During the recession these past couple of years, most shoppers have watched their holiday budgets closely. Now, many of them are suffering from what’s being called “Frugality Fatigue.”
And it looks like the Starbucks Syndrome is also on the rebound. Customers who swore off frivolous spending during the Great Recession are lining up again for their $4 caffeine fix. The company's net income nearly doubled, and revenue rose by 17 percent in the most recent quarter, compared with a year earlier. Who knew that the measurement consumer confidence would rest inside a coffee cup?
After seeing their retirement funds and home equity shrink severely, consumers tightened their belts in a shift some economists dubbed, the “New Frugality.” Fortunately for the world's largest latte purveyor and other peddlers of small luxuries, Americans could have a short memory when it comes to the economy.
Apparently affordable luxury items such as gourmet coffee, lingerie and high-end skin cream have been enjoying a comeback since the stock market began to rally in August and higher-income Americans started feeling better about their finances. Still, it's unclear whether this signals the beginning of a broader retreat from thrift. Shoppers still are making lists and, for the most part, sticking to them. The unemployment rate rose to 9.8 percent in November, holding a damper on spending in millions of households.
Alan Levenson, chief economist at T. Rowe Price, says Americans could not revert to old spending patterns even if they wanted to because banks aren't willing to lend. The personal savings rate remains high, and although consumer spending rose by an annualized 2.8 percent in the third quarter, the biggest bump since 2006, that's not enough to rev up the overall economy. Certainly there's pent-up demand, Levenson says, but shoppers are "not blowing anybody's doors off."
Just like New England weather – wait a minute. The article in today’s New York Times says that banks are lending to riskier borrowers again. Oh goody. Now suddenly those holiday television commercials about buying Lexus’s and BMW’s for gifts might make sense. One of the commercials actually says, “Who doesn’t want a really big gift this year?”
Talk about your mixed messaging. Let’s make sure our kids can keep it straight!
Monday, December 13, 2010
Monday, November 29, 2010
Spend Wisely Today!
According to a National Retail Federation survey conducted over the weekend by BIGresearch, more shoppers visited stores and websites over Black Friday weekend – and spent more – than a year ago.
According to the survey, 212 million shoppers visited stores and websites over Black Friday weekend, up from 195 million last year. People also spent more, with the average shopper this weekend spending $365.34, up from last year’s $343.31. Total spending reached an estimated $45.0 billion. Early reports indicated that many shoppers were also buying for themselves - in addition to gifts - though mostly where they saw bargains.
As retailers leverage their websites to offer Black Friday prices to shoppers who didn’t want to fight crowds, the percentage of people who shopped online this weekend rose a healthy 15.2 percent, from 28.5 percent last year to 33.6 percent this year – a strong sign heading into Cyber Monday.
But retailers remain unsure how much people will spend before Christmas in an economy that's still bumpy. Shoppers, grappling with an unemployment rate of 9.6 percent, remain careful about spending and driven by deals.
Discounts, particularly early-morning specials, were deep enough that many shoppers say they bought more than they had planned. But some say that means they're done, and they spent less than last year. Does this mean that the euphoria about holiday spending will flame out?
I doubt it. I think once Cyber Monday is over and the retailers report their revenue numbers this Thursday, we will see the next round of discounts somewhere in the middle of the month of December. The psychology of money is powerful. It probably felt great for consumers to finally buy stuff this weekend – and it felt better to buy what they thought were “bargains.”
This reminds me of the phenomenon that occurred in the 90’s with auto financing. Once the manufacturers offered 0% financing with rebates, there was no going back. Any loan interest rate above 0% became unacceptable – and in the end unsustainable.
So let’s sit back and watch the ride. Maybe the new motto this year will be, “If you discount it, they will come.”
Happy clicking – all 106 million of you!
According to the survey, 212 million shoppers visited stores and websites over Black Friday weekend, up from 195 million last year. People also spent more, with the average shopper this weekend spending $365.34, up from last year’s $343.31. Total spending reached an estimated $45.0 billion. Early reports indicated that many shoppers were also buying for themselves - in addition to gifts - though mostly where they saw bargains.
As retailers leverage their websites to offer Black Friday prices to shoppers who didn’t want to fight crowds, the percentage of people who shopped online this weekend rose a healthy 15.2 percent, from 28.5 percent last year to 33.6 percent this year – a strong sign heading into Cyber Monday.
But retailers remain unsure how much people will spend before Christmas in an economy that's still bumpy. Shoppers, grappling with an unemployment rate of 9.6 percent, remain careful about spending and driven by deals.
Discounts, particularly early-morning specials, were deep enough that many shoppers say they bought more than they had planned. But some say that means they're done, and they spent less than last year. Does this mean that the euphoria about holiday spending will flame out?
I doubt it. I think once Cyber Monday is over and the retailers report their revenue numbers this Thursday, we will see the next round of discounts somewhere in the middle of the month of December. The psychology of money is powerful. It probably felt great for consumers to finally buy stuff this weekend – and it felt better to buy what they thought were “bargains.”
This reminds me of the phenomenon that occurred in the 90’s with auto financing. Once the manufacturers offered 0% financing with rebates, there was no going back. Any loan interest rate above 0% became unacceptable – and in the end unsustainable.
So let’s sit back and watch the ride. Maybe the new motto this year will be, “If you discount it, they will come.”
Happy clicking – all 106 million of you!
Monday, November 22, 2010
Even Black Friday is Different Now...
Black Friday – an American thing - is the day following Thanksgiving Day and has become known as the tradition start of the holiday shopping season. The term has become more common in other parts of the country since 2000.
This has been going now for 20 years – yes that’s right – since the early 1980s when a trend began to emerge that retailers traditionally operated at a financial loss for most of the year and made their profit during the holiday season, beginning on the day after Thanksgiving. When this would be recorded in the financial records, once-common accounting practices would use red ink to show negative amounts and black ink to show positive amounts. Black Friday, under this theory, is the beginning of the period where retailers would no longer have losses (the red) and instead take in the year's profits (the black). Hence the term, “Black Friday.”
This year, the downward trend has continued for many retailers, both traditional and online. Sales are down sharply compared to several years ago for many brick and mortar stores and the holiday season including Black Friday is shaping up to be the last chance for retailers to make up for the lackluster sales they've had for most of the year.
With Black Friday once again falling later in the month, and less than a month before Christmas, retailers have been trying to get consumers shopping earlier rather than counting on Black Friday and the few remaining weekends in December to provide most of their sales. Online retailers, as well as brick & mortar retailers with e-commerce sites have had the advantage here as they have been promoting online sales since Halloween.
Look for retailers to embrace social networking this year as a part of their strategy for the holiday season. Look for exclusive deals and contests to appear on stores’ Facebook pages and Twitter accounts. And now with the widespread use of smartphones, consumers might choose to stay in bed Friday morning and just buy stuff while still under the covers. The super-sites for Black Friday commerce is just amazing such as:
BlackFriday.com
GottaDeal.com
BlackFriday.info
BlackFriday.net
BlackFriday2010
CouponCabin.com
Walletpop.com
And yet, many people will avoid this and yield to more old-fashioned Thanksgiving traditions – like getting up at midnight and waiting 4 hours in line in the dark cold with other eager consumers obsessed with getting that must-have item. Waiting in long traffic jams and checkout lines (“I hope the person in front of me doesn’t use cash!”); bumping into herds of people & bags on escalators, elevators, stairs and halls; and let’s not even talk about rest rooms.
Don’t you just love the holidays with feelings of peace, joy and love?
I wonder if there’s an app for that….
This has been going now for 20 years – yes that’s right – since the early 1980s when a trend began to emerge that retailers traditionally operated at a financial loss for most of the year and made their profit during the holiday season, beginning on the day after Thanksgiving. When this would be recorded in the financial records, once-common accounting practices would use red ink to show negative amounts and black ink to show positive amounts. Black Friday, under this theory, is the beginning of the period where retailers would no longer have losses (the red) and instead take in the year's profits (the black). Hence the term, “Black Friday.”
This year, the downward trend has continued for many retailers, both traditional and online. Sales are down sharply compared to several years ago for many brick and mortar stores and the holiday season including Black Friday is shaping up to be the last chance for retailers to make up for the lackluster sales they've had for most of the year.
With Black Friday once again falling later in the month, and less than a month before Christmas, retailers have been trying to get consumers shopping earlier rather than counting on Black Friday and the few remaining weekends in December to provide most of their sales. Online retailers, as well as brick & mortar retailers with e-commerce sites have had the advantage here as they have been promoting online sales since Halloween.
Look for retailers to embrace social networking this year as a part of their strategy for the holiday season. Look for exclusive deals and contests to appear on stores’ Facebook pages and Twitter accounts. And now with the widespread use of smartphones, consumers might choose to stay in bed Friday morning and just buy stuff while still under the covers. The super-sites for Black Friday commerce is just amazing such as:
BlackFriday.com
GottaDeal.com
BlackFriday.info
BlackFriday.net
BlackFriday2010
CouponCabin.com
Walletpop.com
And yet, many people will avoid this and yield to more old-fashioned Thanksgiving traditions – like getting up at midnight and waiting 4 hours in line in the dark cold with other eager consumers obsessed with getting that must-have item. Waiting in long traffic jams and checkout lines (“I hope the person in front of me doesn’t use cash!”); bumping into herds of people & bags on escalators, elevators, stairs and halls; and let’s not even talk about rest rooms.
Don’t you just love the holidays with feelings of peace, joy and love?
I wonder if there’s an app for that….
Monday, November 15, 2010
Back in the Saddle
Yeah, I know – it’s been a while since I’ve written any rantings on the blog. From Labor Day on, my life has been a blur.
During the past 2 months it seems like I’ve been in event planning mode – from recognizing community / business partnerships with Granite State schools and celebrating school volunteerism in New Hampshire on behalf of New Hampshire Partners in Education to coordinating a national teacher conference for the Jump$tart Coalition.
It might sound like a lot of grunt work (and there’s plenty), but in reality I choose to see myself as being in the feel-good business.
- In September, over 200 community partnerships were recognize3d at our annual NHPIE Gold Circle Awards. These partnerships provided instructional, financial, or volunteer support to their local schools.
- In October, 186 Granite State schools and their volunteer programs were spotlighted at our 29th Annual Blue Ribbon Award ceremony. The contributions of individual school volunteers were also noted and celebrated by the 500 people in attendance.
- Also at the school Blue Ribbon awards, we announced the results of our annual Power of the Penny campaign. This is essentially – an old-fashioned penny drive that schools conduct for goals or causes that they select. Many of the schools allow the children themselves to decide what to raise the money for. This year, 36 schools participated and collectively, the children raised over 2.8 million pennies - $28,000 – and all of it was donated to charity! The children learned a great deal about the power of a penny and the impact of charitable giving.
- Finally, a couple of weeks ago, the Jump$tart Coalition conducted its 2nd annual National Educator Conference. Over 200 teachers from 47 states attended the only national conference specifically devoted to personal finance. The event was very well received by the teachers as well as the exhibitors and we all feel good about motivating teachers to bring this life skill into the classroom.
So now I look up and Thanksgiving is next week! And that can only mean one thing – Black Friday is around the corner. Time to refocus my attention to my passion – advocating youth financial literacy. Giddy-up! (and it still feels good!)
Sunday, October 17, 2010
The Consequence of the Foreclosure Mess
What month for lenders dealing with defaulted mortgage loans!
At the beginning of the month, Old Republic National Title Insurance, among the nation's largest title insurance companies, will no longer write new policies for homes foreclosed upon by J.P. Morgan Chase and Ally Financial's GMAC Mortgage unit.
Soon after, Bank of America, the nation’s largest bank, announced it was suspending foreclosure in all 50 states. The reason: flawed documentation regarding title and process. Sadly, BoA purchased Countrywide Mortgages a few years back – at one time the largest cog in the mortgage origination train. The number of mortgages in that portfolio is staggering.
Last week, the attorneys general of all 50 U.S. states announced Wednesday that they are joining to probe mortgage loan servicers who are accused of submitting false affidavits, but they stopped short of calling for a national moratorium. The investigation will focus on whether industry employees - so-called "robo-signers" - signed off on thousands of foreclosures every month without reviewing the files as legally required.
This is not a good sign if we think the economy is recovering. If banks can’t unload its defaulted loans, and they can’t sell the properties securing these loans:
At the beginning of the month, Old Republic National Title Insurance, among the nation's largest title insurance companies, will no longer write new policies for homes foreclosed upon by J.P. Morgan Chase and Ally Financial's GMAC Mortgage unit.
Soon after, Bank of America, the nation’s largest bank, announced it was suspending foreclosure in all 50 states. The reason: flawed documentation regarding title and process. Sadly, BoA purchased Countrywide Mortgages a few years back – at one time the largest cog in the mortgage origination train. The number of mortgages in that portfolio is staggering.
Last week, the attorneys general of all 50 U.S. states announced Wednesday that they are joining to probe mortgage loan servicers who are accused of submitting false affidavits, but they stopped short of calling for a national moratorium. The investigation will focus on whether industry employees - so-called "robo-signers" - signed off on thousands of foreclosures every month without reviewing the files as legally required.
This is not a good sign if we think the economy is recovering. If banks can’t unload its defaulted loans, and they can’t sell the properties securing these loans:
- These unsold properties will continue to hold down values for surrounding properties. Homeowners will be reluctant to sell, buyers will be reluctant to buy, and the whole sector remains paralyzed
- If title insurance companies refused to offer title insurance on foreclosed properties, how can we expect those properties to move?
- Consider the global consumption association with housing – from home improvement, to furniture, to technology, to homeowner services. Like it or not, consumer spending relies on the housing sector as much as it relies on low unemployment.
I thought it would be a good time to bring back this video which offers a good explanation on the complexity of how mortgage loans are funded. After you look at it again, are we really surprised that lenders are having trouble with the paperwork in order for them to foreclose?
Sunday, October 3, 2010
Debit Your Credit
Hooray! Finally some good news - I think!
In a recent report release a couple of weeks ago by Javeline Strategy & Research, Americans are putting aside their credit cards and using debit to avoid incurring more debt.
According to the report, total payment volume for debit cards surpassed credit-card volume for the first time in history during 2009 and will continue to eclipse it in 2010. At the same time, Visa Inc., the world’s biggest payments network, reported that their total payment volume for debit cards increased by 7.9 percent in 2009 to $883 billion and credit-card volume declined by 7.3 percent to $764 billion. Volume for debit cards at No. 2 MasterCard Inc. rose by 5.8 percent and 2.8 percent for Discover Financial Services.
Purchase transactions generated by credit and debit cards in the U.S. totaled more than 27 billion from Jan. 1 through June 30, according to the Nilson Report, and debit-card purchases accounted for 65 percent of all sales, up from 62.3 percent, the Nilson Report said.
Prepaid and gift cards might also become more popular if the recent regulations lead to the end of free checking, and increased fees. Card issuers will market these cards to consumers who don’t have bank accounts as well as college students whose parents will welcome these cards because of their defined spending limits. The Javeline report predicts that the use of prepaid cards will increase to 9.3 percent of total online retail purchase volume in 2014 – up from 5.8 percent in 2009.
There seems to be a school of thought that younger people favor debit over credit because of the immediate nature of making a payment, which could mean that we are actually seeing the beginning of a cultural shift away from the “buy-now-pay-later” mentality that I’ve been complaining about for so long. This will mean, in terms of financial education, that we will need to focus more on telling kids to be aware of how much money they actually have to spend and to bring back those old-school notions of budgeting and differentiating between needs and wants.
Of course, this cultural shift could mean a slow, painful economic recovery for our country. If we’re able to hang on however, we’ll all be better off in the future.
In a recent report release a couple of weeks ago by Javeline Strategy & Research, Americans are putting aside their credit cards and using debit to avoid incurring more debt.
According to the report, total payment volume for debit cards surpassed credit-card volume for the first time in history during 2009 and will continue to eclipse it in 2010. At the same time, Visa Inc., the world’s biggest payments network, reported that their total payment volume for debit cards increased by 7.9 percent in 2009 to $883 billion and credit-card volume declined by 7.3 percent to $764 billion. Volume for debit cards at No. 2 MasterCard Inc. rose by 5.8 percent and 2.8 percent for Discover Financial Services.
Purchase transactions generated by credit and debit cards in the U.S. totaled more than 27 billion from Jan. 1 through June 30, according to the Nilson Report, and debit-card purchases accounted for 65 percent of all sales, up from 62.3 percent, the Nilson Report said.
Prepaid and gift cards might also become more popular if the recent regulations lead to the end of free checking, and increased fees. Card issuers will market these cards to consumers who don’t have bank accounts as well as college students whose parents will welcome these cards because of their defined spending limits. The Javeline report predicts that the use of prepaid cards will increase to 9.3 percent of total online retail purchase volume in 2014 – up from 5.8 percent in 2009.
There seems to be a school of thought that younger people favor debit over credit because of the immediate nature of making a payment, which could mean that we are actually seeing the beginning of a cultural shift away from the “buy-now-pay-later” mentality that I’ve been complaining about for so long. This will mean, in terms of financial education, that we will need to focus more on telling kids to be aware of how much money they actually have to spend and to bring back those old-school notions of budgeting and differentiating between needs and wants.
Of course, this cultural shift could mean a slow, painful economic recovery for our country. If we’re able to hang on however, we’ll all be better off in the future.
Monday, September 27, 2010
A Blockbuster Night Becomes A Blockbuster Memory
It seems like yesterday when I was telling high school seniors that they couldn’t get a Blockbuster account in Boston without a credit card. The year was 2003 and the credit card industry was going through a new phase in its revolution – targeting college freshmen with credit cards.
My point back then was that we were heading into a plastic world because of the growing acceptance of online commerce (remember Internet usage had only been around in a significant way for 5 years at that point). Kids were going to be given credit cards at a rapid rate and they needed to know about the contradictions – that they can help establish credit but also get you into trouble fast if you don’t keep your eye on the ball.
Now Blockbuster is no more – they filed Chapter 11 bankruptcy last week and it appears that they wipe its balance sheet clean of debt. Senior bondholders owed about $630 million are hoping to convert all that debt into ownership stakes in a restructured Blockbuster. Lower-ranking bondholders owed about $300 million would be wiped out.
Blockbuster’s plight comes amid major shifts in how consumers view video content. Consumers now get most of their movies through vending machines operated by Redbox, a unit of Coinstar Inc., and from mail-order and online streaming giant Netflix Inc. Consumers have also gravitated toward cable on-demand services and getting films and television shows through gadgets such as Apple Inc.’s iPod and iPad.
So what’s my point?
The pace of change right now in terms of consumer tastes and desires is faster than ever. We want everything NOW – in the palm of our hand would even be better. All we have to do is sign up for the subscription services – X-Box, Netflix – Amazon – Bravio – the list goes on and on. $8.99 here - $4.99 there – don’t forget the data plan from your cell provider - $70 or so. It’s not cheap to buy entertainment convenience, but it’s your choice.
VHS & DVD movies, music CD’s, video games, books, magazines, newspapers – all being replaced by digital subscriptions. Have you calculated how much you spend on subscriptions each year?
My point back then was that we were heading into a plastic world because of the growing acceptance of online commerce (remember Internet usage had only been around in a significant way for 5 years at that point). Kids were going to be given credit cards at a rapid rate and they needed to know about the contradictions – that they can help establish credit but also get you into trouble fast if you don’t keep your eye on the ball.
Now Blockbuster is no more – they filed Chapter 11 bankruptcy last week and it appears that they wipe its balance sheet clean of debt. Senior bondholders owed about $630 million are hoping to convert all that debt into ownership stakes in a restructured Blockbuster. Lower-ranking bondholders owed about $300 million would be wiped out.
Blockbuster’s plight comes amid major shifts in how consumers view video content. Consumers now get most of their movies through vending machines operated by Redbox, a unit of Coinstar Inc., and from mail-order and online streaming giant Netflix Inc. Consumers have also gravitated toward cable on-demand services and getting films and television shows through gadgets such as Apple Inc.’s iPod and iPad.
So what’s my point?
The pace of change right now in terms of consumer tastes and desires is faster than ever. We want everything NOW – in the palm of our hand would even be better. All we have to do is sign up for the subscription services – X-Box, Netflix – Amazon – Bravio – the list goes on and on. $8.99 here - $4.99 there – don’t forget the data plan from your cell provider - $70 or so. It’s not cheap to buy entertainment convenience, but it’s your choice.
VHS & DVD movies, music CD’s, video games, books, magazines, newspapers – all being replaced by digital subscriptions. Have you calculated how much you spend on subscriptions each year?
Monday, September 20, 2010
Football and "Apps"
I was watching my beloved Patriots yesterday (we’re not EVEN going to talk about the game) – and I saw a boatload of commercials from the large players in the financial services arena advertising their products and services. No big deal – they’re always advertising on TV.
What struck me most during the game was the number of commercials featuring mobile banking. These usually followed the commercials about the new smart phones or iPads or 4g networks.
So I decided just for yuks that I would look at the available apps on my own smartphone (no it’s not an iPhone or a Droid – but I still happen to like the features considering my work experience began with those large planners from Franklin Planner.
I go to the “App store” on my phone, click on the category Finance and voila! Up pops 8 sub-categories with 138 apps all relating to Finance. Gadzooks!
- Banking – 21 apps
- Business – 20 apps
- Personal – 35 apps
- Stocks – 17 apps
- Budget – 20 apps
- Retirement – 5 apps (I guess “app people” are really thinking about retirement)
- Coupons – 2 apps
- Debt/Payments – 18 apps
When I look through some of these apps, some were straightforward, some not so much. The exercise really reinforced my instinct that if the next generation of consumers are going to use this type of technology that overall this is a good thing. They will have the ability to stay on top of their finances faster and in some cases, avoid becoming a victim much sooner than those of us in the paper generation.
However, it also reinforced my belief that personal financial knowledge is even more important in the tech-savvy world. Just because there’s an app doesn’t mean it’s a good app or that it’s accurate and reliable. If a personal has a basic understanding of personal finance, an adequate level of math skills, and a take-it-at-face-value attitude, then he/she should be able to identify the really good apps for them and be a great position to watch and manage their financial situation.
Basic, technical financial knowledge is still key and will need to evolve if it wants to connect with “app people”.
Now about this really cool football app I found……
Sunday, September 12, 2010
We’re Back to School …and More Confused Than Ever
We New Englanders love our summers. We tend to take in the sunshine and put off those burning issues until after Labor Day. For the fun of it, I thought I would look back this summer and see what took place in terms of our collective treatment of money matters and see if we’re making any progress in understanding them. Here’s a snapshot of what I found:
- 73 percent of Americans who are in school or have school-aged children said their back-to-school budgets were either the same as last year’s or smaller, according to a Chase Slate — U.S. News Monitor survey in August. How’s that economic recovery going?
- Total household credit has contracted for seven straight quarters. Mortgage debt is down $462 billion from the peak, which it reached in November 2008. Bank-card borrowings, which peaked two months later, are off $126 billion. Auto loans have fallen $122 billion; home-equity lines, $77 billion. It’s great that debt levels are falling – can our economy adjust to a new spending culture?
- Home and car sales are plummeting again. Job growth has shrunk to a sliver. Personal bankruptcies are soaring. To use a well-worn line, “it’s about jobs stupid.”
- Under proposed regulations, announced July 23, for-profit colleges and universities would qualify for federal student aid only if enough former students were repaying their student loans, or if graduates generally earned enough to repay their debts. Can’t wait to see the metric calculation for this – bet it’s not ready until 2015.
- Thanks to provisions in the CARD Act, banks must now offer overdraft protection to consumers on an opt-in basis, meaning that you won’t get this “service” unless you specifically sign up for it. Have YOU read the information from your financial institution?
- We have a new watchdog – the Bureau of Consumer Financial Protection. This new agency will have the power to regulate a wide range of financial products and services, including credit counseling, payday loans, mortgages, credit cards and other bank products. And it won't be easy for other agencies to override the bureau's regulations. Additionally, the bureau will be charged with financially educating consumers. Oh really? Trouble is, by the time they get going and actually DO something, we’ll be smack in the middle of another presidential election.
- American colleges are spending a declining share of their budgets on instruction and more on administration and recreational facilities for students, according to a study of college costs this summer by the Delta Cost Project. I have no words for this...
- Tuition, on average, increased more rapidly over the decade at public institutions than it did at private ones. Average tuition rose 45 percent at public research universities and 36 percent at community colleges from 1998 to 2008, compared with about 21 percent at private research universities. Those darn pesky state budgets...
- U.S. Department of Education – now makes 100 percent of student loans as of July 1. Time will tell, but I predict this year’s college freshman are going to be pretty upset upon graduation when they are given 4 different coupon books to repay their student loans.
- An average of 9.1 percent of college graduates were unemployed in 2009, up from 5.5 percent in 2005 and 4.4 percent in 2000, according to the Department of Labor's Bureau of Labor Statistics. For those with some college experience but without a degree, that figure averaged 14.1 percent last year, compared to 21.5 percent of high school graduates with no time on a higher education campus. And you thought taking math is school was pretty lame…)
- Americans now owe more in student loan debt than they do for all credit card debt, according to a recent report published by the financial aid information website FinAid.org. And no frequent flier miles either…
So it seems to me that we need financial education more than ever, Guess it’s time to get back to work and get back to the mission.
Tuesday, July 13, 2010
Why Credit Scoring is Choking Lenders
A recent news article from the Associated Press detailed that credit scores for Americans are at all-time lows. What a surprise! The article reports that over 25% of consumers — nearly 43.4 million people — now have a credit score of 599 or below, marking them as poor risks for lenders. It's unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.
How did we reach a point where credit scores became the singular measure of a borrower’s capacity and willingness to repay their loans? Just like everything else in this recent financial meltdown, a number of contributing factors evolved that now has reduced many lenders to loan robots. Consider this:
How did we reach a point where credit scores became the singular measure of a borrower’s capacity and willingness to repay their loans? Just like everything else in this recent financial meltdown, a number of contributing factors evolved that now has reduced many lenders to loan robots. Consider this:
- Credit Scoring took flight in the mid-90’s and became the centerpiece of new Fair Lending regulations. Lenders could prove to the regulators using an “objective”, empirically-derived math model that they were not discriminating against loan applicants who belonged to a “protected class.”
- Simultaneously. deposits at financial instructions eroded as consumers turned to mutual funds and stock market investments as the means to manage their “new” 401k plans.
- As a result, financial intuitions turned to the capital markets for funding loans. This led to a huge expansion of the secondary market where lenders could risk-price loans according to the credit score and bundle these portfolios.
- As a result, lenders no longer had to say “no” to their customers. Depending on the credit score, they could grant the loan and then sell it to the corresponding investor. Poof! No more credit risk, no more collateral risk and no more interest rate risk. Sell the loans, use the money to make more loans, and earn income from the transaction fees.
- Internet commerce becomes a mainstay of consumer spending. Consumers develop an addiction to immediate gratification and this evolves to their loan applications. Lenders develop online application systems that, based the credit score, the application is immediately priced, granted and in some cases funded. No more waiting 2-3 days for a loan decision.
Well, here we are. A dramatic recession with high unemployment rates, high foreclosure and loan delinquency rates and now low credit scores. Everyone is treating this as something new – it isn’t. Does anyone remember the real-estate crash here in the early 90’s? New Hampshire led the country for three consecutive years in the highest percentage increases of bankruptcy filings in that decade.
And still, financial institutions still lent money – why? Because there is more to a good borrower than just his credit score. It seems to me that the old-school “Three C’s of Lending” – (Credit, Capacity & Collateral) when handled appropriately, helped many people who experienced recent hardship but who were still fundamentally good borrowers. This allowed them to buy cars and houses, get home improvement loans, personal loans, etc. etc.
I fear those days are gone and lenders are boxed into a situation that handicaps their ability to lend:
- Consumers will not wait 2-3 days or longer for a loan decision (immediate answers determined by credit scores)
- Financial institutions still need the capital markets to fund loans (risk will be evaluated by credit scores)
- Lenders will need to prove “prudent lending standards” (translation: credit scores)
And this “economic recovery” is in danger of a complete stall. Why don’t we score THAT?
Monday, June 14, 2010
June and the Wedding Season
June has arrived and with it – the June wedding season.
According to The Wedding Report, a market research publication, the average American wedding costs almost $29,000. Yikes! For a one-day event – and that doesn’t include the honeymoon.
Seems to me that $29,000 is a nice down payment on a home, or a great payment on student loan debt and a fabulous amount for investment since most newlyweds, given their average age, have the power of compounding time on their side.
It’s ironic that most couples will say things like “we don’t want a big wedding” and “it doesn’t have to cost much”. Still, as soon as you begin planning the big day, like everything else, the costs add up. Reality is funny that way.
According to The Wedding Report, a market research publication, the average American wedding costs almost $29,000. Yikes! For a one-day event – and that doesn’t include the honeymoon.
Seems to me that $29,000 is a nice down payment on a home, or a great payment on student loan debt and a fabulous amount for investment since most newlyweds, given their average age, have the power of compounding time on their side.
It’s ironic that most couples will say things like “we don’t want a big wedding” and “it doesn’t have to cost much”. Still, as soon as you begin planning the big day, like everything else, the costs add up. Reality is funny that way.
- Church/Officiant Fee: $500
- Reception Site Rental: $2,500
- Food: $40/plate x 100 = $4,000
- Photographer: $2,000
- DJ or Band: $1,500
- Flowers: $750
- Cake: $500
- Rings: $5,000
Dress/Tux: $500 - Open Bar: $3,500
- Total: $20,750
And make no mistake – the wedding “industry” is big business – look how things have changed since World War II.
My hope here is that as couples prepare for this important moment, they resist the temptation (and in some cases, the pressure) to put on an elaborate event for the benefit of others. This is your day and your choice – focus on a new future and how you will approach that future as the new home team.
Monday, May 17, 2010
Prom Season is Upon Us!
Who knew that high school students could help the economy?
For millions of teenagers, prom night is one of the biggest events of their young lives. It can also be one of the most expensive.
Parents and teenagers can spend a wallet full of cash -- or a suitcase full -- depending on where they live and how prom is celebrated. Add the cost of a limo, flowers, dinner, hair and makeup, tanning sessions, a formal dress or tuxedo, and prom costs can range from $200 to more than $2,000.
What it implies is this: tuxedo and gown shops, beauty salons and barbershops, limousine rental companies, florists, tanning parlors and local restaurants will all become part of the annual rite of passage for area high school students as businesses scramble to meet the needs of their youthful customers.
With about 16 million teens in the United States attending public or private high schools, the potential spending for shoes, gowns and tuxes, limos, dinners and more is pretty significant.
So to all of the prom-goers we say thank you for helping us out of our recession.
Now, sarcasm aside - be safe, make wise choices, and most of all, have fun.
For millions of teenagers, prom night is one of the biggest events of their young lives. It can also be one of the most expensive.
Parents and teenagers can spend a wallet full of cash -- or a suitcase full -- depending on where they live and how prom is celebrated. Add the cost of a limo, flowers, dinner, hair and makeup, tanning sessions, a formal dress or tuxedo, and prom costs can range from $200 to more than $2,000.
What it implies is this: tuxedo and gown shops, beauty salons and barbershops, limousine rental companies, florists, tanning parlors and local restaurants will all become part of the annual rite of passage for area high school students as businesses scramble to meet the needs of their youthful customers.
With about 16 million teens in the United States attending public or private high schools, the potential spending for shoes, gowns and tuxes, limos, dinners and more is pretty significant.
So to all of the prom-goers we say thank you for helping us out of our recession.
Now, sarcasm aside - be safe, make wise choices, and most of all, have fun.
Sunday, May 9, 2010
Congratulations to the Class of 2010
It’s early May and in addition to finally seeing leaves on the trees again and hearing those morning songs from our returning feathered friends, it’s also time for college graduations and commencement speeches about how this year’s graduating class is poised to change the world.
I’m actually going to depart from my typical “sky-is-falling” rants and sermons about preparing our young people to become financially successful. Nope – this is the time to say to the 2010 graduating class, “Congratulations on a significant accomplishment in your life and take a moment or two and celebrate!”
Everyone my age seems to feel compelled to offer advice and nuggets of “wisdom” to graduates during this time of year. Why should I be any different? Except that my three pieces of advice are really low-level and are, of course, about handling money on a day-to-day basis. I’ll leave the loftier pieces of advice to others.
Number One – Get a Handle (and keep an eye) On Your Debit Card
Starting July 1, banks will no longer allow you to spend more money at a store with your debit card (or withdraw more at the A.T.M. machine) than you have in your account unless you’ve given them permission first (“opt-in”). This means that if you don’t have enough money in your checking account at the time you swipe your card, it will get rejected at the point of sale. If you choose to opt in and allow your bank to authorize the transaction, that is going to cost you a fee. It’s your choice.
Number Two – Sign up for Online Banking
Regardless of your decision with number one, I want you to change your morning routine – after you check your Facebook page, your text messages, your twitter followers, and your email (yeah, I know - from old people), then I want you to check your checking account balance. Banks clear checks and assess fees overnight so you need to start out each day knowing how much money you have and what charges have hit your account. It’s also a great way to make sure all of the transactions that have posted are yours. If your bank or credit union offers mobile banking for your smartphone or iTouch, then get that as well. Whatever makes it easier for you to keep track of your money – it’s your choice.
Number Three – Address Changes
If you’re moving into your own place – don’t forget to tell your financial world that you’ve moved. Get your address changed with the U.S. Postal Service as soon as possible – don’t assume that just because you contacted your cell phone service online that the bills will automatically come to your new address. This one is a pain I know, but investing a little time in the beginning will save you headaches and perhaps unnecessary fees down the road.
That’s it for now. There’s plenty of time to start thinking about the other financial stuff – your whole life is ahead of you.
Congratulations on this part of your journey and I wish you all of the blessings and happiness that life has to offer!
I’m actually going to depart from my typical “sky-is-falling” rants and sermons about preparing our young people to become financially successful. Nope – this is the time to say to the 2010 graduating class, “Congratulations on a significant accomplishment in your life and take a moment or two and celebrate!”
Everyone my age seems to feel compelled to offer advice and nuggets of “wisdom” to graduates during this time of year. Why should I be any different? Except that my three pieces of advice are really low-level and are, of course, about handling money on a day-to-day basis. I’ll leave the loftier pieces of advice to others.
Number One – Get a Handle (and keep an eye) On Your Debit Card
Starting July 1, banks will no longer allow you to spend more money at a store with your debit card (or withdraw more at the A.T.M. machine) than you have in your account unless you’ve given them permission first (“opt-in”). This means that if you don’t have enough money in your checking account at the time you swipe your card, it will get rejected at the point of sale. If you choose to opt in and allow your bank to authorize the transaction, that is going to cost you a fee. It’s your choice.
Number Two – Sign up for Online Banking
Regardless of your decision with number one, I want you to change your morning routine – after you check your Facebook page, your text messages, your twitter followers, and your email (yeah, I know - from old people), then I want you to check your checking account balance. Banks clear checks and assess fees overnight so you need to start out each day knowing how much money you have and what charges have hit your account. It’s also a great way to make sure all of the transactions that have posted are yours. If your bank or credit union offers mobile banking for your smartphone or iTouch, then get that as well. Whatever makes it easier for you to keep track of your money – it’s your choice.
Number Three – Address Changes
If you’re moving into your own place – don’t forget to tell your financial world that you’ve moved. Get your address changed with the U.S. Postal Service as soon as possible – don’t assume that just because you contacted your cell phone service online that the bills will automatically come to your new address. This one is a pain I know, but investing a little time in the beginning will save you headaches and perhaps unnecessary fees down the road.
That’s it for now. There’s plenty of time to start thinking about the other financial stuff – your whole life is ahead of you.
Congratulations on this part of your journey and I wish you all of the blessings and happiness that life has to offer!
Monday, April 19, 2010
New Hampshire Takes on Miami - Let's Throw Down!
Just in time for Financial Literacy Month, the National Consumers League (NCL) has announced the 32 state champion teams who have earned a spot at the 2010 National LifeSmarts Championship, which will take place this year in Miami Beach, Florida, April 24-27. Of course, our own New Hampshire LifeSmarts State Champion and defending state champion from 2009 – Inter-Lakes High School from Meredith – will be right in the middle of the action!
LifeSmarts is NCL’s 16-year-old program that educates teens and tweens on real-world financial and consumer literacy issues.
LifeSmarts is a competitive educational program, in which teams of students begin online. Top-scorers progress to state competitions, and state champion teams meet each April to compete in the National LifeSmarts Championship. Last year, our NH team placed third at nationals eventually succumbing to the eventual national championship team from Wisconsin’s Oconto High School. As you can imagine, there is some serious motivation to go up against that matchup again this year!
We are so proud of all of the students who competed in LifeSmarts this year and they have proven themselves to be the best and the brightest of the next generation of consumers. LifeSmarts is a fun, fast, and educational program, and a great vehicle for educating young consumers. Our program goes in-depth on the issues kids—and adults--are facing now: making smart choices with financial resources, health care, environmental concerns, and how technology affects our lives.
The 2010 National LifeSmarts Champion and other winning teams will walk away with prizes including scholarships and savings bonds. Also, for the first time this year, top students will receive new scholarships for demonstrating knowledge in specific program topic areas. The top eight placing teams are recognized with savings bonds and other prizes.
Consumer-savvy teens representing 32 states will compete at this year’s national event. Throughout the 2009-2010 program year, more than 22,000 teens competed online for a chance to represent their states at the 2010 National LifeSmarts Championship. Players answered more than 3 million consumer questions in the online competition.
Parents and teachers can follow the action at the official 2010 National LifeSmarts Championship blog. The semi-final and final competition matches will be streamed live at www.lifesmarts.org , starting at 9 am Eastern on Tuesday, April 27th
Go New Hampshire!
LifeSmarts is NCL’s 16-year-old program that educates teens and tweens on real-world financial and consumer literacy issues.
LifeSmarts is a competitive educational program, in which teams of students begin online. Top-scorers progress to state competitions, and state champion teams meet each April to compete in the National LifeSmarts Championship. Last year, our NH team placed third at nationals eventually succumbing to the eventual national championship team from Wisconsin’s Oconto High School. As you can imagine, there is some serious motivation to go up against that matchup again this year!
We are so proud of all of the students who competed in LifeSmarts this year and they have proven themselves to be the best and the brightest of the next generation of consumers. LifeSmarts is a fun, fast, and educational program, and a great vehicle for educating young consumers. Our program goes in-depth on the issues kids—and adults--are facing now: making smart choices with financial resources, health care, environmental concerns, and how technology affects our lives.
The 2010 National LifeSmarts Champion and other winning teams will walk away with prizes including scholarships and savings bonds. Also, for the first time this year, top students will receive new scholarships for demonstrating knowledge in specific program topic areas. The top eight placing teams are recognized with savings bonds and other prizes.
Consumer-savvy teens representing 32 states will compete at this year’s national event. Throughout the 2009-2010 program year, more than 22,000 teens competed online for a chance to represent their states at the 2010 National LifeSmarts Championship. Players answered more than 3 million consumer questions in the online competition.
Parents and teachers can follow the action at the official 2010 National LifeSmarts Championship blog. The semi-final and final competition matches will be streamed live at www.lifesmarts.org , starting at 9 am Eastern on Tuesday, April 27th
Go New Hampshire!
Sunday, April 11, 2010
Is it Possible to Change a 30-year Culture?
Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates. The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.
Thirty Years – 1980. Think of these four cultural milestones that did not exist in 1980
1. Widespread credit card usage
2. Cell phones
3. Internet
4. Home Equity Lines of Credit
Since then, more than two generations of kids have grown up thinking that 0% financing for an automobile is only a good deal IF it comes with a rebate too. Two generations of kids – now adults - believing that refinancing your mortgage every few months to take the equity out to buy more stuff is smart financial planning. Two generations of kids – now adults – thinking that using credit cards to buy-now-pay-later is the American way.
The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.
“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.” Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.
The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.
For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.
What a culture shift in 30 years.
Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.
With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, according to Dennis Moroney, a research director at the TowerGroup, a financial research company.
Similarly, many car loans have already become significantly more expensive, with rates at auto finance companies rising to 4.72 percent in February from 3.26 percent in December, according to the Federal Reserve. In 1980, car loan rates were in the 12-13% range and you had to have at least a 20% down payment to finance that car. And... the longest you could finance it was 48 months – no 60, 72 or 84 month financing.
It’s unlikely we will see rates back to the 1980 era – but any sustained period of “high” (you define it) interest rates will be very unsettling to those generations of kids – now adults – who have spent the past three decades enjoying some amazingly favorable interest rates.
Thirty Years – 1980. Think of these four cultural milestones that did not exist in 1980
1. Widespread credit card usage
2. Cell phones
3. Internet
4. Home Equity Lines of Credit
Since then, more than two generations of kids have grown up thinking that 0% financing for an automobile is only a good deal IF it comes with a rebate too. Two generations of kids – now adults - believing that refinancing your mortgage every few months to take the equity out to buy more stuff is smart financial planning. Two generations of kids – now adults – thinking that using credit cards to buy-now-pay-later is the American way.
The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.
“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.” Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.
The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.
For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.
What a culture shift in 30 years.
Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.
With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, according to Dennis Moroney, a research director at the TowerGroup, a financial research company.
Similarly, many car loans have already become significantly more expensive, with rates at auto finance companies rising to 4.72 percent in February from 3.26 percent in December, according to the Federal Reserve. In 1980, car loan rates were in the 12-13% range and you had to have at least a 20% down payment to finance that car. And... the longest you could finance it was 48 months – no 60, 72 or 84 month financing.
It’s unlikely we will see rates back to the 1980 era – but any sustained period of “high” (you define it) interest rates will be very unsettling to those generations of kids – now adults – who have spent the past three decades enjoying some amazingly favorable interest rates.
Sunday, April 4, 2010
April is Financial Literacy Month!
National Financial Literacy Month is recognized in the United States in April in an effort to highlight the importance of financial literacy and teach Americans how to establish and maintain healthy financial habits.
In 2000, The Jumpstart Coalition for Personal Financial Literacy began promoting April as Financial Literacy for Youth Month and in 2003 the United States Congress showed its support. Senate Resolution 48 and House Resolution 127 asked President George W. Bush to declare April as Financial Literacy for Youth Month. In 2004, April was named National Financial Literacy Month by the passing of Senate Resolution 316 with unanimous consent, championed by Daniel Akaka D-HI.
Many of the country’s financial institutions and nonprofit financial educational organizations and promote the month by holding promotional events and creating educational materials that center around effectively handling money and dealing with debt.
The New Hampshire Jump$tart Coalition’s 10-year effort to build the personal financial management skills of Granite State teenagers have been recognized by Governor John Lynch in a recent proclamation designating April as Financial Literacy for Youth Month.
Governor Lynch acknowledged that “personal financial education is essential for ensuring that the youth of New Hampshire are prepared to manage money and credit wisely and responsibly.” He recognized the “concerned professionals of NH Jump$tart who volunteer their time and energy to promote financial education for New Hampshire’s youth to meet these educational goals.” In proclaiming Financial Literacy for Youth Month, Governor Lynch “call(ed) upon the citizens of this state to encourage and support” the efforts of NH Jump$tart.
During the week of April 5-9, NH Jump$tart volunteers will be meeting with second-graders at select elementary schools throughout the state as part of our “I Can Save!” Tour. During the visits, we will conduct a brief presentation on the differences between needs and wants and will provide each student with a Moonjar moneybox which promotes the concept of save – spend – share.
Our Get 10 Virtual Scavenger Hunt for teenagers concludes this month. Teens who answer all 10 questions in this online quest for knowledge will be eligible to win one of 10 MacBooks that we are giving away! The Quest ends April 10th.
Our LifeSmarts State Champion – Inter-lakes High School from Meredith – travels to Miami Beach representing the Granite State at the LifeSmarts National Championship at the end of April.
Financial education is finally getting some attention. Our children’s future is dependent on their ability to understand the complexity of the modern day financial landscape.
In 2000, The Jumpstart Coalition for Personal Financial Literacy began promoting April as Financial Literacy for Youth Month and in 2003 the United States Congress showed its support. Senate Resolution 48 and House Resolution 127 asked President George W. Bush to declare April as Financial Literacy for Youth Month. In 2004, April was named National Financial Literacy Month by the passing of Senate Resolution 316 with unanimous consent, championed by Daniel Akaka D-HI.
Many of the country’s financial institutions and nonprofit financial educational organizations and promote the month by holding promotional events and creating educational materials that center around effectively handling money and dealing with debt.
The New Hampshire Jump$tart Coalition’s 10-year effort to build the personal financial management skills of Granite State teenagers have been recognized by Governor John Lynch in a recent proclamation designating April as Financial Literacy for Youth Month.
Governor Lynch acknowledged that “personal financial education is essential for ensuring that the youth of New Hampshire are prepared to manage money and credit wisely and responsibly.” He recognized the “concerned professionals of NH Jump$tart who volunteer their time and energy to promote financial education for New Hampshire’s youth to meet these educational goals.” In proclaiming Financial Literacy for Youth Month, Governor Lynch “call(ed) upon the citizens of this state to encourage and support” the efforts of NH Jump$tart.
During the week of April 5-9, NH Jump$tart volunteers will be meeting with second-graders at select elementary schools throughout the state as part of our “I Can Save!” Tour. During the visits, we will conduct a brief presentation on the differences between needs and wants and will provide each student with a Moonjar moneybox which promotes the concept of save – spend – share.
Our Get 10 Virtual Scavenger Hunt for teenagers concludes this month. Teens who answer all 10 questions in this online quest for knowledge will be eligible to win one of 10 MacBooks that we are giving away! The Quest ends April 10th.
Our LifeSmarts State Champion – Inter-lakes High School from Meredith – travels to Miami Beach representing the Granite State at the LifeSmarts National Championship at the end of April.
Financial education is finally getting some attention. Our children’s future is dependent on their ability to understand the complexity of the modern day financial landscape.
Sunday, March 28, 2010
Can We Change our Spending / Saving Culture?
The personal savings rate is the ratio of personal savings to disposable personal income. Disposable personal income is the amount of income left over after taxes have been paid. Personal savings is the amount of income left over after personal consumption expenditures and debts have been paid.
The U.S. Department of Commerce's Bureau of Economic Analysis has kept a record of the personal savings rate since 1959. Since then, the personal savings rate has averaged 6.98% with a standard deviation of 2.75%. In the past 20 years, Americans have saved at a much lower average of 4.18%.
During the same twenty-year period, according to statistics released by the Federal Reserve Bank, consumer credit outstanding increased in the United States from $751.9 billion to $2.78 trillion (excluding mortgage loans).
Finally, according to the International Trade Association, the latter half of the twentieth century, the service sector has been both the largest and the fastest growing component of the U.S. economy. Following World War II, the service sector accounted for about 60% of U.S. output and employment. Today, the service sector's share of the U.S. economy has risen to almost 81 percent.
This three factors over time, along with the ease of obtaining credit through credit cards and lower lending standards, have created a significant change in our consumer culture from a “save- to-spend” to a “buy-now-pay-later” mentality. And since the U.S. economy is so dependent on consumer spending, how can our culture reverse its addiction to immediate gratification without going through a number of struggling years as we collectively build savings today in order to buy stuff tomorrow?
And when it comes to our children – the next generation of consumers – can this change in culture be realized or are they sentenced to a lifetime of debt and struggles?
Take a look at this video clip on the commercialization of children and tell me what you think.
The U.S. Department of Commerce's Bureau of Economic Analysis has kept a record of the personal savings rate since 1959. Since then, the personal savings rate has averaged 6.98% with a standard deviation of 2.75%. In the past 20 years, Americans have saved at a much lower average of 4.18%.
During the same twenty-year period, according to statistics released by the Federal Reserve Bank, consumer credit outstanding increased in the United States from $751.9 billion to $2.78 trillion (excluding mortgage loans).
Finally, according to the International Trade Association, the latter half of the twentieth century, the service sector has been both the largest and the fastest growing component of the U.S. economy. Following World War II, the service sector accounted for about 60% of U.S. output and employment. Today, the service sector's share of the U.S. economy has risen to almost 81 percent.
This three factors over time, along with the ease of obtaining credit through credit cards and lower lending standards, have created a significant change in our consumer culture from a “save- to-spend” to a “buy-now-pay-later” mentality. And since the U.S. economy is so dependent on consumer spending, how can our culture reverse its addiction to immediate gratification without going through a number of struggling years as we collectively build savings today in order to buy stuff tomorrow?
And when it comes to our children – the next generation of consumers – can this change in culture be realized or are they sentenced to a lifetime of debt and struggles?
Take a look at this video clip on the commercialization of children and tell me what you think.
Monday, March 22, 2010
Going to Orlando? Stay away from Hertz!
With a few exceptions, I’m a pretty easy-going guy when it comes to customer service. I’ve worked enough customer service jobs in my life to appreciate the challenges of working with the public. And in many ways, things are more difficult these days with the “get-me-my-answer-now” attitude from consumers.
So last week I arrive at the Orlando International Airport (me and a couple of thousand other people) and proceed to board a shuttle bus to take us to the Hertz rental car facility which is off-site from the airport. The over-stuffed bus unloads its passengers and we follow the signs to the pick-up center.
Here we are greeted by over 12 empty customer service stations and 4 staffed stations – and nobody seems to be in a hurry to wait on their guests. No eye contact – no welcome greeting – no apologies for the long wait. Finally, it’s my turn and the next available agent looks at me and tells me it’s her break and closes her station. I thought I was at the Post Office for a moment.
A few minutes later, another agent appears and motions for me to come over. She then engages herself in the conversation that is going on at the next station as she grabs my reservation document, license and credit card. She swipes the card and then tells me that apparently because I arranged this through AAA (that might be another story for another day), she “can’t do anything more” for me and directs me to go around the counter and “wait for them to call" my name. No explanation given - that’s it.
I go to the directed area and someone behind a desk asks me if I need help. It turns out to be a Marriott salesperson who then begins the hard sell to visit the local time share opportunities in the region. My blood pressure - my blood pressure. I approach another Hertz agent and tell her that I was instructed to this part of the counter to wait for my name to which she replies, “Have I called your name yet?” Uh, no – “well you’ll have to wait then.” Okay, but why ?
10 minutes later, my name is called. The agent then begins the whole re-booking situation again and swipes my card – which is now rejected (because the previous authorization from the first agent is still out there). She announces the card rejection in a loud voice and says she needs another card. Feeling like a shmuck, I hand her my debit card. Now the agent receives a phone call and suddenly leaves the station. A few minutes later another agent appears and picks up the process which takes her a minute or so to get up to speed. When asked if there is a problem, she says no and keeps typing.
She completes the transaction, hands me my stuff and tells me to go parking space so-and-so for my car before she turns around and leaves. No map, no directions how to leave this hellish place, no instructions on the return process, no thank you for choosing Hertz – nothing. So an hour and a half after arriving, we finally get into the car and head out.
This was so different than my Hertz experience in Fort Myers Florida last year which was a delight and was the reason I selected Hertz again this year. That ends now.
I have a new marketing slogan for them – it hurts to rent from Hertz.
So last week I arrive at the Orlando International Airport (me and a couple of thousand other people) and proceed to board a shuttle bus to take us to the Hertz rental car facility which is off-site from the airport. The over-stuffed bus unloads its passengers and we follow the signs to the pick-up center.
Here we are greeted by over 12 empty customer service stations and 4 staffed stations – and nobody seems to be in a hurry to wait on their guests. No eye contact – no welcome greeting – no apologies for the long wait. Finally, it’s my turn and the next available agent looks at me and tells me it’s her break and closes her station. I thought I was at the Post Office for a moment.
A few minutes later, another agent appears and motions for me to come over. She then engages herself in the conversation that is going on at the next station as she grabs my reservation document, license and credit card. She swipes the card and then tells me that apparently because I arranged this through AAA (that might be another story for another day), she “can’t do anything more” for me and directs me to go around the counter and “wait for them to call" my name. No explanation given - that’s it.
I go to the directed area and someone behind a desk asks me if I need help. It turns out to be a Marriott salesperson who then begins the hard sell to visit the local time share opportunities in the region. My blood pressure - my blood pressure. I approach another Hertz agent and tell her that I was instructed to this part of the counter to wait for my name to which she replies, “Have I called your name yet?” Uh, no – “well you’ll have to wait then.” Okay, but why ?
10 minutes later, my name is called. The agent then begins the whole re-booking situation again and swipes my card – which is now rejected (because the previous authorization from the first agent is still out there). She announces the card rejection in a loud voice and says she needs another card. Feeling like a shmuck, I hand her my debit card. Now the agent receives a phone call and suddenly leaves the station. A few minutes later another agent appears and picks up the process which takes her a minute or so to get up to speed. When asked if there is a problem, she says no and keeps typing.
She completes the transaction, hands me my stuff and tells me to go parking space so-and-so for my car before she turns around and leaves. No map, no directions how to leave this hellish place, no instructions on the return process, no thank you for choosing Hertz – nothing. So an hour and a half after arriving, we finally get into the car and head out.
This was so different than my Hertz experience in Fort Myers Florida last year which was a delight and was the reason I selected Hertz again this year. That ends now.
I have a new marketing slogan for them – it hurts to rent from Hertz.
Sunday, March 14, 2010
Bring Back ODP Loans!
Good Grief. Read this excerpt from a Bloomberg article published last month (“Banks May Use Payday-Style Loans to Replace Lost Overdraft Fees”, Jeff Plungis, February 23, 2010):
“U.S. banks may expand their short- term lending at interest rates of 120 percent or more as they seek to replace more than $15 billion in lost revenue because of regulations limiting overdraft fees.
“The smarter banks are trying to resell overdraft protection to consumers as a different product,” said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group in Maynard, Massachusetts.
Banks including Cincinnati-based Fifth Third Bancorp, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They’re known as “checking advance products.” That puts them in competition with so-called payday loan stores, which make loans with similar terms to customers who generally don’t have credit cards to bridge the gap until the check comes, according to Rowe, whose firm advises banks.
The banks don’t call the advances payday loans because it’s a “very tarnished, negative brand,” said Rowe, who estimates U.S. banks may lose from $15 billion to $20 billion in revenue when Federal Reserve rules take effect July 1. The rules will prohibit banks from charging overdraft fees at automated teller machines or on debit cards unless a customer has agreed to pay for exceeding account balances.
For consumers, getting a short-term, high-interest loan from a bank might be worse than going to a payday store, said Lauren Saunders, managing attorney with the National Consumer Law Center in Washington. A bank has direct access to consumer accounts, meaning its loans will be paid off first, ahead of food, housing or utilities, she said.”
Am I the only one on the planet that remembers Overdraft Protection Lines of Credit? We called them ODP for short. These “loans” (yes I said loans) were small revolving lines of credit that were attached to a customer’s checking account (essentially, increasing the available deposit balance by the available credit line). Borrowers were charge interest on ODP balances using the same calculation as credit cards. Checks went through, customers were not embarrassed by a returned item, we made a little interest income – everybody wins and life goes on.
So what happened? Well, the Number Crunchers analyzed the whole loan & collection process and concluded that to pay a loan officer to underwrite tiny open-end lines of credit was not cost-effective and, oh by the way, banks can make a lot more money by simply charging the customer a $20-35 fee for clearing the transaction. (which still seems like a loan to me but that’s a discussion for another day). Plus, since financial institutions really don’t want to carry loan portfolios anymore (see March 1st posting), this is another great way to generate fee income under the cloak of customer service and benefit.
So now that new regulations are coming into effect that will restrict this kind of practice, are we really headed down the path of payday lenders and provide short-term loans at exorbitant interest rates all under the cloak of customer service and benefit.
Why reinvent the wheel here and just bring back revolving lines of credit attached to the deposit accounts? Oh wait…. that’s right…. that’s too old-school now…
“U.S. banks may expand their short- term lending at interest rates of 120 percent or more as they seek to replace more than $15 billion in lost revenue because of regulations limiting overdraft fees.
“The smarter banks are trying to resell overdraft protection to consumers as a different product,” said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group in Maynard, Massachusetts.
Banks including Cincinnati-based Fifth Third Bancorp, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They’re known as “checking advance products.” That puts them in competition with so-called payday loan stores, which make loans with similar terms to customers who generally don’t have credit cards to bridge the gap until the check comes, according to Rowe, whose firm advises banks.
The banks don’t call the advances payday loans because it’s a “very tarnished, negative brand,” said Rowe, who estimates U.S. banks may lose from $15 billion to $20 billion in revenue when Federal Reserve rules take effect July 1. The rules will prohibit banks from charging overdraft fees at automated teller machines or on debit cards unless a customer has agreed to pay for exceeding account balances.
For consumers, getting a short-term, high-interest loan from a bank might be worse than going to a payday store, said Lauren Saunders, managing attorney with the National Consumer Law Center in Washington. A bank has direct access to consumer accounts, meaning its loans will be paid off first, ahead of food, housing or utilities, she said.”
Am I the only one on the planet that remembers Overdraft Protection Lines of Credit? We called them ODP for short. These “loans” (yes I said loans) were small revolving lines of credit that were attached to a customer’s checking account (essentially, increasing the available deposit balance by the available credit line). Borrowers were charge interest on ODP balances using the same calculation as credit cards. Checks went through, customers were not embarrassed by a returned item, we made a little interest income – everybody wins and life goes on.
So what happened? Well, the Number Crunchers analyzed the whole loan & collection process and concluded that to pay a loan officer to underwrite tiny open-end lines of credit was not cost-effective and, oh by the way, banks can make a lot more money by simply charging the customer a $20-35 fee for clearing the transaction. (which still seems like a loan to me but that’s a discussion for another day). Plus, since financial institutions really don’t want to carry loan portfolios anymore (see March 1st posting), this is another great way to generate fee income under the cloak of customer service and benefit.
So now that new regulations are coming into effect that will restrict this kind of practice, are we really headed down the path of payday lenders and provide short-term loans at exorbitant interest rates all under the cloak of customer service and benefit.
Why reinvent the wheel here and just bring back revolving lines of credit attached to the deposit accounts? Oh wait…. that’s right…. that’s too old-school now…
Monday, March 8, 2010
Spring Break or Groundhog Day?
I recently came across a company called StudentCity.com – their website describes themselves this way – “We've been providing the Ultimate Spring Break Experience for over 20 years. Our mission: To help students organize and promote trips which enable them to celebrate youth through travel. In fact, it's all we do.”
OK – I get it – they’re travel agents.
Twenty years – 1990. Since then, Spring Break has become almost an expected part of the college experience. And for most of those college students who travel to these warm weather destinations, they have paid for these elaborate trips with credit cards. For next year’s college freshmen, getting credit cards will now be a much harder prospect and will have to involve having Mom & Dad co-signing on the account – thanks to the Credit Card Act of 2009.
This might mean that in the next few years, the Spring Break phenomenon will be limited to college seniors or to those students who are over 21 years old. I guess for the rest of them, we’ll have to find another way to “celebrate youth.”
1990 – seems like yesterday. The Education Resources Information Center published a white paper that year that listed the Top Ten Educational Issues Facing Society in 1990:
1. children held in low esteem;
2. changing work force demographics requiring a new vision of training and hiring objectives;
3. a corner-cutting ethic promoting mediocrity;
4. the development of ethnic "beachheads" which impede the assimilation of immigrants into American society;
5. leadership guided by public opinion polls;
6. the prevalence of competitions and contests in schools;
7. reliance on "rubber" yardsticks in place of national education standards;
8. continued erosion of federal support accompanied by lack of financial equity in the schools;
9. preoccupied parents who spend little time with their children;
10. a geometrically expanding information base requiring multimedia approaches transcending the printed word.
Have we made any progress?
Enjoy your spring break – and by the way, we boomers know all about it – we sort of invented it. It’s called Woodstock.
OK – I get it – they’re travel agents.
Twenty years – 1990. Since then, Spring Break has become almost an expected part of the college experience. And for most of those college students who travel to these warm weather destinations, they have paid for these elaborate trips with credit cards. For next year’s college freshmen, getting credit cards will now be a much harder prospect and will have to involve having Mom & Dad co-signing on the account – thanks to the Credit Card Act of 2009.
This might mean that in the next few years, the Spring Break phenomenon will be limited to college seniors or to those students who are over 21 years old. I guess for the rest of them, we’ll have to find another way to “celebrate youth.”
1990 – seems like yesterday. The Education Resources Information Center published a white paper that year that listed the Top Ten Educational Issues Facing Society in 1990:
1. children held in low esteem;
2. changing work force demographics requiring a new vision of training and hiring objectives;
3. a corner-cutting ethic promoting mediocrity;
4. the development of ethnic "beachheads" which impede the assimilation of immigrants into American society;
5. leadership guided by public opinion polls;
6. the prevalence of competitions and contests in schools;
7. reliance on "rubber" yardsticks in place of national education standards;
8. continued erosion of federal support accompanied by lack of financial equity in the schools;
9. preoccupied parents who spend little time with their children;
10. a geometrically expanding information base requiring multimedia approaches transcending the printed word.
Have we made any progress?
Enjoy your spring break – and by the way, we boomers know all about it – we sort of invented it. It’s called Woodstock.
Monday, March 1, 2010
Time for Consumer Lenders to Come Out From Under the Covers
Based on an informal survey of consumer lenders around the country, no one seems to be lending anymore. Oh they would argue that – they would say they are lending only to qualified borrowers and then begin to cite monthly loan production numbers.
But that’s really not lending. Lending involves identifying risk and if you lend to only the highest quality of borrowers, then you might as well invest that money in low-risk securities and eliminate the operational cost of maintaining a loan portfolio.
Which is what I think is happening to many large consumer lenders. A friend of mine told me last week that he is 4 months away from paying off an installment loan he took out 4 years ago to help finance his son’s college education. He wanted to refinance that loan with the same lender to consolidate debt. Back in the day, provided the applicant had good credit and income capacity, this was a no-brainer:
But that’s really not lending. Lending involves identifying risk and if you lend to only the highest quality of borrowers, then you might as well invest that money in low-risk securities and eliminate the operational cost of maintaining a loan portfolio.
Which is what I think is happening to many large consumer lenders. A friend of mine told me last week that he is 4 months away from paying off an installment loan he took out 4 years ago to help finance his son’s college education. He wanted to refinance that loan with the same lender to consolidate debt. Back in the day, provided the applicant had good credit and income capacity, this was a no-brainer:
- The customer had an established loan record with you
- The customer was improving his financial position by consolidating debt
- You were strengthening a customer relationship
- You were increasing your consumer loan portfolio
Nope – the answer he got was that the bank was not making any new loans until further notice citing the “current economic conditions”.
Talk about having it completely backwards! If I was still in the loan business, I would be making a boatload of bill-consolidation loans because this helps borrowers by reducing and managing their debt. (It also builds customer loyalty which once upon a time used to be a big goal). I used to make bill consolidation loans on a bi-weekly basis with payments automatically debited from the borrower’s deposit account with us (there’s that loyalty thing again). Bi- weekly loans actually pay the loans down faster and are quite profitable. Everybody wins.
But alas, financial institutions and regulators have lost their way. It used to be that they would take in deposits and lend money to help people in the community, using the interest they made from loans to pay the bills and make a profit. But that approach involves risk – interest rate risk, credit risk and collateral risk.
No – the fastest way now to make a profit is to increase fees on everything and take the deposits and invest them in securities and other investments – now you only have to manage the interest rate risk and avoid the credit and collateral risk. However, when credit stops flowing people stop buying stuff - businesses stop expanding - and unemployment remains high. The circle of recession goes on and on.
So c’mon guys – start with the average consumer. Help them to consolidate their debt, finance new cars and homes, and start opening credit lines again on credit cards. Start lending again. It’s what you’re supposed to do anyway.
If you need someone to show you how – call me.
Monday, February 22, 2010
The End of Buy Now – Pay Later? – Part II
So today’s the big day eh? (sorry about the Canadian reference – been watching a lot of the Olympics). Today is the first day of the Credit Card Act of 2009.
In this week’s rant, let me briefly tell you 2 personal stories with my own credit cards (both are from one of the 10 that control over 90% of the credit card receivables today.)
Story No. 1. Last fall, I made a sizeable payment on a credit card that I use for my consulting work. I’ve had this account for over 15 years because of the rewards program it had. The next day, the card issuer slashed my credit line to the current balance – essentially leaving me without any available credit on that account. I called the customer service number and spoke at length with an “account manager” who, after reviewing my 30-year credit history, my 10-year employment history (13 years previous employment history), my homeownership status with available equity, and my total debt ratio of less than 30% - informed me that she couldn’t extend my credit line.
The whole exercise was a crock – she looked at my credit score, plugged in the variables of an application score into a program to determine the debt ratio and that was that. I explained to her that I was the same borrower today that I was yesterday and that her action has adversely affected my credit score – through no fault of my own. It made no difference – policy is policy and that’s the way it is.
Story No. 2. Two weeks ago, I inadvertently placed the wrong payment date in my online payment system with my bank for payment on my other credit card account. The payment (paying the statement balance in full) was received one day after the due date triggering a late charge. No problem, I should be charged a late charge as a consequence of making the payment late. Two days later, I receive a letter from the issuer informing me that my interest rate would now be increased to 25%.
I called the “account manager” and after getting nowhere, insisted on speaking with her supervisor named Alex. Alex told me that there was nothing he could do – the bank’s position was to institute the new requirements of the Card Act of 2009 in January and as such, the 25% interest would remain for 6 months. If I made regular payments during those 6 months, then the rate would be returned to the retail rate. I reminded him that the Card Act only allows the rate increase once the account becomes 60-days delinquent and he said the bank was not honoring that part of the Act until the official date – how nice of them. He went on to say that he doesn’t even have the system access to make any changes at his level – the bank’s policy is now driven by the computer’s parameters. He concluded by saying that I can avoid the 25% interest rate by paying my balances in full each month – wow, I didn’t know that (sarcasm inserted).
Okay, so here's why I question the survival of the future of the credit card industry:
- Card issuers cannot have profitable portfolios unless cardholders carry balances – you can’t make up the loss of finance charge income with fees.
- Card issuers cannot build portfolio balances unless they offer available credit lines and cardholders carry a balance. Encouraging them to pay off their balances each month is a sure way to go out of business.
- Card issuers need higher portfolio balances to deflect their growing delinquency and loss ratio reports to their regulators and shareholders (see my 12/13/2009 post)
The credit card business is no longer driven by customer service, product differentiation and competition – it is driven now by computer algorithms, product parameters, and technological efficiencies. Human beings no longer run the credit card industry – they run the machines which are configured by math equations.
And the math doesn’t add up.
Monday, February 15, 2010
The End of Buy Now – Pay Later? – Part I
It’s interesting to watch what’s happening in the credit card business. With many elements of the Credit Card Act of 2009 set to take effect this month, I’m beginning to wonder, after 30 years of evolution, if the credit card business is on a death watch.
During the 80’s and early 90’s, the credit card business became a very lucrative product line for financial institutions – primarily because credit cards became a status symbol (remember the movie, “Trading Places” when Dan Aykroyd’s character bragged about having a Gold Card?) and issuers were touting the convenience of using a credit card vs. writing a check. Issuers made money on the interchange fee as well as the finance charges for the 30% or so of the card portfolio that did not pay off its balance each month.
The problem in the mid-late 90s became the operational expenses to run a credit card program. Clearly, with only 30% of the portfolio carrying balances, issuers needed larger card portfolios in order to gain operational efficiencies as they transitioned to an electronic authorization environment (anyone remember the paper authorization books at the cash registers?). So the way to gain balances was to provide incentives, reduce or eliminate cardholder fees, offer teaser rates and rewards for usage.
This strategy continued into the new millennium until the issuers reached a saturation point – most Americans carried 3-4 different cards and it was getting harder to build portfolio balances. This led to three significant changes in the business in my view:
During the 80’s and early 90’s, the credit card business became a very lucrative product line for financial institutions – primarily because credit cards became a status symbol (remember the movie, “Trading Places” when Dan Aykroyd’s character bragged about having a Gold Card?) and issuers were touting the convenience of using a credit card vs. writing a check. Issuers made money on the interchange fee as well as the finance charges for the 30% or so of the card portfolio that did not pay off its balance each month.
The problem in the mid-late 90s became the operational expenses to run a credit card program. Clearly, with only 30% of the portfolio carrying balances, issuers needed larger card portfolios in order to gain operational efficiencies as they transitioned to an electronic authorization environment (anyone remember the paper authorization books at the cash registers?). So the way to gain balances was to provide incentives, reduce or eliminate cardholder fees, offer teaser rates and rewards for usage.
This strategy continued into the new millennium until the issuers reached a saturation point – most Americans carried 3-4 different cards and it was getting harder to build portfolio balances. This led to three significant changes in the business in my view:
- Smaller issuers sold their portfolios to larger issuers – what faster way to build balances then to buy another issuer’s portfolio
- Issuers targeted college students – that new crop of young adults who were suddenly independent and spent hours in malls and stores buying stuff
- Issuers lowered credit standards which placed more credit cards in the hands of more borrowers
The result:
- Over 90% of today’s credit card business is controlled by just 10 credit card issuers. The loan product became a mathematical analysis and not a consumer-related product.
- Local community banks and credit unions stopped cross-selling credit cards because the control and ownership of this commodity was now owned by someone else. They could hand a customer an application if someone inquired, but it really wasn’t that big of a deal because “someone else” made the decisions and handled the details and questions.
- Stories about credit card misuse and abuse took to the airwaves and Congress felt compelled to swoop in and rescue the citizenry with credit card reform.
What happens now? Predictions next week in Part II…..
Monday, February 8, 2010
Love, American Style
For those of you old enough to remember this TV show in the late ‘60’s, I’ll bet you can still sing the theme song….
Valentine's Day is Sunday and spending for the holiday could give an indication as to how consumers feel about the economy.
The National Retail Federation projects that the average consumer will spend $103 on the day, up slightly from $102.50 last year. That translates into $14.1 billion in Valentine's Day spending. Interestingly, couples report they plan to spend less on one another, but will spend more on family, friends and co-workers.
This year, couples plan to spend an average of $63.34 on gifts for their significant other or spouse, down nearly 6 percent from $67.22 last year, according to the National Retail Federation’s 2010 Valentine’s Day Consumer Intentions and Actions Survey. At the same time, the average person plans to spend $5.37 on their friends, up 13 percent from $4.74 last year.
The survey also found people plan to spend more on classmates and teachers, co-workers and pets.
Yet another, more optimistic survey from research firm IBISWorld predicted that total Valentine’s Day spending will be up 3.3 percent from last year, reaching $17.6 billion. The caveat here though is that since the holiday falls on a Sunday, more of the spending will move from traditional gift-giving toward dining out.
Either way, that’s a lot of love
Valentine's Day is Sunday and spending for the holiday could give an indication as to how consumers feel about the economy.
The National Retail Federation projects that the average consumer will spend $103 on the day, up slightly from $102.50 last year. That translates into $14.1 billion in Valentine's Day spending. Interestingly, couples report they plan to spend less on one another, but will spend more on family, friends and co-workers.
This year, couples plan to spend an average of $63.34 on gifts for their significant other or spouse, down nearly 6 percent from $67.22 last year, according to the National Retail Federation’s 2010 Valentine’s Day Consumer Intentions and Actions Survey. At the same time, the average person plans to spend $5.37 on their friends, up 13 percent from $4.74 last year.
The survey also found people plan to spend more on classmates and teachers, co-workers and pets.
Yet another, more optimistic survey from research firm IBISWorld predicted that total Valentine’s Day spending will be up 3.3 percent from last year, reaching $17.6 billion. The caveat here though is that since the holiday falls on a Sunday, more of the spending will move from traditional gift-giving toward dining out.
Either way, that’s a lot of love
Monday, February 1, 2010
The Age of the Skimmer
First the good news.
The Secret Service has apprehended an alleged ring of ATM skimmer crooks in eastern Massachusetts. The group set up skimmers with pinhole cameras on Bank of America and Citizens Bank ATMs in the greater Boston area. According to authorities, when one of the suspects was caught, he had almost $100,000 in twenties in his possession.
The Secret Service learned in December that a Bank of America ATM in Saugus had been rigged with the scanner device, called a skimmer, and a pinhole camera, according to a court affidavit from a Secret Service agent. A surveillance photo showed the thief attaching the skimmer, the affidavit said. Another photo allegedly showed jis partner removing the camera.
Authorities were informed on Jan. 22 of ATM tampering at Citizens Bank locations in Quincy, Milton, Braintree, and Somerville, the affidavit said. Surveillance photos showed the same men at the Citizens locations, according to the affidavit.
Three days later, photos showed the men rigging Bank of America ATM machines in Saugus, Milton, Weymouth, Cambridge, Dorchester, and Roslindale, the affidavit said.
Now the bad news – skimming has been around for some time, but like everything else, things are becoming more sophisticated.
Don’t fall prey to ATM skimming scams. Scammers can quickly read a card’s information and use it to access your account fraudulently. With a small device, your card’s information gets stored so that criminals can easily get to it later.
The Secret Service has apprehended an alleged ring of ATM skimmer crooks in eastern Massachusetts. The group set up skimmers with pinhole cameras on Bank of America and Citizens Bank ATMs in the greater Boston area. According to authorities, when one of the suspects was caught, he had almost $100,000 in twenties in his possession.
The Secret Service learned in December that a Bank of America ATM in Saugus had been rigged with the scanner device, called a skimmer, and a pinhole camera, according to a court affidavit from a Secret Service agent. A surveillance photo showed the thief attaching the skimmer, the affidavit said. Another photo allegedly showed jis partner removing the camera.
Authorities were informed on Jan. 22 of ATM tampering at Citizens Bank locations in Quincy, Milton, Braintree, and Somerville, the affidavit said. Surveillance photos showed the same men at the Citizens locations, according to the affidavit.
Three days later, photos showed the men rigging Bank of America ATM machines in Saugus, Milton, Weymouth, Cambridge, Dorchester, and Roslindale, the affidavit said.
Now the bad news – skimming has been around for some time, but like everything else, things are becoming more sophisticated.
Don’t fall prey to ATM skimming scams. Scammers can quickly read a card’s information and use it to access your account fraudulently. With a small device, your card’s information gets stored so that criminals can easily get to it later.
Skimmers may be installed on ATM machines, and sometimes you can’t even notice them. A small device goes over the normal card reading slot and reads your card’s magnetic stripe. Here’s an example:
The equipment used to capture your ATM card number and PIN is cleverly disguised to look like normal ATM equipment. A “skimmer” is mounted to the front of the normal ATM card slot that reads the ATM card number and transmits it to the criminals sitting in a nearby car.
At the same time, a wireless camera is disguised to look like a leaflet holder and is mounted in a position to view ATM PIN entries.
The thieves copy the cards and use the PIN numbers to withdraw thousands from many accounts in a very short time directly from the bank ATM. The equipment as it appears installed over the normal ATM bank slot.
To avoid any hassles, use these tricks to avoid getting caught in a skimming scam:
- Use secure ATM machines – under video surveillance or inside of a bank lobby. They're less likely to be tampered with. Thieves have to take more risk installing skimmers where there are security cameras.
- Cover the ATM keypad as you're entering your PIN -- just in case there's a hidden camera around.
- Skimming devices will stick out a few extra inches from an ATM. If something looks suspicious, find another ATM. Don't fall for a poor fitting device (or a sticker or sign that says "Swipe Here First", or “Use This Machine Only”).
- If a machine keeps your card, call the bank immediately and report it.
- Don't accept "help" from anybody hanging around the ATM machine. They may say they were having trouble also and you just need to enter your PIN again.
Sunday, January 24, 2010
Avatars and Personal Finance
To be clear, I haven’t seen the recent James Cameron's movie “Avatar” – yet.
I have however, recently created my avatar on X-Box – it only took me 90 minutes to decide that what I see in the mirror absolutely cannot be what I created on the screen. During the process, I had to ask, “what the heck is an avatar anyway?”
Wikipedia says, “An avatar is a computer user's representation of himself/herself or alter ego, whether in the form of a three-dimensional model used in computer games,] a two-dimensional icon (picture) or a one-dimensional username used on Internet forums and other communities, or a text construct found on early systems such as MUDs. It is an object representing the user. The term "avatar" can also refer to the personality connected with the screen name, or handle, of an Internet user. This sense of the word was coined by Neal Stephenson in 1992's Snow Crash who co-opted it from the Sanskrit word avatāra which is a concept similar to that of incarnation.”
Huh?
In the cyberworld, Web customization is king--just as the millions of user-centric YouTube videos and Facebook pages attest. It's not surprising that avatars, digital representations of you, are growing in function and form.
The collection of downloadable and Web-based avatar generators range from the more cartoon-like engines to three-dimensional architectures where users give life to their pint-size replicates.
It occurred to me that wouldn’t it be a great teaching tool to create an avatar of yourself and
then insert it (you) into a digital world and try different personal finance strategies to get a glimpse into your future?
How about going on a spending spree with credit cards and then you lose your job so now you can’t make the payments? Or buy a huge house before the real estate market tanks and now you owe more than it’s worth?
Then again, perhaps we’re all avatars in the current recession – except that we can’t reboot the darn thing.
I have however, recently created my avatar on X-Box – it only took me 90 minutes to decide that what I see in the mirror absolutely cannot be what I created on the screen. During the process, I had to ask, “what the heck is an avatar anyway?”
Wikipedia says, “An avatar is a computer user's representation of himself/herself or alter ego, whether in the form of a three-dimensional model used in computer games,] a two-dimensional icon (picture) or a one-dimensional username used on Internet forums and other communities, or a text construct found on early systems such as MUDs. It is an object representing the user. The term "avatar" can also refer to the personality connected with the screen name, or handle, of an Internet user. This sense of the word was coined by Neal Stephenson in 1992's Snow Crash who co-opted it from the Sanskrit word avatāra which is a concept similar to that of incarnation.”
Huh?
In the cyberworld, Web customization is king--just as the millions of user-centric YouTube videos and Facebook pages attest. It's not surprising that avatars, digital representations of you, are growing in function and form.
The collection of downloadable and Web-based avatar generators range from the more cartoon-like engines to three-dimensional architectures where users give life to their pint-size replicates.
It occurred to me that wouldn’t it be a great teaching tool to create an avatar of yourself and
then insert it (you) into a digital world and try different personal finance strategies to get a glimpse into your future?How about going on a spending spree with credit cards and then you lose your job so now you can’t make the payments? Or buy a huge house before the real estate market tanks and now you owe more than it’s worth?
Then again, perhaps we’re all avatars in the current recession – except that we can’t reboot the darn thing.
Monday, January 18, 2010
The Sacred Cow of College Education
The following facts and figures are based on the Project on Student Debt’s analysis of data from the National Postsecondary Student Aid Study (NPSAS). Conducted by the U.S. Department of Education every four years, NPSAS is a comprehensive nationwide survey designed to determine how undergraduate students and their families pay for college.
The data from academic year 2007-08, recently updated this month, show continued increases in student loan borrowing. Wow what a big surprise.
Private for-profit colleges saw the largest recent increase in the proportion of students graduating with debt. In 2004, 65% of students graduating from all four-year colleges and universities had student loans. At public universities, 62% graduated with debt; at private nonprofit universities, 72%; and at private for-profit universities, 85%.
In 2008, 67% of students graduating from four-year colleges and universities had student loan debt. That represents 1.4 million students graduating with debt, up 27% from 1.1 million students in 2004.
- 62% of graduates from public universities had student loans.
- 72% of graduates from private nonprofit universities had student loans.
- 96% of graduates from private for-profit universities had student loans (a major increase from 2004, when 85% of these graduates had student loans).
- Average debt levels for graduating seniors with student loans rose to $23,200 in 2008 — a 24% increase from $18,650 from when they began as freshmen in 2004.
At public universities, average debt was $20,200 — 20% higher than in 2004, when the average was $16,850.
At private nonprofit universities, average debt was $27,650 — 29% higher than in 2004, when the average was $21,500.
At private for-profit universities, average debt was $33,050 — 23% higher than in 2004, when the average was $26,850.
Meanwhile, employment prospects for young college graduates have soured along with the economy. The unemployment rate for college graduates aged 20-24 was a challenging 7.6% in the third quarter of 2008, the highest third quarter rate since 2002 - before we were even talking about the Great Recession. By the third quarter of 2009 - one year later - it had risen to 10.6%, the highest on record. The majority of the class of 2008 fell into this age group in both years.
I’ve seen reports that for the most recent graduating class – 2009 – the unemployment rate hovers round 25%.
So let’s see if I have this right:
- We told our kids to make sure you get a college education; it’s your ticket to a successful life – even if it means eating at a food bank.
- Now that they have graduated, the job prospects are bleak because of the economy and because they’re competing with a zillion other people with work experience and not just academic experience.
- They’ve added a huge monthly loan payment to pay for this education just as they are trying to figure out how to move away from home, begin an independent life, and start to define themselves as an adult.
But don’t worry – the colleges and universities all got paid.
Monday, January 11, 2010
Watch Those Fees!
From various accounts, the nation's financial institutions will be bombarding customers with new fees and products in 2010 as they try to replace more than $50 billion in revenue wiped out by new rules that clamp down on certain business practices.
So far, the changes are mostly concentrated in checking accounts and credit cards. In addition to attaching new fees to old products, financial institutions are introducing new types of accounts that they hope will bring in new customers and reduce their acquisition costs.
For plastic, the new rules go into effect in February as part of the Credit Card Act of 2009. The rules will limit some interest-rate increases, require more disclosure to customers and prohibit financial institutions from raising interest rates on current balances unless a customer is at least 60 days behind in a payment.
Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.
In addition to the credit-card rules, the government will crack down next year on ways financial institutions charge overdraft fees, which are assessed when a customer overdraws an account.
New Federal Reserve rules will require financial institutions to receive customer consent before they can be charged such a fee. That is a significant change from the current practice, in which financial institutions typically honor withdrawals and then levy a fee if the account is overdrawn. The Fed estimates that financial institutions generate $25 billion to $38 billion a year in overdraft fees.
One recent survey by Chicago's Bank Administration Institute found that 43% of retail-bank executives feel that consumer trust in financial institutions has eroded in the past six months. Call me old-fashion, but it seems to me the way to get the love back is NOT to ramp up the fees. But to be fair, how else are the financial institutions supposed to make money? Nobody holds onto their loan portfolios anymore so it is what it is (to quote a certain New England football coach)
To make up for lost overdraft revenue, financial institutions are promoting greater use of debit cards, which can be more profitable for financial institutions than processing paper checks, and new types of checking accounts. Other financial institutions are expected to eliminate free checking completely, raise fees on safe-deposit boxes and charge customers more for issuing a stop-payment on a check.
It’s always about the dollars……
So far, the changes are mostly concentrated in checking accounts and credit cards. In addition to attaching new fees to old products, financial institutions are introducing new types of accounts that they hope will bring in new customers and reduce their acquisition costs.
For plastic, the new rules go into effect in February as part of the Credit Card Act of 2009. The rules will limit some interest-rate increases, require more disclosure to customers and prohibit financial institutions from raising interest rates on current balances unless a customer is at least 60 days behind in a payment.
Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.
In addition to the credit-card rules, the government will crack down next year on ways financial institutions charge overdraft fees, which are assessed when a customer overdraws an account.
New Federal Reserve rules will require financial institutions to receive customer consent before they can be charged such a fee. That is a significant change from the current practice, in which financial institutions typically honor withdrawals and then levy a fee if the account is overdrawn. The Fed estimates that financial institutions generate $25 billion to $38 billion a year in overdraft fees.
One recent survey by Chicago's Bank Administration Institute found that 43% of retail-bank executives feel that consumer trust in financial institutions has eroded in the past six months. Call me old-fashion, but it seems to me the way to get the love back is NOT to ramp up the fees. But to be fair, how else are the financial institutions supposed to make money? Nobody holds onto their loan portfolios anymore so it is what it is (to quote a certain New England football coach)
To make up for lost overdraft revenue, financial institutions are promoting greater use of debit cards, which can be more profitable for financial institutions than processing paper checks, and new types of checking accounts. Other financial institutions are expected to eliminate free checking completely, raise fees on safe-deposit boxes and charge customers more for issuing a stop-payment on a check.
It’s always about the dollars……
Sunday, January 3, 2010
Power of Parents
For the past 12 years, I have been screaming into the wind that we need to increase the emphasis of personal finance within our educational system. I have been trampled by all of the arguments relating to availability of resources (financial and teacher), assessment testing pressures, unfunded mandates, local control desires, curriculum rigor, etc. etc.
Well, we just finished one of the most intense decades from a financial point of view – from enormous national debt levels to the highest unemployment rates in almost 30 years to an astonishing denial of our own sense of individual entitlement.
So who will teach the next generation the lessons learned from the last decade? I think the answer is the same as it has been for past generations – parents. Take a quick Google search around the Internet and you’ll find research after research that supports what our gut has told us all along – that parents are their children’s strongest role model and greatest influence. Our children will eventually adopt many of our values and types of behavior, just as we have been influenced by our parents. Children notice and respond to the way we deal with problems, express feelings and celebrate special occasions.
As a parent, it is impossible to not model. Our children will see our example—positive or negative—as a pattern for the way life is to be lived.
Keep in mind, though, that there is no such thing as an ideal family. Every family has problems, and everyone makes mistakes. Young people make mistakes, and parents make mistakes. What’s more important for learning is the way we handle the situations when we do make mistakes. Honestly admitting when we are wrong and making amends can be a powerful way to model the behavior you want our kids to adopt.
Independence is a natural development, especially among older children. Although our first instincts are to focus on protecting and helping our children, it's also important to encourage their efforts to be independent. A parent's role includes teaching children how to make decisions and how to draw on personal values when dealing with peer pressure.
Further, as every parent of a teen knows, at this stage of development, young people often have very strong ties to their friends. Our role as a parent tends to shift. We are no longer the first person our child always turns to for advice and help, and we move into a new role—that of listener and coach.
For some reason when it comes to talking to our kids about money, we get all jammed up. Who cares why it happens – let’s figure out a way to get past it so we can help our kids.
On February 6th, we are holding our 5th annual Financial Fitness Fair for parents and their high school children. The over-arching goal is to make it OK for families to have discussions about money and other financial topics. It will be these discussions that will help them to learn the lessons of the past decade.
Come and spend six hours with us as a family and learn how to get started. And tell your friends and other family members too. We need to do it for our kids. Details are here.
Well, we just finished one of the most intense decades from a financial point of view – from enormous national debt levels to the highest unemployment rates in almost 30 years to an astonishing denial of our own sense of individual entitlement.
So who will teach the next generation the lessons learned from the last decade? I think the answer is the same as it has been for past generations – parents. Take a quick Google search around the Internet and you’ll find research after research that supports what our gut has told us all along – that parents are their children’s strongest role model and greatest influence. Our children will eventually adopt many of our values and types of behavior, just as we have been influenced by our parents. Children notice and respond to the way we deal with problems, express feelings and celebrate special occasions.
As a parent, it is impossible to not model. Our children will see our example—positive or negative—as a pattern for the way life is to be lived.
Keep in mind, though, that there is no such thing as an ideal family. Every family has problems, and everyone makes mistakes. Young people make mistakes, and parents make mistakes. What’s more important for learning is the way we handle the situations when we do make mistakes. Honestly admitting when we are wrong and making amends can be a powerful way to model the behavior you want our kids to adopt.
Independence is a natural development, especially among older children. Although our first instincts are to focus on protecting and helping our children, it's also important to encourage their efforts to be independent. A parent's role includes teaching children how to make decisions and how to draw on personal values when dealing with peer pressure.
Further, as every parent of a teen knows, at this stage of development, young people often have very strong ties to their friends. Our role as a parent tends to shift. We are no longer the first person our child always turns to for advice and help, and we move into a new role—that of listener and coach.
For some reason when it comes to talking to our kids about money, we get all jammed up. Who cares why it happens – let’s figure out a way to get past it so we can help our kids.
On February 6th, we are holding our 5th annual Financial Fitness Fair for parents and their high school children. The over-arching goal is to make it OK for families to have discussions about money and other financial topics. It will be these discussions that will help them to learn the lessons of the past decade.
Come and spend six hours with us as a family and learn how to get started. And tell your friends and other family members too. We need to do it for our kids. Details are here.
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