NH Jump$tart Coalition

The Reality of the Math

2011-04-05T14:52:00.000-04:00

Last week, I had the good fortune of speaking at the 12th Annual Destination College event which is designed to help high school juniors and their parents prepare for the whole getting-into-college “thing.” This event sells out every year and this year was no exception with over 1,000 in attendance.

During my presentation, “Cash or Plastic,” I provided an overview of the changes with credit and debit cards and the importance of using online banking and the current tech tools to track your fees and manage your money. One of my segments dealt with personal responsibility and basic math. I cited a article released from the New York Times that indicated the average starting salary from the Class of 2010 was $46,000. Using that as the baseline, I showed a simple Excel spreadsheet, made the assumption of a 28% tax bracket and then determine the monthly take-home pay. I then asked a series of questions about monthly expenses and lifestyle.

It didn’t take very long for the students and parents in the session to realize that basic math will force you to make decisions about how to manage your money. It also brought home the point that planning ahead, deciding the difference between needs and wants, the level of student loan debt and living within your means are old-school concepts that serve us well today.

Here’s the simple file that I used - fill the blank line items to suit your situation.

Salary $46,000.00

Taxes $12,880.00

Net $33,120.00

Monthly $2,760.00

Rent

Student Lns

Auto Pmt

Gas

Auto Insurance

Utilities (don't forget cable & internet)

Phone (data plan?)

Food

Amount Left for your lifestyle

It’s all about the math really.

Credit Cards in 2011 - Fall Back or Spring Forward?

2011-01-23T20:25:00.000-05:00

Last week, the nation's top credit card issuers said the number of accounts that slipped into default fell to their lowest points of 2010 in December, and signs point to continued improvement in coming months. Five of the six biggest card issuers posted their lowest rates for charge-offs, or accounts written off as uncollectible.

While the rate of balances that companies are writing off remains high by historical standards, it has fallen consistently throughout the year. That is certainly good news.

Importantly, lender rates for payments late by 30 days or more also reached lows. That figure, also known as the delinquency rate, is considered an indicator for what's to come, which means charge-offs should be expected to keep falling through the first few months 2011.

Usually, credit quality on these portfolios worsens in the second half of the year, as consumers stop using tax refunds to pay down debt and start shopping for the holidays.

But uncertainty remains, as persistently high unemployment slows the rate of recovery at consumer lenders. Overall charge-off rates have fallen at most banks but remain high by historical standards. Loan portfolios are still shrinking, with consumers reluctant to take on new debt.

The wild card will be how the bank examiners will interpret the new financial regulations in their examinations this year. Until lenders get a comfort level on that reality, it could be another lean year for new loans and access to credit for borrowers with blemished credit.

We’ll be watching.

The Commodity of a College Degree

2011-01-18T07:54:00.004-05:00

It’s January – that time of year when SAT exams are being studied for and taken – when FAFSA forms are being agonized over by parents and students – when college notification letters in mailboxes are met with anxious faces and fast-beating hearts.

Why did it have to get to this? Why do we allow our kids to go through so much pressure and anxiety about going to college? It’s just a given now that if you don’t go to college you’re not going to turn out to be successful – and – if you don’t go to a prestigious school (translation: expensive), then you’re not very high on the impressive scale.

I know I’ve spent a lot of blogging time railing against the cost of college. One might get the impression that I’m anti-college. Nothing could be further from the truth. We should always be striving for more knowledge – everyday. What has trouble me for years, and continues to trouble me, is the business of the college / university industry today.

This industry continues to get a pass from economic realities the other industries have had to deal with.

According to a recent article from the National Inflation Association,

College is the only thing in America that never declined in price during the panic of 2008. It actually rose in price substantially.

The annual tuition for a private four-year college was $21,235 in the 2005-2006 school year.
Despite Real Estate beginning to collapse in late-2006, college tuition rose by 4.6% in the 2006-2007 school year to $22,218.

Despite the stock market beginning to collapse in late-2007, college tuition rose by 6.7% in the 2007-2008 school year to $23,712.

Despite oil and other commodities collapsing in late-2008, college tuition rose by 6.2% in the 2008-2009 school year to $25,177.

Even after the Dow Jones crashed to a low in early-2009 of 6,469, college tuition still rose by 4.4% in the 2009-2010 school year to $26,273.

At the same time,

College students borrowed $106 billion in total student loans for the 2009-2010 school year, up from $96 billion in 2008-2009, $94 billion in 2007-2008, $87 billion in 2006-2007, and $83 billion in 2005-2006.

Total student loan debt in the U.S. currently stands at $830 billion and now exceeds credit card debt.

The NIA is predicting a college bubble in 2011. I still think we are 8 years away – two cycles of college graduates who have difficulty getting a job that allows them to pay their bills and begin their adult life. They will be the ones who will question the return on the financial investment in their college degree. Then perhaps the education model will change.

What a Week on the Internet!

2011-01-10T08:24:00.001-05:00

What an interesting week I had on the Internet!

It started with the amazing story of Ted Williams – dubbed the man with the “Golden Pipes.” It really demonstrated the power of viral communication – this time in a positive way. The week ended with the Twittersphere that was humming with the sad tragedy in Arizona. Again the speed on which information travels these days is amazing.

But the item I learned last week that I got really hung up on was about haul videos. Though I just learned about it last week, it turns out the Internet has been talking about this for over a year.

Never heard of it? Let me explain it then.

Here’s how it works. First, kids power shop, buying as much as they can afford and often even more. Then they post a video of all they hauled home. Kids say it is no different than trying on clothes for their friends just on a larger scale.

I first learned about this last week while watching a Boston news segment on WBZ TV.

Not surprisingly, there are websites dedicated to this like HaulVideos.Net . They describe a haul video as a place where anybody can show off, review, and give advice on the things they have bought. It’s easy to do and fun to watch, so get out there and jump into the haul community.

My issue with this is not in the sharing of information but in the potential addiction for teenagers. Like with so many things in our culture these days, we seem to have an “all-or-nothing” mentality when it comes to consumerism.

The reality is that our economy is largely based on shopping. So it stands to reason that our children will follow down the same path. It’s incumbent on us as parents and adults to teach our kids the old-school basics of needs vs. wants and to find the right balance. The success in properly managing your financial affairs rests largely in knowing your cash flow, controlling those spending impulses, and saving for the unexpected occurrences that life brings.

That will ultimately provide you satisfaction for the long haul.

The Spin of Holiday Spending and Math

2011-01-03T09:45:00.001-05:00

Well the fever over the holidays is now in our rearview mirror. And from all accounts it appears that holiday shoppers were in the mood to spend money this year.

According to a report by MasterCard SpendingPulse, they found that since Novermber 5th, spending was up more than 5 percent from the same time last year - the best showing since 2005, well before the recession. It went to say that there had been sizable increases in spending on apparel, jewelry and luxury items over the holiday shopping season.

I guess those ads touting luxury cars and big presents were effective after all.

I happen to think that basic math is playing a role here – yet again.

According to Gallup, “An upper-income spending splurge led the way to strong self-reported spending during Christmas week 2010. Upper-income Americans’ self-reported consumer spending in stores, restaurants, gas stations, and online averaged $183 per day during the week ending Dec. 26 — up from $126 during the same week in 2009.”

The number is an extraordinary 45% improvement.

“Americans’ overall self-reported spending surged to an average of $85 per day during the week ending Dec. 26 — up from $77 during the prior week and $66 during the first two weeks of December. As a result, spending during Christmas week 2010 exceeded that of 2009 and 2008.”

None of the information in the Gallup data allows for a forecast of whether this aggressive consumer spending will last into next year. It is possible that many of the expenditures were made on credit. This could mean that folks in this income-level group are re-leveraging themselves. They are less reliant on the housing market and more sensitive to the investment market and Wall Street did pretty well last year.

We still have 9.8% unemployment and housing prices look wobbly again. Gas prices are on the rise and I doubt that the extra money in our paychecks will be enough to offset rising fuel prices. It still seems to me from afar that lenders are being extra cautious on lending – who can blame them since they don’t really know what to expect from the regulators this year – but that doesn’t help the consumer and ultimately their ability / willingness to spend.

So let’s keep watching the numbers and doing the math.

Frugality Fatigue

2010-12-13T10:06:00.000-05:00

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!

Spend Wisely Today!

2010-11-29T09:16:00.000-05:00

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!

Even Black Friday is Different Now...

2010-11-22T08:21:00.002-05:00

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….

Back in the Saddle

2010-11-15T09:42:00.005-05:00

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!)

The Consequence of the Foreclosure Mess

2010-10-17T22:49:00.004-04:00

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:

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?

Debit Your Credit

2010-10-03T23:07:00.002-04:00

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.

A Blockbuster Night Becomes A Blockbuster Memory

2010-09-27T08:43:00.000-04:00

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?

Football and "Apps"

2010-09-20T05:30:00.000-04:00

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……

We’re Back to School …and More Confused Than Ever

2010-09-12T21:24:00.003-04:00

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.

Why Credit Scoring is Choking Lenders

2010-07-13T11:38:00.003-04:00

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:

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?

June and the Wedding Season

2010-06-14T08:27:00.003-04:00

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.

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.

Prom Season is Upon Us!

2010-05-17T09:06:00.001-04:00

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.

Congratulations to the Class of 2010

2010-05-09T20:32:00.002-04:00

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!

New Hampshire Takes on Miami - Let's Throw Down!

2010-04-19T07:58:00.001-04:00

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!

Is it Possible to Change a 30-year Culture?

2010-04-11T22:08:00.003-04:00

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.

April is Financial Literacy Month!

2010-04-04T22:29:00.001-04:00

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.

Can We Change our Spending / Saving Culture?

2010-03-28T11:08:00.004-04:00

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.

Going to Orlando? Stay away from Hertz!

2010-03-22T11:22:00.005-04:00

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.

Bring Back ODP Loans!

2010-03-14T22:52:00.001-04:00

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…

Spring Break or Groundhog Day?

2010-03-08T01:00:00.000-05:00

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.

Time for Consumer Lenders to Come Out From Under the Covers

2010-03-01T08:13:00.002-05:00

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:

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.

The End of Buy Now – Pay Later? – Part II

2010-02-22T10:47:00.002-05:00

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.

The End of Buy Now – Pay Later? – Part I

2010-02-15T07:42:00.004-05:00

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:

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…..

Love, American Style

2010-02-08T08:01:00.001-05:00

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

The Age of the Skimmer

2010-02-01T06:00:00.000-05:00

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.

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.

Now I'm not trying to freak you out - all I'm saying is just be aware. Look at all the ATMs in the bank you're in to make sure they all look the same. Look for hidden cameras or extra seams that seem out of place. Look for odd protrusions or elements that have colors that don't match the rest of the machine. If you're paying attention, you should be OK. But if you aren't, you could be at risk for giving up your checking account and your hard-earned money to a scammer.

Avatars and Personal Finance

2010-01-24T21:59:00.004-05:00

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.

The Sacred Cow of College Education

2010-01-18T10:17:00.008-05:00

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.

Watch Those Fees!

2010-01-11T11:07:00.002-05:00

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……

Power of Parents

2010-01-03T22:14:00.001-05:00

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.

Count Down from Y2K – A Decade in Review

2009-12-28T13:37:00.007-05:00

In researching the top ten financial news events of this decade, I came across a great list by Rosemary Peavler from About.com

Rosemary Carlson Peavler has been a college professor of Business Finance. She is a freelance writer in finance and a small business consultant. She taught at Morehead State University for 26 years. She has written for academic journals in finance for 26 years and about business and personal finance in the popular press for more than 10 years.

Her entire piece can be read here, but listed below are excerpts listing chronologically (sort of): I thought I would also insert my opinion of the result from each event – please feel free to agree or disagree!

Year 2000: Bursting of the dot.com, or technology, bubble
The Internet kicked into gear and so did online commerce and not surprisingly, a huge uptick in credit card usage. Entrepreneurs saw potential in online business. However, online business was really in its infancy. Everyone was talking about a "new economy" which referred to an Internet-driven economy.

Much of the economy was restructured as a result of this bubble, the then new-age Internet company AOL, acquired old-world media conglomerate Time Warner, to form AOL Time Warner, before removing the “AOL” from their name after the collapse. Dozens of companies filed for bankruptcy, hundreds of dot-com companies simply disappeared, and widespread collapse in the communication industry, where funds were promised for massive growth projects, resulted in the collapse of Nortel, Worldcom, and a number of other major companies.

Result: Young adult workers got a rude awakening on the loyalty relationship between companies & employees. They are looking out for themselves a wee bit more.

Year 2001: September 11 Terrorist Attacks
The 9/11 terrorist attacks were the events that helped shape other financial events of the decade. After that terrible day in September 2001, our economic climate was never to be the same again. It was only the third time in history that the New York Stock Exchange was shut down for a period of time. In this case, it was closed from September 10 - 17. Besides the tragic human loss of that day, the economic loss cannot even be estimated.

Some estimate that there was over $60 billion in insurance losses alone. Approximately 18,000 small businesses were either displaced or destroyed in Lower Manhattan after the Twin Towers fell. There was a buildup in homeland security on all levels. 9/11 caused a catastrophic financial loss for the U.S.

Result: Americans became more patient and tolerant of each other. This treatment however, only lasted a couple of years

Year 2001: Enron, the Emergence of Corporate Fraud, and Corporate Governance
Enron, one of the top energy companies at this time, and Arthur Andersen, one of the top five public accounting firms, were caught in a corporate fraud scandal that led to the bankruptcy of Enron and dissolution of Arthur Andersen.

Enron hid billions of dollars of debt from its shareholders in failed deals and projects. Further, it pressured its auditors, Arthur Andersen, to ignore the issues. Shareholders lost more than $60 billion.

This led to the passage of the Sarbanes-Oxley Act of 2002 which expanded penalties for accounting fraud and instructed accounting firms to remain independent of their clients. Other firms such as Tyco and Worldcom experienced similar scandals. These scandals shook the securities markets and investor confidence.

Result: The idea of being responsible for your own retirement funds took center stage, however, financial education during this period never gained prominence and small investors continued to chase the fast money.

Year 2002: Stock Market Crash of 2002
After a brief slide post 9/11, the stock market rallied, but began to slide again in March 2002. The market reached lows not seen since 1997 and 1998 by July and September of 2002. The corporate fraud scandals, such as Enron, along with 9/11, were contributors to this loss of investor confidence in the stock market.

Result: The average investor, with little financial training, took this stride because after the emotional beating from 9/11, things seemed to be looking a lot better.

Years 2001 and 2003 - present: War on Terror and Iraq War
After the 9/11 terrorist attacks, the War on Terror was launched in Afghanistan and the Iraq War was launched in 2003. The cost of these wars is ongoing. To date, the Congressional Research Service has approved about $944 billion for the operations overseas. This has been an incredible financial drain on our economy and it is impossible to know what the final cost will be.

Result: The mere number size of the national debt is beyond most people’s comprehension. A sense of “it doesn’t affect my day-to-day” begins to develop.

Year 2005: The Growth of China and India as World Financial Powers
The rise of China and India as world financial powers is nothing short of amazing. Economists estimate that both nations can grow at the rate of 7-8% for decades to come. China, alone, has grow at about 9.6% for the past two decades. Together, the two countries account for one-third of the world's population.

Result: Our acceptance that the goods we purchase are manfucatured in China and customer service centers originate from India becomes more prevalent.

Year 2005: Hurricanes Katrina and Rita
On August 25, 2005, Hurricane Katrina hit the Gulf Coast of the U.S. as a strong Category 3 or low Category 4 storm. It quickly became the biggest natural disaster in U.S. history, almost destroying New Orleans due to severe flooding.

Hurricane Rita quickly followed Katrina only to make matters worse. Between the two, more than $200 billion in damage was done. 400,000 jobs were lost and 275,000 homes were destroyed. Many of the jobs and homes were never to be recovered. Hundreds of thousands of people were displaced and over 1,000 were killed and more are missing. The effect on oil and gasoline prices was long-lasting.

Result: Charitable contributions for relief organizations rise and a growing skepticism that our government can react to our needs begins to take hold.

Years 2007 and 2008: Sub-prime Housing Crisis and the Housing Bubble
In the early part of the 21st century, the U.S. housing market was booming. Housing values were high. Just about anyone who wanted to buy a home could buy a home. A phenomenon called sub-prime lending arose. Individuals and families who, in the past, could not have qualified for a mortgage were able to qualify for adjustable-rate mortgages with low or no down payments and low initial interest rates.

Banks made mortgage loans to these individuals for houses with inflated values. As the interest rates rose and their adjustable rate loans got more expensive, they couldn't make their mortgage payments. Soon, large financial institutions were holding portfolios of loans that were worthless. The "credit crunch" ensued.

Result: Now it’s personal – the level of greed and sense of entitlement ranging from the individual to Wall Street becomes evident. The “buy-now-pay-later” mentality of the decade begins to yield consequences.

Year 2008: Bernard Madoff and the Biggest Ponzi Scheme in History
Bernard Madoff, who owned his own investment advisory firm, was a former chairman of the NASDAQ. In 2008, he admitted to running a huge Ponzi scheme where he paid his investors with proceeds from the investments of other clients. Finally, it all unraveled and he could not meet his obligations. In one of the largest investment fraud schemes in Wall Street history, he defrauded his investors of around $18 billion. He was subsequently sentenced to 150 years in prison.

Result: Few people could define a Ponzi scheme before – now variations of the Madoff math continue to unravel.

Years 2007 - 2009: The Global Recession and the Collapse of Wall Street
In September of 2008, a seemingly perfect storm of factors came together to precipitate the deepest economic downturn in not only the U.S., but across the globe, since the Great Depression. The great investment banks that had stood on Wall Street began to collapse due to the sub-prime mortgage crisis and serious corporate fraud. During the last months of the Bush Administration, the federal government stepped in to bail out some of these institutions in order to keep the U.S. financial system afloat.

Result: Credit card usage is down, personal savings is up, and the projected slow return of a stabilized job market makes us all think that we need to slow our consumer spending down in preparation of an unknown future.

It’s time to rip off the rear-view mirror from this decade and look ahead to the challenges and promises of a new decade. Will we be more financially literate in 10 years?

A Year of Reflection

2009-12-20T21:30:00.003-05:00

Another year is coming to an end. Gadzooks! Another decade is also coming to an end. When did THAT happen?

I always liked this time of year – I like those news reports and articles that look back at the year’s events. I’m always struck by the number of famous people who passed away and how for many of them, they fade away from our consciousness. That part saddens me a little, but it also gives me pause to appreciate and embrace every moment we have.

I like turning off the cruise control of today’s treadmill and appreciate the blessings I’ve been given. My resolution each year is to keep trying to help those less fortunate in whatever way I can. In our “I Can Save!” campaign we offer to second graders, we outline the importance of “spending, saving & sharing.” By any measure, the “sharing” is always the best and fun part.

I’m also very tired of the gloom and doom of the Great Recession. I know jobs and the unemployment rate is going to be our greatest challenge next year. The sooner we get more people back to work the better. The sooner we can convince lenders to begin lending again the better as well.

So for at least the remaining moments of 2009, I’m going to focus on the positive stuff:

A lot of 401K and retirement money has been recovered from the 2008 losses
Personal savings rate for Americans is reported to be the highest in a number of years
Housing numbers in certain parts of the country seem to be stabilizing
Consumer debt is on a downward trend (though I’m always suspicious of the math)
Credit card usage is on the decline – might it be possible we are developing a “save to buy” mentality rather than the previous “buy now, pay later” approach?
Financial literacy is real hot topic these days – can we now convince the masses that this has to be a required topic for our children to learn?

So here’s my holiday wish and new year’s toast all rolled up – May we apply what we’ve learned from these difficult times, prepare our children so future choices are made with understanding and knowledge, and welcome the new decade with confidence, hope, and a positive sense of community spirit.

My 2 Cents About Credit Card Balances

2009-12-13T21:55:00.005-05:00

I’ve kept quiet during the recent news releases from TransUnion and Credit Cards.com who were making a big deal about credit card balances coming down and citing Federal Reserve Statistical Releases as the reference source.

Essentially, their reporting is accurate – credit card balances are indeed coming down. What I can’t buy into is the assertion that consumers are managing their credit card balances better.

Nope – for me the only statistical release I pay attention to is the delinquency and charge off reports from the Federal Reserve. The most recent third quarter report shows credit card delinquency of 6.58% slightly down from the previous month and a charge off percentage at a historical high of 10.24%. The slight drop in delinquency make perfect sense because the charged off balances are no longer on the books.

As an old credit card guy, I played this game many times. And in order to play the game here’s what you use – simple math. Here’s the game:

1. PROBLEM: Delinquency percentages are going up – SOLUTION: Increase portfolio balances. The higher the credit card balances, the lower the delinquency percentage. Offer incentives to borrowers to transfer balances and charge more.

2. PROBLEM: Charge off percentages are going up - SOLUTION: Increase portfolio balances. The higher the credit card balances, the lower the charge off percentages.

3. ANOTHER SOLUTION: Charge off the delinquent balances sooner than the require 180 days past due (that 6 months by the way...) required by most regulators. Sure the charge off percentages will look ugly this month, but the delinquency percentage will show tremendous improvement in the next few months – and hopefully credit card balances will increase significantly, so it will all be masked anyway.

Simple math – the problem is it only works when credit card issuers are aggressively targeting customers to increase their credit card balances. It doesn’t work so great (like now) when card issuers are cutting credit lines and increasing credit score thresholds so they can prove to whomever that they are serious about reducing credit risk. You can’t hide the delinquency and charge offs behind portfolio balances in this scenario.

More simple math – with 10% in charge offs, along with cost of funds around .05%, operational costs around 5%, and now loan loss reserves probably around 7% (if you’re lucky), card issuers would need to increase interest rates to around 24% to be profitable.

Credit card interest rates aren’t going up in anticipation of the Credit Card Accountability Act kicking into gear in February – they’re going up because the math isn’t working.

And you might just see some issuers getting out of the business altogether in 2010...

The New Definition of Cash

2009-12-06T19:46:00.000-05:00

I have to admit, I’m having a hard time believing this one.

According to a recent Western Union survey, 69 percent of American consumers are planning to give the gift of cash, check or a gift card to friends and family this holiday season. Furthermore, the survey revealed that 79 percent of consumers would prefer to receive a gift card this holiday season that could be used anywhere traditional credit cards are accepted.

Here’s what their press release said:

“Cash as a gift isn’t just practical; it’s an on-trend gift as well. According to the same Western Union survey, consumers are utilizing cash more often in their day-to-day finances, where in the past they may have relied on credit cards. Seventy eight percent of consumers find cash a smarter way to spend money. And, seventy seven percent of consumers also reported that using cash helps them stick to their budget, particularly useful when every penny counts.”

“Consumers are rediscovering the practicality and convenience of cash, and so it’s logical for an increased acceptance of cash as a gift during the holidays as well. And when it comes to sending cash, Western Union is the ‘gold’ standard,” said Jorge Consuegra, senior vice president U.S. product management for Western Union.

This sounds like a corporate attempt to create a self-fulfilling prophesy to me.

I also think we’re headed down a path where the use of debit cards and gift cards will be considered the same as “cash”, because it won’t carry the bad-boy reputation of credit cards. But it’s still plastic, and plastic is still different from cash. I’m willing to bet that a percentage of the respondents who plan to give someone a gift card this year feel that they are giving that someone “cash.” This might sound like I’m splitting hairs, but a swipe is still different that a clink. These cards are simply a tool being used to access cash – and they have associated fees attached to them that cost – yeah, cash.

On the other hand, a recent Boston Globe article indicated that a growing number of people are opening deposit accounts on behalf of others. Apparently, hundreds of consumers have already taken advantage of Citizens Bank on its “Gift of Savings’’ offer launched just a week ago, which features an extra $10 to people who open an account with at least $100 on behalf of a loved one. Service Credit Union here in New Hampshire opened at 5 a.m. on Black Friday with special deals like a three-month CD with 10% interest. The bank sold 2,224 CDs in three hours, about 20 times the normal daily volume.

So maybe Santa has an ATM on the North Pole after all….

Happy Cyber Monday!

2009-11-29T21:32:00.001-05:00

As the closely-watched Black Friday weekend winds down, a National Retail Federation survey conducted over the weekend confirms the expected: more people spent less. According to NRF’s Black Friday shopping survey, 195 million shoppers visited stores and websites over Black Friday weekend, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending reached an estimated $41.2 billion.

According to the survey, nearly one-third (32.2%) of shoppers purchased toys, an increase of 12.9 percent from last year. Additionally, more people purchased sporting goods (12.6% vs. 11.4% last year), personal care or beauty items (22.4% vs. 19.0%) and gift cards (21.2% vs. 18.7%). The most popular purchases were of clothing (0.9%) and books (40.3%), which remained nearly unchanged over last year.

Apparently more shoppers headed out for bargains while it was still dark outside – proving that the effects of turkey stuffing wear off rather quickly. According to the survey, nearly one-third of shoppers (31.2%) were at the stores by 5 AM - good grief.

As millions of shoppers gear up for Cyber Monday, one-fourth of Americans shopping over the weekend (28.5%) were shopping online – that means with some form of plastic.

So, as you prepare to embark on apparently the most non-productive output day for the American worker, here are a few sites to consider on your quest for the perfect deal.

Gottadeal.com – their motto is, “Why Pay Retail?” and claim to update their site several times each day

PriceGrabber.com - an Experian company

CyberMonday.com – powered by Shop.org which is a division of the National Retail Federation

Happy Thanksgiving & Happy Shopping!

2009-11-22T20:17:00.001-05:00

So here we go – Black Friday is almost upon us. Arguable the biggest shopping day of the year – at least the shopping day with the most hype. Well, given the Great Recession, there are some signs that things a wee bit different this year…

1. According to NRF’s 2009 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, U.S. consumers plan to spend an average of $682.74 on holiday-related shopping, a 3.2 percent drop from last year’s $705.01.

2. Though Americans were less inclined to purchase gift cards last season, the popular gifts retain their spot at the top of the list among gift recipients. According to the survey, 55.2 percent of adults would like to receive a gift card this holiday season, with clothing (48.8%), books and DVDs (48.6%) and electronics (33.2%) among other popular choices.

On the flip side, a recent poll by Consumer Reports revealed this about gift cards:

1) Most people don't want them: While 46 percent of people plan on buying gift cards, only 15 percent said they want to receive them as gifts.

2) 25% of the people polled haven't used the ones they got last December: During the 2008 holidays, about half of adults received a gift card, but one in four hadn't redeemed at least one of the cards as of last month.

3) 65% of adults who received a gift card in 2008 typically spend more than the value of the card, up from 58 percent in 2007.

4) Store-specific cards may limit gift choices: Forty-one percent of those who have unused gift cards from last year said that they hadn't found anything they wanted to buy.

5) Many cards carry fees: Consumers may have to pay an upfront fee to purchase a card, but there are also monthly "inactivity" fees that can slash the value of the card if the recipient doesn't use it within a specific time frame.

This will be less of a concern next year when The Credit Card Act of 2009 goes into full effect. It prohibits gift cards issued by banks or retailers from expiring for five years; and bans inactivity fees for the first 12 months. But the Act won't cover cards purchased this holiday season.

So Black Friday is coming whether I like it or not. And gift cards are going to play a big part of shopping this year whether I like it or not. So I guess all I can do today is to offer you something fun. Click on this video and enjoy “Straight No Chaser”… and relax….

Online Banking Is a Must Now

2009-11-16T07:51:00.000-05:00

We’re about to enter a new year and a new decade. It’s funny about new decades – they also seem like a fresh start – time to put the bad things of the previous decade in our memory chest and look forward to what the next 10 years will bring.

Remember Y2K? Seems like yesterday that many people were calling for the end of civilization. I remember thinking as a grade school student that when the next century arrived, I would be 43 years old and that seemed so far away. Now I’m wishing I was 43 again – particularly with the knowledge I’ve gained over the last 10 years.

So what will this new decade bring in terms of personal money management? One new direction I’m recommending is a change in attitude about online banking. I think we need to now view this as a necessity in our money management approach and no longer a luxury or “cool tool.” And with technology improvements and “apps”, mobile banking places the information right in your hands, anytime, anywhere.

With the changes in credit card usage and availability compounded with a higher level of debit transactions, we need to be more aware of bank balances sooner and not wait for the paper monthly statement. With the crazy configuration of overdraft fees and holds on transactions, you might be racking up unnecessary fees and losing money needlessly.

And since the use of plastic is an integral part of our world now – from subway tokens to coffee purchases – you better have a good idea what’s in your account before you swipe. And let’s not forget the fraud and card compromise potential with all of this swiping.

Here’s what I’m suggesting to kids that they do each morning:
· Brush your teeth
· Run a comb through your hair
· Eat a good breakfast
· Check your text messages, tweets & Facebook page
· Check your bank balance

Now go off and embrace the new decade and all of the opportunities it presents!

Don't Be a Lab Rat

2009-11-02T08:08:00.001-05:00

Amid mixed economic signals this month, banks have kept annual percentage rates on their credit card products unchanged this week, leaving the national average APR on new credit card offers steady at 12.28 percent, according to CreditCards.com

However, recently banks have indicated their desire to “experiment” with changes to the terms and conditions for their card products – ahead of the new regulations on the not-so-distant horizon. Translation: you better be reading the fine print material in your mailbox.

Annual fees for credit cards are a rarity today, but more cardholders may soon have to decide between paying them or forfeiting their cards. Bank of America this month said it is "testing" annual fees of $29 to $99 on select customers starting next year. Customers were chosen based on "risk and profitability," but the company has not explained how it decided who charged $29, versus $99, or anything else in between.

Citigroup also notified a "small number" of customers in August that they'd be charged new annual fees.

These “experiments” come as the credit card industry searches for ways to make up the revenue it stands to lose as a result of new regulations. As part of the sweeping new reforms that go into effect in February, banks will be limited in how and when they can hike interest rates and fees.

This has left card issuers to examine their portfolios for accounts that aren't very profitable - or so they claim. For example, the type of account most sited is those cardholders who never carries a balance -- and never pays late fees or financing costs.

However, the interchange fees from the transactions should at least account for the cost to carry the account on the books, so I’m not convinced that these accounts are unprofitable – translation – that they lose money. They just don’t make as much money as those accounts that carry balances.

I’m seeing stories of folks who get these notifications who say, “I’m just closing them out now.” If those closed accounts have high credit limits, that action negatively impacts your score – hence the point of an earlier post. Credit scoring needs to go – at least not be the deciding factor in lending anymore.

To be continued…..

Teens and Their Money

2009-10-25T18:42:00.003-04:00

In their 18th semi-annual national survey published by Piper Jaffray called, “Taking Stock with Teens,” they reported that total teen spending on fashion related items increased by two percent on a year-over-year basis and six percent sequentially, a notable improvement from the mid-teens percentage decline measured in the prior survey.

Surely the recession must be over now!

This spring, a collaborative team of research analysts the team visited 12 cities across the United States, surveying approximately 1,200 students with an average age of 16.3 years. In partnership with DECA (an international association of high school students), Piper Jaffray captured online survey responses from an additional 10,000 students with an average age of 16.2 years.

"We believe the fashion industry is in the early stages of a new cycle with traffic and conversion gradually improving as teenage consumers look to replenish key items in their wardrobes after under-spending on the category over the past three years," said Jeff Klinefelter, senior research analyst. In addition to year-over-year and sequential increases in fashion budgets, the survey found other spending trends such as shopping frequency improved versus spring and fall of 2008.

Do you still think that children are not a target for retailers? Arguable, the group with the least amount of financial education makes the best segment to work on that old impulse-buying, “gotta-have-it-now” mentality.

But wait, it gets better.

Piper Jaffray also surveyed parents, and the results indicate that spending on themselves and their teen increased sequentially and year-over-year. Apparel spending by parents for their teens was $1,141 compared to spring 2009 at $915 and fall 2008 at $1,085. Parents alluded to the fact that they felt they had to spend more on their teenagers because jobs for teenagers were more difficult to find and therefore, they can’t earn enough to support their lifestyle.

And the lawmakers think that the problem is credit cards ….

Will Credit Scoring Begin a Slow Death?

2009-10-19T07:48:00.001-04:00

Recently, my credit card company arbitrarily reduced the credit limit on my credit card account. After spending an inordinate amount of time weaving through the automatic phone prompts, I finally reached a human being who told me that my credit limit did not support my income.

“Really? And how do you actually know what my income is?” I asked. Never have I ever asked to update my income information nor any changes to my employment I have been a loyal customer of this account since 1995 – almost 15 years. Never late. Never over-limit. Carried balances. In short – I am a profitable account for them. . She could not answer my questions – because she was simply using a rubric to adjust credit limits on their accounts. This is an example of today’s loan officer?

I went on to tell her that I have a 30-year credit record, am a homeowner with plenty of equity, have has the same employment for eight years – previous employment was 13 years, and carry a savings balance. In other words, if you use the old-school “Three C’s of Credit” – I am a responsible borrower who has demonstrated a worthiness to sustain the credit line.

No dice. Not only was I thunderstruck by this response, I realized that now, my credit score has been adversely affected because the proportion of available credit to my card balance has been reduced – through no fault of my own. I am the same borrower today that I was before this action, but because some robot changes my credit line – and as such my score – I am now less “worthy.”

Credit scoring has yet to be put to the test in a poor-lending environment. Delinquencies are on the rise, foreclosures are continuing, unemployment levels are at 26 year highs. What this means is that credit scores for a lot of people are being affected. And without the common-sense lending approach of lenders who use to rely on experience and instinct, I’m not sure how credit becomes available again to help the economy turn around if we don’t abandon credit scoring and return to the “Three C’s” of lending.

More importantly – who’s left in the lending community that can do that anymore?

The Credit-Debit-Prepaid Card Message is Getting Messier – Part II

2009-10-04T22:38:00.001-04:00

So if you’ve taken the time read to Part I, thanks for coming back for, what Paul Harvey used to say as, “….the rest of the story.”

Perhaps you’ve been reading some recent articles about how some of the major banks are reviewing their overdraft policies and fees.

For example, beginning Oct. 19, Bank of America will no longer charge its usual $35 overdraft fee if a customer's account is overdrawn by less than $10 in a single day. It will also limit the number of overdraft fees it charges to four a day, rather than the current 10. U.S. Bank will also waive fees if an account is overdrawn by less than $10 and will limit the number of overdraft charges to three a day. Wells Fargo and Chase will stop charging fees if an account is overdrawn by less than $5. Wells will limit its overdraft fees to four a day, while Chase will stop at three. All subsequent transactions for each bank will be denied.

BofA, Wells and U.S. Bank will allow customers to opt out of their automatic overdraft-protection programs, meaning that customers can choose to have transactions rejected at the cash register if there are insufficient funds in an account. Let’s see how teenagers like that option the next time they buy a quarter-pounder at Mickey D’s and their card is rejected.

I think card issuers should charge overdraft fees for those transactions that place the deposit account in a negative balance. The fee allows the transaction to go through and saves the customer the embarrassment of having the card REJECTED at the register. It’s the consequence of not knowing what’s in your checking account.

However, as noted in Part I, when a previous merchant places a hold on the debit transaction without your knowledge causing future transactions to place the checking account in a negative balance and hence accumulating overdraft charges, that’s another story.

Somewhere in this equation, the cardholder has to have some responsibility in all of this. So here’s a thought.

How about we all get in the habit each day that after checking our Facebook page, and the tweets we follow, how about checking the balance of your account each morning and review the transactions that cleared the night before? Online banking is no longer a luxury, it needs to become part of our daily routine in order for us to manage who charges what in this world of swipe and run

The Credit-Debit-Prepaid Card Message is Getting Messier – Part I

2009-09-28T07:00:00.000-04:00

I was in a meeting last week with colleagues from the financial services arena. Each of them told a story about a family member or friend who recently ran into the nasty overdraft fee business from their financial institutions that are beginning to get some media attention.

During one of the stories, the individual mentioned that the person opened a separate debit card for cash purchases during the week such as gas, coffee, etc. I stopped her and asked whether in fact the person opened a checking account with a debit card attached or was he actually transferring money to a pre-paid account. The answer: it was a checking account and he transfers money each week for these “cash” transactions. He is actually budgeting his money by managing his spending.

The story went on to describe that at one particular convenience store, the store placed a $75 hold on the debit transaction of $3.50 (coffee and a bagel). This hold essentially placed the checking account in an overdraft situation and every small purchase after that racked up a $35 overdraft fee – a total of over $150 in fees!

Should he have used a pre-paid, re-loadable card instead? Maybe, but many of those have a slew of fees as well and they don’t carry the fraud protection of debit & credit cards.

Some of the large banks are now offering the customer the option to opt out of the automatic overdraft feature in order to avoid the fees that are getting so much attention. So in this case, that would mean that after the $75 hold was placed, every subsequent transaction would be rejected at the merchant. Like that one better?

The point is, we have to know more about the rules of plastic more than ever – and we have to help our kids understand the differences. The trouble is – we can’t even use the same semantics! Remember that in telling the story, my colleague said the person opened a “debit card.” I just recently received a $30 rebate from Staples from an item I ordered during the summer. The rebate came in the form of a pre-paid card with the words, “Debit” right on the front of it. And we expect kids to keep it straight?

Here’s a great article from Liz Pulliam on pre-paid cards and their fees.

The Lost Decade

2009-09-21T07:00:00.000-04:00

I’ve been hearing a lot lately that his decade will come to be known as the “Lost Decade”. It’s a label being attributed to how we’ve managed our finances during the past 10 years. Here are some stats:

1. The S&P began 2000 at 1,469 and is now 27 percent lower at 1,068. This decade trails only the 1930s as the worst in the modern investing era
2. In 2000, consumer credit outstanding in the U.S. (excluding mortgage loans) was in the vicinity of $1.5 trillion dollars. Now it’s in the neighborhood of $2.6 trillion
3. The Personal Savings Rate at the beginning of the decade was in the 2.5% range and we know that for most of this decade, this measurement was either at zero or was a negative number (except for the past few months when the mattress seemed like a better option).

I guess it’s a little hard to argue that this boom decade we experienced has really put us in a hole. Now with unemployment reaching early the 80’s level of double-digits, tha national debt at numbers our forefathers could never have comprehended, and an economy whose success and health is primarily located on the backs of consumers, maybe we are lost.

Who would have thought that Y2K would take 10 years to boot up?

Here’s a great article from Dave Carpenter, an AP personal finance writer http://www.miamiherald.com/business/breaking-news/v-fullstory/story/1242836.html

Top Ten Financial Myths Held by 14-21 Year-Olds

2009-09-14T07:00:00.000-04:00

Last week, the Consumer Federation of America (CFA) released a new survey revealing how parents view their responsibility, competence, and chances for success of financially educating their children. Little more than half (53%) of a representative sample of American parents (with children under 18 at home) surveyed, indicated that they were “very confident” their children will leave home knowing how to manage money.

As stated in their press release, “… only 73% said they were “very capable” of providing this instruction. And little more than half (53%) said they were “very confident” their children will leave home knowing how to manage money, credit, and debt.”

They also released the Top Ten Financial Myths Held by 14-21 Year-Olds

1. I don’t have to worry about credit at my age.
2. Bad credit can’t keep me from getting a job.
3. All loan companies have the same rates.
4. All credit cards are alike.
5. The job of financial advertising is to tell the truth.
6. It’s OK to bounce a few checks.
7. It’s OK to make minimum payments on a credit card.
8. Paying late occasionally can’t hurt my credit.
9. Fine print isn’t important.
10. Young people don’t have credit scores.

To see a video of the “Top Ten Financial Myths”

Discount Tuition

2009-09-07T07:00:00.000-04:00

A week or so ago, I was in a meeting with some financial aid administrators from local colleges. We started talking about this year’s admissions and what they were seeing from families and students relative to the current recession.

At one point, one of the gentlemen turned to the other and asked, “Do you guys discount your tuition?” The other fellow replied, “Yeah, we have to – everybody does.” This intrigued me so I asked them for an explanation. Here’s what they told me.

They said that for the past few years, they have “discounted” their tuition by offering larger amounts of scholarships to students in order to attract them to attend their institution. Okay that makes sense. But they went on to say that parents like the “bragging rights” of saying that their kid received a large scholarship to attend the school – implying that the kid is something special and the school really coughed up the money to get the kid to attend.

Not really. What the schools are doing is inflating the tuition cost, “providing” larger scholarships giving the appearance of a good subsidy, and getting families to pay the tuition to attend their school.

My question to them was, “You mean to tell me this is like the MSRP of a new car? ” The answer: “Exactly.”

My next question was, “Why not lower the tuition for everyone and the price to attend is the real price.” The answer: “Then parents wouldn’t feel the pride of their child getting into a “prestigious” school.”

I have to admit this is clever marketing and sales. Don’t ever try to tell me that higher education is not a business. It’s always about the dollars.

We still have a long way to go …..

Now About the Housing Market…..

2009-09-02T07:30:00.002-04:00

I know – you’re sick and tired of hearing about the housing market and its impact on our economic revival. I bet you never want to hear the words, “sub-prime lending” or “credit default swaps” or stuff like that ever again.. You probably don’t want to read another blog about it either, but before you take off, here’s a personal story from me.

My Dad passed away in 2008. Like many others in his generation, he only owned one house which was built in 1955. It’s a small four-bedroom (yes, four), 1,300 sq. ft. cape in a central New Hampshire community. It sits on a typical town lot with an additional lot in the back yard. On the same street is an elementary school. Only one family has lived in that house – mine.

As an old banker who has sold plenty of bank-owned properties back in the day, I look at this property that I am now selling and think this is the perfect “starter” home for a young family. Well built, good neighborhood, school nearby, added lot for the children to play, etc. etc. And yet, because of the financial culture we’ve lived in for this decade, here’s what I’ve learned:

Most young couples want to live in the suburbs – the idea of a property in town is out of the question
1,300 square feet is simply not enough – “Where would the plasma TV go?”
“The driveway only fits one car!”
And I won’t even mentioned the comments that made my blood boil.

Funny thing is, given the fact that lenders have clamped down on loan qualifications (see this blog post in February), and down payment requirements, most young couples don’t have enough disposable savings to meet the requirement. One couple in their mid-thirties would like to have my Dad’s home but can’t come up with the 10% down payment of $17,000. And even if they could, their debt load is so great that they couldn’t maintain the property even if they got the loan.

So I guess I’m just wondering how the housing market is going to bounce back with this level of unemployment, deteriorating credit histories, tighter credit standards, and a growing list of foreclosed property. And what about buyers' expectations?

I’ll keep you posted on the progress of selling my childhood home.

Will Layaway Be a Key to Changing the Spending Culture?

2009-08-30T20:07:00.000-04:00

The whole idea of layaway started in the ‘30’s – consumers who saw something they wanted but didn’t have the money to buy it would put a down payment on it and pay the merchant periodic payments until it was paid for. Then the merchant would release the item to the customer.

Of course, that was before credit cards and the whole buy-it-now-and pay-for-it-later culture that we’ve been in for the past 15 years or so. Add in our growing level of cynicism and memories of retailers suddenly going out of business (remember Circuit City last Christmas?) and you can easily see why layaway has gone the way of the do-do bird.

In 2006, Wal-Mart discontinued its layaway service saying that “the layaway process has really become very obsolete." Wal-Mart said demand for the service had dropped off, as consumers increasingly rely on credit cards and gift cards to pay for purchases. The idea of waiting to complete a purchase was no longer attractive.

Not so fast.

While economic conditions are beginning to look up, Kmart realized that the tough times aren't over yet and some families may be experiencing anxiety in regards to making back-to-school purchases. From school supplies to new clothes, back-to-school shopping is an added expense that can strain an already tight budget. Kmart's layaway program enabled moms to plan ahead for worry-free back-to-school shopping. Moms can use layaway to reserve "hot" back-to-school items early, pay over time and pick them up in time for school.

Of course, there is--you knew it was coming - -a website that will let you buy just about anything you want on layaway: Check out eLayaway.com. As it says on its site, it "allows you to buy the products and services that you want by paying for them through manageable monthly payments that you set." They have a calculator that will let you figure out the purchase price over 3 to 13 monthly payments. Payments are automatically deducted from your bank account every month. The fee for the service is 1.9% for every $100 you spend. Once you've paid for your TV, shoes, your fishing reel -- you can buy about anything -- then it's delivered.

Shopzilla has a new campaign called. “Layaway Black Friday.” You have to wonder that as the new credit card rules kick in during the coming months, will we migrate to a save-to-spend mentality?

Curious minds want to know…..

Back to School and the Power of Parents

2009-08-23T13:51:00.002-04:00

It’s that time of year already – back to school. With the abundance of “teachable moments” these days, will this be the year when parents step up and insist that schools include financial education as part of the school curriculum? In light of the current economic condition, can we agree that a financially educated populace would have mitigated some of the devastating results of the current recession?

It might surprise you to know that New Hampshire is the only state in New England that has a graduation requirement for Economics. And embedded in the curriculum framework for that requirement is a standard for personal finance. The details are posted on the NH Department of Education’s website under the Curriculum Frameworks for Social Studies.

And yet, exactly how this requirement is met is left to the discretion of each school district. In many cases, since Economics falls under the Social Studies discipline, this curriculum is often taught by history teachers with little training in economics. Compound this with a lack of assessment testing for social studies and we’re left with a wide disparity within the state on how our children are taught any elements of money management.

Parents hold the key to this. There is a hierarchy to education and school boards take their marching orders from the parents in their communities. If parents want a higher emphasis on personal finance in the classroom, then they need to tell their school board. The state requirements and frameworks are in place; school boards do not need to reinvent the wheel to accomplish this. Their role is to manage and allocate resources to accomplish the desires of the community.

Resources. This word is often used as the argument on why we can’t do something. However, when it comes to the topic of personal finance, the argument is weak. There are vast amounts of personal finance curriculum available to educators and school districts that are either no cost or low cost. At the Jump$tart Coalition Clearinghouse, there are well over 700 types of curriculum and teaching materials – 45% of which can be downloaded for free. We at NH Jump$tart know from direct experience that teachers want to teach this valuable life skill to their students. We train over 150 teachers each year at our annual teacher conference. If teachers want to teach personal finance and there are plenty of available teaching materials to accomplish that, then what is the problem?

The realities of today have created the perfect teaching moment to have with our kids. Show them that old-school thinking of not spending more than you make, saving for a rainy day, and pay yourself first are the best ways to get through good and bad times.

Kids are facing a more financially-complex world than we ever could have imagined. Having a strong understanding of personal finance is critical to their future. Parents: the power to make a difference is in your hands.

Prom Season - Circa 2009

2009-05-17T21:34:00.001-04:00

Prom season is in full swing and some families may be affected by the loss of money in their wallets. The country’s current economic situation may not have been foreseen when initial prom planning occurred, but like everything else these days, reality can sometimes hit hard. Many may have been asking themselves, “How much did they spend on that dress?” It is a fact that students and their families do spend quite a bit of money on Prom, but to what, exactly, is this large sum of money going?

For girls, the main expense is the dress--along with other extras such as manicures, pedicures, hair styling, tanning, make-up, and flowers. This year some girls spent well over $300 on a dress for Prom. Some may have spent much less than $250, but in most cases, the dresses seen at Prom usually came with a considerably large price tag. Accessories are also an additional expense. This category may consist of gloves, tiaras, jewelry, shoes, purses, etc.

Another prom cost is grooming, which includes manicures, pedicures, styled hair, make-up and tans. Some girls may spend as much as $100 to simply get their hair highlighted and styled for the special event. A manicure costs around $20, and a pedicure costs around $25. Needless to say, these extra costs add up.

For boys, renting or buying a tuxedo or suit can be quite costly. This year, some boys spent around $100 simply to rent a tux. If someone decided to buy a suit to keep, it may have cost them upwards of $180 on sale. Added costs may include ties or bow ties (around $12), hats, belts ($30), shoes ($45), and other accessories.

For all prom-goers, flowers, transportation, and dining are additions to the total expense.
Regarding transportation, some teens rent limousines to get around for the night. For a smaller limo, each person in a group of six may spend around $60, if the group splits the cost. Renting a larger limo will cost even more, depending on the number of passengers and hours of usage. Some students prefer not to overburden themselves with the extra cost and, instead, use their own vehicles. In that case, the price of gas would be their main expense.

Needless to say, Prom has its expenses, but, of course, everyone enjoys a bit of luxury once in awhile. A fun time is usually had by all who attend, and memories are made.

The Science of Lending Money

2009-05-08T07:58:00.004-04:00

As we are painfully aware now, there is a complex science to lending money. In the old days, though it was still a science, it also had an element of art. Why do you think one of the original Three C's of Credit was "Character"? Lenders had to evaluate the trustworthiness of an applicant during the loan interview. It wasn't a science - it was an abstract ability to decide whether you felt the money you were about to lend would be paid back as agreed.

Of course, in those days, the funds that bank received in order to make loans came from bank deposits. It was pretty simple - the more money you took in deposits, the more you could lend out.

Things are different today. Here is a video that visually captures how the current credit crisis evolved. I introduced it yesterday at our annual MoneySmarts teacher conference and the teachers told me that it is succinct way to help kids understand the complexity of the terms being thrown around in the news. See what you think.

One final point - whenever we get out of this recession, we need to remember the flow of money will have to be some variation of this. The old days are not coming back.

The Credit Card Crossroad

2009-04-24T09:21:00.002-04:00

I’m a guy who has managed credit card portfolios from almost the beginning - (well not really the beginning – I’m not THAT old for Pete’s sake). My beginning is from the mid-80 – when credit cards really started to take off. As such, I was very interested to listen to these reports about how the new administration wants to "protect credit card users."

We forget that the genesis of credit card usage was the early 80’s during that last real recession. S&L’s were crumbling, the real estate market was deteriorating and interest rates were at historic highs. The Prime Rate was in the 16-17% range. There was virtually no investor market for loans, so banks could only make money on the interest rate spread between what they paid in deposits and what they earned in loans. With deposit rates near the prime rate, they were few opportunities for banks to lend money unless borrowers were willing to borrow in the 20% range.

Congress made some sweeping changes to credit card regulations which allowed banks to offer credit cards on a more liberal basis. Remember, this is at a time when the technology didn’t support it very well. Does anyone else remember when merchants had to look in a paper book, issued weekly by the bank, to see if the credit card number being presented was good?

As technology improved and point-of-sale authorizations became electronic and easier for merchants, the acceptance of credit cards in our daily commerce grew and grew. And so did the profits. Managed appropriately, credit cards can be very profitable but it is a delicate balance which requires simple math. If the delinquencies grow and losses increase, the situation can be masked by increasing portfolio balances. This is because credit card issuers are evaluated on their percentage of losses against their total outstanding balances. The higher the losses, the more balances you need to keep the percentage the same. Simple math.

How do you increase portfolio balances? By increasing credit lines, lowering the credit standards, improving technologies to encourage more usage. Before long, an entire cultural shift occurred when credit cards became part of our daily buying habits and the collective debt levels increased. By the time the Internet arrived in the late 90’s, we were quite used to buying stuff with plastic and the prospect of using that plastic to buy stuff throughout the world using our own computer would propel us to the debt-ladened society we are today.

Along the way, the regulators and consumer advocates have attempted to “help” the consumer by requiring more credit card disclosures. The reason we now have the “fine print” disclosures is that the government has forced the credit card companies to increase the amount of disclosure information over the years. To now call them on the carpet and demand easier disclosures is a wee bit disingenuous in my view.

Regardless, I cannot argue that change is needed. But for me, the change needs to start at the fundamental cultural level – changing this buy now, pay later mentality. And of course, financial education remains the best defense while Congress, the regulators, and the credit card issuers all try figure out how to play nicely in the sandbox.

Do We Believe Yet?

2009-04-20T20:01:00.003-04:00

After 10 years of preaching (or screaching depending on your prespective), it really stikes me these days how financial education is being promoted as essential for Americans to survive in the current economic climate. Chairman Ben Bernake said that we need to sharpen our financial skills - especially in the current economic crisis. Here's a recap of what he said today: http://www.msnbc.msn.com/id/30308921/

See, I actually believe that financial literacy is essential regardless of the economic climate. And, I think I have made the point in the past that financial education, though most likely would not have prevented this crisis, it certainly would have made it a tad bit softer. Which is why we continue to fight the fight to have personal finance a required course in schools.

Only 3 states in the United States have this requirement. Do we believe yet that the time has come? I actually think we may lose ground on this front. I'm reading all kinds of articles about school districts having to cut back on teaching staffs in order to meet budget requirements. Federal and state mandates restrict what teachers can do in the classroom. I get the circular - chicken vs. egg argument - but when do we reach the point when we as parents say that preparing our children to be financially savvy is better for them then knowing how to calculate a quadratic equation?

Playing the Game Means Keeping Score

2009-04-13T07:39:00.000-04:00

One of the things I battle as part of the natural course of aging is staying aware of the speed of change. And with all things associated with getting older, speed keeps getting faster.

So too with the today’s world of credit. So here we are, in a fairly significant recession, and I’m thinking things will be like they were during the last significant recession in the early 90’s. Not so fast old man.

Today’s lending is credit score-driven. There has been too much investment in technologies and innovation to go back to the days of lenders considering the “character” of the old three “C’s of Credit.”

Nope – it’s all about the score. As people react to the recession by curtailing impulse buying and other spending, we need to be careful that our effort to cut spending doesn’t adversely affect our credit standing at the same time. To emphasize the different financial world we’re in these days, setting your credit cards aside and paying only with cash may be a great way to help rein in spending, but it can actually hurt your credit scores.

Read this interview of a pal, Liz Pulliam Weston, who is one of my favorite experts on credit scoring.http://www.msnbc.msn.com/id/30074146

In Case You Think I'm Way Off Base....

2009-04-08T07:00:00.001-04:00

It's easy to be a town crier - "the sky is falling!" and all that. I've been saying that the job market will soon be turning evil for younger people and that an employers market will soon be upon us - just like when I graduated from college in the late '70's (egads - can it really be over 30 years?)

Anyway, that employers market helped to frame my generation into thinking that working 80 hours a week was necessary because in the beginning, if we didn't work them there would be a line of people waiting to take our jobs who would. As time went on, we thought the insane hours were leading to a first-class ticket up the career ladder.

Simultaneously, we gave our kids everything and rewarded them for everything. This is the generation that received a trophy for playing T-ball. It was all about making our kids feel good because we felt guilty for being away so much at work.

Now they're entering the workforce after going to college and racking up some serious debt. It's a rude reality and there is nothing we can do to take it away this time. Click on this segment from tonight's Nightly News with Brian Williams.

April 7: This year's college graduation class, the largest in American history, is entering the worst job market in modern history. NBC's Maria Menounos reports. http://www.msnbc.msn.com/id/3032619/vp/30095684#30095684

It's "I Can Save Week!" - Can You?

2009-04-06T06:24:00.003-04:00

Last year, we decided that for the first time since our existence here in New Hampshire, we would develop an initiative for elementary school children. We call it, "I Can Save!" and this year we partnered with Fidelity Investments to tour various elementary schools throughout the Granite State.

We will be visiting second graders and after showing a brief presentation about needs & wants, we will be giving them Moonjar moneyboxes.

Winner of a 2004 Global Learning Initiative Award for Educational Excellence, each Moonjar consists of three moneyboxes (Spending, Saving, and Sharing), a family guide to get started, a passbook to record deposits and withdrawals, and a NH Jump$tart elastic band to hold the assembled boxes together.

I'm beginning to think that changes to the spending culture we now live in (which took almost 20 years to cultivate) can only be done with the next generation on consumers - today's elementary school children. Can they get us back to a lifestyle of not living beyond our means - saving money to buy stuff instead on buying now and hope to pay it back later - and an approach that focuses on the future rather than the present. Not sure - but that's what we're trying to do with the "I Can Save!" tour.

Saving - Spending - Sharing. Concepts we can all live by.

Can YOU Have the Talk?

2009-03-26T07:00:00.000-04:00

Parents and kids talking about money. Now that times are challenging, it seems that more attention is being paid to this very specific topic. I have been pleading with parents for years to talk to their kids and to help them to lean the importance of being financial literate. Who knew it would take the worst economic condition since the Great Depression to get people’s attention.

Read this article and the over 40 comments – it’s a study into the culture of how and why we’re in the situation we’re in. http://consumerist.com/5184101/whats-harder-having-the-money-talk-with-your-kids-or-your-parents

Credit Card Limits On the Downslide

2009-03-25T07:00:00.000-04:00

There seems to be growing outrage by some borrowers who are being notified by their credit card company that their credit lines are being reduced. This specific group that I am referring to is that group of borrowers who pay off their balances in full each month, never miss a payment, never come close to charging up the maximum limit on their credit card accounts, etc. etc.

These borrowers, with presumably very high FICO scores, are understandable upset by this action and perceive it as a negative consequence for being responsible. The truth is that the action really has nothing to do with them. Like the famous line in the movie, “Casino”, “…it’s always about the dollars.” Let me explain.

Credit card issuers have to account for the available credit line amounts for each of their credit card accounts. The aggregate amount of the unused lines has to be identified and the corresponding amount of cash has to be set aside as a reserve. This reserve impact the available amount of new money that the issuer can use for new accounts. For example, if your credit card account has a $5,000 limit and you presently have a balance of $1,000, the issuer has to make sure he sets aside $4,000 in case you go out on a shopping spree. That $4,000 that cannot be given to another customer.

It’s in the issuer’s best interest, particularly in this current climate, to reduce the total unused credit in order to have enough cash to meet operating expenses and to set aside cash for anticipated loan losses. Accounts that pay off their balances each month or use their credit card infrequently will be targeted first. In these uncertain times, you should keep a close eye on this – you never know when you might need that credit line for an unexpected emergency or to fill in a cash flow gap.

It’s always about the dollars….

Credit Scoring to a New Level

2009-03-24T07:00:00.000-04:00

In a recent survey by Match.com, 84% of the respondents said that a person’s credit score is now an important element in determining whether they should begin a relationship. Remember the days when someone would say, “He/she’s not much to look at, but has a great personality!” I guess love is a little more complicated today.

I never thought as I pound the pavement extolling the virtues of financial education, I would include relationships as a reason for understanding credit scoring. I guess as long as it gets young people taking the time to understand the impact of a good credit score; I have to say – whatever.

Yet, as an old-fashioned romantic, if the day comes when prospective couples begin disclosing debt-to-income ratios before accepting a dinner reservation – I’m going to have a problem. I may be a little over the top most days regarding financial education, but I don’t think Cupid should carry a calculator….

http://multimedia.boston.com/m/22016000/find_love_with_your_credit_score.htm?pageid=3

When the Credit Markets Thaw

2009-03-16T20:34:00.003-04:00

Today we will hear about the government’s plan to buy up the toxic assets from various banks. The idea is that this will allow banks to begin lending again. Examples being reported in the media are small business loans, capital loans, mortgage loans, and education loans. I still don’t have answers to my over-riding question.

What credit standards and qualifications will be used to lend money going forward? Will the sale of these “toxic assets” really mean that people can borrow money again for houses, cars, credit cards, student loans? I’m not convinced.

Don’t get me wrong, I think getting these toxic assets off the books is a good idea – we did it before during the S&L crisis in the late 80’s; we experienced it here in New Hampshire in the early 90’s when the FDIC came in and took over many of the well-established banks and liquidated their toxic assets. The process over time, works.

No, I’m talking about two things – reserve for loan losses and credit standards. When banks sell their loans to the secondary market (like mortgage loans), there isn’t a need to set aside money for loan losses because they don’t own the loan (the investment banks like a Lehman Bros or Merrill Lynch owned then – hence their demise). They do however; many times own the loan portfolios for their equity loans, consumer loans (auto & personal) and credit cards. The delinquencies on these portfolios are also rising and will most likely be the next shoe to drop. To protect themselves, banks have to set aside enough cash to account for their projected losses on these portfolios (called loan loss reserves). This in essence, reduces the amount of available money to lend for new loans.

As far as credit standards are concerned, we live in such a credit-scored world, it’s fair to assume that credit scores are universally declining due to the unemployment rate, higher delinquencies and foreclosures / repossessions. Will these folks be locked out from borrowing new money? Will lending institutions be forced to reduce lending standards to accommodate this growing set of borrowers? If not, will increased lending to only those borrowers who meet a higher standard be enough to lift the economy from its present state?

Curious questions from a former lender….

A Wake Up Call for the Class of 2009

2009-03-11T07:00:00.001-04:00

In another 6 weeks or so, we’re going to start seeing the wash of commencement ceremonies on college campuses across the nation. Towards the end of May, we’ll be seeing on the news a video compilation of all of the impressive commencement speakers from former Presidents to celebrities, to journalists to sport heroes. And the theme will be something like, never stop dreaming – reach for the skies and follow your potential.

OK, so here’s the deal. Unemployment right now is over 8% - who knows what it’s going to be by Memorial Day. There are also 1.5 million college students from the Class of 2009 graduating this year. Get the picture?

You are now going up against applicants with a great deal more experience than you and possibly, a lot more motivation to take a lower paying job. That doesn’t bode well for you if your plan is to send out resumes, apply through online postings, and follow the process that we have come to expect when it comes to finding a job.

Nope – this year college graduates need to focus on folks who already have jobs to help them get in the door. And I’m not just talking about that 90’s thing we used to call “networking.” I’m talking about talking – talk to everyone you know – the dentist, doctor, pizza delivery guy, hair stylist, friends, family members, former bosses, etc. Anyone who might know someone who knows someone who might get you in the door.

Like it or not, this year it’s going to pay to know someone, so start talking.

It's LifeSmarts Day in New Hampshire!

2009-03-10T07:00:00.000-04:00

Today is the 6th annual NH LifeSmarts State Championship. I LOVE LifeSmarts because when you find content that appeals and engages teenagers, you’re on to something. LifeSmarts does that. LifeSmarts is a powerful educational opportunity that teaches teenagers in Grades 9-12 to be smart, responsible, and successful consumers.

Today’s competition will be an exciting seven match elimination tournament using a game show/quiz bowl format. The Question Masters for the State Championship are Kelly Ayotte, NH Attorney General; Jerry Little, President of the NH Bankers Association, Joe Murray, Director of Public Affairs from Fidelity Investments; and Scott Guild, Director of Economic Education from the Federal Reserve Bank of Boston.

Six teams compiled the top scores and earned the right to meet for the state crown after several weeks of study and on-line competition. The State Champion team will travel to St. Louis to compete in the National competition in April, with all major costs being defrayed by NH Jump$tart, through the generosity of the NHHEAF Network and Sovereign Bank. In addition, Southern NH University will give each member (4 players plus 1 alternate) of the winning team of the NH LifeSmarts Championship a $5,000 renewable scholarship should that student choose to attend SNHU.

LifeSmarts focuses on five key areas of consumer knowledge teens need to function safely and profitably: Personal Finance; Health and Safety; the Environment; Technology; and Consumer Rights and Responsibilities. Teens gain a solid understanding of their rights and responsibilities and workplace protections, and develop teamwork, self-esteem, verbal communication skills, leadership abilities, and at the same time have fun competing.

Come and watch the action at Robert Frost Hall at Southern NH University today from 9:00 am - 2:30 pm.

Who Will Be the Boss Now?

2009-03-09T07:00:00.000-04:00

Jobs, Jobs, Jobs. The biggest fear I had last August was the issue of the job losses that were being predicted for the fourth quarter of 2008. Even those predictions never came close to the 8.1% level reported Friday. My fears had everything to do with the correlation of our economic health to consumer spending. If people aren’t working, then spending goes down and the economy begins its wobble.

This reminds me of my own experience in the early 80’s when unemployment went over 10%. At that time we called it an “employers’ market.” Now in retrospect, it also defined a generation of workers (yes, the Yuppies) that believed that working 70-80 hours a week was the way to pay your dues in order to climb up that corporate ladder. The result was the necessity of a 2-income family, young parents trying to hold it together by working these insane hours, never saying “no” to the boss, raising a family and figuring out who you were – all at the same time.

In those days, employers would tell you that if you didn’t like something, feel free to leave because there were “10 people waiting in line waiting to take your job.” Now compare that to say, 5-6 years ago when college graduates were receiving signing bonuses even before they received their degree!

I’ve got a feeling that we’re headed back to that “employers’ market” mentality. It will be a world where the boss tells you what to do, what to wear, when to leave, and much you will earn. For those who have been working in the best of times these past 15 years, it’s going to be an adjustment to learn how to keep your gripes to yourself and keep your job.

Turning Back the Clock

2009-03-06T07:00:00.000-05:00

Yeah, this is the weekend where we lose an hour of sleep. So what? According to the news, we aren’t sleeping anyway. And if we don’t pick ourselves up pretty soon, we won’t be sleeping for a long time.

My father always had an interesting expression for longing for the “good ol days”. During those conversations, he would say, “If only we could turn the clock back.”

Well if we could, what year would you like to revisit? Just for the purposes of this post, how about if we choose 1999? That might have been the best economy I experienced in my adult life. Why?

The NASDAQ increased by over 85% that year
The unemployment rate was at an 8 year low (4.1%)
Interest rates were at their lowest levels in 30 years
The Dow Jones closed at 11,000 at the end of the year
Personal bankruptcy filings declined to 1.2 million filings
Dot-com’s were sprouting all over (does anyone remember the Super Bowl ads that year?)
People were buying RV’s, boats, campers, in record numbers
A whole new industry was created surrounding the pending doom of Y2K

Things came crashing down just before 9-11 and then took a hit after that tragic event. But we came back, and we enjoyed unsurpassed prosperity for most of the decade. Sure we created problems and greed reared its ugly head. The point is, we have a history of taking a blow, picking ourselves up, and move on. We will do it again – I know it.

Sometimes turning the clock back and taking a peek isn’t so bad after all…

"Just a Few Questions, Your Honor..."

2009-03-05T07:00:00.001-05:00

Yesterday the US Treasury announced the much anticipated details of the Obama loan modification plan. This program is the broadest program to date targeting foreclosure prevention. The Home Affordable Refinance program is projected to provide government assistance to 7 to 9 million homeowners. The mortgage modification plan is focused on homeowners that have a solid payment history and have their loans owned or serviced by Fannie Mae or Freddie Mac.

The new government refinance program is expected to help homeowners that are unable to refinance in a traditional manner due to significant losses in home equity. The economic depreciation of most housing markets has driven loan to value ratios much higher than the customary 80 percent required to refinance.

Millions of borrowers are facing pending hardship because of job loss or resetting adjustable-rate mortgages. The Home Affordable Refinance program is designed to efficiently renegotiate these mortgages into less risky 30-year fixed-rate loans taking advantage of low mortgage rates to lower monthly payments.

Early details of the government mortgage modification program include these eligibility guidelines:

Mortgages were originated on or before January 1, 2009
Loans must be first-lien loans on owner-occupied properties
Principal balance must not exceed $729,750. Higher limits for owner-occupied 2-4 unit properties
Borrowers must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax return, and must sign an affidavit of financial hardship
Property owner occupancy status will be verified; no investor-owned, vacant, or condemned properties
Incentives will be provided to lenders and servicers to modify at risk borrowers who have not yet missed payments
Loan modifications will begin immediately and be available until December 31, 2012. Loans can be modified only once

Here are my questions:

How easy will it be for homeowners to find out if Fannie or Freddie owns their mortgage? When was the last time you tried to get a final payoff of your mortgage? Be prepared to have your patience tested.
What is the definition of a “solid payment history?” Never been late? Currently no more than 30 days past due? How about “Now current, but was 90 days past due in the last 12 months.”
How will the borrower’s credit report be impacted? Back in the day, when I did a zillion loan modifications in the early 90’s, we actually had to change account numbers on the loan record so that the new loan terms would be accurately reflected on the borrower’s credit report going forward. (With credit scoring so essential in today’s lending world, this is a key question for me.)
How quickly can this get done? Will Fannie / Freddie freeze the credit reporting of the loan while it travels through the modification process?

I’m just asking….

Let's Hit the Lottery!

2009-03-04T07:00:00.002-05:00

According to the Massachusetts State Lottery, as of 1:00 pm yesterday, 3,500 tickets a minute were being sold for the $212 million jackpot, so you shouldn't be surprised to hear the odds of winning the jackpot were 1 in 175,711,536

Have these folks heard there is a recession going on? Yeah, I know – I hear all of the rationalization – “I’m helping the economy,” “I so down in the dumps that I need to try something,” What if I hit it big – then I don’t have to worry about my job.”

Look, do what you want – it is still the United State after all and we are free to do as we please. My point here is to watch how your kids are processing your behavior.

Kids love lottery tickets – for them it’s their first class seat to success. Why do you think online gambling was such a hit a few years ago on college campuses? Before you blow $100 on lottery tickets and then tell your kids you can’t afford to buy a pizza this week – think – think – think.

It bears repeating and repeating and repeating, These times are teachable moments – good & bad. Remember – your kids are watching you….

The 2009 College Graduate

2009-03-03T07:00:00.001-05:00

Man, with all of the gloom on the news lately and this constant reference back to the 90’s when these various market indicators were at the current levels, I started thinking about the kids who will be graduating from college this spring. What will their job prospects be? With their student loans beginning repayment, how are they going to do?

I decided to look back 11 years and see what the 1998 college graduating class faced. Internet commerce was beginning to take off, Y2K was 18 months away & President Clinton was facing impeachment. Those were crazy and uncertain times too.

Take a moment and read this article from 1998. Those graduates are now 32 & 33 years old and have been working in some pretty good times. What advice would they give to this year’s graduating class?

http://articles.latimes.com/1998/aug/20/news/mn-14945

Parents - It's Time to Speak Up!

2009-02-27T06:30:00.000-05:00

In the president’s FY 2010 budget proposal that was unveiled this week, President Obama proposes extraordinary increases in the programs that best serve students, and takes the most important programs out of the appropriations process. It also includes some striking changes in some of the federal student aid programs--most notably, the elimination of the Federal Family Education Loan (FFEL) program--by the beginning of the 2010-11 academic year.

The budget proposal supports a $5,550 Pell Grant maximum award in the 2010-2011 school year. The Administration will index Pell grants to the Consumer Price Index plus 1 percent, in order to account for inflation in this sector. In addition, the Administration proposes to make the Pell Grant program mandatory to provide a regular stream of funding and eliminate the practice of "backfilling" billions of dollars in Pell shortfalls each year.

The FFEL program "needlessly costs taxpayers billions of dollars" and has "subjected students to uncertainty because of turmoil in the financial markets," according to the budget proposal. The president’s budget recommends the elimination of the FFEL program and the origination of all new loans through the Direct Loan program. The budget proposal estimates a savings of more than $4 billion a year, and reinvests it in aid to students. Collections and servicing of loans would be outsourced to multiple private sector contractors.

What the heck? The FFEL program did not “subject students to uncertainty because of turmoil in the financial markets” - the uncertainty came about when the auction rate security markets went in the crapper. Are we to believe that the measly $5,500 FFEL loan maximum causes stress to students and families when the average tuition is over $25,000?

The elimination of the program also means that local entities, like our valued NHHEAF Network, would no longer be handling student loans. All new loans would be originated through the Direct Loan Program. Folks, the Direct Loan Program is administered directly from the Federal Government. Do you really think the Government can handle your child’s student loan effectively and efficiently? This is a nightmare waiting to happen.

One more thing – the idea of having the loans serviced by a number of servicers will create a nightmare for your kids when it comes time to start paying these loans back. How would you like to receive multiple monthly bills for each of the loans you take out (2 per year) for each of the 4 years you went to school? Who gets paid first? Who answers your questions? Ugly, ugly.

And why it is that we continue to talk about Pell Grants, and tax credits, and loan programs, but there is never any discussion about reducing tuition costs? How is it that colleges & universities get a pass on that?

Parents – it’s time to step up and contact your Congressional delegation and make your voice heard.

In Defense of Our Local Banks

2009-02-26T07:00:00.000-05:00

What troubles me a little these days is that the doom & gloom from the media and public anger against the “banks” is dragging down the good practice and reputation of your local bank. Are we reaching a point where the local banker will have to wear sunglasses and a baseball cap as a disguise to go to the grocery store?

Much of the crisis in the financial sector can be traced directly to “investment banks.” Oh sure, there have been regular banking institutions that have participated in questionable loan practices, but it’s unfair to paint the entire system with a broad brush. So what is an investment bank? Here’s my definition:

Financial institutions that help corporations issue stocks and bonds in order to raise money. Unlike regular banks, they do not accept deposits or make loans. Examples of investment banks: Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers (oh yeah, they’re all gone).

The complex thing here is that the mega banks like Citi, Bank of America, etc. also dabbled in investment bank activity and as such, made a ton of money like everyone else and now many of the investment decisions are being questioned. It also doesn’t help that the greed of the big players is being played out on the world media stage.

Yet, I still maintain that it is unfair to do a tribal hate dance on all of our banks. Here in New Hampshire, our banks and credit unions are very strong and willing to lend money to qualified borrowers. Noticed I said “qualified.” This is how they lend their money. This is how they have always lent their money. In the past few years, because of competition with sub-prime lenders and other non-bank lenders, borrowers demanded that their banks give out loans even though they did not qualify under formal guidelines. Those loans ultimately ended up in the investment market - by investors driven by their own greed.

I’ve been angry about this for over 10 years. And it has created a culture where we have stop saying “No” because we found new ways to say “Yes”. But let’s not lump our local banks into the mix as we, as a nation, look to affix blame and enact change.

It's a Bird! It's a Plane! It's a Gift Card!

2009-02-25T07:00:00.000-05:00

Industry analysts say some $9 billion in gift cards sold last year still have not been spent. These days, a lot of people would rather have a few extra bucks in their pocket than a shopping spree at a book store.

Here's the good news: several websites are now offering cash for those unused cards. Sites like www.Giftcardbuyback.com , www.PlasticJungle.com and www.Swapagift.com are just a few sites that will buy your cards. Just punch in the value of your gift card and it will tell you how much you can get for it. You won't get the full value of the card, but it is still money you can spend anyway you like.

Promotional gift cards have had significant appeal to retailers looking to attract new consumers, but one of the major shortcomings about the form of plastic is that most card holders remained anonymous. This made it impossible for merchants to promote to the card holders and drive redemption rates. A new media platform successfully tested with a regional shopping mall could re-write those rules.

Currently in beta testing from a provider called Dukky, the new media platform is expected to deliver redemption rates up to 30% higher than traditional coupons or direct mail promotions, according to Scott Couvillon, president of Dukky.

The new platform allows consumers to choose from a group of targeted gift cards within one direct mail or Internet offer. Consumers are prompted to activate only the offers they plan to use, and direct which future offers they want to receive. Each card includes a unique activation code for individual consumers, which allows the retailer to track interest and redemption. The cards also are printed with the bar codes that correspond with the retailers’ internal POS systems. The retailer gets to know you faster this way.

Click here to list of listing of state laws regarding gift cards. It pays to be informed.

http://www.consumersunion.org/pub/core_financial_services/003889.html

1997

2009-02-24T07:00:00.001-05:00

The news reported yesterday that the Dow fell to its lowest point since 1997. So I thought I would go back in time and see what life was like in 1997. Here are some of the things I found:

Unemployment in the United States was 4.7%
Over 1.3 million Americans filed bankruptcy that year. (By comparison, over 2 million Americans filed in 2005)
This year’s college freshmen were 7 years old
England handed Hong Kong to China
Scientists cloned Dolly the sheep
A mass suicide in which 39 members of a "Heaven's Gate Cult" in California killed themselves thinking they would be sent up to a spaceship behind the passing Hale Bopp comet. Strange and sad story.
OJ Simpsons loses civil suit for wrongful death
Timothy McVeigh is found guilty of bombing
Mars Pathfinder lands on Mars
Princess Diana was killed in an automobile accident
The comet Hale-Bopp is first spotted. It was considered to be the greatest comet in the 20th century. About 80% of Americans saw it without a telescope.
4 New York City police officers assault Haitian immigrant Abner Louima while in custody.
Fashion designer Gianni Versace was murdered
Tony Blair becomes prime minister of Great Britain in a landslide election victory ending 18 years of Conservative rule.
On 2 July, the devaluing of the Thai baht triggered off the currency crisis, which devastated the many Asian countries' economies in ensuing months.
Titanic opened in 1997 and became the BIGGEST Total Box-Office Film ever in film history with over 1 Billion dollars and also became the movie with most Academy Award totaling 13
Harry Potter was published in 1997 and written by J.K. Rowling, inspired millions to read.
Mother Theresa of Calcutta died a week later after Princess Diana, Sept 1997
Madeleine Albright was sworn in as Secretary of State, becoming the first woman to head the State Department
Pokemon the major kids’ game was released to the U.S. and swept the Nation with its great gaming fun. Kids still love to play Pokemon games all over the world
Camel cigarette brand removes Joe Camel from its advertising because opponents claim Jo Camel causes cigarettes.
Green Bay Packers beat the New England Patriots in the Super Bowl 31-27.

Oh yeah, NOW I remember why I hated 1997….

Pain vs. Patience

2009-02-23T07:00:00.000-05:00

Over the weekend, I watched an Today show segment that describes available houses for sale around the country that were labeled “real deals” at under $300,000. It struck me that homes less than $300,000 were considered a “deal.” Let me see, a 20% down payment on a $300,000 home is $60,000 for a conventional mortgage loan; leaving a $240,000 mortgage to repay. Hmmm…..

Later on, there was a segment on middle aged children having to move back with their parents because they had lost their jobs and subsequently their home, and had nowhere else to go.

In that story, the parents (the older ones) were thrilled to have “their” family back together – it reminded them of days gone by when their children were young. Over time, however, the house was feeling more cramped with two families squashed inside. The middle aged children remarked that they felt like failures.

As the story went on, it was revealed that the lost home was over 5,000 square feet and the children used to be in the mortgage business and by their own admission, “the money was rolling in.” It’s a story that is being repeated over and over across the United States.

These two stories got me thinking about this current economic crisis and whether we in fact, will actually change our behavior, or are we just waiting out the storm so that we go back to our previous behavior? Once the dark clouds pass, and the money rolls back in, will we go back to 5,000 square feet homes and large mortgage balances? Are we going to learn anything from this mess?

Is it pain or is it just patience?

Caveat Emptor or Bust!

2009-02-20T07:00:00.000-05:00

Things continue to change. If you are collecting unemployment benefits in certain states, you won’t be receiving a check – you’ll get a debit card. (Technically, you’re getting a stored-valued card, but that’s post for another day…). Suddenly, the plastic generational behavior kicks in and here I go talking about what you’re getting in to. Yeah – that financial education thing.

The issuance of debit cards can save the state a lot of money – and it’s good business for the financial institution.

Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp, an Associated Press review of the agreements found. All the programs carry fees, and in several states the unemployed have no choice but to use the debit cards. Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what's on the card. (That’s why they call it a stored-value card dude!)

Another 10 states — including the unemployment hot spots of California, Florida and South Carolina — are considering such programs or have signed contracts. The remainder still uses traditional checks or direct deposit. In 2003, states paid only $4 million of unemployment insurance through debit cards. By 2007, it had ballooned to $2.8 billion, and by 2010 it will likely rise to $10.5 billion, according to a study conducted by Mercator Advisory Group, a financial industry consulting firm.

The banks say their programs offer convenience. They also provide at least one way to tap the money at no charge, such as using a single free withdrawal to get all the cash at once from a bank teller. But the banks benefit from human nature, as people end up treating the cards like all the other plastic in their wallets.

In these times, it’s all about the dollars. And personal responsibility.

Caveat Emptor – Let the Buyer Beware Good article. http://www.msnbc.msn.com/id/29286993/

The Old 28/36

2009-02-19T10:02:00.002-05:00

One element of the Homeowner Stability Initiative announced yesterday got me thinking about debt ratios.

One element of the plan calls for a shared effort to reduce monthly payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 % of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31%. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification.

Back in the day, the standard underwriting formula for approving mortgage loans was known as the 28/36. Borrowers were qualified for the loan if the proposed new mortgage payment equaled 28% of their gross monthly income and their total monthly payments (including the new mortgage payment) did not exceed 36%. This analysis in effect, controlled the amount borrowers could borrow which translated to the type of property they were buying. Of course, they had to have acceptable credit and a required down payment of at least 20% (10% with PMI insurance).

As we know, for the last 15 years, that type of loan analysis fell by the wayside. If a borrower had a pulse, and a job, he/she could get a mortgage loan by following one of the myriad scoring matrices. This resulted in way too many borrowers buying homes beyond their means and hence the issue we are now stuck with.

It will be interesting to see what the underwriting practices will be in the future. Will we go back to a debt/income ratio analysis or will we create new scoring models that will remain untested until the next cycle. Stay tuned.

Stimulus & Pizza

2009-02-17T07:00:00.000-05:00

Under the President's stimulus plan which is expected to be signed today, millions of workers will receive about $13 extra in their weekly paychecks as part of the up to $400 tax credit per worker, and $800 for married couples filing taxes jointly. The money will not come in a check, like last year, but instead it will be distributed weekly in paychecks.

The stimulus plan also includes a $2,500 college tax credit, a sales and excise tax deduction on a new car, and first time home buyers are eligible for $8,000 in tax credits.

Thirteen dollars? Awesome! Now I can finally get back to eating that large stuffed-crust pizza every Friday night…

As long as I have a coupon.

The Foreclosure Deja Vu

2009-02-16T07:42:00.002-05:00

Recently, I watched the CNBC special, "House of Cards" which provided a timeline of decisions and actions within the housing financial arena that culminated in the perfect storm of financial chaos we seem to be in right now. If you haven't seen it, take it in. You can see the airing times on their website http://www.msnbc.msn.com/id/29163182/

In the beginning of the special, they show the ugly side of foreclosures - the affected lives, the way properties are left behind, the impact on neighborhoods, etc. It brought me back to the days when foreclosing on homes was my job - back in the mid-80's and the early 90's. It has been almost a 20-year cycle since we have seen (at least here in New England) a large slew of foreclosures compared to the 8-year cycle from the '80's-90's. And in that 20 year period, we have raised a generation of young borrowers who received loans from lenders and a system that did not say no - they found ways & programs to say "yes". And everybody made money.

Here's my question about this current cycle - will there be a consequence to the borrower who has experienced a foreclosure? We know that when the bankruptcy laws changed in 1986 and these new loan programs came out in the mid-90's the consequences of filing bankruptcy went away. You no longer had to wait 7-10 years before you could borrow money again. Will those folks currently having trouble be able to get loans when "the credit markets open"?

If not, then this recession will most likely last a longer than current predictions. If they are able to get loans again in the near term, then can we at least try to protect ourselves from this happening again by emphasizing financial education to our kids?

No Score for You on Valentine's Day!

2009-02-13T08:09:00.001-05:00

By now, most of the world has heard of something called a FICO score. For the past few years, kids have heard about the “score” on various MTV shows and such. They may not have understood everything about it, but they know that a bad score affects your ability to but stuff. Apparently tomorrow, on Valentine’s Day, you will no longer be able to get your FICO credit score from Experian, one of the three major credit bureaus.

The company notified Fair Isaac Corp., the firm that created the credit-scoring model most used by lenders, that it is terminating its relationship with MyFICO.com, a Web site that sold FICO credit scores and other information directly to consumers. This means generally that Experian customers will not be able to see the FICO scores that lenders are using in determining their credit levels.

Experian is choosing to use a new scoring model called VantageScore, which has been a work in progress between all three credit repositories – Experian, Equifax & Trans Union. To the best of my knowledge, most lenders are still using FICO predominantly, but this is yet another example on why being financially literate is so important.

If you are applying for a loan or being evaluated for a new job, you should know what scoring model is being used and what the numbers mean. It also means that going forward, you need to stay on top of the scores to make sure the information remains accurate.
Here’s a Washington Post piece that describes this a little more. http://www.washingtonpost.com/wp-dyn/content/article/2009/02/11/AR2009021103621.html?wprss=rss_business/personalfinance

On a lighter side, here’s a clip of a TV show that aired in 1969 – Happy Valentine’s Day!http://www.youtube.com/watch?v=lrBe09SIENA

The Oreo Test

2009-02-12T07:00:00.001-05:00

A friend relayed a story about when his son was very young years ago. Tommy developed a real love for Oreo cookies (who doesn’t?) He loved them so much that each time he went to the neighborhood market, he would try and come up with ways to buy the small packets of Oreos that are always near the checkout counters. He learned the cost of the cookies and soon, when presented with an opportunity to purchase something, he would calculate that the value of the item was the equivalent to “X” number of Oreo cookies. From there he made his decision whether the impending purchase was worth it.

His parents soon learned to use the Oreo test when the family was out shopping. When Tommy asked for a particular toy or game, his parents would tell him the cost of the toy and then ask him if it was worth “X” number of Oreo cookies.

A few years ago, Dr. Phil McGraw introduced this idea of a child’s currency as a tool to help parents practice discipline. He explained it this way, "If you control the currency, you control the behavior that currency depends on." Once you understand what your child values, you can withdraw positive things (taking away the toy) or introduce negative things (making them take a time-out) as a form of discipline.” The Family First Workbook by Dr. Phil McGraw; Simon & Schuster Adult Publishing Group, September 2005

What we are really talking about here is behavior. Finding out what your child values will help you connect personal finance concepts and ultimately, help you to shape the behavior you are looking to have your kids follow as it relates to how they handle their money.

A Two-Way Street

Remember, what I am suggesting here becomes a two-way street so pay attention to the road signs! Children will be observing and taking note of your currency too so make sure that you are consistent. Be prepared to explain those impulsive purchases of beer and snacks for Sunday’s game and make sure you connect the dots for your kids so they learn to develop choices.

Stimulus, Bailout, Word Games & Math

2009-02-11T07:37:00.003-05:00

Yeah, it’s a big number –whatever the final number will be. And yeah, there’s probably some pork in this stimulus package. It’s always about the dollars – never about changing culture & attitude. And don’t think for one minute that our kids are not listening & watching. They are.

The Washington Post had a decent graph last week about where the money is going. If you like graphs & flowcharts, you’ll like this. I just wish a piece of this money – a small piece – would go to financial education programs to help the next generation change the culture and attitude that we have demonstrated for the last 15-20 years – which just happens to be their entire time on the planet so far.

http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html

The Town Crier is Getting Hoarse

2009-02-10T08:51:00.002-05:00

It’s wearing me down. I think I’m in bad need of a cough drop. Yesterday, Dartmouth College announced that they are trimming jobs because of the economy. Just like other businesses and companies we’ve been hearing for the past few months right? But then they also announced that tuition for next year will increase 4.8%. It got me thinking, how many colleges & universities have announced tuition prices for the next academic year? So I went to my friends at Google and here’s what I saw on just the first page:

· Dartmouth College – New Hampshire – increase of 4.8%
· Maryville College – Ohio – increase of 3.4%
· Augustana College – Illinois – increase of 3.9%
· Case Western Reserve University - Ohio – increase of 2.9%
· University of Arizona – Arizona – increase of 3.0% (residents); 12% for non-residents
· Marquette University – Wisconsin – increase of 3.6%

And that was just the first page! The president of the University of North Carolina said he was proud that this year’s tuition increase was the lowest percentage since he’s been there. (nice spin) Only one school – Merrimack College in North Andover, MA reported (on this first page) that they are holding tuition costs steady. They said that they have managed their budgets well and “We wanted to give parents and students a breather in difficult times," said Merrimack President Ronald Champagne. "It was a big decision for us." (finally!)

I can hear it now – “you can’t compare us to other companies – we’re not a business, we prepare young people to have successful futures.” “Look at all of the scholarship programs we offer.” “Our endowments took a nasty hit as well as everyone else last year you know.” (Dartmouth’s endowment is down to $3 billion).

I guess I’m still stuck on that old economic thing called supply & demand. Prices go down if people stop buying goods & services. Seems to me we recently experienced that last summer when gas prices were $5 a gallon. Apparently we reduced consumption and prices fell. Where is the outrage of college costs? We’ll hear about increasing Pell grants and loan programs and such, but we never talk about the actual cost.

I have to go find a cough drop…..

February, Love & Cars

2009-02-09T06:30:00.000-05:00

Ah yes, it must be February. The sun is brighter, daylight is longer, 25 degrees seem almost balmy, the stores are decorated in red, and we begin that regional thing we call Presidents Day Sales for automobiles.

For a long time now, auto dealers have used Presidents Day (formerly Washington’s Birthday) to roll out great deals for new cars. Some pundits have said that this tradition began as an effort by dealers to reduce inventory, some have said that dealers started this because they had returned from the auto show in Detroit all fired up to sell cars.

Frankly, I think it all started because dealers got tired of shoveling off the snow from the cars in the lot and having to move them around to plow.

In any event, - in the past anyway, people like to think about a new car around Presidents Day. They are accustomed to visiting dealerships, having the kids romp around with the balloons, clowns & face-painting, eating cherry pies (the old reference to Washington & that cherry tree thing…). It’s a great pastime in the middle of winter, gives you something to look forward to after mud season, and gets you thinking about Spring.

How about this year? With jobless numbers going up, a deterioration in consumer confidence, the continuing growth in foreclosures, etc. etc. – what will this do to auto sales this Presidents Day? Add to the mix the fact that some finance companies have eliminated their leasing programs, and apparently the credit markets are tightening up – are dealers worried? I know I am.

It’s always fun to go see the cars, kick a few tires, and imagine yourself wrapped around that new convertible. Let’s watch and see what the mood is this year – from the buyers and the dealers. Here’s an article from CNN Money: http://money.cnn.com/2009/02/03/autos/finding_deals/index.htm

A New Chapter or a Bad Rerun?

2009-02-06T07:00:00.000-05:00

OK, so I admit it. For years, I’ve been pointing fingers at the Fannie – Freddie show relating how their lending threshold revisions in the mid-90’s contributed to the culture change in the U.S. that ultimately created the sub-prime mess. And for the past 16 months or so, I’ve sounded like I knew what I was talking about. To recap, in the mid-90’s:

The secondary market, in an effort to increase the percentage of homeownership in this country, loosened their credit standards and collateral guidelines which meant more people bought homes and other people bought homes that were beyond their means.
Simultaneously, credit scoring becomes the standard by which loans are made. The thinking is that an empirically-based formula will result in the consistent granting of loans without discrimination. Oh, and it will also help to measure payment risk.
Risk-based pricing then becomes the way to grant loans to people with low credit scores and mitigate the higher chance that the loan won’t be repaid. The lower the score, the higher the interest rate & everybody’s happy. The birth and growth of sub-prime lending.
At the same time, this thing we call the Internet takes control of our information and daily lives and online commerce becomes an easy way to help us pack in more stuff into our multi-tasking world. Credit card usage explodes. (by the way, credit cards are loans – they use scoring & risk-based pricing too)

So in 2008, it all came crashing down. The party is over and now we have to clean up the mess. Everyone has an opinion on how but the truth is, we are in unchartered waters here.

So then I read this article in Bloomberg and learn that Fannie Mae is reducing credit standards so homeowners can take advantage of historic low interest rates and refinance their mortgage loans. I get the reasoning – saving money on the monthly house payment will free up more cash to buy stuff and stimulate the economy.

But read the article and let me know what you think. Am I wrong to see this as a déjà-vu? http://www.bloomberg.com/apps/news?pid=20601087&sid=aTu9HA5cZgQ4&refer=home

The 3 C’s of College – Cost, Contradiction & Culture

2009-02-05T07:00:00.000-05:00

It’s never easy to change a culture is it? Just ask the early boomers who gave birth to the Generation Gap by protesting the Vietnam War and questioning the “establishment”. Today, we are trying to change a culture with the promotion of the green movement in the hopes we can save the planet from environmental harm before we leave it.

What are we going to do about the notion that success for our kids can only be found through college? Now before you take off on me – I am not opposed to a college education. I think the college experience and learning are very important to building the fabric of one’s life experience. The issue I have is at what cost? Is it worth the investment today like it was 25-30 years ago? Are our kids better off with that college degree and carrying a boatload of debt as they get started in life? It’s a question that borders on heresy in many circles – I just wonder if a culture change is about to happen before our eyes.

The answer probably rests with parents – but the students are going to have to step forward and ask, “Do I really want to take on this debt at 22 years old? Is there another way to achieve the same thing without leverage my financial future?”

Here’s a thought-provoking article from Forbes: http://www.forbes.com/forbes/2009/0202/060.html

Let's Watch Wall Street - the Movie

2009-02-04T08:27:00.002-05:00

I think we need to rent the movie from the 80’s, “Wall Street” again. Sorry, I didn’t mean rent – I meant download. Remember the main character Warren Gekko played by Michael Douglas? Gekko coined the phrase, “Greed is Good”, which was a rationalization of the ruthlessness of the financial arena in the 80’s to make money. The idea is that the more money you make, the more you spend, the better you feel and the economy grows.

Now where have I heard that recently?

With all the news coming out about companies accepting bailout funds and still spending money on lavish company retreats and stadium names and other such things, one has to wonder about our whole collective greed.

I’m beginning to wonder if the folks running these institutions are younger than 45 years old. If they are, then they may have just graduated from high school the last time unemployment was in double digits (the early 80’s). The reason the populace is wondering why they “don’t get it” is perhaps because they have only known prosperous times in the their career and therefore, trips to Las Vegas and box seats at the Yankees game is just the normal course of business.

Talk about a reality check…..

Dude - You Got Insurance Right?

2009-02-03T07:00:00.000-05:00

The next time you hear that crunching sound of metal when you are in your car, you might want to say a little prayer and hope the destructive party has insurance. Apparently, as unemployment rates rise, so do the number of motorists who let their automobile insurance policies lapse.

It does makes sense right? The Insurance Research Council recently released a study that based the prediction on national data that shows the percentage of uninsured motorists tends to increase right along with the unemployment rate. New Hampshire, one of the few states that does not require drivers to carry insurance, saw its unemployment climb to 4.6 percent in December, up from a year earlier.

What we need to remember is that in New Hampshire, an insurance company cannot legally deny coverage unless the person is not a NH resident or is not legally permitted to drive. This really means that you cannot be denied coverage if your income is low or if your credit is toast. In this climate, those folks who are struggling are making decisions everyday between medicine, rent, food and other essential living needs. Insurance is going to be a low priority - which could ultimately affect all of us. Good article from the Nashua Telegraph...

http://www.nashuatelegraph.com/apps/pbcs.dll/article?AID=2009302029936

Gotta Read the Small Print!

2009-02-02T09:05:00.003-05:00

For years I've been telling kids to get in the habit of reading those credit card disclosures - yeah right! It's like asking them to read the nutrition label on the Red Bull cans. However, it's becoming clear that we need to do that now more than ever.

Credit card companies are being squeezed in two ways - from upcoming new federal regulations that go into effect in 2010 and from deteriorating portfolio balances with higher delinquencies and defaults. Soon they can expect a larger percentage of borrowers filing bankruptcy.

To address this, they are modifying existing credit card accounts with higher interest rates and fees, lower credit limits, or closing accounts to further advances. After all, they are in the business of making a profit - just like any other business. Sure, we can debate that level of profit, but at then end of the day, nobody is in business to lose money.

Which means that you need to open those envelopes from your credit card company and read the information. I know it can be a beast to get through - it's designed that way. But getting through it and understanding it is the only way you will know what is going on with your account.

Read this article from the NY Times http://www.nytimes.com/2009/01/31/your-money/credit-and-debit-cards/31cards.html

From Your Cell to Your Tummy in Short Order

2009-01-30T06:25:00.000-05:00

As further evidence that today’s “screenagers” can & will do more with technology as time moves on, Subway has launched a pilot program called SubwayNow where New York City residents can register to place pick-up orders via text message. Pizza Hut has been doing mobile ordering – all-web based – for a little while as well as some of the other food chains.This one is different in that it falls into the world that teens thrive and adults struggle – text messaging.

And once you read the brief article, you’ll see that at the bottom comes from continuing theme of financial education. The technology is cool and efficient for people on the run, as long as they have the basic financial skills to keep a watchful eye. http://consumerist.com/5142408/subway-launches-text-message-ordering-in-nyc

The White Noise of Student Loans

2009-01-29T07:00:00.000-05:00

Holy ear bud! Here are 3 articles that have appeared in the past 4 days regarding the availability of student loans for college students next fall. It’s enough to make parents head to the wine cellar and kids to plug in the iPods and avoid the whole thing.

The problem is, that is the last thing you want to do – either of you! Take the time to read these articles and you will discover that the sooner you act the better. Don’t wait for the government to come through if you’ve got kids headed to college this fall. It may be January with a lot of snow & cold, but before long it will be September and without your financial aid ducks lined up, it will still be cold and you’ll be left out in it.

Get on it – at the bottom of all of these theories is the fact that the responsibility to make it happen rests with you. Start thinking about financial aid now, do your research and get things lined up. At the NH Jump$tart website, we have a lot of links to help you get a handle on this. And don’t forget your best local resource – the NHHEAF Network – http://www.nhheaf.org/

Now read these and get going!

http://www.msnbc.msn.com/id/28830583/

http://www.smartmoney.com/personal-finance/college-planning/will-obamas-new-aid-plan-help-you-pay-for-college/?cid=1122

http://www.usnews.com/articles/education/2009/01/13/financial-aid-applications-rise-by-10-percent.html

http://www.finaid.org/

Remembering the "Me Decade"

2009-01-28T07:00:00.002-05:00

I met a fellow today who told me that back in the mid-8o’s, after he graduated from college, he bought a single-family home by assuming the mortgage with an interest rate of 13%. Not only did that story take me back to the day of double-digit mortgage loans, it also reminded me of my collection days when banks actually held mortgage loans in their loan portfolios. This lone fact forced banks to find creative ways to deal with distressed loans and foreclosures. Allowing loans to be assumed by another borrower was one such way.

It worked like this. Say you were starting to have trouble paying your mortgage and the future looked bleak. Rather than wait too long before you became too far past due in your payments, you could approach your lender and ask if the bank would allow another qualified borrower to assume your mortgage. If done expeditiously, the borrower could get a into a new home fairly quickly and the seller could get out of their mortgage obligation without destroying his credit. It was the proverbial win-win-win for all parties.

It would be very difficult to pull that off today. Most mortgage loans are not held in portfolio and are sold in batches to the secondary market. From there, those batches are either combined with or separated into other batches and sold off to investors again. And so on and so. All of this could be happening as you keep making payments to the original lender who has agreed to “service” the loan. By the time you approach the bank (servicer) and they track down who actually owns your loan now, months could go and not only is your credit destroyed, but you are also most likely facing foreclosure.

It’s making me think that in our current situation, perhaps the best way to help the individual homeowner and the collective “us” as taxpayers, is to have the government buy back all of the troubled loans from the banks and liquidate them separately - like the RTC (Resolution Trust Co) did here in New Hampshire in the early 90’s when those banks failed. I’m not a “more government” type of guy, but I’m having a real difficult time seeing how to resolve this any other way.

I never thought I would miss the 80’s….

Now Why Didn't We Think of That?

2009-01-27T07:00:00.000-05:00

Check out this article about New Jersey – good for them! http://www.dailyrecord.com/article/20090126/UPDATES01/90126011

Here in New Hampshire we also have something positive going on relative to youth financial education – HB123. This bill, introduced by Rep. Don Pettersen from Brentwood, seeks to increase the emphasis of personal finance within the Economics curriculum requirement we already have. Clever.

New Hampshire already has a graduation requirement for Economics – the only state in New England that has this requirement. Associated with the requirement is a document called Curriculum Frameworks – a template of sorts that tells teachers what their students should know at various benchmarks in grade school. Included in the frameworks is a standard for personal finance – patterned after the previous version of the national Jump$tart standards. http://www.jumpstart.org/

Currently the bill is being referred to a sub-committee of the House Education Committee. To follow the status of the bill and to read its text go here: http://www.gencourt.state.nh.us/bill_status/bill_status.aspx?lsr=1&sy=2009&sortoption=&txtsessionyear=2009&txtbillnumber=HB123&q=1

It’s time for your voice to be heard….

Save to Spend vs. Invest to Save

2009-01-26T07:00:00.000-05:00

Interesting article - will cash replace credit cards? What do you think? http://www.foxbusiness.com/story/markets/industries/finance/cash-king-need-credit-cards/

Sometimes I hear people say, “What incentives are there for kids to save? Financial institutions pay very little interest on deposit, so why should kids save?”

Most times, these comments come from folks who remember the early 80’s – when banks paid 16% on CD rates. However, they forget that the prime rate was in the same rate area and banks could not offer traditional loan products (mortgage, car loans, etc.) at rates higher than what they had to pay in deposits. The “spread” is how banks used to make money – money they used to pay operational expenses and invest in new technologies.

How about this as an idea? Let’s make a distinction between investing and saving. If you want to park your money somewhere where it will grow and provide you a decent return, then invest it in the various options available to us today. Your investment strategy will dictate your return and how much your money grows.

Let’s define savings as a means to manage spending. In other words, don’t buy stuff until you have the money for it. What an old-school thought! Put money aside for reserves (it used to be called a rainy day) and then set aside money for the things you have your sights on. Take a peek at this video clip – you’ll see what I mean…

And Around and Around It Goes...

2009-01-23T09:30:00.004-05:00

A report released earlier this month by the American Bankers Association (ABA) indicated that third quarter delinquent payments for consumer loans hit the highest level since they began recording them in 1980. http://www.msnbc.msn.com/id/28541097/

Let’s consider this:

1980 was the end of the Carter administration and in the next 2 years the country fell into the worst recession in my working lifetime. Does anyone remember the prime rate at 19% and unemployment at double digits?

The third quarter ended August 31st – before the kids went back to school and the word bailout had more to do with Manny going to the Dodgers

Any predictions what the 4th quarter is going to reveal? We won’t know those numbers until late March – early April. Here’s the thought for today – if we throw more bailout money at the banks in order to “open up the credit markets” – will those markets include loans to consumers? If loan delinquencies are on the rise - that means that personal credit histories are deteriorating. Will lenders begin lending to borrowers with deteriorating credit scores? Isn’t that how sub-prime lending began? What does an open credit market mean to consumers?

And around and around it goes – just like the water in ex-Merrill Lynch CEO John Thain’s $35,000 commode ...

The Education Elephant in the Room

2009-01-22T09:26:00.002-05:00

Last Saturday, we held our 4th annual Financial Fitness Fair for parents and their high school children. The day before, MSNBC reported that the unemployment rate for twenty-somethings for December was 11% as opposed to the national unemployment rate of 7.2% It seems that in a recession, experience in the job market is more appealing. http://www.msnbc.msn.com/id/28663645/

No one is going to dispute the value of a college education and certainly no parent will ever say they don't want their kids to go to college. Parents always want the best for their kids and we have always viewed a college education as their ticket to success. And then there are all of those studies that point to the income predictions between those adults with a college degree and those without.

But at what cost? Last Saturday, I presented a factoid that showed that in 1978 (presumably when today's parents of a 16 year old were 16 themselves) the average cost of private college tuition in NH was $4,570. With a Stafford federal student loan limit of $2,500 per year, that left a gap of $2,000. In 2008, the average cost of private college tuition in NH was $29,675. With a FFELP federal student loan limit of $5,500, the gap is over $24,000. Are we really surprised that parents are wondering how to pay for this or students are taking on tremendous debt to finance their education?

Has the value of that education increased 10 times over the last 30 years? Has it opened 10 times more doors for college graduates?

And when the new administration says it will make college more accessible for students, what does that mean? Does it mean the tuition cost will actually go down or does that mean more loan programs will made available so the debt cycle continues?

Investment portfolios are down anywhere from 10-30%, housing prices are projected to be down 23% - how about college tuition?

When are we going to have the discussion about the cost of a college education?

Keep Your Spirits Up!

2009-01-21T20:51:00.000-05:00

For those of you who think the world is coming to an end, all you need to look back to 1982. For some of us, that wasn't that long ago. Check out this article from the NY Timeshttp://www.nytimes.com/2009/01/21/business/economy/21leonhardt.html?ref=todayspaper

Welcome to NH Jump$tart!

2009-01-21T20:45:00.001-05:00

We have joined the world of bloggers! I've been told that having a blog is like having a pet. Well, we're a family of cat lovers so I'm accustomed to self-cleaning animals. They're also a wee bit independent, so I think I'm going in the right direction. The only thing I'm puzzled by the "litter box" of blogs. Guess I'll have to deal with that as it comes.

In the meantime, it's bon voyage for the NH Jump$tart blog. Let's keep the dialogue going about the importance of youth financial literacy in the Granite State!