Maybe this will help people understand HDMI cables…:

    “Question: Is there any difference between a cheap (i.e. $10 HDMI cable) and an expensive (i.e. $150 HDMI cable)???”

    I have an EE degree. I work as a broadcast engineer. I live and breath digital and analog signals every day. So yes, you could say I’m qualified to give the answer to this question…

    That answer is, “No, an expensive HDMI cable will make NO difference in the quality of your picture OR sound”

  • Held Hostage By Health Care

    Held Hostage By Health Care:

    Workers, he says, are increasingly shackled to their jobs for no reason other than to cling to their employers’ health insurance coverage. These are people, he says, “who don’t leave a job even though they’re unhappy and would be more productive somewhere else.”

    This is one of the many problems with the existing health care system in the USA. That system now costs 16% of USA GDP – the highest cost anywhere.

    After a decade of working in a job she wanted to leave, Holmes Johnson found the courage to move on. “Starting my own thing was too overwhelming, and my husband’s plan did not offer the coverage to make us feel secure,” she says. A few months ago, she landed a public-relations position with a comparable salary at Washington law firm Sterne Kessler Goldstein Fox. After checking the firm’s formula for prescription-drug coverage, she made the jump. In what other country, she wonders, would that be the deciding factor?

    The USA economy has strengths and weaknesses. The strengths have allowed the health care system to function poorly and still be tolerated. It has reached a point where it cannot be tolerated in its current form.

    Related: Starbucks: Respect for Workers and Health Care – Health Care Crisis

  • Alternative Minimum Tax

    Congressional Budget Office on the Alternative Minimum Tax (AMT):

    Until 2000, less than 1 percent of taxpayers paid the AMT in any year. Under current law, however, the number of taxpayers affected by the AMT will grow from just over 1 million in 2001 to nearly 30 million in 2010 before falling back to about 23 million in 2014 after the expiration of the 2001 and 2003 tax cuts. Twenty percent of all taxpayers–and 40 percent of married couples–will owe AMT in 2010. AMT receipts in 2010 will total about $90 billion, roughly 7 percent of total individual income tax revenue.

    The Looming Challenge of the Alternative Minimum Tax, Alan D. Viard, Federal Reserve Bank of Dallas:

    While the AMT applied to 200,000 taxpayers in 1990, roughly 4 million will pay it this year, according to the Urban-Brookings Tax Policy Center. But that is only the beginning. Under current law, the AMT rolls will explode to 22 million in 2007. The AMT’s revenue yield follows a similar pattern, having risen from $2 billion in 1990 to $22 billion this year. It’s projected to nearly triple to $65 billion in 2007.

    Related: Families Face Alternative Minimum Tax, NPR – Brookings Institution article on the AMT – Preparation Softens Blow of Alternative Minimum Tax – IRS on the AMT