Helaine Olen http://helaineolen.com an occasional blog about parenting, finance, culture, love, politics and other ephemera Mon, 07 Mar 2016 16:12:22 +0000 en-US hourly 1 Do-it-yourself retirement v the plan that guarantees your income for years http://helaineolen.com/2013/08/15/do-it-yourself-retirement-v-the-plan-that-guarantees-your-income-for-years/ http://helaineolen.com/2013/08/15/do-it-yourself-retirement-v-the-plan-that-guarantees-your-income-for-years/#comments Thu, 15 Aug 2013 15:15:11 +0000 http://www.theguardian.com/money/us-money-blog/2013/aug/15/do-it-yourself-retirement-alternative

A new idea in California could wrest retirement away from the financial industry and guarantee income for generations at risk

There is a long-running idea in American life that all trends start on the west coast and move east. When it comes to the subject of retirement planning, let's hope that's true.

The do-it-yourself revolution in retirement savings has left the United States on the verge of a crisis; 30 years of mismanaged money is finally taking its toll on the young and old. The Center for Retirement Research at Boston College claims the US has a $6.6tn deficit in retirement financing, and a substantial minority of Baby Boomers and a majority of Gen-Xers risk a serious decline in their living standards the day they stop working.

Kevin de Leon thinks it should be different. He's the California state legislator who took on the financial services sector by promoting what is now called the California Secure Choice Retirement Savings Program, shepherding it through the legislative process and getting Governor Jerry Brown's approval last fall. He's now in the beginning stages of realizing the plan.

De Leon's initiative would automatically deduct 3% for retirement savings from workers' pay at firms with at least five employees and no 401k already in place. The money would be pooled and managed in a newly established entity. Participants would get a 3% return, which is very modest. An insurance policy would underwrite the plan, so taxpayers would not be financially liable if the plan loses money. At retirement, the account balance will be turned into an annuity.

What the plan does is provide a kind of pension – from their own earnings – for people who don't work at big, established firms that have big corporate infrastructure. Very often, these are people without the luxury of retirement planning, or the access to good financial advice. In de Leon's words:

"It's right for lower income and middle income to have access to retirement security."

It's in some ways a pension for all of us: something Americans tell pollsters time and time again they would prefer over a defined contribution plan. So why aren't others jumping on the bandwagon?

Some have made moves but still kept one foot on the ground, or have been unable to bring others with them. Senator Tom Harkin, for instance, has pushed similar legislation on the federal level for several years. But progress has been all but impossible, in large part because the powerful financial services industry earns billions managing our funds.

The age of do-it-yourself retirement might not have been good for you and me, but it was terrific for the banks, insurance companies, retirement plan providers and most everyone who peddles financial products. Estimates on industry earnings range widely: it may make between $89bn for 401k fees alone, according to Bloomberg magazine, all the way up to $500bn for all retirement assets, as estimated by retirement reform advocate and professor at the New School for Social Research Teresa Ghilarducci.

De Leon's plan is a direct competitor to this money management model, and – this must worry Wall Street – he may have the better argument.

The benefits of pensions and professionally managed funds like the upcoming California retirement plan are myriad. They can invest for the long run, since they are investing for millions of people and, therefore, won't fully cash out on an investment when one member retires. Unlike in a 401k or Individual Retirement Account, investments are not controlled by the individual investor, who may or may not understand the first thing about stocks and bonds, and who might be taking advice from a spurious guru on television.

These plans are also not dependent on the success of individual portfolio managers at big mutual funds, many of whom start out young and inexperienced and are handed millions of dollars to train with. All too many – even veterans – have a black thumb when it comes to making investment decisions.

These California-style plans invest directly, avoiding middlemen and their layers of mutual fund and annuity expenses that have so enriched the banks and insurance companies.

Finally, because they manage money for so many people, these plans can achieve lower costs by economy of scale. As a result of all this, they offer enrollees overall greater returns than they offer those investing for personal accounts.

Not surprisingly, the financial services industry came out swinging against the new initiative.

So what comes next for California? Getting the bill passed wasn't easy and there's a chance de Leon's plan will die in the long process of being implemented. Beginning later this fall, the commission will need to raise the estimated $500,000 to $1m in private funds to complete a study of the initiative's viability.

After that's done, the legislature needs to approve the concept again – something, no doubt, the financial services industry once again will try to stop. All the relevant parties in Washington, which is to say the Department of Labor and tax authorities, also need to sign off that the plan does not conflict with federal law.

Don't get me wrong: the California plan is not a perfect solution for our retirement woes – not even close. It doesn't allow for employer matches like a 401k, or, for that matter, Britain's National Employment Savings Trust (Nest).

The California plan leaves the pool of freelance workers out, though de Leon says they will be able to participate in time.

Finally, asking people to invest 3% of their individual salaries does not come close to the 15% many experts claim we need to save to ensure a decent income in our later years.

This is what the California plan has going for it: it's a guarantee, which is by definition an improvement over the status quo. Hopefully President Obama, who is expected to make a speech on Americans and retirement security at the end of the month, is paying attention.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Do-it-yourself retirement v the plan that guarantees your income for years appeared first on Helaine Olen.

]]>

A new idea in California could wrest retirement away from the financial industry and guarantee income for generations at risk

There is a long-running idea in American life that all trends start on the west coast and move east. When it comes to the subject of retirement planning, let’s hope that’s true.

The do-it-yourself revolution in retirement savings has left the United States on the verge of a crisis; 30 years of mismanaged money is finally taking its toll on the young and old. The Center for Retirement Research at Boston College claims the US has a $6.6tn deficit in retirement financing, and a substantial minority of Baby Boomers and a majority of Gen-Xers risk a serious decline in their living standards the day they stop working.

Kevin de Leon thinks it should be different. He’s the California state legislator who took on the financial services sector by promoting what is now called the California Secure Choice Retirement Savings Program, shepherding it through the legislative process and getting Governor Jerry Brown’s approval last fall. He’s now in the beginning stages of realizing the plan.

De Leon’s initiative would automatically deduct 3% for retirement savings from workers’ pay at firms with at least five employees and no 401k already in place. The money would be pooled and managed in a newly established entity. Participants would get a 3% return, which is very modest. An insurance policy would underwrite the plan, so taxpayers would not be financially liable if the plan loses money. At retirement, the account balance will be turned into an annuity.

What the plan does is provide a kind of pension – from their own earnings – for people who don’t work at big, established firms that have big corporate infrastructure. Very often, these are people without the luxury of retirement planning, or the access to good financial advice. In de Leon’s words:

“It’s right for lower income and middle income to have access to retirement security.”

It’s in some ways a pension for all of us: something Americans tell pollsters time and time again they would prefer over a defined contribution plan. So why aren’t others jumping on the bandwagon?

Some have made moves but still kept one foot on the ground, or have been unable to bring others with them. Senator Tom Harkin, for instance, has pushed similar legislation on the federal level for several years. But progress has been all but impossible, in large part because the powerful financial services industry earns billions managing our funds.

The age of do-it-yourself retirement might not have been good for you and me, but it was terrific for the banks, insurance companies, retirement plan providers and most everyone who peddles financial products. Estimates on industry earnings range widely: it may make between $89bn for 401k fees alone, according to Bloomberg magazine, all the way up to $500bn for all retirement assets, as estimated by retirement reform advocate and professor at the New School for Social Research Teresa Ghilarducci.

De Leon’s plan is a direct competitor to this money management model, and – this must worry Wall Street – he may have the better argument.

The benefits of pensions and professionally managed funds like the upcoming California retirement plan are myriad. They can invest for the long run, since they are investing for millions of people and, therefore, won’t fully cash out on an investment when one member retires. Unlike in a 401k or Individual Retirement Account, investments are not controlled by the individual investor, who may or may not understand the first thing about stocks and bonds, and who might be taking advice from a spurious guru on television.

These plans are also not dependent on the success of individual portfolio managers at big mutual funds, many of whom start out young and inexperienced and are handed millions of dollars to train with. All too many – even veterans – have a black thumb when it comes to making investment decisions.

These California-style plans invest directly, avoiding middlemen and their layers of mutual fund and annuity expenses that have so enriched the banks and insurance companies.

Finally, because they manage money for so many people, these plans can achieve lower costs by economy of scale. As a result of all this, they offer enrollees overall greater returns than they offer those investing for personal accounts.

Not surprisingly, the financial services industry came out swinging against the new initiative.

So what comes next for California? Getting the bill passed wasn’t easy and there’s a chance de Leon’s plan will die in the long process of being implemented. Beginning later this fall, the commission will need to raise the estimated $500,000 to $1m in private funds to complete a study of the initiative’s viability.

After that’s done, the legislature needs to approve the concept again – something, no doubt, the financial services industry once again will try to stop. All the relevant parties in Washington, which is to say the Department of Labor and tax authorities, also need to sign off that the plan does not conflict with federal law.

Don’t get me wrong: the California plan is not a perfect solution for our retirement woes – not even close. It doesn’t allow for employer matches like a 401k, or, for that matter, Britain’s National Employment Savings Trust (Nest).

The California plan leaves the pool of freelance workers out, though de Leon says they will be able to participate in time.

Finally, asking people to invest 3% of their individual salaries does not come close to the 15% many experts claim we need to save to ensure a decent income in our later years.

This is what the California plan has going for it: it’s a guarantee, which is by definition an improvement over the status quo. Hopefully President Obama, who is expected to make a speech on Americans and retirement security at the end of the month, is paying attention.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Do-it-yourself retirement v the plan that guarantees your income for years appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/08/15/do-it-yourself-retirement-v-the-plan-that-guarantees-your-income-for-years/feed/ 0
Giving up coffee to balance the books: how many lattes to financial freedom? http://helaineolen.com/2013/08/13/giving-up-coffee-to-balance-the-books-how-many-lattes-to-financial-freedom/ http://helaineolen.com/2013/08/13/giving-up-coffee-to-balance-the-books-how-many-lattes-to-financial-freedom/#comments Tue, 13 Aug 2013 19:31:23 +0000 http://www.theguardian.com/money/us-money-blog/2013/aug/13/coffee-costs-savings-myth

Cutting back on minor expenses won't save you much in a country where luxuries are cheap and necessities expensive

It's not our daily latte that is driving us to the poorhouse. It's our Lipitor … and our houses, our families and other necessities of life.

Yet we still don't want to believe it. A decade after Elizabeth Warren first revealed that the leading cause of bankruptcies was medical spending, Americans continue to discuss our financial woes as though we only have to give up a few habits to solve our checkbook woes.

It's a nice fairy tale. It's also not true.

The latest to take on the challenge of convincing Americans of the reality of their financial lives is Joseph N Cohen, an assistant professor of sociology at Queens College. In a paper released this past weekend at the American Sociological Association's annual meeting in New York City, Cohen used figures from the Bureau of Labor Statistics to bust the myth of the latte factor: the idea that we're wasting our precious funds on pointless luxuries.

Cohen found that we're not spending more on things we don't need to get through the day. On the contrary, we're spending less. Between the mid-1980s and the mid-00s, Americans' spending on clothes fell by 28%; alcohol 12%; tobacco 25%; vehicle purchases 15% and vehicle maintenance 24%. Overall expenditures on food also declined, with spending on in-home meals falling by 8% and restaurant dining by a more modest 3%.

Where did the money go? Consider your own circumstances, and you're likely to see the most common increases in spending. During the same period of time, we spent almost 20% more on housing and 32% more on healthcare, which includes a more than 100% rise in the cost of health insurance and 41% of pharmaceuticals. Education? An astonishing 60% increase. Gas went up by 23% and auto insurance by 29%.

Cohen summed it up aptly:

"A colleague of mine once told me that America is a place where the luxuries are cheap but the necessities expensive. A cell phone is affordable. What's killing people is housing and childcare and medical expenses."

Think of it this way. An iced tea I purchased Saturday at Abbot's Habit in Venice Beach, California, cost $2.50. I pay just under $1,300 a month for a health insurance policy that … well, let's just say it's less than generous.

Doing the math shows that I would have to give up 520 iced caffeine drinks a month to pay my health insurance bill, and I still would not cover all my family's medical expenses. As University of California-Irvine law school professor Katherine Porter told me in my book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry: "You can't latte yourself to bankruptcy. The bladder won't stand for it."

Oh, and one other thing: our salaries are plunging. Median household income in 2011 equaled that in 1996.

Moreover, Cohen argues that telling people to cut back can lead them into worse financial trouble in the long-run. Take housing, for instance: people stretch not to buy the latest in McMansions, but to make sure their children are in a decent school district. In a country where education spending is determined on a hyper-local level, Cohen explains:

"It's not irrational to spend to your financial limits to buy in the best neighborhood you can.

"People are making a trade-off. I can have personal financial security or send my children to a school with art and physical education. Or I can worry about retirement or worry about crime and a long commute."

Other major expenses also offer similar, "damned if you do, damned if you don't" choices. Give up health insurance and you'll save money – till the day you need more than basic care. Skip college and your lifetime earnings are almost certainly impacted. As a result, Cohen says our financial lives are increasingly a lose-lose situation, where if we lose a job or get into a car accident, we almost immediately slip over the financial edge.

Yet the situation feels so normal to us that we don't question it. Believing we're a nation of latte-swilling wastrels stops us from addressing the real causes of our personal financial woes: ever-increasing income inequality, falling salaries, and a lack of adequate government funding for everything from healthcare to education.

So why does the latte meme, though a fallacy, persist? Cohen told me he believes the myth of the fiscally promiscuous American appeals on both sides of the political spectrum. On the right, it lands squarely in the camp of personal responsibility – the idea that we are fully masters (or mistresses) of our fate. At the same time, fictions about our supposed free-spending ways also fits into a long-running leftist critique of the consumerist society – the idea that somehow our spending on luxuries is morally wrong.

The idea that our friends and neighbors waste their money also makes us feel better about our own decisions, if we embrace it. "It's wonderful for our self-esteem to look down at everyone else," Cohen told me.

But what's good for our day-to-day mental health does not make for good public policy.

• Editor's note: a previous version of this article misstated the years during which American luxury spending fell, and has been corrected accordingly

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Giving up coffee to balance the books: how many lattes to financial freedom? appeared first on Helaine Olen.

]]>

Cutting back on minor expenses won’t save you much in a country where luxuries are cheap and necessities expensive

It’s not our daily latte that is driving us to the poorhouse. It’s our Lipitor … and our houses, our families and other necessities of life.

Yet we still don’t want to believe it. A decade after Elizabeth Warren first revealed that the leading cause of bankruptcies was medical spending, Americans continue to discuss our financial woes as though we only have to give up a few habits to solve our checkbook woes.

It’s a nice fairy tale. It’s also not true.

The latest to take on the challenge of convincing Americans of the reality of their financial lives is Joseph N Cohen, an assistant professor of sociology at Queens College. In a paper released this past weekend at the American Sociological Association‘s annual meeting in New York City, Cohen used figures from the Bureau of Labor Statistics to bust the myth of the latte factor: the idea that we’re wasting our precious funds on pointless luxuries.

Cohen found that we’re not spending more on things we don’t need to get through the day. On the contrary, we’re spending less. Between the mid-1980s and the mid-00s, Americans’ spending on clothes fell by 28%; alcohol 12%; tobacco 25%; vehicle purchases 15% and vehicle maintenance 24%. Overall expenditures on food also declined, with spending on in-home meals falling by 8% and restaurant dining by a more modest 3%.

Where did the money go? Consider your own circumstances, and you’re likely to see the most common increases in spending. During the same period of time, we spent almost 20% more on housing and 32% more on healthcare, which includes a more than 100% rise in the cost of health insurance and 41% of pharmaceuticals. Education? An astonishing 60% increase. Gas went up by 23% and auto insurance by 29%.

Cohen summed it up aptly:

“A colleague of mine once told me that America is a place where the luxuries are cheap but the necessities expensive. A cell phone is affordable. What’s killing people is housing and childcare and medical expenses.”

Think of it this way. An iced tea I purchased Saturday at Abbot’s Habit in Venice Beach, California, cost $2.50. I pay just under $1,300 a month for a health insurance policy that … well, let’s just say it’s less than generous.

Doing the math shows that I would have to give up 520 iced caffeine drinks a month to pay my health insurance bill, and I still would not cover all my family’s medical expenses. As University of California-Irvine law school professor Katherine Porter told me in my book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry: “You can’t latte yourself to bankruptcy. The bladder won’t stand for it.”

Oh, and one other thing: our salaries are plunging. Median household income in 2011 equaled that in 1996.

Moreover, Cohen argues that telling people to cut back can lead them into worse financial trouble in the long-run. Take housing, for instance: people stretch not to buy the latest in McMansions, but to make sure their children are in a decent school district. In a country where education spending is determined on a hyper-local level, Cohen explains:

“It’s not irrational to spend to your financial limits to buy in the best neighborhood you can.

“People are making a trade-off. I can have personal financial security or send my children to a school with art and physical education. Or I can worry about retirement or worry about crime and a long commute.”

Other major expenses also offer similar, “damned if you do, damned if you don’t” choices. Give up health insurance and you’ll save money – till the day you need more than basic care. Skip college and your lifetime earnings are almost certainly impacted. As a result, Cohen says our financial lives are increasingly a lose-lose situation, where if we lose a job or get into a car accident, we almost immediately slip over the financial edge.

Yet the situation feels so normal to us that we don’t question it. Believing we’re a nation of latte-swilling wastrels stops us from addressing the real causes of our personal financial woes: ever-increasing income inequality, falling salaries, and a lack of adequate government funding for everything from healthcare to education.

So why does the latte meme, though a fallacy, persist? Cohen told me he believes the myth of the fiscally promiscuous American appeals on both sides of the political spectrum. On the right, it lands squarely in the camp of personal responsibility – the idea that we are fully masters (or mistresses) of our fate. At the same time, fictions about our supposed free-spending ways also fits into a long-running leftist critique of the consumerist society – the idea that somehow our spending on luxuries is morally wrong.

The idea that our friends and neighbors waste their money also makes us feel better about our own decisions, if we embrace it. “It’s wonderful for our self-esteem to look down at everyone else,” Cohen told me.

But what’s good for our day-to-day mental health does not make for good public policy.

• Editor’s note: a previous version of this article misstated the years during which American luxury spending fell, and has been corrected accordingly

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Giving up coffee to balance the books: how many lattes to financial freedom? appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/08/13/giving-up-coffee-to-balance-the-books-how-many-lattes-to-financial-freedom/feed/ 0
The curse of student loan debt: owe while you’re young, live when you’re old http://helaineolen.com/2013/08/08/the-curse-of-student-loan-debt-owe-while-youre-young-live-when-youre-old/ http://helaineolen.com/2013/08/08/the-curse-of-student-loan-debt-owe-while-youre-young-live-when-youre-old/#comments Thu, 08 Aug 2013 14:29:39 +0000 http://www.theguardian.com/money/us-money-blog/2013/aug/08/student-loans-debt-traps-young-people

Student debt and dead-end jobs have put many young Americans in dire circumstances outside their own control

Once upon a time, we invested in our young people so that they could enter the world without debt. Now, we turn them into deadbeat debtors before they're old enough to legally buy a drink, left far behind their financial betters.

The truth this week came courtesy of the Consumer Financial Protection Bureau and the Wall Street Journal, whose data parsing revealed that about one in five college graduates who borrowed for tuition via the federal direct loans program are not paying the money back.

In other words, a lot of people who recently attended college are in deep financial trouble. This should come as no surprise.

The United States is suffering from a massive jobs shortfall. For years, we've parroted the line that more education will somehow buttress the economy, as if we expect the good jobs fairy to shower magic, well-paying employment sparkle over the land when she sees how many of our young people attended college.

What really happens?

More than half of all new jobs created this year in the US came in the low-wage sectors of retail, travel and restaurants. The consulting firm McKinsey & Company determined that only half of recent college graduates were working in fields that actually required a degree to perform well. The report's author dryly noted:

"The cliche of the overeducated waiter or limousine driver seems to have some support."

All this debt followed by low-paying gigs has serious consequences for our young people.

The New York Federal Reserve reported earlier this year that they believed that the rapidly growing problem of student debt was causing twentysomethings to delay home and auto purchases.

Others are beginning to suspect it is also impacting the country's fabled entrepreneurial culture. Earlier this year, the CFPB reported that many believe the burden of the student debt is costing the US startup jobs.

One advocacy group, Young Invincibles, has reported that debt has made it all but impossible for almost a quarter of graduates to hang out their own shingle, with 8% claiming the Small Business Administration has turned down their loan requests.

Think of it this way: it's a lot harder to take a guaranteed employment gander and devote one's time and energy to starting a business out of a Silicon Valley garage – or even to go looking for money on Kickstarter – if you need to make a monthly payment on student loans.

The ever-growing albatross of student debt also makes it a lot harder to put money aside for the future. Even as Americans are being all but hectored by the finance establishment about the need to save for retirement, the progressive thinktank Demos released a report last week that suggests we are asking for the impossible.

According to Demos' research, not only are people with student debt unable to put as much aside in savings, they're also purchasing less expensive homes, and at older ages than their unencumbered peers.

This year's graduates with student loans have more than $26,000 of debt; Demos estimated the average household would lose more than $200,000 in future net assets.

All of this costs them future investment gains. While less expensive homes seem admirably frugal, even if those homes gain value at the exact same rate as more expensive homes, their owners will still end up with less money.

Compound interest is to blame, as visible with a simple example: let's say two families each buy a home – or put a fantastical sum aside in a retirement account. One purchases a house for $150,000. If they make a 10% gain the first year, their home has appreciated in value by $15,000.

The family without student loans lives larger and puts a down payment on a residence worth $200,000. That same 10% percent growth in the value of housing leaves them $20,000 richer. Multiply that out over a period of years and you see how the wealth gap widens.

One state thinks it has a solution: Oregon's governor is widely expected to soon sign legislation that would try to reform how students pay for state colleges and universities. Instead of signing up for a tuition bill, state university students would be expected to pay for their educations after graduation – and agree to give 3% of their annual income to the state for somewhere between 20 and 25 years.

After they turn 50 years old, they can start living.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post The curse of student loan debt: owe while you’re young, live when you’re old appeared first on Helaine Olen.

]]>

Student debt and dead-end jobs have put many young Americans in dire circumstances outside their own control

Once upon a time, we invested in our young people so that they could enter the world without debt. Now, we turn them into deadbeat debtors before they’re old enough to legally buy a drink, left far behind their financial betters.

The truth this week came courtesy of the Consumer Financial Protection Bureau and the Wall Street Journal, whose data parsing revealed that about one in five college graduates who borrowed for tuition via the federal direct loans program are not paying the money back.

In other words, a lot of people who recently attended college are in deep financial trouble. This should come as no surprise.

The United States is suffering from a massive jobs shortfall. For years, we’ve parroted the line that more education will somehow buttress the economy, as if we expect the good jobs fairy to shower magic, well-paying employment sparkle over the land when she sees how many of our young people attended college.

What really happens?

More than half of all new jobs created this year in the US came in the low-wage sectors of retail, travel and restaurants. The consulting firm McKinsey & Company determined that only half of recent college graduates were working in fields that actually required a degree to perform well. The report’s author dryly noted:

“The cliche of the overeducated waiter or limousine driver seems to have some support.”

All this debt followed by low-paying gigs has serious consequences for our young people.

The New York Federal Reserve reported earlier this year that they believed that the rapidly growing problem of student debt was causing twentysomethings to delay home and auto purchases.

Others are beginning to suspect it is also impacting the country’s fabled entrepreneurial culture. Earlier this year, the CFPB reported that many believe the burden of the student debt is costing the US startup jobs.

One advocacy group, Young Invincibles, has reported that debt has made it all but impossible for almost a quarter of graduates to hang out their own shingle, with 8% claiming the Small Business Administration has turned down their loan requests.

Think of it this way: it’s a lot harder to take a guaranteed employment gander and devote one’s time and energy to starting a business out of a Silicon Valley garage – or even to go looking for money on Kickstarter – if you need to make a monthly payment on student loans.

The ever-growing albatross of student debt also makes it a lot harder to put money aside for the future. Even as Americans are being all but hectored by the finance establishment about the need to save for retirement, the progressive thinktank Demos released a report last week that suggests we are asking for the impossible.

According to Demos’ research, not only are people with student debt unable to put as much aside in savings, they’re also purchasing less expensive homes, and at older ages than their unencumbered peers.

This year’s graduates with student loans have more than $26,000 of debt; Demos estimated the average household would lose more than $200,000 in future net assets.

All of this costs them future investment gains. While less expensive homes seem admirably frugal, even if those homes gain value at the exact same rate as more expensive homes, their owners will still end up with less money.

Compound interest is to blame, as visible with a simple example: let’s say two families each buy a home – or put a fantastical sum aside in a retirement account. One purchases a house for $150,000. If they make a 10% gain the first year, their home has appreciated in value by $15,000.

The family without student loans lives larger and puts a down payment on a residence worth $200,000. That same 10% percent growth in the value of housing leaves them $20,000 richer. Multiply that out over a period of years and you see how the wealth gap widens.

One state thinks it has a solution: Oregon’s governor is widely expected to soon sign legislation that would try to reform how students pay for state colleges and universities. Instead of signing up for a tuition bill, state university students would be expected to pay for their educations after graduation – and agree to give 3% of their annual income to the state for somewhere between 20 and 25 years.

After they turn 50 years old, they can start living.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post The curse of student loan debt: owe while you’re young, live when you’re old appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/08/08/the-curse-of-student-loan-debt-owe-while-youre-young-live-when-youre-old/feed/ 0
President Obama’s Amazon jobs pitch is hard to buy with one click http://helaineolen.com/2013/08/06/president-obamas-amazon-jobs-pitch-is-hard-to-buy-with-one-click/ http://helaineolen.com/2013/08/06/president-obamas-amazon-jobs-pitch-is-hard-to-buy-with-one-click/#comments Tue, 06 Aug 2013 16:15:34 +0000 http://www.theguardian.com/money/us-money-blog/2013/aug/06/obama-amazon-jobs-hard-to-buy

Weak job growth, low pay and Amazon's hypocrisy undermine the administration's story about new opportunities

President Barack Obama inadvertently foreshadowed July's mediocre employment numbers when he picked a new Amazon warehouse in Chattanooga, Tennessee, for a speech last week about the need to improve the quality of American jobs.

Calling for stable middle class jobs from an Amazon warehouse is like announcing a fitness initiative in a grocery store's snack aisle, and nodding approvingly as unhealthy-looking Americans toss giant bags of potato chips into their carts.

Over the course of his speech, Obama stumped for manufacturing jobs "Made in America", and for funding employment opportunities that upgrade our forever-crumbling infrastructure. He called for continued investment in wind, solar and natural gas, and all but begged Congress to raise the minimum wage. We all need "a good job with good wages", he said.

The closest a job at an Amazon warehouse is likely to come to all this is that it is located in the United States.

True, Amazon cheerfully piggybacked off Obama's speech to announce 5,000 new fulltime warehouse positions. They said nothing, however, about the fact that those new employees will almost certainly be working alongside temps – that is, people doing almost the exact same job, but for less in the way of benefits, hours and stability.

A visit to the website for Staff Management SMX, a temporary employment firm, offers a look at the many less than stable Amazon positions.

For example, there's a need for warehouse associates in San Bernardino, California, who can earn "up to $11.50 per hour". In return? Well, you might not want to bother signing up for direct deposit. As the job write-up goes:

"This is currently a temporary project and may last for several weeks or much longer depending on client business needs. If client business needs increase or decrease there may be a potential for the project to be extended or shortened."

Even if it lasts, $11.50 an hour at 40 hours a week equals just under $24,000 annually. That's less than $500 above the poverty line for a family of four in the United States.

You can describe a job like this in many ways, but few of us would choose the words "middle class".

Yet the Obama administration is all but forced to declare these sorts of job gains victories. If they didn't, there would be little to claim progress on when it comes to the job front.

Friday's release of the July unemployment numbers is a case in point. "Today's employment report provides further confirmation that the U.S. economy is continuing to recover from the worst downturn since the Great Depression," the White House blog proclaimed, noting the headline unemployment number had fallen from 7.6 to 7.4%.

However, about half of the rather meager 162,000 jobs created were in the low-wage areas of retail, leisure, travel and dining, and just under two-thirds of the new positions were part-time. It's an ongoing trend. More than three-quarters of jobs created this year were less than full-time work, according to an analysis by the Associated Press.

Lowly pay scales are also part of our post-2008 reality. As Pat Garofolo reminded me, the National Employment Law Project reported in 2011 that the majority of jobs lost during the Great Recession paid between $13.53 and $20.66 an hour. The majority of their replacements, however, offer pay between $7.51 and $13.52 per hour.

These are the sorts of jobs that not only don't replace previous salaries, they all too frequently leave workers dependent on government and social service programs, ranging from food stamps to Medicare.

The unhappiness of the American public is palpable. According to Gallup's 2013 State of the American Workplace report, 70% of us despise our work, and about half simply go through the motions to get to the next paycheck. (Note to all employers: underpaying workers is not a known motivator.)

Lower-paid employees are increasingly making their discontent known. Last week saw a number of one-day strikes by fast food workers in several cities, including New York City, Chicago, St Louis and Detroit; they claimed, rather reasonably, that they cannot get by on jobs paying at or near the national minimum wage of $7.25 an hour.

As numerous commentators have pointed out, much of the jobs picture cannot be fairly blamed on the Obama administration. Republicans in Congress stymie every initiative to improve the situation.

Yet it's one thing to not have to take full responsibility for the current jobs picture; it's another to try convincing us that low-quality jobs are worth celebrating. The Obama administration, it's sad to report, crossed the line twice last week.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post President Obama’s Amazon jobs pitch is hard to buy with one click appeared first on Helaine Olen.

]]>

Weak job growth, low pay and Amazon’s hypocrisy undermine the administration’s story about new opportunities

President Barack Obama inadvertently foreshadowed July’s mediocre employment numbers when he picked a new Amazon warehouse in Chattanooga, Tennessee, for a speech last week about the need to improve the quality of American jobs.

Calling for stable middle class jobs from an Amazon warehouse is like announcing a fitness initiative in a grocery store’s snack aisle, and nodding approvingly as unhealthy-looking Americans toss giant bags of potato chips into their carts.

Over the course of his speech, Obama stumped for manufacturing jobs “Made in America”, and for funding employment opportunities that upgrade our forever-crumbling infrastructure. He called for continued investment in wind, solar and natural gas, and all but begged Congress to raise the minimum wage. We all need “a good job with good wages”, he said.

The closest a job at an Amazon warehouse is likely to come to all this is that it is located in the United States.

True, Amazon cheerfully piggybacked off Obama’s speech to announce 5,000 new fulltime warehouse positions. They said nothing, however, about the fact that those new employees will almost certainly be working alongside temps – that is, people doing almost the exact same job, but for less in the way of benefits, hours and stability.

A visit to the website for Staff Management SMX, a temporary employment firm, offers a look at the many less than stable Amazon positions.

For example, there’s a need for warehouse associates in San Bernardino, California, who can earn “up to $11.50 per hour”. In return? Well, you might not want to bother signing up for direct deposit. As the job write-up goes:

“This is currently a temporary project and may last for several weeks or much longer depending on client business needs. If client business needs increase or decrease there may be a potential for the project to be extended or shortened.”

Even if it lasts, $11.50 an hour at 40 hours a week equals just under $24,000 annually. That’s less than $500 above the poverty line for a family of four in the United States.

You can describe a job like this in many ways, but few of us would choose the words “middle class”.

Yet the Obama administration is all but forced to declare these sorts of job gains victories. If they didn’t, there would be little to claim progress on when it comes to the job front.

Friday’s release of the July unemployment numbers is a case in point. “Today’s employment report provides further confirmation that the U.S. economy is continuing to recover from the worst downturn since the Great Depression,” the White House blog proclaimed, noting the headline unemployment number had fallen from 7.6 to 7.4%.

However, about half of the rather meager 162,000 jobs created were in the low-wage areas of retail, leisure, travel and dining, and just under two-thirds of the new positions were part-time. It’s an ongoing trend. More than three-quarters of jobs created this year were less than full-time work, according to an analysis by the Associated Press.

Lowly pay scales are also part of our post-2008 reality. As Pat Garofolo reminded me, the National Employment Law Project reported in 2011 that the majority of jobs lost during the Great Recession paid between $13.53 and $20.66 an hour. The majority of their replacements, however, offer pay between $7.51 and $13.52 per hour.

These are the sorts of jobs that not only don’t replace previous salaries, they all too frequently leave workers dependent on government and social service programs, ranging from food stamps to Medicare.

The unhappiness of the American public is palpable. According to Gallup’s 2013 State of the American Workplace report, 70% of us despise our work, and about half simply go through the motions to get to the next paycheck. (Note to all employers: underpaying workers is not a known motivator.)

Lower-paid employees are increasingly making their discontent known. Last week saw a number of one-day strikes by fast food workers in several cities, including New York City, Chicago, St Louis and Detroit; they claimed, rather reasonably, that they cannot get by on jobs paying at or near the national minimum wage of $7.25 an hour.

As numerous commentators have pointed out, much of the jobs picture cannot be fairly blamed on the Obama administration. Republicans in Congress stymie every initiative to improve the situation.

Yet it’s one thing to not have to take full responsibility for the current jobs picture; it’s another to try convincing us that low-quality jobs are worth celebrating. The Obama administration, it’s sad to report, crossed the line twice last week.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post President Obama’s Amazon jobs pitch is hard to buy with one click appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/08/06/president-obamas-amazon-jobs-pitch-is-hard-to-buy-with-one-click/feed/ 0
Making capitalism out of lemons http://helaineolen.com/2013/08/01/making-capitalism-out-of-lemons/ http://helaineolen.com/2013/08/01/making-capitalism-out-of-lemons/#comments Thu, 01 Aug 2013 19:04:49 +0000 http://www.theguardian.com/money/us-money-blog/2013/aug/01/capitalism-lemonade-children-parents

Today's discerning parents insist lemonade stands teach children lessons about capitalism – can't we all just have fun?

Let's take a moment to praise the humble lemonade stand.

Defending the nation's young merchants of lemonade is something of an annual tradition for me. Last year, I did a spoken commentary for American Public Media's Marketplace Money, protesting the number of lemonade consumers who were less than happy that my 12-year-old son Jake appeared to view his concession stand as a way of supplementing his parental allowance.

As it turned out, more than a few of Jake's lemonade consumers were convinced that the only legitimate reason a child should set up a beverage shop on a hot summer day was to raise money for charity. Even more astonishingly, they thought it was okay to lecture a tween that many had never met before about this.

I thought it couldn't get worse than that. But I was wrong. Now parents are insisting that lemonade stands teach lessons about how capitalism works. Seriously.

Let's take Los Angeles poet, essayist and mother Michal Lemberger. She penned a piece for the website Slate earlier this month, about the experience of her two daughters, ages four and six, with a lemonade stand they set up in front of a local community center.

The children, let it be said, had a blast.

Not Lemberger, who found herself dismayed. She thought her children would learn valuable lessons about how to run a business.

Instead, she discovered a group of Los Angelenos so desperate to patronize a lemonade stand, not a single one would accept change. Hell, a few were so eager to offer her girls encouragement, they offered money and wouldn't even take the drink.

Lemberger concluded her daughter's customers were thirsty all right, but it wasn't for liquid. It was for a memory of their own innocent childhood. They wanted to drink at the well of nostalgia.

This was not good enough for Lemberger, who decided offering potential customers a chance to relive the past for a few brief moments was simply not enough.

Lemonade stands "don't teach entrepreneurship," she concluded huffily.

Lemberger then confiscated the $14.50 in earnings for an unnamed charity, ensuring she would teach her children nothing except for the fact that living in the old Soviet Union must have been a terrible experience.

First things first. Peddling nostalgia is a pretty damn good business strategy if you can nail it, as numerous businesses and entrepreneurs from Ralph Lauren and Martha Stewart to the creators of the website Etsy, where women peddle homemade crafts, can attest. Nothing wrong with it.

Not surprisingly, lemonade stands, which might well be the ultimate in nostalgia, are enormously popular. There is no estimate that I can find of the number of lemonade stands run annually in the United States, but common sense says it must run into the millions. It is all but impossible to walk through any residential neighborhood in America's cities or suburbs on a spring or summer day and not stumble into at least one such outfit as just about everyone reading this column could most certainly attest. One organization alone, Lemonade Day, a Houston-based organization devoted to the precept of promoting entrepreneurship among children, claims 150,000 registered stands.

Think about it this way: if kids weren't making money, they'd probably get bored and move on. No scam runs forever.

But there is more than that.

To address Lemberger's point and make this example as personal and anecdotal as her own, I happen to think my son learned numerous lessons in his years of running lemonade stands. He discovered location matters, since stands placed on a nearby walking trail grossed greater amounts than setting up shop in front of our house.

Time of day was important too – weekend mornings did better than pretty much any other part of the day. The colder the weather, the less product sold. Jake also gradually figured out that adding additional product lines would increase the total take, with the result that his lemonade stands run also often featured popcorn and cupcakes.

And, no, I didn't forget the business-planning end. I was a personal finance writer for many years, after all. The price of all purchased cans of Country Time Lemonade powder were deducted from the take, and I charged 50 cents for every bowl of popcorn popped, as well as for the day's supply of cups.

Jake even discovered methods of dealing with difficult customers. My older son says he never argued with the people who asked him if he was donating his proceeds to charity. He simply said he would consider it. (For those of you who are wondering, my children give money to autism and cystic fibrosis research every year, as well as to numerous homeless people encountered on New York City streets.)

So if teaching a child about how to run a business is your goal, a lemonade stand is about as good as it gets. I mean, what else are you going to do? Bring them to "Take Our Daughters and Sons to Work Day?"

But there is a more valuable lesson too, and it's why I never insisted Jake donate his earnings to charity.

Jake discovered something that generations of feminists could have told him: it's important to have a source of money independent of the authority figures in your life, even if they are the people who love you best. After all, when mom says no, she's not ordering take-out Chinese for lunch, it's a good thing to have your own stash.

Finally, there is a lesson in all of this for mom and dad too, something that today's crop of humorless parents, who appear determined to turn everything into a lesson could stand to recall.

Nothing lasts forever.

This is, I confess, the first year in at least seven years Jake has not run a lemonade stand. My older son is now almost 14, an age where – well, let's just say the world is not full of teens running small concession type businesses in front of or near their own homes.

But even if he had never learned a darn thing running those stands, he had fun for many, many years. And, really, what else can a parent want for their young children than that?

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Making capitalism out of lemons appeared first on Helaine Olen.

]]>

Today’s discerning parents insist lemonade stands teach children lessons about capitalism – can’t we all just have fun?

Let’s take a moment to praise the humble lemonade stand.

Defending the nation’s young merchants of lemonade is something of an annual tradition for me. Last year, I did a spoken commentary for American Public Media’s Marketplace Money, protesting the number of lemonade consumers who were less than happy that my 12-year-old son Jake appeared to view his concession stand as a way of supplementing his parental allowance.

As it turned out, more than a few of Jake’s lemonade consumers were convinced that the only legitimate reason a child should set up a beverage shop on a hot summer day was to raise money for charity. Even more astonishingly, they thought it was okay to lecture a tween that many had never met before about this.

I thought it couldn’t get worse than that. But I was wrong. Now parents are insisting that lemonade stands teach lessons about how capitalism works. Seriously.

Let’s take Los Angeles poet, essayist and mother Michal Lemberger. She penned a piece for the website Slate earlier this month, about the experience of her two daughters, ages four and six, with a lemonade stand they set up in front of a local community center.

The children, let it be said, had a blast.

Not Lemberger, who found herself dismayed. She thought her children would learn valuable lessons about how to run a business.

Instead, she discovered a group of Los Angelenos so desperate to patronize a lemonade stand, not a single one would accept change. Hell, a few were so eager to offer her girls encouragement, they offered money and wouldn’t even take the drink.

Lemberger concluded her daughter’s customers were thirsty all right, but it wasn’t for liquid. It was for a memory of their own innocent childhood. They wanted to drink at the well of nostalgia.

This was not good enough for Lemberger, who decided offering potential customers a chance to relive the past for a few brief moments was simply not enough.

Lemonade stands “don’t teach entrepreneurship,” she concluded huffily.

Lemberger then confiscated the $14.50 in earnings for an unnamed charity, ensuring she would teach her children nothing except for the fact that living in the old Soviet Union must have been a terrible experience.

First things first. Peddling nostalgia is a pretty damn good business strategy if you can nail it, as numerous businesses and entrepreneurs from Ralph Lauren and Martha Stewart to the creators of the website Etsy, where women peddle homemade crafts, can attest. Nothing wrong with it.

Not surprisingly, lemonade stands, which might well be the ultimate in nostalgia, are enormously popular. There is no estimate that I can find of the number of lemonade stands run annually in the United States, but common sense says it must run into the millions. It is all but impossible to walk through any residential neighborhood in America’s cities or suburbs on a spring or summer day and not stumble into at least one such outfit as just about everyone reading this column could most certainly attest. One organization alone, Lemonade Day, a Houston-based organization devoted to the precept of promoting entrepreneurship among children, claims 150,000 registered stands.

Think about it this way: if kids weren’t making money, they’d probably get bored and move on. No scam runs forever.

But there is more than that.

To address Lemberger’s point and make this example as personal and anecdotal as her own, I happen to think my son learned numerous lessons in his years of running lemonade stands. He discovered location matters, since stands placed on a nearby walking trail grossed greater amounts than setting up shop in front of our house.

Time of day was important too – weekend mornings did better than pretty much any other part of the day. The colder the weather, the less product sold. Jake also gradually figured out that adding additional product lines would increase the total take, with the result that his lemonade stands run also often featured popcorn and cupcakes.

And, no, I didn’t forget the business-planning end. I was a personal finance writer for many years, after all. The price of all purchased cans of Country Time Lemonade powder were deducted from the take, and I charged 50 cents for every bowl of popcorn popped, as well as for the day’s supply of cups.

Jake even discovered methods of dealing with difficult customers. My older son says he never argued with the people who asked him if he was donating his proceeds to charity. He simply said he would consider it. (For those of you who are wondering, my children give money to autism and cystic fibrosis research every year, as well as to numerous homeless people encountered on New York City streets.)

So if teaching a child about how to run a business is your goal, a lemonade stand is about as good as it gets. I mean, what else are you going to do? Bring them to “Take Our Daughters and Sons to Work Day?”

But there is a more valuable lesson too, and it’s why I never insisted Jake donate his earnings to charity.

Jake discovered something that generations of feminists could have told him: it’s important to have a source of money independent of the authority figures in your life, even if they are the people who love you best. After all, when mom says no, she’s not ordering take-out Chinese for lunch, it’s a good thing to have your own stash.

Finally, there is a lesson in all of this for mom and dad too, something that today’s crop of humorless parents, who appear determined to turn everything into a lesson could stand to recall.

Nothing lasts forever.

This is, I confess, the first year in at least seven years Jake has not run a lemonade stand. My older son is now almost 14, an age where – well, let’s just say the world is not full of teens running small concession type businesses in front of or near their own homes.

But even if he had never learned a darn thing running those stands, he had fun for many, many years. And, really, what else can a parent want for their young children than that?

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Making capitalism out of lemons appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/08/01/making-capitalism-out-of-lemons/feed/ 0
Toils and troubles of a new housing bubble http://helaineolen.com/2013/07/30/toils-and-troubles-of-a-new-housing-bubble/ http://helaineolen.com/2013/07/30/toils-and-troubles-of-a-new-housing-bubble/#comments Tue, 30 Jul 2013 14:08:01 +0000 http://www.theguardian.com/money/us-money-blog/2013/jul/30/troubles-new-us-housing-bubble

The real estate market in southern California, like in many parts of the US, is hot again – but we should know better this time

It was while I was standing in the living room of a beach bungalow located about a mile from the Pacific Ocean in Los Angeles' Venice Beach neighborhood, that I heard the phrase "It's just like 2006" uttered twice in a 10-minute span of time by two separate people.

There was no irony intended.

Bubble, bubble …

The real estate market in southern California, like in many parts of the United States, is once again as hot as it was back in the last decade, when Robert Kiyosaki told everyone it was okay to buy multiple properties with little money down, and when Suze Orman advised purchasing a piece of property to live in since real estate would be the best investment just about every middle class family could ever make.

We all know what happened next. But the housing crash – well, in the living room of this human dollhouse in Venice Beach, that's so 2009 or 2010.

The two-bedroom, one bath, under-900-square-foot house was listed for sale at a price of $899,000. At an open house held on July 21, more than one hundred people showed up over the space of three hours. At another, two days later, several dozen. There is a young woman with her mother and broker, frantically measuring walls to see if her furniture will fit in the space. One shopper points to the windows, asking rhetorically why they haven't been replaced with newer, more pristine frames. Still another woman walks in and tells Jerry Jaffe, the real estate broker listing the home, about all the homes she's bid on.

"We lost Penmar," the would-be homeowner says sadly, referencing a recent house sale located a few blocks away.

"We only need one good buyer," Jaffe responds encouragingly.

The Venice bungalow will, by 5pm the next day, have seven.

Two of the offers for this tiny home are all cash, and a number of others promise a 50% down payment. Several are what Jaffe calls "way over" asking, though he legally can't share the final price.

Not bad for a property that last sold in a short sale a little more than two years ago for $600,000.

As for the previous owners? They had had paid $870,000 in March of 2007.

It's back.

Such home sales are taking place all over the Los Angeles basin in recent months. Prices are climbing and they are climbing fast. The Case-Schiller Home Price Index reports that in April, the last month for which they have data, prices increased 3.4% in a month. DataQuick, which also collects information on Southern California home sales, claims home prices in the region increased by 28% year over year, the greatest amount they've ever recorded since they began keeping records in 1988.

Breaking a home price record set in 1988 is the sort of statistic that should give would-be home purchasers owners pause. The housing market in Los Angeles crashed after hitting a high in the late 1980s.

But it's not keeping buyers away, either in Los Angeles or other cities like Phoenix and Las Vegas, which are also seeing price surges. Nationally, home prices are up by 13.5% from June of last year.

Here in Los Angeles, wannabe homeowners tell tales of being shut out of the market because they can't make all cash offers (nationally, just under one third of homes sold for all cash in June), or afford to give up mortgage contingencies.

Carrie Kangro, a producer and mother of two toddlers, tells me she's lost out on several Venice and Santa Monica area homes over the past year, including one where the realtor or owner would not even allow her husband to view the property until she had put in an offer. Another – the most recent house she was not able to purchase, listed at $879,000 and ultimately sold to someone who offered $935,000.

Compounding the frenzy: many of these eager homeowners are not individuals at all, but investors. Some, especially in areas like the lower middle class inland empire areas like Riverside County, are Wall Street firms like the Blackstone Group entering the landlord business.

Others, like Los Angeles area based Dossier Capital or ReInhabit, make cosmetic or structural fixes on rundown homes they scoop up in hipster communities like Venice or Silver Lake, adding new windows, floors and, sometimes, square footage by building a second story or other additions, and put them back on the market about a year later and flipping them for significantly more money.

So how long can this last? Well, as John Maynard Keynes once famously observed about the stock market, it can stay irrational a lot longer than you can stay solvent.

On one hand, interest rates on a 30-year fixed mortgage are averaging 4.58%, according to the Mortgage Bankers Association, up more than a full point from the beginning of May. That impacts would-be homeowners monthly bills, and makes it likely that some of them will need to look to less expensive properties – or not buy anything at all. According to the National Association of Realtors, pending home sales fell by .4% in June.

On the other hand, the federal regulators are considering reducing the amount of mortgage securities banks must keep on the books. If it goes through, more buyers – who previously could not get mortgages – are likely to enter the housing market, giving it a further boost.

There is, as I wrote in my book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, something about homes that makes us see them as safer investments than stocks even when we should know better. Because we can we can touch them, live in them, hear them creak and moan at night when heat causes hardwood floors to expand and contract, we view our houses as things that can never betray us financially. That the price of real estate can swing just as widely as a stock never occurs to us till it is too late.

As a result, we relive history again and again and again.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Toils and troubles of a new housing bubble appeared first on Helaine Olen.

]]>

The real estate market in southern California, like in many parts of the US, is hot again – but we should know better this time

It was while I was standing in the living room of a beach bungalow located about a mile from the Pacific Ocean in Los Angeles’ Venice Beach neighborhood, that I heard the phrase “It’s just like 2006” uttered twice in a 10-minute span of time by two separate people.

There was no irony intended.

Bubble, bubble …

The real estate market in southern California, like in many parts of the United States, is once again as hot as it was back in the last decade, when Robert Kiyosaki told everyone it was okay to buy multiple properties with little money down, and when Suze Orman advised purchasing a piece of property to live in since real estate would be the best investment just about every middle class family could ever make.

We all know what happened next. But the housing crash – well, in the living room of this human dollhouse in Venice Beach, that’s so 2009 or 2010.

The two-bedroom, one bath, under-900-square-foot house was listed for sale at a price of $899,000. At an open house held on July 21, more than one hundred people showed up over the space of three hours. At another, two days later, several dozen. There is a young woman with her mother and broker, frantically measuring walls to see if her furniture will fit in the space. One shopper points to the windows, asking rhetorically why they haven’t been replaced with newer, more pristine frames. Still another woman walks in and tells Jerry Jaffe, the real estate broker listing the home, about all the homes she’s bid on.

“We lost Penmar,” the would-be homeowner says sadly, referencing a recent house sale located a few blocks away.

“We only need one good buyer,” Jaffe responds encouragingly.

The Venice bungalow will, by 5pm the next day, have seven.

Two of the offers for this tiny home are all cash, and a number of others promise a 50% down payment. Several are what Jaffe calls “way over” asking, though he legally can’t share the final price.

Not bad for a property that last sold in a short sale a little more than two years ago for $600,000.

As for the previous owners? They had had paid $870,000 in March of 2007.

It’s back.

Such home sales are taking place all over the Los Angeles basin in recent months. Prices are climbing and they are climbing fast. The Case-Schiller Home Price Index reports that in April, the last month for which they have data, prices increased 3.4% in a month. DataQuick, which also collects information on Southern California home sales, claims home prices in the region increased by 28% year over year, the greatest amount they’ve ever recorded since they began keeping records in 1988.

Breaking a home price record set in 1988 is the sort of statistic that should give would-be home purchasers owners pause. The housing market in Los Angeles crashed after hitting a high in the late 1980s.

But it’s not keeping buyers away, either in Los Angeles or other cities like Phoenix and Las Vegas, which are also seeing price surges. Nationally, home prices are up by 13.5% from June of last year.

Here in Los Angeles, wannabe homeowners tell tales of being shut out of the market because they can’t make all cash offers (nationally, just under one third of homes sold for all cash in June), or afford to give up mortgage contingencies.

Carrie Kangro, a producer and mother of two toddlers, tells me she’s lost out on several Venice and Santa Monica area homes over the past year, including one where the realtor or owner would not even allow her husband to view the property until she had put in an offer. Another – the most recent house she was not able to purchase, listed at $879,000 and ultimately sold to someone who offered $935,000.

Compounding the frenzy: many of these eager homeowners are not individuals at all, but investors. Some, especially in areas like the lower middle class inland empire areas like Riverside County, are Wall Street firms like the Blackstone Group entering the landlord business.

Others, like Los Angeles area based Dossier Capital or ReInhabit, make cosmetic or structural fixes on rundown homes they scoop up in hipster communities like Venice or Silver Lake, adding new windows, floors and, sometimes, square footage by building a second story or other additions, and put them back on the market about a year later and flipping them for significantly more money.

So how long can this last? Well, as John Maynard Keynes once famously observed about the stock market, it can stay irrational a lot longer than you can stay solvent.

On one hand, interest rates on a 30-year fixed mortgage are averaging 4.58%, according to the Mortgage Bankers Association, up more than a full point from the beginning of May. That impacts would-be homeowners monthly bills, and makes it likely that some of them will need to look to less expensive properties – or not buy anything at all. According to the National Association of Realtors, pending home sales fell by .4% in June.

On the other hand, the federal regulators are considering reducing the amount of mortgage securities banks must keep on the books. If it goes through, more buyers – who previously could not get mortgages – are likely to enter the housing market, giving it a further boost.

There is, as I wrote in my book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, something about homes that makes us see them as safer investments than stocks even when we should know better. Because we can we can touch them, live in them, hear them creak and moan at night when heat causes hardwood floors to expand and contract, we view our houses as things that can never betray us financially. That the price of real estate can swing just as widely as a stock never occurs to us till it is too late.

As a result, we relive history again and again and again.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Toils and troubles of a new housing bubble appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/07/30/toils-and-troubles-of-a-new-housing-bubble/feed/ 0
All the president’s deja-vus http://helaineolen.com/2013/07/25/all-the-presidents-deja-vus-2/ http://helaineolen.com/2013/07/25/all-the-presidents-deja-vus-2/#comments Thu, 25 Jul 2013 19:08:20 +0000 http://www.theguardian.com/money/us-money-blog/2013/jul/25/barack-obama-economic-deja-vus

Thursday's speech on the economy was just like all the others – it sounded great, we got excited, then poof! We moved on

This week Barack Obama remembered the middle class.

You know them. The people who will suffer in retirement if our Social Security retirement benefits are given a "tweak" as he phrased his own effort at entitlement reform last year. They are the people whose incomes have continued to fall through his administration. They are the people still waiting for significant financial reform.

So, you know, most of us.

Poll numbers are falling, something that happens to many second-term presidents, also known as "lame-ducks." Excitement moves elsewhere. Elizabeth Warren, the creator of the Consumer Financial Protection Bureau who no longer heads it up because Obama refused to risk a confirmation fight in the Senate on her behalf, is now in the Senate herself, fighting the banks. Others are wondering whether Hillary will run again.

Hell, if you go by my Twitter feed, more are concerned about the latest doings of Anthony Weiner/Carlos Danger and the naming of the royal baby than Potus.

So it's time for a speech, a series of speeches in fact. Obama is going to take the world back for the beleaguered middle classes.

There's only one problem: Obama now living in the White House bubble for more than five years, doesn't have a sense of how the rest of us live. And it showed in the speech he gave in Illinois yesterday, the one his staff would have us herald as a bold new vision for America.

Obama says he would like to re-establish pathways to the middle class for those lower on the income totem poll: jobs programs, infrastructure upgrades and education. These are good and worthy goals. But, Mr President, with all due respect, it's only half the problem.

It's not simply that the ladders of upward mobility are increasingly being folded up and returned to the garage, freezing us all in place. For all too many people, the modern American economy feels like a jinxed game of Chutes and Ladders, where we always land on the chutes and the CEOs – you know, the ones even President Obama admits saw his salary increase 40% over the course of his own administration – get the ladders.

Take the boasting of the 7.2m paid positions created over the course of his administration. Nice going, but it only tells part of the story. Part-time jobs are growing at a faster rate in 2013 than full-time positions. Hourly income continues to fall by a record amount in the first quarter of this year. The workforce participation rate is at post-war lows, and, no, that's not a reflection of the aging of the American workforce. Many are simply so discouraged, they've given up entirely.

In this environment, the idea of expanding self-funded retirement accounts, as Obama says he would like to do, is something of a bad joke. Americans have had Individual Retirement Accounts and 401(k)s for more than thirty years. The people who have them don't have enough money saved in them and they know it. More than four of out five of us routinely tell pollsters we'd like to see a return to some form of the pension system. Instead, President Obama is offering them more of the same.

Then there is this: "We put in place tough new rules on the banks." We did? Five years out, and no one has even been charged, much less gone to jail, for causing the economic crisis that all but brought us to the financial brink. Too Big To Fail has become even Too Bigger To Fail. Dodd-Frank is being eviscerated, rule by regulatory rule, with nary a word from the White House. The bankster scams just seem to grow by the day – just this past weekend, The New York Times wrote about an ingenuous scheme by Goldman Sachs to force up the price of aluminum by buying the warehouses and getting around regulations forbidding hoarding by ordering forklift drivers to move it from warehouse to warehouse.

But, hey, it's a job, right? Probably a full-time one, in fact. Why complain?

Obama can blame Republican obstructionism all he wants. He's certainly got at least a partial point. But he needs to look in the mirror too. He got elected in 2008 on a platform of "hope and change" and, with the exception of healthcare reform, offered incremental fixes and more of the same.

We've been here time and time again. President Obama makes a speech. It sounds great. We get excited. And then, poof. We move on.

Faced with an environment where the likelihood of getting anything past Congress is near nil, where the sequester is harming more and more people with each passing day – perhaps the president should go for broke. Offer a list of grand ideas. Force the public discussion to the left.

Think about it this way: it worked for the Republicans. Why not give it a try?

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post All the president’s deja-vus appeared first on Helaine Olen.

]]>

Thursday’s speech on the economy was just like all the others – it sounded great, we got excited, then poof! We moved on

This week Barack Obama remembered the middle class.

You know them. The people who will suffer in retirement if our Social Security retirement benefits are given a “tweak” as he phrased his own effort at entitlement reform last year. They are the people whose incomes have continued to fall through his administration. They are the people still waiting for significant financial reform.

So, you know, most of us.

Poll numbers are falling, something that happens to many second-term presidents, also known as “lame-ducks.” Excitement moves elsewhere. Elizabeth Warren, the creator of the Consumer Financial Protection Bureau who no longer heads it up because Obama refused to risk a confirmation fight in the Senate on her behalf, is now in the Senate herself, fighting the banks. Others are wondering whether Hillary will run again.

Hell, if you go by my Twitter feed, more are concerned about the latest doings of Anthony Weiner/Carlos Danger and the naming of the royal baby than Potus.

So it’s time for a speech, a series of speeches in fact. Obama is going to take the world back for the beleaguered middle classes.

There’s only one problem: Obama now living in the White House bubble for more than five years, doesn’t have a sense of how the rest of us live. And it showed in the speech he gave in Illinois yesterday, the one his staff would have us herald as a bold new vision for America.

Obama says he would like to re-establish pathways to the middle class for those lower on the income totem poll: jobs programs, infrastructure upgrades and education. These are good and worthy goals. But, Mr President, with all due respect, it’s only half the problem.

It’s not simply that the ladders of upward mobility are increasingly being folded up and returned to the garage, freezing us all in place. For all too many people, the modern American economy feels like a jinxed game of Chutes and Ladders, where we always land on the chutes and the CEOs – you know, the ones even President Obama admits saw his salary increase 40% over the course of his own administration – get the ladders.

Take the boasting of the 7.2m paid positions created over the course of his administration. Nice going, but it only tells part of the story. Part-time jobs are growing at a faster rate in 2013 than full-time positions. Hourly income continues to fall by a record amount in the first quarter of this year. The workforce participation rate is at post-war lows, and, no, that’s not a reflection of the aging of the American workforce. Many are simply so discouraged, they’ve given up entirely.

In this environment, the idea of expanding self-funded retirement accounts, as Obama says he would like to do, is something of a bad joke. Americans have had Individual Retirement Accounts and 401(k)s for more than thirty years. The people who have them don’t have enough money saved in them and they know it. More than four of out five of us routinely tell pollsters we’d like to see a return to some form of the pension system. Instead, President Obama is offering them more of the same.

Then there is this: “We put in place tough new rules on the banks.” We did? Five years out, and no one has even been charged, much less gone to jail, for causing the economic crisis that all but brought us to the financial brink. Too Big To Fail has become even Too Bigger To Fail. Dodd-Frank is being eviscerated, rule by regulatory rule, with nary a word from the White House. The bankster scams just seem to grow by the day – just this past weekend, The New York Times wrote about an ingenuous scheme by Goldman Sachs to force up the price of aluminum by buying the warehouses and getting around regulations forbidding hoarding by ordering forklift drivers to move it from warehouse to warehouse.

But, hey, it’s a job, right? Probably a full-time one, in fact. Why complain?

Obama can blame Republican obstructionism all he wants. He’s certainly got at least a partial point. But he needs to look in the mirror too. He got elected in 2008 on a platform of “hope and change” and, with the exception of healthcare reform, offered incremental fixes and more of the same.

We’ve been here time and time again. President Obama makes a speech. It sounds great. We get excited. And then, poof. We move on.

Faced with an environment where the likelihood of getting anything past Congress is near nil, where the sequester is harming more and more people with each passing day – perhaps the president should go for broke. Offer a list of grand ideas. Force the public discussion to the left.

Think about it this way: it worked for the Republicans. Why not give it a try?

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post All the president’s deja-vus appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/07/25/all-the-presidents-deja-vus-2/feed/ 0
All the president’s deja-vus http://helaineolen.com/2013/07/25/all-the-presidents-deja-vus/ http://helaineolen.com/2013/07/25/all-the-presidents-deja-vus/#comments Thu, 25 Jul 2013 19:08:20 +0000 http://www.guardian.co.uk/money/us-money-blog/2013/jul/25/barack-obama-economic-deja-vus

Thursday's speech on the economy was just like all the others – it sounded great, we got excited, then poof! We moved on

This week Barack Obama remembered the middle class.

You know them. The people who will suffer in retirement if our Social Security retirement benefits are given a "tweak" as he phrased his own effort at entitlement reform last year. They are the people whose incomes have continued to fall through his administration. They are the people still waiting for significant financial reform.

So, you know, most of us.

Poll numbers are falling, something that happens to many second-term presidents, also known as "lame-ducks." Excitement moves elsewhere. Elizabeth Warren, the creator of the Consumer Financial Protection Bureau who no longer heads it up because Obama refused to risk a confirmation fight in the Senate on her behalf, is now in the Senate herself, fighting the banks. Others are wondering whether Hillary will run again.

Hell, if you go by my Twitter feed, more are concerned about the latest doings of Anthony Weiner/Carlos Danger and the naming of the royal baby than Potus.

So it's time for a speech, a series of speeches in fact. Obama is going to take the world back for the beleaguered middle classes.

There's only one problem: Obama now living in the White House bubble for more than five years, doesn't have a sense of how the rest of us live. And it showed in the speech he gave in Illinois yesterday, the one his staff would have us herald as a bold new vision for America.

Obama says he would like to re-establish pathways to the middle class for those lower on the income totem poll: jobs programs, infrastructure upgrades and education. These are good and worthy goals. But, Mr President, with all due respect, it's only half the problem.

It's not simply that the ladders of upward mobility are increasingly being folded up and returned to the garage, freezing us all in place. For all too many people, the modern American economy feels like a jinxed game of Chutes and Ladders, where we always land on the chutes and the CEOs – you know, the ones even President Obama admits saw his salary increase 40% over the course of his own administration – get the ladders.

Take the boasting of the 7.2m paid positions created over the course of his administration. Nice going, but it only tells part of the story. Part-time jobs are growing at a faster rate in 2013 than full-time positions. Hourly income continues to fall by a record amount in the first quarter of this year. The workforce participation rate is at post-war lows, and, no, that's not a reflection of the aging of the American workforce. Many are simply so discouraged, they've given up entirely.

In this environment, the idea of expanding self-funded retirement accounts, as Obama says he would like to do, is something of a bad joke. Americans have had Individual Retirement Accounts and 401(k)s for more than thirty years. The people who have them don't have enough money saved in them and they know it. More than four of out five of us routinely tell pollsters we'd like to see a return to some form of the pension system. Instead, President Obama is offering them more of the same.

Then there is this: "We put in place tough new rules on the banks." We did? Five years out, and no one has even been charged, much less gone to jail, for causing the economic crisis that all but brought us to the financial brink. Too Big To Fail has become even Too Bigger To Fail. Dodd-Frank is being eviscerated, rule by regulatory rule, with nary a word from the White House. The bankster scams just seem to grow by the day – just this past weekend, The New York Times wrote about an ingenuous scheme by Goldman Sachs to force up the price of aluminum by buying the warehouses and getting around regulations forbidding hoarding by ordering forklift drivers to move it from warehouse to warehouse.

But, hey, it's a job, right? Probably a full-time one, in fact. Why complain?

Obama can blame Republican obstructionism all he wants. He's certainly got at least a partial point. But he needs to look in the mirror too. He got elected in 2008 on a platform of "hope and change" and, with the exception of healthcare reform, offered incremental fixes and more of the same.

We've been here time and time again. President Obama makes a speech. It sounds great. We get excited. And then, poof. We move on.

Faced with an environment where the likelihood of getting anything past Congress is near nil, where the sequester is harming more and more people with each passing day – perhaps the president should go for broke. Offer a list of grand ideas. Force the public discussion to the left.

Think about it this way: it worked for the Republicans. Why not give it a try?

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post All the president’s deja-vus appeared first on Helaine Olen.

]]>

Thursday’s speech on the economy was just like all the others – it sounded great, we got excited, then poof! We moved on

This week Barack Obama remembered the middle class.

You know them. The people who will suffer in retirement if our Social Security retirement benefits are given a “tweak” as he phrased his own effort at entitlement reform last year. They are the people whose incomes have continued to fall through his administration. They are the people still waiting for significant financial reform.

So, you know, most of us.

Poll numbers are falling, something that happens to many second-term presidents, also known as “lame-ducks.” Excitement moves elsewhere. Elizabeth Warren, the creator of the Consumer Financial Protection Bureau who no longer heads it up because Obama refused to risk a confirmation fight in the Senate on her behalf, is now in the Senate herself, fighting the banks. Others are wondering whether Hillary will run again.

Hell, if you go by my Twitter feed, more are concerned about the latest doings of Anthony Weiner/Carlos Danger and the naming of the royal baby than Potus.

So it’s time for a speech, a series of speeches in fact. Obama is going to take the world back for the beleaguered middle classes.

There’s only one problem: Obama now living in the White House bubble for more than five years, doesn’t have a sense of how the rest of us live. And it showed in the speech he gave in Illinois yesterday, the one his staff would have us herald as a bold new vision for America.

Obama says he would like to re-establish pathways to the middle class for those lower on the income totem poll: jobs programs, infrastructure upgrades and education. These are good and worthy goals. But, Mr President, with all due respect, it’s only half the problem.

It’s not simply that the ladders of upward mobility are increasingly being folded up and returned to the garage, freezing us all in place. For all too many people, the modern American economy feels like a jinxed game of Chutes and Ladders, where we always land on the chutes and the CEOs – you know, the ones even President Obama admits saw his salary increase 40% over the course of his own administration – get the ladders.

Take the boasting of the 7.2m paid positions created over the course of his administration. Nice going, but it only tells part of the story. Part-time jobs are growing at a faster rate in 2013 than full-time positions. Hourly income continues to fall by a record amount in the first quarter of this year. The workforce participation rate is at post-war lows, and, no, that’s not a reflection of the aging of the American workforce. Many are simply so discouraged, they’ve given up entirely.

In this environment, the idea of expanding self-funded retirement accounts, as Obama says he would like to do, is something of a bad joke. Americans have had Individual Retirement Accounts and 401(k)s for more than thirty years. The people who have them don’t have enough money saved in them and they know it. More than four of out five of us routinely tell pollsters we’d like to see a return to some form of the pension system. Instead, President Obama is offering them more of the same.

Then there is this: “We put in place tough new rules on the banks.” We did? Five years out, and no one has even been charged, much less gone to jail, for causing the economic crisis that all but brought us to the financial brink. Too Big To Fail has become even Too Bigger To Fail. Dodd-Frank is being eviscerated, rule by regulatory rule, with nary a word from the White House. The bankster scams just seem to grow by the day – just this past weekend, The New York Times wrote about an ingenuous scheme by Goldman Sachs to force up the price of aluminum by buying the warehouses and getting around regulations forbidding hoarding by ordering forklift drivers to move it from warehouse to warehouse.

But, hey, it’s a job, right? Probably a full-time one, in fact. Why complain?

Obama can blame Republican obstructionism all he wants. He’s certainly got at least a partial point. But he needs to look in the mirror too. He got elected in 2008 on a platform of “hope and change” and, with the exception of healthcare reform, offered incremental fixes and more of the same.

We’ve been here time and time again. President Obama makes a speech. It sounds great. We get excited. And then, poof. We move on.

Faced with an environment where the likelihood of getting anything past Congress is near nil, where the sequester is harming more and more people with each passing day – perhaps the president should go for broke. Offer a list of grand ideas. Force the public discussion to the left.

Think about it this way: it worked for the Republicans. Why not give it a try?

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post All the president’s deja-vus appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/07/25/all-the-presidents-deja-vus/feed/ 0
Should You Buy Royal Baby Memorabilia? http://helaineolen.com/2013/07/23/should-you-buy-royal-baby-memorabilia/ http://helaineolen.com/2013/07/23/should-you-buy-royal-baby-memorabilia/#comments Tue, 23 Jul 2013 15:58:00 +0000 http://blogs.forbes.com/helaineolen/?p=1964 Buy this memorabilia if you want a physical memory of the royal baby’s birth. But don’t purchase any of it thinking you will make a mint.

The post Should You Buy Royal Baby Memorabilia? appeared first on Helaine Olen.

]]>
The British royal family on Buckingham Palace ...

The British royal family on Buckingham Palace balcony after Prince William and Kate Middleton were married. (Photo credit: Wikipedia)

The new royal baby doesn’t even have a name, but that isn’t stopping enterprising merchants and businesses from cashing in on the birth of a new heir to the British throne.

You, however, are unlikely to cash in — either now or in the future.

According to the Centre for Retail Research, a British market research firm, the birth of a boy to Prince William and the former Kate Middleton is worth about $376 million to the British retail economy over the next two months.  While some of that will be for parties (after all, we all need excuses to celebrate) with almost half expected to be spent on what could charitably described as stuff, and those purchasing it will think are soon-to-be valuable souvenirs.

As a result of this expected baby business bonanza, the makers of memorabilia are ready to go, set to send off orders to factories in China as soon as the royal infant  has a name for everything from commemorative mugs to disposable napkins. No doubt the first pictures will also set off a manufacturing frenzy, with the face of the newest British prince adorning both postcards and dining plates.

For the impatient shopper, there are such things as the Fisher Price potty with a royal themed crown decorating it for $20.69, or an equally royal pacifier.

Buy this memorabilia – and all the memorabilia still to come — if you want a physical memory of the royal baby’s birth. But don’t purchase any of it thinking you will make a mint. The odds are incredible you won’t.

The issue is one of supply and demand. The greatest demand for royal chotchkas celebrating the future King of Great Britain is, well, now. Hundreds of thousands – if not millions – of items will be produced over the next several weeks. As a result, any collector looking to pick up a piece in few years from now, it likely to find a plethora of items available everywhere from local garage sales to eBay, selling at a significant discount to what the original purchaser paid.

Even the items that do appraise is unlikely to make you a millionaire. Take this button selling for $3.99 on eBay, commemorating the birth of Prince William in 1982. True, it’s a gain of several hundred percent. But still … we’re talking less than a $4 profit over a thirty-year period.

The post Should You Buy Royal Baby Memorabilia? appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/07/23/should-you-buy-royal-baby-memorabilia/feed/ 0
Pensions? Always someone else’s problem http://helaineolen.com/2013/07/23/pensions-always-someone-elses-problem-2/ http://helaineolen.com/2013/07/23/pensions-always-someone-elses-problem-2/#comments Tue, 23 Jul 2013 14:10:35 +0000 http://www.theguardian.com/money/us-money-blog/2013/jul/23/detroit-retirement-pensions-problem

Detroit's workers are not the first to see their retirement finances suddenly reduced – they are only the most recent

If a city declares bankruptcy and its current and retired workforce ranging from librarians and sanitation men to police officer and fire fighters are forced to take permanent reductions to their promised monthly pension benefits, will anyone care besides the impacted employees and the unlucky retired workers dependent on that income?

Thanks to last week's bankruptcy filing by the city of Detroit, we're about to find out the answer to that question is almost certainly "no" – and you can put the blame on the 401(k) and all the other implements of the multi-decade unraveling of the American social contract.

The latest from Detroit: Kevyn Orr, the city's emergency manager, has said workers can expect "cuts" to promised benefits, which currently average, according to the New York Times, the not exactly princely sum of $19,000 per former employee.

Detroit workers are screaming about betrayal and they are right. Municipal employees take their jobs, in part, because of promised retirement benefits.

Yet all too many voters are less than sympathetic. After all, $19,000 is more than most can expect to earn from their own retirement savings. According to The National Institute on Retirement Security, the median amount saved for retirement by a household less than ten years away from leaving the workforce is $12,000.

And no one can expect taxpayers to indefinitely support a two-tiered retirement system, where they foot the bill for people to live better than they themselves will.

That's where the destruction of the American corporate pension system has left us.

A brief bit of history is in order here. The 401(k) – the main instrument of the do-it-yourself retirement era – originated in the late 1970s, as a way offering high-level corporate executives a way to put aside a portion of their salary on a tax-deferred basis. It was, frankly, something of a tax dodge. No one ever intended it to be a primary retirement funding mechanism, nor was it meant to apply to workers at any income level.

However, the Reagan administration expanded the 401(k) allowing companies to offer the benefit to all employees. That's when the corporate bean counters stepped in. Realizing the 401(k) was cheaper on the company bottom line than traditional defined benefit plans, they began to freeze traditional pensions, and force workers to take full responsibility for their own retirement planning.

The result can be seen in the numbers. In the early 1980s, almost two-thirds of workers were employed by companies that offered a pension plan. Today, the number is less than 20% – with the majority either employed by the public sector or represented by a union. Almost four out of five government workers are likely eligible for a pension, according to research published earlier this year by the Economic Policy Institute. Union members in the private sector account for almost all the rest. If you belong to neither group – and most of us do not – only 13% of non-unionized employees had access to a pension in 2012.

This environment began to allow for all sorts of dodgy behavior. Numerous corporations including everyone and everything from United Airlines to Hostess Brands – the former owner of the fabled Twinkies – have ditched their pension obligations in bankruptcy court, leaving workers who had planned for decades on receiving certain amounts of money monthly in retirement to instead get fractions of those payments from the Pension Benefit Guaranty Corporation, the federal agency responsible for insuring the health of the nation's defined benefit plans.

In other words, Detroit's workers are not the first to see their retirement finances suddenly turn out to be less comfortable than they were led to expect – they are only the most recent.

At the same time, a number of public pension plans – Detroit's included – were systemically underfunded by legislators and governors and other elected officials eager to pass the financing buck on to the future. Many public pension managers based future projected rates of return on investments that would later come to be seen as unrealistic. This happened for any number of reasons that could be dissected in many, many future columns, but for the time being the most salient point is this: the United States' public pension system is $1 trillion in the financial hole.

All of these facts combined to undermine support for traditional pensions. As they covered fewer of us, fewer of us felt impelled to speak up in their defense. That was unfortunate. Pensions are not only more cost effective than the 401(k), they work better for the majority of people. With a pension, we don't have the responsibility of guessing the right amount of money to save and how to invest it so it will grow to the right amount. Pensions also absorb the risk of us outliving our savings, something that is becoming an increasing problem for many of the elderly.

Cliches like "united we stand, divided we fall" become cliches for a reason. Social Security and Medicare don't enjoy the broad public support they do by accident. All of us, from the poorest to the wealthiest members of society are eligible for Social Security and Medicare. As a result whenever someone, no matter where on the political spectrum they stand, steps forward with a "reform" plan for either entitlement, Americans seemingly rise up en masse to stop any proposed changes.

But when it comes to benefits we don't all share, it's another matter. After more than thirty years of the 401(k) era, we no longer view pensions as something we must obtain for ourselves. We repeatedly tell pollsters we wish we had them but when it comes down to it, we don't protest when yet another group sees theirs cut or jettisoned entirely. It's a race to the bottom – and we're all losers.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Pensions? Always someone else’s problem appeared first on Helaine Olen.

]]>

Detroit’s workers are not the first to see their retirement finances suddenly reduced – they are only the most recent

If a city declares bankruptcy and its current and retired workforce ranging from librarians and sanitation men to police officer and fire fighters are forced to take permanent reductions to their promised monthly pension benefits, will anyone care besides the impacted employees and the unlucky retired workers dependent on that income?

Thanks to last week’s bankruptcy filing by the city of Detroit, we’re about to find out the answer to that question is almost certainly “no” – and you can put the blame on the 401(k) and all the other implements of the multi-decade unraveling of the American social contract.

The latest from Detroit: Kevyn Orr, the city’s emergency manager, has said workers can expect “cuts” to promised benefits, which currently average, according to the New York Times, the not exactly princely sum of $19,000 per former employee.

Detroit workers are screaming about betrayal and they are right. Municipal employees take their jobs, in part, because of promised retirement benefits.

Yet all too many voters are less than sympathetic. After all, $19,000 is more than most can expect to earn from their own retirement savings. According to The National Institute on Retirement Security, the median amount saved for retirement by a household less than ten years away from leaving the workforce is $12,000.

And no one can expect taxpayers to indefinitely support a two-tiered retirement system, where they foot the bill for people to live better than they themselves will.

That’s where the destruction of the American corporate pension system has left us.

A brief bit of history is in order here. The 401(k) – the main instrument of the do-it-yourself retirement era – originated in the late 1970s, as a way offering high-level corporate executives a way to put aside a portion of their salary on a tax-deferred basis. It was, frankly, something of a tax dodge. No one ever intended it to be a primary retirement funding mechanism, nor was it meant to apply to workers at any income level.

However, the Reagan administration expanded the 401(k) allowing companies to offer the benefit to all employees. That’s when the corporate bean counters stepped in. Realizing the 401(k) was cheaper on the company bottom line than traditional defined benefit plans, they began to freeze traditional pensions, and force workers to take full responsibility for their own retirement planning.

The result can be seen in the numbers. In the early 1980s, almost two-thirds of workers were employed by companies that offered a pension plan. Today, the number is less than 20% – with the majority either employed by the public sector or represented by a union. Almost four out of five government workers are likely eligible for a pension, according to research published earlier this year by the Economic Policy Institute. Union members in the private sector account for almost all the rest. If you belong to neither group – and most of us do not – only 13% of non-unionized employees had access to a pension in 2012.

This environment began to allow for all sorts of dodgy behavior. Numerous corporations including everyone and everything from United Airlines to Hostess Brands – the former owner of the fabled Twinkies – have ditched their pension obligations in bankruptcy court, leaving workers who had planned for decades on receiving certain amounts of money monthly in retirement to instead get fractions of those payments from the Pension Benefit Guaranty Corporation, the federal agency responsible for insuring the health of the nation’s defined benefit plans.

In other words, Detroit’s workers are not the first to see their retirement finances suddenly turn out to be less comfortable than they were led to expect – they are only the most recent.

At the same time, a number of public pension plans – Detroit’s included – were systemically underfunded by legislators and governors and other elected officials eager to pass the financing buck on to the future. Many public pension managers based future projected rates of return on investments that would later come to be seen as unrealistic. This happened for any number of reasons that could be dissected in many, many future columns, but for the time being the most salient point is this: the United States’ public pension system is $1 trillion in the financial hole.

All of these facts combined to undermine support for traditional pensions. As they covered fewer of us, fewer of us felt impelled to speak up in their defense. That was unfortunate. Pensions are not only more cost effective than the 401(k), they work better for the majority of people. With a pension, we don’t have the responsibility of guessing the right amount of money to save and how to invest it so it will grow to the right amount. Pensions also absorb the risk of us outliving our savings, something that is becoming an increasing problem for many of the elderly.

Cliches like “united we stand, divided we fall” become cliches for a reason. Social Security and Medicare don’t enjoy the broad public support they do by accident. All of us, from the poorest to the wealthiest members of society are eligible for Social Security and Medicare. As a result whenever someone, no matter where on the political spectrum they stand, steps forward with a “reform” plan for either entitlement, Americans seemingly rise up en masse to stop any proposed changes.

But when it comes to benefits we don’t all share, it’s another matter. After more than thirty years of the 401(k) era, we no longer view pensions as something we must obtain for ourselves. We repeatedly tell pollsters we wish we had them but when it comes down to it, we don’t protest when yet another group sees theirs cut or jettisoned entirely. It’s a race to the bottom – and we’re all losers.

theguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

The post Pensions? Always someone else’s problem appeared first on Helaine Olen.

]]>
http://helaineolen.com/2013/07/23/pensions-always-someone-elses-problem-2/feed/ 0