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I just watched a funny segment on how little people know about finance from the Jay Leno Show (hat tip to Fabulously Broke). I thought I had better pass this on to Narrow Bridge readers. Please don’t tell me in the comments if one of my readers is featured here. I hope I did better than this.
On a side note, thanks to the lovely Fabulously Broke for including Narrow Bridge in the Carnival of Personal Finance.
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It is nearing census season here in the United States. Every decade, the United States government puts together a report with details about every single person in the country. This includes citizens, legal residents, and illegal residents. The government then puts together population demographic and trending reports that tell you everything you could imagine about people living in the US. You can see these reports at census.gov.
Other countries have similar systems. In the UK, government projections show that the population in England will rise from about 51 million today to over 60 million in 2031. In the US, the population grew 8% between 2000 and 2008. That is over 22 million people. The 2010 census is projected to show continued population growth.
What does that mean to us? The average person will need a place to live. More people means more houses are needed. The simple “what it means” is that houses will have to be build, mortgages will be needed, and banks will make loans.
However, there is another segment where people stand to benefit. Not all people live in a single family house or a condo. Many Americans rent. In Minnesota, 75% of homes are owner occupied, leaving 25% as renters. In New York, on the other hand, only 55% of homes are owner occupied.
Jobless rates today are impacting those numbers. Many of the bad mortgages in the last year or so have been in owner occupied situations. People have to give up their home ownership and move into a rental. Property developers and investors have the opportunity to profit from this situation by owning rental properties with an increasing demand.
It is also important, though, to look at an often forgotten group of people. 3.5 million people in the United States, about 1% of the population, experiences homelessness at some point in any given year. Be sure to remember those in need even in tough times. If the economy is treating you bad, imagine how some people are doing. If you are able, support a local homelessness charity like the Colorado Coalition for the Homeless in my neck of the wood. Everyone deserves a home.
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The rate of bankruptcies is still increasing, but the rate is slowing down. A British PriceWaterhouseCoopers study found that the rate of bankruptcies and Individual Voluntary Agreements is still increasing, but the rate of increase is leveling off. The cumulative rate for year to date is still lower than the comparable period from 2006 and 2007.
The UK has a program called IVAs (Individual Voluntary Agreements) that allows individuals to negotiate payment terms to avoid a full on bankruptcy. Debt Free Direct describes the IVA process:
The IVA or Individual Voluntary Arrangement was introduced in 1986 as an essential piece of legislation which allows you to avoid the trauma of declaring bankruptcy. It suits many people who are over £50,000 in debt, provided that they are in regular employment.
An IVA is a legally binding agreement which protects you against any further action from your creditors. Once you’ve committed to an IVA, you could become debt-free in sixty months.
With an IVA you agree with your creditors to paying only what you can afford in a single payment each month over the period of five years. Your creditors agree to write off your debt which you’re not able to repay and they will leave you alone.
IVAs are a good alternative to bankruptcy for UK citizens that have found themselves in a big pile of debt. While I have little sympathy, as they got there through their own actions, it is a much better option than calling it quits and declaring bankruptcy.
The United States does not have a similar system to IVAs, but you can negotiate with creditors and work with credit assistance companies (non-profits) to consolidate and eliminate debt. The goal here is not to just wipe your slate clean, but to help you clear out the problem yourself. Remember, a settlement or write off is terrible on your credit report, though not as bad as a bankruptcy.
The banks would rather recoup some money than no money. A settlement happens when a bank negotiates with a customer to take a lower amount of debt to collect something rather than risking a complete non-payment. Again, I have little sympathy here. People buy things themselves, the bank does not force you to. The bank only gave you the credit card, you make the choice on how to use it.
The best way to avoid insovency, bankruptcy, and mounting debt problems: spend less than you earn. It is that simple. Yeah, there are lots of excuses for why things went bad, but those always come back to the person who spent the money. Don’t be that guy. I know it is an “ugly truth,” but it is a truth.
Most people who read this blog don’t have this type of problem. Good for you. If you do, however, man up and deal with it. There is always a way to figure things out.
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While we are still in a recession, the recession seems to be getting less bad. As a Wall Street fund manager told me today, it might go down in history as “the great recession.” As we all know, this recession has pushed down housing prices around the world. It looks like the worst might be behind us.
In May, UK housing prices increased by 1.2%. Housing prices are an indicator that the economy may be recovering. Housing is a major piece of a very large economic puzzle. Along with factors such as employment, consumer spending, inflation, manufacturing inventories, and the stock market, housing is a key factor in looking at economic health in the United States and abroad.
Housing purchases are a major indicator, and that rate drives housing prices. When people were afraid of losing jobs and income, home purchases fell. As people are becoming more confident that their income will remain constant in the future. That means that they are willing to spend more on homes and other goods and services.
While I highly recommend you all keep on saving, it is best for the economy if people spend. Spending moves money into businesses that moves on to create profits and job opportunities. That leads to more spending. The cycle will continue to grow when consumers are confident.
How does this impact you? When the economy is bad, stock prices and home prices go down. Interest rates are also at historic lows. When the markets are depressed, it is a good time for you to make investments. If houses are at the bottom, it is a good time to buy a home (to live in or invest depending on your own financial situation). Remember the mantra: buy low, sell high.
Hopefully things will start to turn up. In the global economy, housing recovery in the United Kingdom may be tied closely to housing in the US and the rest of the developed world. What do you think will happen next? Is the worst behind us or are we just at a hump in a longer downturn?
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Employment numbers are proving to be as shaky as the economy. In some places and sectors, employment numbers are starting to level out, or at least not fall so quickly. In other places, the numbers are still looking bleak.
In the US, total employment has been down for 18 consecutive months. The most recent numbers indicated that 467,000 jobs were lost in June. That is not encouraging, though the number of jobs lost has been decreasing almost every month since December, 2008. The number of mass layoffs has also been on the decline since the beginning of 2009.
All of this talk about how bad the economy is can be really depressing, so it is a good idea to think about the positives. Many of us still have jobs. If you are out of work, this might be a good opportunity to continue with that college degree you always wanted.
If you are unemployed, this might be the time to turn your hobby into an income source. It might be a good chance to give that entrepreneurial idea a go, though don’t throw your entire savings into it. If you are out of work, but an expert in a highly skilled field, you might be able to find contract work as a consultant. You might be able to self teach web design or graphic arts and find freelance projects. If you enjoy writing, you can start a blog for income or do freelance writing gigs.
The point of this is to remind you all that, even if it feels like it, this is not the end of the world. The economy always turns around. You are smart and will recover. Be resourceful. Enjoy the vacation.
Some things to remember when you are unemployed, though, that could get you into trouble later on:
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The number of mortgages in foreclosure, or mortgage possessions, seem to have hit their peak. While foreclosures are still a problem, they are slowly turning around and fewer homes are being taken over by banks.
The perception of foreclosures is still high. That is because several states are still experiencing high foreclosure rates. Florida and California, for example, are still experiencing a large impact from foreclosures. Nevada is in the worst shape in the United States.
On the other hand, most states have begun to recover. This map, which references March, 2009 data, shows that most states have leveled out or turned around. Things are starting to look up.
This has a large impact to the overall economy. The recent recession was triggered by a spike in foreclosures, which led to bank failures, which also impacted investors and funds that bought into mortgage backed securities, which led to a sell off and stock market decline, which led to consumer spending fears, which led to the economy getting worse. I could go on, it is a big cycle of bad events. You get the idea.
Today, however, things are getting better. The stock market is up. Investing is on the rise. Spending is up. (But not by Narrow Bridge readers, right?) Companies are doing better. Profits are returning. Foreclosures are no longer on the rise.
This has been seen internationally as well. In the UK, for example, first quarter 2009 possessions were down 42% from the same time the prior year. It seems that the world is not going to end after all.
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On July 24, 2009 (that’s less than two weeks), the United States minimum wage will increase from $6.55 per hour to $7.25 per hour. That is a difference of $1456 per year for impacted minimum wage employees. That might not sound like a lot to some of us, but it will bring people a roughly 10% raise. In the UK the minimum wage is set to increase 3.8% (SPONSORED LINK)
This increase is not necessarily coming at a great time for employers, but it is great timing for employees and the economy as a whole. As each struggling employee, as most minimum wage earners are, gets a 10% raise, those people will (hopefully) be able to live in better conditions. Those extra funds will also likely be coupled with an increase in total consumer spending. As spending increases, the economy benefits.
If I were going to give advice to struggling minimum wage earners about to get a raise, I would tell them not to blow through the increase in pay as quickly as it comes in. Like anyone who gets a pay increase, these people should try to keep their standard of living the same (or increase modestly) while increasing their saving for the future.
Unemployment continues to be a big issue, however, that will not be impacted by an increase in minimum wage. In fact, the opposite might occur. As businesses struggling to remain profitable will endure increased labor expenses, they might decide to lay off more employees.
Do you think the increase in minimum wage is a good thing? Do you think more people will benefit than be harmed. I believe, in the long run, it is a good step. The government needs to ensure every full time worker is earning a livable wage. The current minimum wage full time annual earnings are $13,624 per year. The new annual earnings will be $15,080 per year. I think most of us would hardly call that a livable wage.
The United States government has passed the “cash for clunkers” law, giving Americans an opportunity to sell old cars for more than their value. The CARS, or Car Allowance Rebate System, program gives a window to trade in or sell cars with low gas mileage.
If you have an old car, this might be the time to buy. The program started on July 1st and is likely only going to be around for a limited time. To be eligible, your car must be less than 25 years old, have a fuel rating of less than 18 miles per gallon, be in drivable condition, and have been in your ownership for at least one year. Heavy trucks and cargo vans have different requirements.
If you think your car might be eligible, it could be a good opportunity to upgrade to a low fuel car from your big ugly old car. Check out the CARS website for more details. If you are going to finance it, be sure to check out my recent post on shopping for a car loan.
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As we all know, the global economy is down. People are being laid off. Jobs are not being created. Companies are slashing costs to build on low profits. Pension and retirement funds are down. And people are struggling to pay the bills.
London’s poverty levels are on the rise. In the United States, a single person earning below $11,201 per year is in poverty. That number is $14,417 for a couple, or about $22,000 for a family of four. My income is off the chart for a family with eight children, though I highly doubt I could support ten people on my income.
In the United States, at last measure (2007), about 10% of the population was living below the poverty line. For homes with a female head of household, that number was nearly 30%. About half of all households in poverty in the United States have a single female as the head of the household. The highest poverty rate, since I can find measurements for, was in 1959, with a poverty rate of 18.5%.
Dealing with poverty is a highly debated subject in the Western world. In the US, a limited welfare program is in place to help people get back to work quickly, even if that work would keep the family in poverty. In most of Western Europe, the government does more to make sure a family is provided for in the long run. In Israel, many families have lived on welfare for generations, particularly in the most religious areas. Israel’s policies ensure families are always taken care of.
This is a blog that preaches self sufficiency and taking responsibility for your own actions. That said, for the first time, I will give you a little taste of my political feelings toward welfare. I think our government needs to take responsibility to ensure people can get back to work in a job that can sufficiently support their families. I do not support current welfare to work programs, that often put people in minimum wage jobs and keeps them in poverty. I support education to work programs that train people to do jobs that pay more. I support a livable wage.
What do you all think of my ideas? What do you think of welfare in general? How do you propose we deal with poverty? Please tell us what you think in the comments.
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While I was approved for a new credit card this week, I have pristine credit. Most credit card companies, including Schwab, are looking for excuses to turn people down. Credit used to be easy to get. Anyone with a credit history that was not too bad could get a credit card.
Millions of people are being turned down for credit. I was given a lower limit than ever before on my card, and I have never had a late payment or missed payment. Credit companies are looking for the smallest problems on credit histories. A 30 day late payment used to be looked over without a thought. Now it is a reason to turn down unsecured credit.
It is important to note the difference between secured and unsecured credit when looking at this issue. Unsecured credit includes credit cards and “personal loans.” If you stop paying these, the bank has no recourse to collect the money outside of damaging your credit report. Secured loans, such as car loans and mortgages, give the bank the option of taking the property. That gives the bank the opportunity to recoup their costs in the event someone stops paying.
What can you do to avoid the shared fate of millions of applicants? Keep paying your credit card and loans on time. If you are 18 and have never had a credit card, it is time to get a student card, but use it responsibly, to establish credit. If you have negative information on your credit report that is inaccurate, dispute it. If you really did screw up, pay off that card and close it. Credit history is only good if you have a good one.
This issue is also impacting current credit holders. Banks are looking for ways to make more money and cut losses sustained from bad loans. As a result, people are getting credit lines slashed and seeing fees and rates increase. If you are a regular reader, you saw that I was given a new $30 annual fee on my Chase card (which led to me closing the account).
If you are denied, don’t be discouraged. The credit crunch is not over and people around the world are suffering as a result. Just do the right thing with your current credit and things will slowly start to turn around.
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