Monday, August 19, 2019

Young and Houseless

Have you ever heard the tale of the tortoise and the hare applied to personal finances?  The obvious moral of the story, as it relates to saving money, is that steadily and regularly setting aside money for the future is the path to success.
But a recent article in the Wall Street Journal clouds the lesson just a bit for some aspects of our financial lives.  Citing statistics from the National Association of Realtors and other sources, the article points out that home ownership among the 25- to 34-year-old population in the U.S. is at about 40%, down from 48% in 2001.  The median age of today’s homebuyer is 46, the highest since the statistic was first tracked in 1981.
One explanation for this is that this cohort entered the workforce during the Great Recession.  Generally speaking, they either struggled to find jobs at all or accepted lower starting wages just to land a job.  They had no real bargaining power.  Add to that the slow pace of economic recovery and wage growth and the upwardly spiraling cost of lower-end starter homes (up 64% between 2012 and 2018 according to mortgage-data tracker CoreLogic) and the younger generations are at a distinct disadvantage in terms of affording their own home.  Because they often rely on parents for assistance or even a place to live, they are not as mobile and may not be able to move to take higher paying jobs.
So a slow start (i.e. a lower starting salary) is not a good start, and regardless of whether they save steadily and reduce debt, they may well remain behind the home ownership curve for a long, long time.  Inflation is outpacing their ability to grow their income and catch up and afford to purchase a home.
I have just two suggestions for dealing with this.  First—and this is especially true in the current “full employment” environment—try to negotiate a higher salary when you start a new job.  (Or if staying with your current employer, ask for a raise if you can justify it to the boss.)  Netting just a couple of thousand dollars more gives you a “faster” start.  And I’ve not heard of an employer withdrawing a job offer just because a new hire politely asked for more money.  At worst it’s a “not at this time” reply.
Second, the only way to beat the inflation that is beating you and keeping you from owning a home is to get into the market and let the inflation work for you.  Even if your first home is not in ideal shape, maybe even on the small size compared to what you want and thought you deserved for your first house, buy it anyway if it’s all you can afford.  (Of course, do your due diligence; don’t buy a house that will take all your money to repair, has payments you can’t afford, or is in a neighborhood where the value is not likely to appreciate.)  Just getting into the market, letting the value of your house grow, and getting out of the cycle of annual rent increases will put you ahead of others in your age group and help build net worth.  I am still a firm believer in the concept of home ownership by responsible individuals being a sure way to build financial security.
There is a third suggestion:  Wait for the next recession.  Falling stock prices, falling housing prices, spell opportunity for want-to-be buyers, as long as their jobs and income are secure.  That’s why there is always a rebound after a recession.

Until next time,


“Use wisdom and understanding to establish your home; let good sense fill the rooms with priceless treasures.”  Proverbs 24:3, 4 CEV

Sunday, July 14, 2019

Some Thoughts on Making College "Free"

Are you weary yet of the noise in the political world about the debt crisis weighing down college students and the various proposals to make college tuition-free for students and/or to forgive some or all student debt?  It’s still too early to know how these ideas will play in Peoria, as they say.  Will anyone other than those saddled with big college loan balances go for the idea?  High school seniors, parents of college students, college professors…we might be surprised at the support these ideas generate in certain demographics.  But please indulge me a few personal thoughts on the subject.
Did you ever hear that there’s no such thing as a free lunch?  Of course somebody has to foot the bill for all this.  One and a half trillion dollars in debt does not just evaporate.  Taxes will go up.  Everybody’s.
Is it politically incorrect to say that not everyone is college material?  I’m sorry, but there are some people with aptitude for things not taught in most universities—manual skills that are still very much in demand.  Plumbers, for example, still make a very good living, generally speaking, and we definitely still need them around.  It is not fair to them or to the people asked (told) to pay their tuition to encourage them to go to college.
“Free” encourages freeloaders.  I seem to recall a country song about a guy who went to college, “majored in girls”, and only dropped out when the money dried up.  But what if the money never dries up?  Congress tends to see taxpayers as a bottomless bag of riches which they have a right to tap for any cause.  Can a freeloader go to college free forever?
Free tuition has been tried, and the results should not be shocking.  The Wall Street Journal recently ran a story about Kalamazoo, Michigan, and its scheme to rescue itself from a downward spiral of decay and declining population by offering local students free tuition.  The program began in 2005 and is funded by anonymous donors.  What are they seeing for their investment?  For those locals graduating high school between 2006 and 2012:
  • College enrollment within six months of graduation climbed to 75%, up from the city’s previous 58% rate and better than the national average of 67%.  However…
  • Only 38% earned a college degree, up just slightly from the 34% average in the three years prior.
  • Only 23% of black students earned a college degree, nearly equal to the previous rate of 22%.
  • Because the program is equally available to all students regardless of race, gender, or economic status, high-income individuals got more aid on average (more than twice as much) than the average low-income student, and Caucasian students nearly twice as much as non-Caucasian students.
Now that last point is especially critical.  In terms of pure dollars, all the kids had the same opportunity.  But so many other factors determine success in college—things like family support, single-parent homes, homelessness, teen pregnancy, and yes, intellectual ability.  A student with one or more of these factors working against him will be more likely to drop out, thus costing the anonymous donors a lot less money.  But the student with a strong support system will likely complete degree requirements and be subsidized for a much larger amount of money.  It’s an unintended but still very real consequence.
The same dynamic works with the loan forgiveness schemes that are being proposed by some presidential candidates.  They will mostly benefit those who have completed their degree and are more likely to be able to afford to pay their loans compared to those who dropped out and are, on average, earning less.  There have been some proposals to make the debt forgiveness contingent on being under a certain income level; but that ignores other factors bearing on ability to pay.  A candidate could propose to just forgive the loans of those who left college early, but “Loan forgiveness for dropouts” doesn’t have the ring of a winning campaign slogan.
I’m only addressing some of the economic factors here.  There’s also the moral hazard argument over free tuition and loan forgiveness.  And every parent knows his child appreciates the thing that she labored to achieve/buy more than what was handed to her.  What makes us think it will be any different for the college crowd, who is mostly still children, regardless of what they think of themselves?

Until next time,


“Why should fools have money for an education when they refuse to learn?” Proverbs 17:16 CEV

Thursday, June 27, 2019

Judging the Financial World's Prophets

Early last year (2018) I wrote a post about the dangers of trying to predict the future and the poor track record of those who try, and to prove the point selected 10 predictions for 2018 from various experts (a term loosely used in this setting) and promised to revisit them in 2019 to see how they fared compared to a random coin toss.  Let’s check the record.
1. Prediction: Bitcoin (the so-called crypto-currency which is all the [speculative] rage now) will decline in value in 2018. (Source:Motley Fool) The coin toss says no, it will not decline.  Actual result: By January 2019 Bitcoin was down nearly 73% from its high in late 2017.
2. Brexit (Great Britain’s exit from the European Union) will be chaos, causing the defeat of Prime Minister Theresa May and the election of the Labour Party’s Jeremy Corbyn.  (Source: Fortune) The coin toss says no to it all.  Actual result: I believe it’s safe to say Brexit has been chaos and is still not completed.  Though May did not depart in 2018, her own exit is imminent.
3. Growth in the Gross Domestic Product of the U.S. will not reach 3% in 2018.  (Source: Fortune)  The coin toss says it will.  Actual result: This was oh so close.  It looks like the official number is 2.97%.
4. The price of crude oil will be $60 per barrel next Christmas.  (Source: Fortune)  The coin toss agrees.  Actual result: Though crude’s average closing price for all of 2018 exceeded $60, it was well below that at Christmas 2018.
5. The Standard & Poor’s 500 index will be at 2950 at the end of 2018.  (Source: Brian Belski at BMO Capital Markets, and many others)  No argument from the coin toss.  Actual result: The S&P 500 index flirted with the 2950 mark in September 2018 but closed the year at 2506 thanks to a big slide in the last quarter.
6. The yield on the 10-year Treasury note will be 2.8% next December.  (Source: Kiplinger)  The coin toss affirms that prediction.  Actual result:  The 10-year Treasury note yield in December 2018 was 2.69% but was at or above 2.8% for some time before that.
7. Inflation will be 2.1% in 2018. (Source: Kiplinger)  The coin toss says no.  Actual result: Inflation officially reached 1.9% for 2018.
8. “A new form of energy” will be discovered on Venus. (Blind—and dead—Bulgarian mystic Baba Vanga)  The coin toss says no.  I realize this prediction on its face is not directly about the economy or your finances, but if such an energy source is actually discovered it will profoundly impact financial markets.  And in hopes of racking up a perfect prediction record for myself, I’m going to weigh in on this one: It won’t happen.  Actual result: Now do I REALLY have to score this one for you?
9. Unemployment will fall below 4% in the U.S. (Source: Wallethub) The coin toss doesn’t agree.  Actual result: The unemployment rate fell below 4% and ended the year at 3.9%.
10. Credit card debt in the U.S. will break all-time records, topping $1 trillion.  (Wallethub)  The coin toss affirms it.  Actual result: The $1 trillion mark was exceeded in November, hitting $1.023 trillion.
If we generously score the experts on #2 and #6 and decide to strictly enforce the numbers and not round up in #3, they ended the year with a 60% accuracy level.  And how about the random coin toss?  Taking advantage of the same generous scoring on #6, the coin toss was right 40% of the time.  I wouldn’t call either of these records stellar.  And it’s enough to affirm my opinion (at least to me!) that listening to the experts—who often are people out to make headlines with bold predictions that nobody will check them on a year later but which if they come true they will herald from the rooftops—is an iffy proposition.
Until next time,
And I repeat the verse from that January 2018 post:  
“But the prophet who prophesies peace will be recognized as one truly sent by the Lord only if his prediction comes true.” Jeremiah 28:9 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.

Thursday, May 30, 2019

What is Davd Ramsey's Fatal Flaw? (Part Two)

There’s no disputing that Dave Ramsey’s advice for getting out of debt and saving money has rescued many a financially troubled family.  One could do much worse than follow Dave Ramsey’s teaching on money matters.  But that doesn’t mean we should accept all his advice uncritically. 
For example, he advises listeners to not contribute to their retirement accounts until they eliminate their debts (though presumably not their mortgage debt), devoting every spare dollar to that goal.  However, that sacrifices an important long-term goal in favor of a (admittedly very good) short-term goal.   If someone following that advice passes up the opportunity to invest in a 401(k) plan in which the employer matches employee contributions, that person is giving up a 100% return on their investment.  And for what?  To save an 18% annual interest rate on that same amount of money?  And that doesn’t even consider the time in the market that is lost by not investing earlier, losing precious years of compounding.  Not starting early in one’s career to save for retirement is one of the leading causes of the low balances in retirement accounts that firms like Vanguard are reporting as they warn about a retirement crisis for these under-savers.
In the very first post I made to this blog, “Follow the Money”, I warned readers to examine what others told them to do with their money, looking for motivations that only served the interests of the person giving the advice, not the recipient.  Bible-thumping evangelists of financial freedom should not escape this scrutiny.  Does Dave Ramsey pass the test?  Well, he refers callers to his show or visitors to his website to ELP’s, endorsed local providers, who pay Ramsey about $80 per lead.  They are frequently paid on commission and sell mutual funds with front-end load charges, meaning that not all the money an investor hands over to be invested actually gets invested; the investor might start off five or six percent behind, right out of the gate.  In an era when investing is easier than ever without an advisor charging commissions; when low-cost funds are widely available to the public; when low fees have been shown to be a predictor of better overall return of an investment; and when mutual fund and ETF choices allow easy diversification and relative safety, is Dave Ramsey’s method really sound?
But put all that aside for a moment.  When someone tells me he is a Christian, I hold him to a higher standard of behavior, truthfulness, and treatment of others.  I will not call Ramsey’s character and beliefs into question.  God is a very capable judge and much fairer than any human being since He sees and knows all.  I will, however, call Ramsey out on his behavior and teachings.
Ramsey is no stranger to disputes with other financial advisors.  He once told a group of them opposed to some of his investment advice that he had helped more people in ten minutes than they had in their entire lives.  And I’ve heard his rants on the radio against these opponents.  His tone lacks what I would call Christian charity.
Ramsey does not reserve his criticism only for professional advisors either.  He dishes it out to listeners who have made bad decisions.  Money cited one particularly intense dressing down he administered to a hapless caller who was in despair about her school loans.  It was not an isolated incident.  Maybe some people can embrace this harsh schoolmaster approach.  To me it seems indiscriminately administered and lacks the compassion I believe Jesus would show these same people.
I would invite you to compare anything Ramsey does or says (and how he says it) to other Christian financial teachers like Rob West, Howard Dayton, or the late Larry Burkett.  I hear those men teaching the same principles of debt elimination but doing it with grace and healing while espousing the use of lower-cost investments and offering a corps of locally based volunteers to help those who are struggling. 
Maybe the world loves a showman, and Ramsey delivers that.  I’m just not convinced it’s what the world needs.

Until next time,


“By insulting the poor, you insult your Creator.  You will be punished if you make fun of someone in trouble.”  Proverbs 17:5 CEV

Tuesday, May 21, 2019

What is Dave Ramsey's Fatal Flaw? (Part One)

Do you listen to Dave Ramsey’s syndicated radio broadcast?  If so, you are one of about 15 million people who do so each week.  Only Sean Hannity and Rush Limbaugh have bigger audiences in the talk radio universe. 
Ramsey, on the chance you haven’t heard of him, has been doling out his insights and advice on personal finance to the debt-weary masses for nearly 30 years.  His calling card: He cajoles, urges, and often shames his listeners into working their way out of debt.  And he does it with a nod to Biblical principles and with an eye to church-going audiences.  He often speaks at large churches and promotes his video series, “Financial Peace University” to Christian organizations.
Getting out of debt?  Biblical-based living?  I’m onboard.  But I’m not sure I’m onboard Ramsey’s particular ship.
Ramsey held a $4 million portfolio of real estate back in the 1980’s but lost nearly everything and declared bankruptcy when he couldn’t muster the cash to pay back the loans when the bank called in those loans.  You might say he “got religion” as he discovered what the Bible says about money and became an ever more popular evangelist of those principles and what he calls the seven baby steps leading to financial freedom (establish a $1000 emergency fund, etc.).
As sensible as his advice may be, Ramsey is not without his critics.  In 2013 Money magazine ran a feature article about him and titled it “Save Like Dave—Just Don’t Invest Like Him”.  As you may guess, it lauded his emphasis on shedding debt but took issue with his advice on investing and on drawing down one’s savings during retirement.  Now Money is back with its May 2019 issue and a front-page article about Ramsey as “the debt slasher” but then asks, “Is his advice sound?”  In this first of two posts about Dave Ramsey, let me give you my take on the man and his financial advice.
*  *  *
I have a couple of friends who are accountants and very familiar with Dave Ramsey, and they don’t like his advice for getting out of debt.  Specifically, they don’t like what Ramsey calls “snowballing” debt—devoting every available dollar and anything extra you can make to pay off the smallest debt first, then adding the money that was going to pay that debt to the monthly payment on the second smallest debt to pay that off, and so on until all the debts are paid.  Being numbers people, my friends correctly point out that it ultimately saves the debtor more money to pay off the highest interest debts first, regardless of the comparative size of the debts.  But I side with Ramsey on this one.  Most people are not numbers-oriented.  People in debt trouble tend to be emotional spenders, and the snowballing method feeds the emotional side of people.  They can see quick results as the first debt is dispatched and they accelerate payment on the next one.  It’s like being on a diet; people need to get some positive early reinforcement of their progress, and snowballing does that very well.  Score one for Ramsey.
In the 2013 article, Money focused on the controversy around Ramsey’s investment advice which was to go full tilt on equities (i.e. 100% stocks instead of holding a mix of stocks and bonds) when investing, count on an “average” return of 12% a year, then in retirement one may safely withdraw 8% to live on.  That advice gave professional financial advisers heartburn, with one even saying that if Ramsey were in their profession, he would be liable for malpractice for that advice.  They point out that the real, annualized return on stocks is about 10%, not 12%, and that’s before mutual fund fees, etc. are deducted. Counting on that high of a return to justify an 8% withdrawal rate in retirement is a recipe for disaster, they claim.  The retiree’s portfolio could be exhausted well before he is in his early 80’s.
To his credit, Ramsey has apparently been steering away from investment as a topic of conversation and focusing on the fundamentals of personal finance, namely, getting out of debt.  Nevertheless, I side with the critics on this issue.  The generally accepted rate of drawing down a retirement portfolio, based on study after study, is 4% annually, adjusted each year for inflation.  Some advisors are even going lower (not higher) now, suggesting that 3% is a more reasonable withdrawal rate to ensure money doesn’t run out before about age 95-100.  Score one for the Ramsey critics.
So after two rounds, it’s a draw.  But next week will be decisive, and I will explain what I think is Dave Ramsey’s real flaw.

Until then,


“Listening to good advice is worth much more than jewelry made of gold.  A messenger you can trust is just as refreshing as cool water in summer.” Proverbs 25: 12, 13 CEV

Thursday, May 2, 2019

Lucky Thirteen

Keep your eye on number 13.  That’s the spot in which Christian Wilkins was taken in last month’s NFL draft, during the first round, the thirteenth pick overall, by the Miami Dolphins. 
I don’t expect him to wear the #13 jersey when he takes the field, but he should.  It’s certainly not his unlucky number.  In fact, he should buck convention and make it his lucky number.  Wilkins does have a history of going against the norm—and never so much as when he is handling money.
According to Wilkins, his teammates at Clemson know him as “the cheapest guy in the world”.  He’s the one in the restaurant that asks for a glass of water, six slices of lemon, then uses those plus a few sugar packets to make lemonade.  Do you know any college kids that live like that?  Actually, I did.   He did some pretty amazing stunts to live on a limited budget.  But living frugally is definitely not in vogue with today’s college crowd.  They have their own cars to go anywhere they wish.  Wilkins only had a bike.  They spend freely with their own or their parents’ credit card(s).  Wilkins did not use credit cards.  The average education-related debt of a college student at graduation now is nearly $40,000.  Wilkins leaves Clemson with $15,000 in savings.  He did attend on a scholarship, but even scholarship students typically run up debt by living beyond the financial allowance for room and board and by spending on things the scholarship money doesn’t cover.  And who comes out of college with thousands in his savings account?
I was intrigued to read in the Wall Street Journal about Wilkins’s budgeting plan.  It was a version of the old “envelope system”.  He divided his monthly allowance into four bank accounts, each one devoted to covering certain defined expenses.  If the money ran out in one account before the end of the month, he simply stopped spending on the expenses that account covered.  He didn’t borrow between accounts.  If there wasn’t enough money for it—whatever “it” was—he didn’t buy it.
I will be most interested to see if he can maintain that kind of financial integrity in the face of all the temptations of a rich life in the NFL.  Veteran players on some teams like to have a lavish welcoming dinner for team newcomers and stick the new guy with the tab, which is often tens of thousands of dollars.  Let’s see if that works with Wilkins.  I suspect he’ll have the budget lemonade flowing freely.  Let’s see if he can avoid the get-rich-quick schemes that unscrupulous “advisors” try to foist on these newly rich kids in professional sports.  Let’s see if he can avoid bankruptcy, which even the richest players have often not evaded.  I’ll be rooting for him, if not on the field then certainly off.  Keep your eye on that young man.

Until next time,


“Seest thou a man diligent in his business?  He shall stand before kings; he shall not stand before mean men.” Proverbs 22:29 (King James Version).

Friday, April 19, 2019

A Not-so-Intimidating Giant Expense

Fidelity recently came out with a new estimate of what a couple retiring this year may expect to pay for healthcare expenses over the remainder of their lives: $285,000 ($135,000 for the husband and $150,000 for the wife—the larger figure mostly due to her longer life expectancy).  Predictably, there followed an outbreak of fear-mongering articles in newspapers, AARP publications,  and over the internet, with dire warnings that we all need to start saving more to cover our healthcare expenses, which were alternately described as “staggering” or “whopping”.
Left unreported and largely ignored: over that same time period, that couple can expect to spend $120,000 for groceries.  Have they started saving for THAT?  Well, no, you say; that’s a part of daily living.  It’s built into their monthly budget.  So broken down into a category in their budget, $120,000 is not such an intimidating figure. 
So why can’t we approach healthcare expenses the same way?  Another investment firm, T. Rowe Price, on its website posted an article that advises that very approach.  They acknowledge healthcare is not cheap.  But broken down into bite-sized chunks of money in a weekly or monthly budget, healthcare expenses can be manageable.
Truthfully, I’ve been skeptical of these huge dollar amounts that studies like Fidelity’s throw out there as “average”.  We all know how averages can skew a picture.  A few very expensive examples (let’s say a couple of people with a liver transplant or a coronary bypass surgery or years spent in a nursing home) can dramatically increase a group’s average number.  Finding the mean—the number at which half of the study group paid more and half paid less—is a much better way to predict true costs.  Interestingly, I could not find a mean for retirees’ healthcare costs.  Every source I found only referred to an “average”.
But put aside the “average vs. mean” argument.  Is the quoted figure realistic?  It reportedly includes “Medicare’s premiums, deductibles, and co-pays” but not “things that Medicare doesn’t cover, like dental work, long-term care, and vision coverage.”  It leaves me wondering if they are accounting for retirees’ various insurance options.  Consider the following:
  • The premium for Medicare Part B (physician and other services) paid by most people this year is $135.50 per month, and it is usually deducted right from the retiree’s Social Security check, so it is essentially already in their budget.  (Hospital services, the Part A of Medicare, was paid for during the retiree’s working years through payroll taxes, and he will pay nothing additional for that coverage in retirement.)
  • But for a national average of about $143 per month, a retiree can purchase a Medigap policy that covers all those Medicare co-pays and deductibles, plus offers some additional benefits.
  • For a national average of about $34 per month, a retiree can purchase a Part D Medicare plan to cover the cost of prescription drugs.
So for about $312.50 per month, a retiree can insure against his medical and drug costs and generally pay $0 out-of-pocket for doctor visits, hospital stays, labs, etc.  Today’s 65-year-old can expect to live about 19.4 more years.  So let’s call it twenty and multiply that monthly figure by 12 months per year and then 20 years.  The total only comes to $75,000.  I can’t picture many retirees incurring an additional $60,000 to $75,000 in dental and vision expenses to reach that $285,000/couple.  So the total figure seems exaggerated, to me.
Of course, I’m dealing with “averages”, too.  Some people will live well past their 80’s and end up paying more for healthcare.  I have not accounted for inflation.  And some states have higher Medigap policy costs than others.  But I also know that those states tend to be more densely populated ones, which also means they are more likely to have good Medicare Advantage plans available.  A Medicare Advantage plan—also called a Medicare Part C plan—can replace the regular Medicare Parts A, B, and D and the Medigap policy for potentially no additional cost above what is already deducted from the Social Security check, $135.50.  Plus, they usually offer additional benefits like vision and dental coverage at no extra premium.
So $312.50 per month, though not a small amount for most retirees, is more easily digested than $285,000, and over the course of the years adds up to less anyway.  It can be worked into a budget, and you certainly don’t need a separate pot of money in the six-figure range to cover your healthcare costs.  Don’t believe all the scare stories.

Until next time,


“The Philistine army had a hero named Goliath who…was over nine feet tall….And his spear was so big that the iron spearhead alone weighed more than fifteen pounds….David defeated Goliath with a sling and a rock.  He killed him without even using a sword.”  I Samuel 17:4,7,50 CEV

Friday, April 5, 2019

Varsity Blues

“Operation Varsity Blues”, the investigation that snared a number of the rich and famous who were involved in bribery and fraud schemes to get their children enrolled in Ivy League universities or other big-name colleges, has rightfully got the less privileged classes up in arms over the inequality of a system that would allow this to go on.  If the system is stacked against him, what chance does the average kid—even a very smart one—have to get into the college of his choice?  Aren’t spots in the freshman class of these elite schools supposed to be granted to the best and smartest, not the richest and most devious?
As much as it might say about inequality of opportunity in college admissions, I think Varsity Blues has even broader lessons to teach us.
Consider the price some of the parents were willing to pay to get their kid in “the side door” of the elite colleges.  It was sometimes more than the price of four years of tuition at the school.  Were they paying for a good education or just bragging rights?  They were playing the part of “snowplow parents”, clearing all obstacles for their little darlings so they could get into a famous school.  This is a destructive form of parenting and makes the children incapable of navigating life on their own.  (This is not a phenomenon, however, unique to the wealthy nowadays.)  How will the offspring ever learn to handle the difficulties of life if the parents continually pave the way for them?  And even if the children themselves were not involved in the dishonesty, what lesson did they take from their parents’ willingness to lie, cheat, and crawl over the backs of other hardworking kids to get what they wanted?  Already some of the kids are berating their indicted parents for “ruining my life”.  Well, yeah, no one is going to think you deserve anything now, always suspicious that you got where you are only by cheating.  Your achievements will always be tainted by that suspicion.
But look beyond the lessons about opportunity and parenting.  If you are considering college for yourself or your children or even for another family member, what instruction can you take from this scandal?
Obviously, don’t cheat.  You ultimately cheat yourself and the one you are supposedly trying to help.  Ask Lori Loughlin’s daughter.
I think Varsity Blues also says something about the integrity of the higher education system.  The alleged cheating involved lower-level college officials—like coaches—and proctors for college entrance exams.  But it’s enough to cause one to wonder about how much of this cheating is going on, and at what levels.  The Feds concentrated on the most egregious cases and biggest names.  How many others are flying under the radar and improperly getting an advantage over a more deserving student?
I think it also devalues the education received at the big-name colleges.  Even if an Ivy League school does provide a top-notch education (and reading about what goes on at these schools, I have my doubts), they are apparently a magnet for the wealthy—and for cheaters who want the university’s name on their resume.  An employer would be justified now in giving less weight to the sheepskin from one of those schools.
So that said, would you still want to apply to such a college?  What if the price tag is several times what your cheaper but lesser known options are?  Is the extra cost—and the ensuing debt load for years to come—worth it?  While an Ivy League diploma seems almost a requirement for, say, being a Supreme Court justice, a choice of major actually serves as a better predictor of lifetime earnings.  Moreover, NPR reports that only 14 of the CEO’s of the largest 100 companies in the U.S. are Ivy League graduates.
There are good and effective and hardworking teachers to be found at all levels and in all schools, just as there are bad and ineffective and lazy ones.  The student should take some responsibility for his own education and seek the best teachers, the hardest courses, and not settle for an easy “A”.  And finding those quality professors at whatever college you attend will itself be a learning experience, an opportunity to hone your skills to investigate and find the best.  Add to that the fact that one is more likely to interact with a variety of people from many walks of life in a less elite college and the cheaper option might more closely resemble real life and bestow the real advantage in post-graduate life. 
State schools, even community colleges, can be excellent centers of learning for those willing to study.  The economic advantage they grant by being less expensive and potentially lowering or eliminating the student debt at graduation can give the graduate a head start in life.  And this blog has addressed before the many pitfalls of carrying too much debt.
Until next time,
“For the Lord gives wisdom; from His mouth come knowledge and understanding.  He holds success in store for the upright, He is a shield to those whose walk is blameless, for He guards the course of the just and protects the way of His faithful ones.  Then you will understand what is right and just and fair—every good path.” Proverbs 2:6-9 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide

Friday, March 8, 2019

It's Not How Tall the Glass Is

Show a young child two glasses, one tall and narrow and one shorter but bigger around, and ask the child which holds more water.  He will pick the taller glass, even though the dimensions of the glasses make it obvious to an adult that the shorter one holds more.  Not until about age seven can the child start to reason and differentiate how much each holds in comparison to the other.
I thought about that when I read this week that people are complaining that their tax refunds are smaller this year in the aftermath of the income tax law changes.  “Where’s the tax decrease we were promised?” they ask. (Actually, as of this week, the IRS reports that the average refund is running about 1% higher than last year, but that doesn’t seem like a lot to someone who heard that Congress and the president were giving him a big tax break.)
Instead of looking at how much money you get back in April, it is much better to determine what you actually paid in taxes.  A big refund check looks like the tall glass does to a child: it’s more.  But does a smaller refund check mean you paid more in taxes?  No, it doesn’t.  An individual’s income and tax situation can fluctuate year to year.  Moreover, the IRS changed its withholding tables for 2018 in accordance with the lower tax rates of the new tax law.  Most people were seeing more money in their paychecks each pay period, meaning they had less withheld in taxes.  The “big refund” came to taxpayers in small doses throughout the year. 
To make an accurate comparison of taxes paid from one year to the next, divide your “total tax” (it’s line 15 on this year’s form 1040) by your adjusted gross income (AGI, line 7).  This calculation gives you the percentage of your income that you actually paid in taxes for the year.  Do the same calculation for the previous year’s taxes and compare the rates.  Actual dollar figures will vary because your income probably was different, year to year.  But comparing percentages gives you a standard by which to judge your tax burden. 
We talk about “tax rates”, but the rates that are quoted can be deceiving.  You might be told that by virtue of your income level you are in a certain tax bracket and pay a certain percentage tax rate.  But that rate is not applied to every dollar you make.  If you’ve never done the calculation I described above, I think you will be surprised at the actual percentage you pay overall.  And even if you have done this calculation before, compare the outcome for the 2018 return against the 2017 and 2016 returns.  Did the tax law change in your favor?
It’s unfortunate that people hope for a big check from the government this time of year.  What they are saying, essentially, is, “I hope I really overpaid the government a lot in 2018.”  After all, a tax refund is exactly that—a refund of the excess you paid to the government.  Why would you want to overpay and then jump through hoops just to get it back?  Would you do that with any other expense you owe?  Overpay the electric bill every month, with the promise that the utility will give it back to you next year?  I don’t think so.
Of course, the psychology of the whole thing might be, “If I spend this much time (or money) preparing my tax return, then I want a big check back in exchange for my trouble.”  I can understand that thinking.  But I prefer to see it as, “Look how close I was in estimating how much I would owe in taxes so that I could save that money throughout the year and make some interest on it.”  A different perspective, perhaps; but with more people eligible now to file without having to itemize deductions, maybe the actual filing will be easier and will lessen the demand for a huge refund.
No, actually I don’t see that happening.  Human nature doesn’t change that easily.

Until next time,


“Pay all that you owe, whether it is taxes and fees or respect and honor.” Romans 13:7 CEV

Thursday, February 21, 2019

Blackface and Bankruptcy: the Case for Forgiveness

The governor and attorney general of Virginia find themselves fighting for their political survival after it came to light that they each, on a single occasion, wore “blackface” during their college days. 
I find it remarkable that in this age of investigative journalism, no one had dug this up before now.  I mean, if I wanted to get the dirt on someone, his or her college days would be THE first place I started looking.  The late teens/early twenties—that’s when we feel invincible; when we think we can do anything and get away with it; when our reasoning abilities have not caught up with our capacity to imagine all sorts of stunts and our physical wherewithal to pull it all off.
So now—belatedly, in my opinion—we have a discussion about forgiveness.  Should our past be used to judge us in the present, even if our present is 180 degrees different?  Can there not be a statute of limitations that says the pranks and foolishness of our past, even those acts and attitudes that are hurtful or even perceived as hateful, cannot be used against us decades in the future?  Can we agree that a single indiscretion from our youthful days should not be used to define us forever?
Here I could launch into a diatribe against social media and how they feed the tendency to judge harshly, especially when the critics and accusers can hide behind online pseudonyms and do not have to come face to face with the accused.  Instead, I will point to the financial world for an example of forgiveness and grace and second chances: bankruptcy.
I think most people see bankruptcy as a bad thing.  I’m glad.  It should be that way.  Bankruptcy should not be something that is glorified and entered into lightly.  But think about it.  Isn’t bankruptcy an “out” for someone who has made some financial mistakes or maybe been overwhelmed by life circumstances, like critical illness and accompanying large medical bills?  There is a price to pay for being excused from debts: a mark on one’s credit history that makes it harder and more expensive to borrow.  But this is light years ahead of the debtors’ prisons of past centuries, and it’s only for a defined period of time.  After that, it falls off the records and the person can establish a new credit history without being judged harshly by that part of his financial past.
As a society, we in part subsidize this grace to debtors through generally higher prices for goods and services and higher credit card fees and interest rates, etc.  I’m okay with that, actually. I consider that capitalism at work.   I can always shop around for better rates and manage my financial affairs in such a way as to avoid the higher fees.  That’s the freedom that comes with this economic system. 
I do oppose the gratuitous and frequent use of bankruptcy as a way to avoid paying one’s creditors.  That becomes stealing at some point and should be punished, or at least actively discouraged by the way we write the bankruptcy laws.  Finding the balance between forgiveness and accountability is not easy.
Have you ever been in bankruptcy?  I hope not.  But unless you used the law to evade your creditors (and keep in mind the distinction between “evading” taxes, which is illegal, and “avoiding” taxes, which is legal), don’t let that episode of your financial life define you forever.  You learn from it, you don’t repeat the mistakes that got you to that point, you plan more carefully in the future, you live with a spending/saving plan. 
Finally, if you can get yourself to the point where you could repay the forgiven debts, give some thought to doing so.  Some moral and conscientious people have done so.  But be sure to consult legal counsel before taking such an action since it could have some legal ramifications.

Until next time,


“Remember, Lord, your great mercy and love, for they are from of old.  Do not remember the sins of my youth and my rebellious ways; according to your love remember me, for you, Lord, are good.” Psalm 25:6,7 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide

Monday, February 4, 2019

Lessons from the Shutdown

Whatever your political views about the recent partial government shutdown, the five-week layoff of 800,000 federal workers offered a powerful lesson on the state of family finances in America.  Seemingly within days of the shutdown, the media were running stories of the newly jobless lining up for food stamps, pawning jewelry, and taking out payday loans to cover essential expenses.
When we got tired of that, reporters should have done us all a service and started running stories about how much debt these same workers had incurred before the shutdown, how they had not saved anything for a rainy day, what nice things they had bought themselves on maxed out credit cards.  Maybe that would have awakened the rest of us.  After all, study after study shows that 40% of Americans are “just one missed paycheck away from poverty”.   I would argue that they are already poor.  Being that close to financial crisis is not living rich, no matter how many and how nice the things with which you surround yourself.  And government jobs are stable and come with good benefits, yet so many of them fell into hard times by the time they missed their first paycheck.
I don’t mean to blame and shame all the unfortunate furloughed workers.  It seems everyone goes through tough financial times at some point and lives paycheck to paycheck, or even without a paycheck for a period of time.  But that number should not be four out of every ten of us, consistently, even in good economic times because the studies show that even among those making $75,000 or more per year a high percentage still would have trouble accessing enough cash to even cover a $400 emergency expense—essentially a minor car repair, these days.
History should teach us how to avoid financial trouble and not be caught off-guard when the inevitable hard times come our way.  Yet here we are, still not saving money and still charging everything on plastic.  Consumer debt stands at an all-time high, just as it did before the Great Recession.  And “institutions” (I use quotation marks because aren’t businesses just collections of people with a collective purpose?) are no better.  I just read this week that banks are back to writing more unconventional home loans, including no-doc loans, where the borrower doesn’t have to demonstrate income from a steady job.  It’s little wonder those loans came to be called “liar loans” in the industry and were ridiculed as a contributing factor to the housing crisis of the last recession.  But again, here we are, giving them new respectability.
It’s a fragile situation and bound to eventually collapse and cause national financial angst.  I hope you are regularly saving not only for retirement but for a rainy day.  Think twice before putting a purchase on credit.  Is it really essential?  Are you living above your means?  Do you have too much “stuff”?  Now is the time to prepare, not after the stock market crashes again, unemployment shoots back up, and home values fall.  The recession will come, and we’ll cycle back out of it once again.  But wouldn’t it be nice not to have to fret while we’re on the downside?
Until next time,
“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock.  The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock.” Matthew 7:24,25 NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide

Saturday, January 12, 2019

Affectively Forecasting Yourself into a Corner

According to the website of Psychology Today, affective forecasting is “predicting how one will feel in the future.”  Their definition goes on by adding the comment, “[P]eople are far from perfect at it.  We misjudge what will make us happy and have trouble seeing through the filter of the present.  Our current feelings blind us to how we’ll make decisions in the future, when we might be feeling very differently.”
Robert Pagliarini, writing for Forbes, recently cited affective forecasting in warning readers against retiring too early.  I’ve written before about the dangers of retiring too early: reduced Social Security benefits; having to purchase health care insurance without an employer’s subsidy until meeting Medicare eligibility at age 65; potentially life-threatening boredom, inactivity, and feelings of uselessness; having to accumulate a much bigger nest egg to cover the extra years of having no job income, etc.  Pagliarini’s article explored the psychology driving people to make what often turns out to be a bad decision to leave the workforce prematurely.
As it relates to the issue of retirement, the pitfalls of affective forecasting are that we tend to only recall the best or worst events, focus on the earliest events of retirement living (not the events 5, 10, or 20 years down the road), think that the event of which we dream will be intense and long-lasting, and think of that event in the wrong context.
It made sense when I applied it to a real-life situation in my past.
Nine years ago—almost to the day—I voluntarily left a job at which I had worked for nearly ten years.  I’ve alluded to that in previous posts; it was a situation where I was becoming more and more uncomfortable with the company’s policies and had quickly tired of the antics of the immature and incapable director of our department.  It was the right decision; I’m still convinced of that to this day.  But I experienced what Pagliarini described.
First, I focused on the worst aspects of my job, but there was good energy and good work being done there, too, not to mention friends I left behind.  If you’ve had a bad string of days at your job, wouldn’t that tempt you to leave, and if you’re close to retirement age—say age 62, the youngest age at which you can take Social Security—wouldn’t that temptation be even stronger, knowing you have an alternative income stream you could tap (“I earned the right to retire!”)?
What did I focus on as I walked out the door?  “Man, this feels good!  I don’t have to answer to THAT boss anymore!  Now I can go find a job I enjoy.”  But what was I ignoring?  Remember, this was 2010; unemployment was at perhaps its highest level in my lifetime.  I’d never had trouble before finding work, but in this context (and being ten years older than I was in my last job search) would landing the next job be all that easy?  The good feelings lasted perhaps six weeks, until I had turned down the first job offer I received.  Then the monotony of daily job searching and being alone at the house began to set in.  At one point, about six months in, I drove past some laborers putting down mulch as they landscaped around a bank.  I envied them for having a job.  And of course they were probably affectively forecasting how much more they’d enjoy their lives if they could quit and be out of the heat and dirt!  In short, I had focused on how I’d feel telling the boss to “take this job…” and not realistically seeing months down the road and how tough the job market really was. 
I also did not enjoy the “time off” as much as I thought I would.  Don’t get me wrong, I enjoyed it.  But we all dream of having more free time and imagining the many things we’ll do with it.  But free time is precious now because we have so little of it.  Experiencing it is exhilarating.  But what if every day is Sunday?  Does free time become a burden, an endurance test against boredom?  Our poor job of affective forecasting causes us to take free time in the context of ourselves as five-days-a-week workers and put it into the retirement scenario where we work (or volunteer) only a day or two a week, or not at all.  You cannot play golf every day for twenty-five or thirty years.
So stop and apply these warnings to yourself and your retirement plans.  Are you overlooking the positive aspects of being in the workplace and unwittingly exaggerating the exhilaration of retirement?  It’s almost like planning a vacation.  Sometimes the best part is the imagining, the planning, and the anticipation.  Make sure you don’t make a hasty decision to prematurely jump the employment ship.  Have a plan for retirement that goes beyond money.  I like to write about money, but it is actually a lesser player in ensuring your happiness.  Activity, involvement, friends, purpose, variety…these are critical components of life-after-work and must be planned as carefully as your investments and budgeting strategy.

Until next time,


“We were meant to enjoy our work, and that’s the best thing we can do.  We can never know the future.” Ecclesiastes 3:22 CEV