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  • Credit Unions Slowly Fill Payday Lenders Void

    As I have mentioned previously credit unions do a much better job than any other financial category of providing customer value. Instead of trying to trick you and rip you off, credit unions often just provide services at a reasonable cost. What a sensible idea. Credit Unions Slowly Fill Void As Payday Lenders Leave D.C.

    In January, legislation went into effect capping interest rates in the District at 24 percent, effectively driving out the area’s payday lenders, whose business model is wedded to annualized rates of 300 percent and above. Credit unions are now slowly filling the void in small-dollar loans. At least half a dozen District institutions are attempting to reinvent the loans as a tool to help bring hard-pressed borrowers closer to financial health.

    The credit unions’ products vary, but generally they are loans of $300 to $1,000 with an annual percentage rate of up to 18 percent. Unlike payday loans, in which borrowers sign over part of their next paycheck for the cash advance, the credit unions’ new products have longer terms, from thirty days to a year.

    It is still an indication of bad personal finances to take the short term loan, but if that is the choice you make, paying a reasonable rate will greatly reduce the damage to your personal financial health.

    Related: personal loans – Ohio Acts to Protect Citizens from Payday Loan Practices – Dragged Down by Debt – Don’t Let the Credit Card Companies Play You for a Fool – Sneaky Fees

  • Salaries with a College Degree

    The Declining Value Of Your College Degree by Greg Ip:

    A degree, she says, “isn’t any big guarantee of employment, it’s a basic requirement, a step you have to take to even be considered for many professional jobs.”

    For decades, the typical college graduate’s wage rose well above inflation. But no longer. In the economic expansion that began in 2001 and now appears to be ending, the inflation-adjusted wages of the majority of U.S. workers didn’t grow, even among those who went to college. The government’s statistical snapshots show the typical weekly salary of a worker with a bachelor’s degree, adjusted for inflation, didn’t rise last year from 2006 and was 1.7% below the 2001 level.
    …
    To be sure, the average American with a college diploma still earns about 75% more than a worker with a high-school diploma and is less likely to be unemployed. Yet while that so-called college premium is up from 40% in 1979, it is little changed from 2001

    The job market is more challenging than it was, it seems to me. Counting on being able to steadily progress during your career, without any gaps or times when you must accept much less than you hoped, is risky. This is one more reason why it is so important to spend less and save more in the good times in your career.

    Related: What Do Unemployment Stats Mean? – Engineering Graduates Again in Great Shape – USA Job Growth – The IT Job Market

  • Are You Financially Literate?

    Are You Financially Literate? Do this Simple Test to Find Out by Annamaria Lusardi.

    1) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
    a) More than $102
    b) Exactly $102
    c) Less than $102
    d) Do not know

    2) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?
    a) More than today
    b) Exactly the same as today
    c) Less than today
    d) Do not know

    3) Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”
    a) True
    b) False
    c) Do not know
    …
    To be “financially literate” you need to answer correctly to all three questions.

    And I would add, just answering those 3 simple questions does not mean you are. But if you don’t answer all 3 correctly you are not financially literate. We provide several resources to help people improve their literacy, including: our blog posts on financial literacy, Curious Cat Investing Dictionary and Curious Cat Investing Books.

    Related: Questions You Should Ask About Your Investments – Annual Percentage Rate (APR) – Ignorance of Many Mortgage Holders
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  • Copywrong

    In response to: Fair Use Rights by David Bradley

    Copyright is a taking of a public benefit for a private entity. This was put into law in order to increase the total public benefit. The idea was that taking from the public to provide the creator a limited-term, exclusive, government-granted, right to their work would encourage individuals to invest their time in creating works that would benefit society.

    So the debate is properly about how great the taking from the public should be. It seem to me the current situation is completely corrupt. Many of the actions are taking public benefit to provide to the private entity where no possible public benefit exists. Extending copyright periods of long ago created works, where obviously the public is harmed purely for private benefit. No possible argument can be made that their is a payoff to the public for this taking.

    If you wanted to take such an action and made it only for new work then their could be an argument that now a creator knows they have 100 years of government provided rights and therefore investing more time and effort in their work creates new and better work. I don’t believe this argument but at least it is possible. The current actions though are mainly about large companies using government to take from the public to provide themselves private benefit with no corresponding public benefit.

    Lawrence Lessig is the person who has the best insight in this area, in my opinion: The Value of the Public Domain.

    Dr. Deming published his seven deadly diseases of western management a couple decades ago. I would add 2 new diseases: Excessive executive compensation and a broken intellectual property system.

    Fair use is the right to reference (and quote limited portions of) works that have been granted government copyright protection. This is integral to the whole idea of creating the greatest public benefit (even while providing some government imposed limits on public rights to the creator). The large companies now are using lawyers to greatly increase the harm to society by expanding the taking of public benefit. They threaten and scare many into paying fees (or completely avoiding works that have been granted limited government granted copyright rights) where none are are rightly due (see Lawrence Lessig for examples). This causes great harm to society for the private benefit of a few. This is an obvious failure of government. Those countries that are successful at adopting more sensible systems are going to have a great advantage over those countries that chose to continue to increasingly bad practices of harming society to benefit a few private interests.

    Related: What is Wrong with Copyright Taking Public Good for Private Special Interests – Innovation and Creative Commons – Diplomacy and Science Research – More Government Waste – Crazy Watchmen – General Air Travel Taxes Subsidizing Private Plane Airports – China and the Sugar Industry Tax Consumers

  • Student Credit Cards

    I posted before on how universities seek profits instead of helping students develop good financial literacy and habits. Here are some tips on how you should use your credit card. College Credit-Card Hustle

    Universities and their alumni associations have discovered an unlikely and disturbing source of revenue: Increasingly, they are selling students’ personal information to big credit-card companies eager for young customers.

    Using state public disclosure laws, Business Week has obtained more than two dozen confidential contracts between major schools and card-issuing banks keen to sign up undergraduates with mounting expenses for tuition, books, and travel. In some instances, universities and alumni groups receive larger payments from the banks if students use their school-branded cards more frequently.

    The growing financial alliance between schools and banks raises questions about whether universities are encouraging students to incur additional high-interest debt at a time when many young people graduate from college owing tens of thousands of dollars.
    …
    Universities rarely negotiate favorable terms for their students, according to people familiar with the practice. On the contrary, some schools and booster groups entice undergraduates to sign up for cards with low initial interest rates that are soon replaced by steep double-digit rates.

    Schools (and if some try to play legal games about alumni associations being separate, I don’t accept that) should fully disclose exactly what they are doing. I know they can make all sorts of excuses about why being open and honest is not right for them. Well, I think it is easy to predict they will be selling out their students and hiding that fact (if they must be open about what they are doing they will avoid some of the most egregious behavior because they know there will be consequences if they obviously sell out students). And, now Business Week has evidence that many are.

    If a school is not open and honest about the deals they are making just assume they are selling out the students for their own gain. I can’t really see why we would want to support such behavior and I would encourage us not to.
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  • The Girl Effect

    I believe in this model. Giving People the Opportunity to Succeed – Provide a Helping Hand – Creating a World Without Poverty

  • Forecasting Oil Prices

    Forecasting oil futures by Justin Wolfers (Wharton School, Univ. of Pennsylvania) on Marketplace (a great show by the way)

    In fact, Ron Alquist and Lutz Killian, two University of Michigan economists, recently assessed the forecasting performance of the no-change rule. Amazingly, this simple rule did better than the average of dozens of professional forecasters! In fact, the no-change forecast was 34 percent more accurate at predicting oil prices in three months time, and 18 percent more accurate at predicting prices in a year’s time. While professional prognosticators might argue that this difference isn’t statistically significant, it sure is embarrassing.

    Others ignore the professional forecasters and focus instead on what futures markets are saying. But it turns out that even futures prices are not as accurate as our simple formula. Even sophisticated econometric models don’t yield better forecasts than our simple no-change rule.

    The truth is that forecasting oil prices is so darn hard that complicated formulae add nothing but complexity. And so the simplest forecasting rule also turns out to be the best.

    This is another example of how tricky it is to predict financial markets. I am a bit surprised for relatively longer periods (like a year) the professionals do so poorly. My father, a statistician (among other things), challenged me to predict the movement of stocks on a daily basis better than his prediction (which was no change). I can’t remember the result – which makes me think I failed. I think I would be more likely to remember if I succeeded.

    Related: Prediction Markets at Google – Illusion of Explanatory Depth – 30 Year Fixed Mortgage Rates Graph – Randomization in Sports

  • Inflation Up 1.1% in USA Last Month

    U.S. Consumer Prices Jumped in June by the Most in 26 Years

    The cost of living soared 1.1 percent, more than forecast, after a 0.6 percent gain the prior month, the Labor Department said today in Washington. Excluding food and energy, so-called core prices climbed 0.3 percent, also more than anticipated.
    …
    Prices increased 5 percent in the 12 months to June, the most since May 1991. They were forecast to climb 4.5 percent from a year earlier, according to the survey median. The core rate increased 2.4 percent from June 2007, also more than forecast.

    Energy expenses jumped 6.6 percent, the biggest gain since the aftermath of Hurricane Katrina in September 2005. Gasoline prices soared 10.1 and fuel oil jumped 10.4 percent.
    …
    Rents which, make up almost 40 percent of the core CPI, also accelerated. A category designed to track rental prices rose 0.3 percent after a 0.1 percent gain in May. Today’s figures also showed wages decreased 0.9 percent in June after adjusting for inflation, the biggest drop since August 1984, and were down 2.4 percent over the last 12 months. The drop in buying power is one reason economists forecast consumer spending will slow.

    The continued increase of inflation is a serious problem. Eventually the federal reserve needs to take serious action (raising the discount rate). And the politicians need to stop raising taxes on the future to spend more and more every year. Their continued financial irresponsibility is a large part of the reason for the declining value of the dollar – along with the voters that keep electing those proposing large increases in spending while pushing off paying for that spending to future tax increases.

    Related: inflation investment risk – Food Price Inflation is Quite High – Bernanke warns of inflation – Politicians Again Raising Taxes On Your Children – USA Federal Debt Now $516,348 Per Household
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  • Many Retirees Face Prospect of Outliving Savings

    Many Retirees Face Prospect of Outliving Savings, Study Says

    Nearly three out of five middle-class retirees will probably run out of money if they maintain their pre-retirement lifestyles, a new study from Ernst & Young has concluded.
    …
    Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more — 37 percent.

    This is one more study pointing out how many people are failing to take the most basic steps to manage their finances. Saving for Retirement is not very complicated. The details can get a bit complex but some of it is really basic like saving at least 5-15% of your earnings each year (or more if you fall behind) in tax differed savings accounts (IRA, 401(k)…). Many people just choose to sacrifice their future to buy more toys today.

    There are different strategies but the minimum you should be doing (in the USA where social security will provide a portion of retirement savings) is saving, in a 401k, IRA or something similar: 5% in your 20s, 8% in 30s, 10% in your 40s, 11% in your 50s, 12% in your 60s. If you save more earlier you may be able to save less later. And if you fall behind you will have to save more. To retire earlier, than say 68 (today, or say 70 by 2020, and if you assume life expectancy rates will continue to increase you need to plan on working longer or saving more for a longer retirement), you should save more.
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  • 2nd Largest Bank Failure in USA History

    I commented on, WaMu Free Checking: The High 3.3% APY May Be Worth A Look, yesterday:

    I agree it is worth considering. It has FDIC insurance. But the bank is not very stable. The stock price, for example, was above 40 in the last year. It is below 5 now. But as long as your entire deposit is covered by FDIC you are in safe (though if a bank goes under – not that likely – there can be a delay in getting your money). Normally a bank’s assets would be bought out by another bank.

    And today I read of the second largest bank failure in the history of the USA, IndyMac Bank seized by federal regulators:

    The Office of Thrift Supervision in Washington, the chief regulator of IndyMac, said it transferred control of the $32-billion bank to the Federal Deposit Insurance Corp. Branches will be closed over the weekend, but the FDIC will reopen the bank Monday as IndyMac Federal Bank, the OTS said.

    Regulators said depositors would have no access to banking services online and by telephone this weekend, but could continue to use ATMs, debit cards and checks. Online banking and phone banking services are to resume operations Monday.

    Federal authorities said based on a preliminary analysis, the takeover of IndyMac would cost the FDIC between $4 billion and $8 billion.

    It is important to make sure your deposits are FDIC insured (in the USA), and to know the limits of the coverage.

    FDIC Failed Bank Information Information for IndyMac Bank, F.S.B., Pasadena, CA

    Principal and interest on insured accounts, through July 11, 2008, are fully insured by the FDIC, up to the insurance limit of $100,000. You will receive full payment for your insured account. Certain entitlements and different types of accounts can be insured for more than the $100,000 limit. IRA funds are insured separately from other types of accounts, up to a $250,000 limit.

    IndyMac was a huge mortgage focused bank. Their stock price had fallen from a high of nearly $30 in the last year to below $5 in April, $2 in May and $1 in June. It is a very good thing we have the FDIC.

    Related: Credit Crisis (August 2007) – Credit Crisis Continues – Homes Entering Foreclosure at Record