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Thursday, February 4th, 2010

Obama’s Plans for Your Retirement Savings

In an age of disappearing pensions and rapidly shrinking Social Security funds, individual retirement accounts are more important than ever – but many Americans have no official retirement accounts, connected to their jobs or otherwise. The Associated Press reports that President Obama is launching a plan to change that.

The plan has at its center one serious statistic: almost half of American workers have no retirement savings option through their jobs. That’s frightening, considering that, as a nation, we don’t have a great track record of saving money.

Four Main Points for Retirement Savings

The retirement savings legislation, still in the drafting phase, at this point includes four main parts to improve Americans’ chances of living comfortably after they stop working. The four prongs are:

  • Automatic IRAs at work: Employers who do not already offer Individual Retirement Accounts (IRAs) to their workers would be required to do so. All employees would be automatically enrolled in such programs, with a chance to opt out. Studies have shown that participation in retirement savings plans is much higher when it’s automatic. To ease the administrative costs associated with the program, employers would reportedly be offered tax breaks for introducing the IRA plans.
  • “Saver’s credit” for contributions: Sources indicate that the Obama Administration wants to include a provision that would incentivize retirement savings for lower-wage workers by introducing tax breaks and potentially including government-sponsored matches for initial contributions. Some critics suggest that this measure will face too many obstacles because of the potentially high cost to the government.
  • Lifetime income: One aspect of the retirement measures that has been proposed would introduce investment products into retirement accounts that work on annuities and guarantee income for an investor’s lifetime. This measure would be intended to eliminate the possibility of a person’s money running out before their life, but could face challenges since accounts that offer such returns are often laden with fees. This might even include stronger retirement account protections in bankruptcy.
  • Heightened 401 (k) regulations: Lastly, the administration has mentioned introducing more transparency into the regulations governing 401(k) plans, so that investors would be better informed about the fees and costs of their accounts and avoid unnecessary expenses.

Remember: it’s never too early to start saving for your retirement, and with fewer guaranteed income sources for the elderly, it’s more important than ever to plan to support yourself financially after you stop working.

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Posted in Financial Literacy | 3 Comments »

Friday, January 29th, 2010

FTC Hails Victory Over Abusive Debt Collection Practices

The Federal Trade Commission announced this month that it has settled charges with three debt collectors accused of various types of abusive debt collection. The settlement, which reportedly includes the largest civil penalty ever levied on a debt collection agency, comes in conjunction with future restrictions for the defendants.

Fair Debt Collection Practices Violated

According to the case, the defendants violated terms of the Fair Debt Collection Practices Act, which outlines acceptable behavior for agencies responsible for collecting on debts. These guidelines prohibit a variety of actions, including:

  • Contacting a debtor before 8:00 am or after 9:00 pm local time
  • Contacting a debtor after receiving a written request not to do so
  • Contacting a debtor at her place of work after being told not to
  • Calling the debtor with the intent to annoy, harass or abuse
  • Contacting the debtor directly when he is known to have an attorney
  • Misrepresenting a debt or using deceit to collect money
  • Threatening arrest or legal action when neither is an option
  • Seeking more than a person legally owes
  • Publishing a person’s name on a “bad debt” list
  • Reporting information incorrectly to a credit reporting bureau
  • Contacting a third party about a consumer’s debt
  • Contacting a debtor by embarrassing media (like a post card)

In this case, the men were charged with threatening arrest and legal action when none was warranted as well as using harassment and abusive contact to collect debts. The men in question were senior managers at debt collection agencies and as such either participated in the illegal actions or were responsible for such actions among their employees.

The Settlements

One of the three defendants, Keith Dickstein, owner of Academy Collection Service, Inc., apparently paid a $2.25 million settlement in 2008. The two defendants who settled early this year, Edward S. Bastian and Edward Hurt, were saddled with fines of $375,000 and $300,000 respectively for abusive collection practices.

The fines were suspended after each man paid $7,500, based on their ability to pay; payment of the remainder will depend upon their future compliance with debt collection laws.

Your Consumer Rights

Federal law outlines many protections for consumers. Make sure you have an idea of what consumer rights you have so you can take legal action, if necessary, should they be violated.

Additional Resources

Fair Debt Collection Practices Act (PDF)

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Posted in Financial Literacy | 11 Comments »

Tuesday, January 26th, 2010

Elliss Bankruptcy a Riches to Rags Story

Financial lessons are often best learned in retrospect, which can make it difficult to tell when you're going down the wrong financial path. Luckily, we can always learn from the mistakes of others.

The Detroit News reports that former Detroit Lions lineman Luther Elliss was forced to file for bankruptcy thanks to a series of bad investments and debts.

While the story is frustrating to hear—Elliss reportedly earned more than $11 million in a five-year period—it is surprisingly common. So how do the once fantastically rich manage to end up in bankruptcy court? Often enough, simply by making some bad decisions.

Elliss, it seems, got sucked into the real estate bubble and ended up with two homes worth less than what he owed on them. Last summer, he and his wife reportedly filed for Chapter 7 bankruptcy to receive a discharge from their debts.

Taking the Long View on Your Finances

While most of us will never command the kind of salaries professional athletes can expect, we would do well to look at how quickly a fortune can disappear.

  • Nothing is guaranteed. If the current employment situation has taught us anything, it’s that no job is permanent, but many of us act as if our life circumstances are not subject to change. When making major purchases (homes, cars, schools, etc.) remember that a stretch now could easily become a financial impossibility if your salary changes.
  • Listen to the right people. In the Tribune article, Elliss notes that he didn’t listen to suggestions from his wife or adviser—and that it cost him in the long run. Unfortunately, nobody is guaranteed to have your best interests at heart except you, so be very wary when people ask for financial commitments and promise unrealistic returns. On the other hand, know who honestly cares about your well-being and take their advice to heart.
  • It's a marathon, not a sprint. Remember that you're in this thing called life for the long haul. There will always be great investments around, so make sure you learn all you can about one—and feel totally comfortable committing to it—before sinking in your hard-earned cash. It's true that you can't win if you don't play, but you also cannot lose.

There's an old bit of financial wisdom that summarizes pretty much every other guideline for handling money: spend less than you make and save the rest. It's easy to get drawn into upgrades and status symbols and all the rest, but at the end of the day (or the lucrative career as a professional athlete), financial stability is often worth the sacrifices of getting there.

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Posted in Bankruptcy News and Events, Financial Literacy | No Comments »

Monday, January 18th, 2010

Research Suggests Ways to Spend Smarter

High unemployment rates and sluggish recovery in the job market mean that many Americans are still budgeting carefully and watching every penny that leaves their wallets. It’s times like these when studies like the one conducted by researchers at San Francisco State University can help us make important spending decisions.

Memories Last Longer than Stuff

The new budget study examined recent purchases made by adults enrolled at SFSU. Here's what the researchers discovered:

  • Happiness from things fades. On average, researchers found, the thrill brought about by new objects faded in six weeks to three months. This means that, no matter how much you love that new computer, dress or TV, you will get used to it in a few months and the pleasure it brings you will dwindle.
  • Happiness from memories lasts. On the other side of the coin, the pleasure induced by spending money on experiences (like sporting events, plays, hikes, etc.) endures, thanks to our ability to remember and relive these experiences.

So how can you use this information to make the most out of the money you have for leisure? Focus on participating in events rather than accumulating goods. And, suggests the study, recruiting friends and loved ones to join you is a particularly useful way to make sure you enjoy yourself and create enjoyable memories.

Here are some ideas to consider when thinking about an experience (rather than an object) to spend money on:

  • Take a class. Many community colleges and organizations offer continuing education departments that offer fun classes like ballroom dancing, cooking, yoga or sculpture.
  • See a play. Check local newspapers or schools for events put on by community and school theatre or music groups. Bonus: these are often low-cost outings.
  • Plan a picnic. Even in bad weather, you can organize a picnic indoors to shake up the monotony of chilly days. Team up with friends and make everyone responsible for one part of the meal. Or have everyone agree to bring a dish they've never had before.
  • Be a tourist at home. Spend a day visiting museums or landmarks close to home that you've never actually explored. See what you can learn about your hometown.
  • Get lost. Team up with a friend and try to get lost. Then spend the day driving or walking around areas you’ve never seen before. Take pictures as souvenirs.
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Saturday, January 2nd, 2010

Cash for Cutting Greenhouse Gases

CNNMoney.com reports that a new proposal before the Senate could mean big news for how energy is bought and sold in the U.S. – and for how much average consumers pay.

Proposed Money Saving Measures

Currently, Congress has made little headway toward passing legislation that would limit production of greenhouse gases, despite various attempts. The new bill offers an alternative to the now familiar cap-and-trade model that could potentially lower energy costs for average Americans.

If successful, the measure would work like this:

  • Permits required: Each month, coal, oil and natural gas companies would be required to buy permits to sell their greenhouse gas-emitting products to Americans.
  • Money comes back: Naturally, higher costs for energy distributors would mean higher prices for consumers, but the proposed measure would return 75 percent of the companies’ fees to consumers. The remaining 25 percent would apparently go to development of sustainable energy sources.

Supporters have reportedly claimed that this cap-and-dividend program, as it’s called, would provide a much simpler way for energy providers to meet new emissions standards than the oft-discussed cap-and-trade proposals would.

Opponents, on the other hand, fear that removing Wall Street investors from the equation would dry up a significant source of revenue that could otherwise be invested in explorations of new technologies.

One of the most easily understandable explanations of the differences between cap-and-trade and cap-and-dividend reportedly comes from an analyst of the energy sector, who noted that this proposed bill would essentially shift money around within the U.S. economy, whereas cap-and-trade could potentially inject new capital.

How Your Energy Bill Could Change

Sources indicate that the rebate part of the bill would likely translate to about $1,100 returned to each household annually. Of course, some of that money would be funneled directly into covering higher energy costs.

But, it seems, as much as 80 percent of the U.S. population would either save money from this proposal or see no change in their expenditures. The other 20 percent, according to CNNMoney.com, would be wealthier consumers who use more energy (in the form of multiple residences, frequent air travel, etc.) and essentially pay for that privilege.

While energy costs are a big part of any budget, these changes shouldn't cause anyone to file bankruptcy.

Because the effects of the bill would vary in each state, you may want to contact your local congressional office for details.

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Posted in Bankruptcy News and Events, Financial Literacy | 11 Comments »

Saturday, December 26th, 2009

FTC & BBB: Avoid Free Trial Scams

The Federal Trade Commission recently released a statement warning about the potential cost of free trial offers that end up costing consumers significant amounts of money. The warning, made jointly by the FTC, the Better Business Bureau (BBB) and Visa, includes red flags to watch out for and action to take to avoid getting scammed.

The “Negative Option”

Offering free trials is a common technique companies use to introduce consumers to new products and services. Sometimes, though, free trials are offered by scammers bent on collecting money from unsuspecting consumers. Often, the scam works like this:

  • Emphasis on free: An online advertisement may offer something free (usually for a trial period), available to you by clicking a link. In most cases, you’ll have to enter a credit card number of some sort.
  • Excessive fine print: In the fine print, the offer notes that, once the trial period is over, you will be charged for the product or service unless you cancel it. This is known as the negative option, because you must opt out in order to stop paying.
  • Charges to your card: Once the trial period ends, your account will be automatically charged on a regular basis for the product or service. Even if you cancel after a month, you can end up paying significant money for something you never wanted.

Avoiding Free Trial Scams

So how can you make sure you aren’t lured in by an expensive online scam? Here are some tips, as posted on the FTC’s web site.

  1. Read everything. If there’s more fine print than you care to sift through, that’s usually a bad sign. Any time you’re giving out personal information, make sure you know exactly what you’re getting yourself into.
  2. Note the checks. Some offers trick customers by pre-checking boxes that seem insignificant but actually include continued-payment agreements. Uncheck any boxes that offer something you don’t want.
  3. Review your statement. When your credit card bills arrive each month, check for strange or questionable charges.
  4. Take action. If you do find any charges that you don’t agree with, call the merchant and ask to have the charge clarified, and, if necessary, removed. If you cannot work anything out with the merchant, contact your card issuer and contest the charge.

If you think you’ve been scammed by a free trial offer, don’t hesitate to file a complaint with the FTC or contact the BBB in your state.

Additional Resources

FTC’s Risk-Based Pricing Notice (PDF)

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Posted in Financial Literacy | 16 Comments »

Friday, November 27th, 2009

True Bargains: What Makes a ‘Good Deal’

While looking for low prices is an important part of financial responsibility, it’s only one component: getting the value you need is the other half. For example, buying the cheapest brand of conditioner may seem frugal, but if you have to use twice as much as any other brand, it may end up costing just as much.

Value Vs. Price

The "value" of an item is subjective, while price is relatively fixed. Two people may see the same item as having different values even when the price is the same.

  • Value: How much an item is worth to a buyer/seller (usually determined by how much you need or want an item).
  • Price: How many dollars an item costs. Dollars are sort of a generic value unit we’ve all agreed upon.

In many cases, value and price line up pretty well, and merchants will try to keep the two in line. Value really shoots up when a seller is asking for less than you’re willing to pay.

Maximizing Value

So how can you make sure you spend your dollars to maximize their value? Here are some tips.

  • Buy second-hand: Thrift stores, flea markets and garage sales are all excellent places to find good values because they’re filled with items that haven’t declined in intrinsic worth but whose owners grew tired of them. Gently used items are often steeply discounted and still perfectly functional (but avoid super-cheap items that are simply junk).
  • Spread the word: Let your friends and family members know what you’re looking for – someone may be trying to “get rid of” exactly what you need. When you’re in a store, tell the sales associate what you’re looking for. Ask for advice and find out if any discounts might be available.
  • Shop ahead & behind: If you know you’ll need a new pair of sneakers once a year, keep your eyes peeled at all times for bargains – many staples won’t “go bad” from sitting around a while. Take advantage of end-of-season sales to stock up for the next year (think Halloween decorations on November 1st).
  • Use the Internet: Craigslist, eBay, Freecycling, Amazon and other websites often offer significant discounts from retail prices. But if you don’t want to buy online or don’t like to pay for shipping, you can still use the Internet to get an idea of what various vendors charge for the item in question (and use that knowledge to bargain).

If you start thinking in terms of value, you'll be able to save money while getting your true dollar's worth—particularly important if you're struggling with debt or rebuilding your finances after bankruptcy.

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Posted in Financial Literacy | 2 Comments »

Thursday, November 12th, 2009

Federal Reserve Sets Limits for Debit Card Fees

Debit card users will have to opt-in to overdraft fees for ATM withdrawals and one-time purchases, according to a new set of ruled unveiled by the Federal Reserve Board.

The measures, which will take effect July 1, 2010, are part of a series of decision issued by the nation's central bank to limit abusive practices by banks announced over the past year.

Authorizing Fees

Under the new rules, all debit card holders must be given notice of the bank's policies, including those on overdraft fees, in plain language. Cardholders can sign up to be charged fees or not, and banks cannot change the terms of service afterward.

Banks will still be allowed to charge overdraft fees for recurring debt card purchases, such as recurring utility bills that are automatically charged, as well as on bounced checks.

The measure is mainly aimed at one-time debit card purchases or ATM withdrawals that can often result in fees greater than the purchase amount.

Protecting Consumers

"The final overdraft rules represent an important step forward in consumer protection," said Federal Reserve Chairman Ben S. Bernanke in a press release. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Declining Transactions?

Of course, those who overdraw their bank accounts won't be given free money by their banks.

Overdraft protection allows banking customers to make payments even when their funds are limited, and are charged a fee for the convenience.

Those who opt-out of overdraft protection may instead see their transactions declined if they attempt debit card purchases when their accounts are low. However, any overdraft transactions approved by the bank cannot result in fees.

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Posted in Bankruptcy and Predatory Lending, Financial Literacy | 6 Comments »

Wednesday, November 4th, 2009

Layoffs: Johnson & Johnson to Cut 7% of Jobs

Health care giant Johnson & Johnson announced Tuesday that it would eliminate up to 8,000 jobs worldwide, or 7% of its workforce, as a cost-savings measure, according to CNN.

Many of the cuts will come from management levels as the company revises its corporate structure. As a result, Johnson & Johnson expects to save between $800 million and $900 million this year.

Johnson & Johnson manufacturers household health and beauty products, like soaps and mouthwash, along with pharmaceuticals and medical devices. The recession has impacted both sides of J&J's business.

The majority of the job cuts will occur outside of the U.S., according to CEO Bill Weldon, and will occur across all aspects of the business.

Johnson & Johnson's restructuring has been occurring over the past few years, as it attempts to fight off competing drug manufacturers and generic versions of its own drugs. In July, 2008, J&J cut 4% of its workforce. In April, 2009, about 900 U.S. sales jobs were eliminated.

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Posted in Financial Literacy | 4 Comments »

Monday, November 2nd, 2009

Consumer Financial Protection Agency Moves Forward in House

Last week, the House of Representatives Financial Services Committee voted 39-29 for the creation of a federal agency that would provide consumer protection. The proposed agency (called in bills the Consumer Financial Protection Agency) has been in the news since its proposal earlier this year.

This vote is seen as an important step, but the bill must still face votes before the full House of Representatives and the Senate.

Who Wants It, Who Does Not

For the past few months, lobbyists from both sides of the debate have been pushing legislators to make a decision about the potential consumer protection group.

  • A Yea from consumer advocates: Generally speaking, supporters of consumer rights favor the agency's creation. If approved, the agency would regulate certain financial products like mortgages, credit cards and loans, and would provide oversight rules for some banks and lenders.
  • A Nay from big business: Supporters of large businesses and big financial firms oppose the agency, claiming that it would introduce too much government regulation into the business sector, thus hampering trade and profitability.

What The Agency Would and Wouldn't Do

Though many democrats and consumer advocates have reportedly lauded the Financial Services Committee's initial vote, the bill has apparently changed significantly since its introduction by the Obama administration.

Here's a look at what the House has outlined so far for the potential agency:

  • Limited regulatory reach: While the CFPA would be able to regulate certain lenders and issuers of financial products, the Financial Services Committee's version of the bill exempts many groups, such as lawyers, car dealers, cable companies, retailers, accountants and real estate brokers.
  • No state overrides: Though the original version of the bill would have allowed stricter state regulations to trump the national rules, this version does not.
  • Most banks can keep current regulators: Perhaps the most significant change to the bill from its earlier version was one that would allow the vast majority of American banks (about 98 percent, sources estimate) to keep their current regulators for overseeing enforcement of consumer protection laws.

Baby Steps Forward

Though passage of a House committee is only the first step in what may be a long journey, the forward motion of the bill can be viewed as a positive sign for American consumers.

While it's unfortunate that a massive collapse of the real estate industry and stock market was required to incite lawmakers to bolster consumer protections, it's good that they're taking action now.

Additional Resources

H.R.3126 (PDF)

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Posted in Financial Literacy | 10 Comments »

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