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Reader Patricia wins a copy of America, Welcome to the Poorhouse with her comment on my book review earlier this week.
If “we have to get a lot poorer ” means not having a 62 inch plasma tv, or the brand new I-phone (with contract) the day it’s released, or a McMansion with Rooms To Go furniture stuffed in every room and bought on a 5 yr. payment plan, then so be it. It’s about time people stopped with the hedonistic, gluttonous buy-buy-buy EVERYTHING NOW, even when they have to put it on credit, and get back to reality. Don’t buy what you can’t afford. Save (invest) at least 10% of your paycheck for retirement. Live within your means. Maybe this economic meltdown will cause a return to individual fiscal responsibility?
Like Patricia, many readers dismissed government reform in favor of individual responsibility. I agree that it would be great if we all lived within our means and saved so we could retire at a not-so-old age. If we all bought reasonably-priced houses and read the fine print to secure a fair mortgage. If we all practiced self-restraint and paid off our credit card bill in full.
The problem is, as a country, WE ARE VERY IRRESPONSIBLE WITH OUR MONEY. Do I even need to provide proof?
Which is why I think government reform could be the answer, perhaps on an educational level so that individuals are empowered to make savvy financial decisions. How about requiring high school students to take a class in personal finance, retirement planning, or budgeting 101? Teaching the next generation about money will spur financial change. No pun intended!
Prepared to be scared if you crack open America, Welcome to the Poorhouse by Jane White. The headlines and chapter titles gave me a fright:
- 80 percent of Americans can’t afford to retire
- the median 401 (k) balance for workers 60-65 (i.e., near retirement) was a paltry $43,000
- mortgage mess: it ain’t just subprime, it’s half of Americans in overpriced homes
- 35 million Americans are drowning in credit card debt
White makes the case that a “retirement crisis” is set to hit in 2011. “The first wave of Baby Boomers, those born in 1946, is scheduled to retire in 2011 and can’t afford to — at the same time my daughter’s generation, one of the largest in history, is scheduled to graduate from college,” she writes. “Will a big percentage of the 4 million graduates wind up jobless because my generation’s 3.4 million Boomers can’t afford to retire?”
I’m almost too scared to keep reading. But the book also offers solutions:
- require employers to contribute to employee 401 (k) programs no matter what
- save wisely until retirement reform happens
- buy an home in an affordable community, like Portland, Denver, San Antonio, Austin, Houston, or Raleigh (the book has pricing, education, and crime stats on each of these cities)
White advocates major reform via a taxpayer lobbying group that will match the power of big business. “We need a national citizens’ PAC that not only issues “report cards” on Congresspeople,” she writes, “but also encourages honest candidates to run for office and replace them…We need a new American revolution against the business lobby and those in Washington who enable it and do its bidding.” One such PAC is called the Accountability Now group and it is backed by a major union and MoveOn.org, a Democratic political group.
I’d like to believe in White’s optimism that positive reform will financially empower many Americans, but I’m not convinced it will happen in the next decade. As a country we have to get a lot poorer before people will be moved to act. What do you think?
Leave a comment on this post by Friday and you could win my review copy! If you can’t wait, buy it from amazon for $16.55 (orig. $22.99).
Want to increase your savings account by 6 percent? Getting text reminders to save works, says Tightwad Tod.
Heard about Starbucks trashing their Gold card program? Feel the Nuys rants that the “new and improved” program is total crap. Stick it to the man!
Kmart announces better than Black Friday deals, blogs California Consumer.
Facebook fans of Price Chopper now get exclusive coupons, reports Coupon Cravings
Mmmmm…potroast. Get Rich Slowly has a frugal recipe for slow cooked beef.
Got a small bill to invest? Here’s the best way to invest $100 at a time, according to the Digerati Life
Every Monday I like to highlight some of the interesting blog posts I’ve read on other blogs.
Man Vs. Debt has a guest post from a woman who made $15,000 selling her stuff on eBay
Want to make money from your hobbies? Free Money Finance has suggestions.
Bargaineering has some great ideas to get the lowest international calling rate.
Unlucky days create travel deals, notes California Consumer. The next Friday the 13th is in November.
Wealth Pilgrim gave up cable. It’s been four days and so far, he’s okay.
Costco is starting to accept food stamps, reports Smart Spending. By Thanksgiving more than half the warehouses will be equipped to take them.
Looking for a good scare? Check out the United States debt clock, courtesy of USDebtClock.org, a group that is devoted to educating people about the country’s debt. A disclaimer at the bottom of their About page says the group is not affiliated with any government, political group, or organization. And yet it doesn’t say who is behind the site, which makes me skeptical…
But onto the numbers. The site shows figures for more than our nearly $12 trillion debt load, so it gives a holistic scare. Also listed are state debt, private debt (like mortgages), social security liability and many other debts, all in red. Positive numbers are listed in green, including gross domestic product, federal tax revenue, small business assets, household assets, and more.
The site is constantly updating the figures, though it doesn’t explain how it does that. Are the figures projected? I can’t image every source for every number in the debt clock is updated so frequently. It’s possible that each number is pro-rated based on yearly growth or decline.
There are so many figures it’s possible to come to more than one conclusion about the financial health of the U.S. What do you make of our debt?
Thanks, Dave!
I recently read The Digerati Life’s post on using a CNN Money tool to gauge her family’s financial health and just had to try it for myself. The tool asked me questions about my household income, how much I pay for housing and to service my debt, and how many months of emergency savings I have.
The questions were broken into in seven categories and I got instant feedback when I finished each category. Overall I got a B+ grade and this report: “Looks like your finances are in good shape, but there are still a few areas you could improve.”
The two areas where I need to improve, according to the tool, are the percentage of my income that goes to housing and my stock diversification.
Los Angeles is an expensive place to live, so I’m not sure how much I can lower my rent. As for diversification, I can review my portfolio with my financial advisor.
How financially healthy are you? Check out the CNN Money tool here. I highly recommend it!
Banks earn more money from debit card fees than credit card fees and they often manipulate usage patterns to maximize their profit – and our pain, says a front page story in today’s NY Times.
“Banks will let you overspend on your debit card in a way that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.
The problem is that banks charge you an overdraft fee when you spend more than what is in your account, instead of denying the purchase. Three-quarters of the largest American banks automatically give consumers overdraft coverage, excepting Citigroup and INGDirect.
By calling this service overdraft “protection,” banks emphasize the benefit to consumers (being able to spend more than you have), while de-emphasizing their gain (charging outrageous fees for lending you what you the moolah).
Regulators and lawmakers are working to help consumers, but in the meantime, ahem, here are seven things you can do to reduce your debit card fees, the story says.
- Call your bank and ask them to turn off the overdraft protection on card transactions. Ask if this step will also disallow checks, ATM withdrawals and automatic bill pays to go through if they take your balance below zero. These are additional ways you can incur fees.
- Create a cushion, be it $100, $500 or $1,000, if your bank does not let you turn off overdraft protection. Some, like Bank of America or Wells Fargo, “generally won’t let you switch” it off, the story says. My Mom used to keep $300 extra in her checking account that was not reflected in the balance on her check ledger. So when she went negative $15, say, she actually had $285 left.
- Find a new bank that allows you to NOT have overdraft coverage. Try a smaller bank or credit union, and be sure to ask more than one person at the new institution to make sure they don’t have overdraft coverage.
- Get a line of credit at your bank that will kick in if you go below zero, instead of overdraft coverage. With a bank line of credit you will pay an interest rate on whatever you borrow beyond zero, instead of a $30 or $35 fee whenever you dip below zero.
- Connect a back up savings account to your checking account. If you overspend, the bank will take money from your savings to make up the difference. PNC Bank’s Virtual Wallet lets you link two accounts to your main account, the story says.
- Set an alert so you know when your balance is getting low.
- Consider a credit card – if you weren’t running away from credit in the first place!
Read the whole story here.
The recession is over in Europe and things are stabilizing in the U.S., according to the headlines.
Europe forgets recession (Forbes)
Eastern Europe sees hope in Western growth (Wall Street Journal)
Economists say recession may be over (NPR)
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The Internet has made many things free and thanks to Credit Karma that now includes credit score. I spoke to Credit Karma founder Ken Lin about how he makes money, the $6,818 credit card debt each average American carries, and failing grades.
When was Credit Karma started? Credit Karma is a site that has been around for about 15 months. We came into the business with hopefully a new take on it. Why don’t we simply sell advertising on the site and give consumers their credit score any time they want? We think fundamentally this is a better thing given the economic climate we are in.
The average consumer debt decreased by $120 in July. That seems like nothing. Well when you put it against 180 million consumers, it’s a pretty big debt load. Two percent on a monthly basis is compelling and if the trend holds, will it annualize to 24 percent? Probably not, but on a monthly basis 2 percent is meaningful if not compelling.
So people are paying down their credit card bills, their mortgage, and they are not buying much? Consumer debt has been dropping across all verticals. We think it’s a confluence of two things. One is the economy. Consumer income is down. Consumer spending is down. The second component is really a function of tighter credit markets. Two years ago…there was so much liquidity. It was easy to get credit. There’s been a major pull back of that in the past six months.
We expected that, right? The tighter credit is not the expectation. The government is trying to spur on consumer spending by encouraging mortgage lenders to be a little more free with their lending. The credit card holders bill of rights will help tighten the market. People won’t have access to credit quite as easily anymore. It used to be 650 and you could get credit. Today your score needs to be 700 or higher to get that same type of card.
What is special about Credit Karma? We boil it down to the top seven metrics that affect your credit score and we give you an A to F grade. We give you great metrics but we also put it into perspective. Everything on our site is free. We think this is a better way of doing business.
How does Credit Karma make money? We sell advertising.
The site also makes money through offers? Advertisers are willing to give you a compelling offer based on your credit score. We don’t sell consumer information so the only way companies can reach you is through advertising. As a consumer you can look at it if you want to. You can click on it if you want to. It is completely up to the consumer.
Give me an example of a typical offer. Lending Club is a P-P lender. Small loans, people to people. So both parties save by cutting out the middleman bank. An offer would be save 10 percent on registration fees.
Some blog posts I’ve been reading:
The recession is ending soon! But recovery will be slow, says USA Today.
Wise Bread shares 5 ways to save time and money on your lawn.
The ConsumerReports Money Blog warns of new identity theft scams. And their electronics blog lists which states are providing back to school tax breaks.
The Cash for Clunkers program seems to be working. Ford reports sales ticked up 2.1 percent in July.
WiseBread shares 10 ways to get more wear out of your clothing.
Tightwad Tod gets snookered by Cablevision. The fury!
Get Rich Slowly calculates to the penny how much money his garden is saving him.
RecessionWire polls 1,200 readers and finds exactly what people are spending money on.
A friend invited me to a happy hour Friday and I instantly said yes. Having a drink with friends is one of life’s great pleasures. Then I remembered my spending moratorium. Ug.
I could bail, but this presents exactly the type of situation that makes the moratorium a worthy experiment. The point is not to sit at home for an entire month holding my breath until August when I can spend. The point is to live my life as normally as possible while not making an discretionary purchases. That means socializing with friends.
So far I have found plenty of free activities to do with my friends, including a game of pick-up Ultimate Frisbee, a picnic on the beach, and yoga (I buy classes in bulk to get the best price so it’s already paid for).
But going to a bar is going to directly confront my non-spending initiative. Luckily, I have a plan.
1. Eat before I go so I can honestly say I’m not hungry.
2. Leave my wallet home, except for my ID. No cash = no temptation.
3. Be very engaging so nobody notices I’m sipping water.
Apparently many folks are joining me on my spending moratorium. This morning news outlets reported retail sales are worse than the dismal expectations. GAP is down 10%, JC Penney is down 8%, Target is down 6%.
A reader named Emily, who joined me on the spending moratorium, wrote in with this update:
One purchase that I did make an exception for myself is a used copy of the South Beach Diet cookbook for use at home as I am redoing phase two at present and my father, who is a diabetic, should be eating fewer carbs anyway. As I considered it a health investment, I figured the $2.00 the store was asking for made it a worthy purchase. I’m glad to see your moratorium is still happening, albeit slightly challenging.
Who else is observing the moratorium this month? Email me an update, please.
This is a guest post from BargainBabe.com’s intern, Alex.
Military spending may seem like far-off dollars that will never see your pocket, but military-based discounts are everywhere. They just aren’t usually displayed in storefront windows.
As a dependent of my dad who retired from the air force, I received tons of discounts all throughout high school and college on stuff like movie tickets, flowers, and hotel reservations. The only time I had to step foot on a military base was to get my military ID card, a process which can take a couple hours but is well worth it.
Sometimes the hardest part is just remembering to ask about these discounts. Who would have thought I would save 15 percent on my lift ticket and ski rental last winter? Oh, and not just for me, but my two friends as well. If you know somebody with a military ID, be sure to remind them of possible discounts.
And flowers! Are flowers expensive or what? I was able to get a discount on Valentine’s Day flowers online because I have a friend in the active military. I showed him Military.com, a site that lists companies with military discounts, and he hooked me up with some of the exclusive coupon codes.
Some places are a little less accommodating. They have strict rules about offering their discounts only to those serving active duty, meaning nobody who is retired or simply has a parent in the military is eligible. Should you try to get your discount anyway? Knowing you’re not active military that’s up to the individual. The average behind-the-counter-guy/girl is not going to be up to speed on the differences between military ID cards, but that may change. Knowledge is power I say, use it with everyone in mind.
The savings don’t stop at the storefronts, though. I was once pulled over for an illegal U-Turn as well as impeding traffic. The cop started writing me up before he noticed the military ID in my wallet as I showed him my driver’s license.
He still wrote me up for a basic traffic violation, but made it clear that he could have done worse. Did he hold off because of the military affiliation? Maybe. Something tells me picking up that military ID card on the base was worth the time. It expired years ago, but still comes in handy.
Check this eHow page to see if your relationship to somebody in the military makes you qualified for special discounts.
In the final hours before my spending moratorium kicked in today, Day 1 of 31, I made three purchases.
1. I paid $.68 for a Twix bar at CVS on my way home from the library. (To me, candy should still be $.50. I won’t miss paying retail.)
2. I charged $31.65 for a Thai dinner after my dancing lesson with Hubby. Had some very tasty fresh spring rolls and curry at Chili Thai in LA.
3. I spent $12.61 filling up my gas tank at the 76 station. I’ve got a full tank to last me the month – roughly 400 miles.
Now it’s no more spending for a month!
Two brave souls stepped forward to join me on this frugal experiment.
Emily said:
I will be joining you on the Moratorium although I will have slightly fewer restrictions as I have recently moved and am not ruling out the possibility of unexpected expenses.
Tamara said:
I am going to join you on your spending moratorium for the month of July! I do have one question though, and I will post it in the comments, what do you think about buying wedding gifts? I have two weddings to attend in July and am not sure how to proceed with “counting” the spending on gifts. Am I allowed to, or not?
I wanted to make it easy on Tamara so I put her question into a poll.
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Related:
BB considers going on a spending moratorium
Votes are in! BB goes on a spending moratorium
Spending moratorium starts Wednesday
