Credit Card Companies Are Looking for Business

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I have noticed lately my mailbox has been a little fuller with advertising for credit cards. My old canceled credit card companies are sending me offers via Email. What's going on? Can someone tell Orchard Bank to leave me alone.
 
The new credit card rules are enforce now. Maybe their profits are going down a little and their looking for new business. Or maybe they really like me or they are looking to get back some old customers. Even my old friend CITI Bank sent me two new cards from my old accounts. They must like me again because last year they canceled all 4 of my cards. Now by magic two of my accounts have come back to life. I have even gotten new replacement cards from other card issuers, even though the card hasn't expired yet. I guess they want me to remember to use them. Somethings up, wonder what it is.

I saw over at NYTimes.com the reason why. A spokesman for Bank of America stated " We see deleveraging
 of the consumer" also adding that they see a more frugal consumer and a decreasing demand for credit. It seems we are losing our taste for the wonderful credit card. 

According to the BOA spokesman they are seeing a decline in loan balances of $37 billion dollars from a year earlier with $34 billion of that from the results of charge-offs. With a net decrease of $3 billion dollars in consumer debt balances. Whats the interest on $3 billion dollars. It's quite a bit of money they are losing because of us. With $34 billion in charge-offs  they are hurting a little bit.

Other credit card companies also are complaining that U.S. consumers are by and large deleveraging and are buying less and electing to use debit cards. The use of debit cards have increased greatly and really shot up at the beginning of the recession and is accelerating. I hope America has learned something from this recession and chooses to get out of debt.

The Recession Is Over, Really?

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It's reported by the National Bureau of Economic Research committee after considering numerous economic data and concluding that several key measures of economic activity, including total output and industrial production, pointed to June 2009 as the trough of the business cycle. 
I can understand that the analysts using their guidelines and mathematical algorithms have mathematically determined the recession is over. I have a problem with that. Economists have it all worked out to a science the measurements and data necessary to call these things.

According this has been the longest recession since 1945. The latest one is the twelfth recession since then. So maybe we can trust the economists. They have been studying this for sometime with plenty of data to back them up.

But out here in the real world we see no evidence of the end of the recession even though it ended more than one year ago. I see everyday people out of work and families suffering. In my business we have real estate inventory to sell but can't.

Mark Zandi, chief economist at Moody's Analytics, claims that because of the stimulus, disaster has been avoided. Most economists claim things are getting better because their numbers tell them so. But out in the world times are still very tough. 

Sorry economists but you are wrong, but who am I do go against educated people who study this stuff everyday. I like to take the advice of the old warriors like Warren Buffet. I can't listen to desk jockeys who don't know squat about business.

In an interview of Warren Buffet He states:

"I think we're in a recession until real per capita GDP gets back to where it was before. That is not the way the National Bureau of Economic Research measures it. But I will tell you that to any - on common sense definition, the average American is below where he was before, or his family, in terms of real income, GDP. We're still in a recession. And we are not going to be out for a while, but we will get out of it."

The Oracle of Omaha is  right of course. Most Americans struggling to pay their bills feel the same way. Survey after survey shows people are worried as ever about their economic future. Members of the National Bureau of Economic Research(NBER), who officially define when recessions start and end, seem to hide in their ivory towers issuing statements that confuse most people who barely remember their Econ 101 classes in college.

Kids Need To Work

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One of our duties as good parents is to instill the work ethic in our kids. But how do we do that? In my house both mom and dad go to work everyday to their full time jobs. Teaching by example should be enough but in this world it doesn't even come close, junior is perfectly happy to see others do the work. 
 
Should there be a certain age for your child to look for work? I believe there is. Each family can determine if the child is physically and emotionally ready to go to a job. We found that around the time they got their driving permit was the perfect time. They were mature enough and were self motivated because they needed money for their own life. 
 
Also at this time they wanted to have their own cell phones. We were firm in stating they would be paying their own cell phone or they wouldn't have one. So the job was becoming more of a necessity in their minds. 
 
The amount of money they made was enough to pay the cell phone and give them some money in their pocket. We taught them to save for things they would need in the future. Now all this seems pretty straight forward but with kids there is always some way they mess up. But this exercise is a teaching experience and probably prone to disaster. 
 
Having a job when your young is good for you. Because it teachs many things. For starters, it teaches you to show up somewhere on time. To have an authority over you that's not your parent or teacher. Also that Work = Money. 
 
Now all of our children did not all respond the same, with this wonder plan of the parents. More than half of them learned to work. But some of them just never got on board with the plan. The disgruntled children had to be led kicking and screaming down the road to work. But in the long run it worked out for all. 
 
Everything about work is a lesson in life: 
 
1. Work=Money 
2. Being somewhere on time is a skill that will be used the rest of your life. 
3. You will always have an authority figure over you in some form or another. 
4. Self reliance is the only thing that will never let you down. 
5. Success only comes after many years of work. 
 
Parents devotion to teaching their children is a never ending job. But I'm seeing with the oldest one the fruit of all my teaching. Be prepared to see some bare much fruit and some to bare a little. 

Book Review: Morningstar's 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Christine Benz, who is the Director of Personal Finance over at Morningstar, has written a new book. Its called "Morningstar's 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances". It is a well written and practical book. The 30 minute part in the title describes how long it would to take to do the tasks she writes about in each chapter. The book is divided into 11 parts, each describing a different part of financial planning for your life. 

I find the book complete in helping a newcomer get on the road to financial organization. The chapters are laid out that you can come back to each at different times to answer question you may have at a later date. The helpful basic knowledge will help the average person to get the basic info on finances. For the average knowledgeable reader of financial books there are no new revelations. 

Even though the book states the tasks are doable in 30 minutes, I don't think they are. Only if you are already very organized. Yet if you were, you wouldn't need this book. 

There is a web site listed in the book that has worksheets and further articles. 

Here is a list of the chapters:

Part 1: Find Your Baseline

Identify where you stand, what your goals are, and how to get there.

Part 2: Get Organized

Create systems for bill paying, filing, and keeping track of it all.

Part 3: Find the Best Use of Your Money

Determine whether to pay down debt or invest, then decide where to put your money.

Part 4: Get Started in Investing

Establish emergency, short, and long-term plans, and select the right investment mix.

Part 5: Invest in Your Company Retirement Plan

Evaluate your retirement plan and choose the right type of 401(k).

Part 6: Invest in an IRA

Choose the best type of investments and conversion strategies for you.

Part 7: Invest for College

Find the right college-savings vehicle, 529 plan, or investments.

Part 8: Invest in Your Taxable Account

Identify the best investments and maximize tax efficiency.

Part 9: Invest During Retirement

Build an in-retirement portfolio and plan withdrawals.

Part 10: Monitor Your Investments

Check up on or rebalance your portfolio.

Part 11: Cover Your Bases on Estate Planning

Start your estate plan, handle beneficiary designations, and create a personal legacy.

As with all financial help books, this one is written to apply to the broad population. Its a very good start for a neophyte in financial literacy. Some readers will find that this info is enough for their money life. But, more complex situations call for professional assistance in a Financial Advisor. I believe with something as important as your money, its imperative to get a professionals advice, at least once.

Home Ownership Gets a Bum Rap.

Last week Time magazine has a front page article called "The Case Against Home Ownership". In this article the writer Barbara Kiviat takes to task the pitfalls and negatives of home ownership. Barbara Kiviat is a prolific writer currently at Time, Inc. She also wrote for "Mutual Funds Magazine" and previously for "The Arizona Republic". She earned a Masters in Journalism at Columbia University - Graduate School of Journalism and a BA at John Hopkins University. 

In a through article she takes to task the idea of home ownership has been sold to us and it is harmful to our society. All throughout the last century starting in the early 1900's home ownership was pushed on the American population as part of a way to make society more functional. That it would bring economic and societal stability. But with it also brought the dark side of home ownership. 

The writer states,"The dark side which includes foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed easy lending stimulated by a cult of home ownership may have triggered the financial crisis and led to the biggest bailout, that of Fannie Mae and Freddie Mac. Housing remains a drag on the economy. Existing-home sales in July dropped 27% from the prior month, exacerbating fears of a double dip recession and accelerating the accompanying slide in stocks that that took the Dow Jones industrial average to a seven-week low. And all that is just the obvious tale of a housing bubble and what happened when it popped. The real story is deeper and darker still."

The writer uses words like "cult" in her description of the way all Americans dream of owning a home. It seems we have all been brainwashed by business and the government. Our love of having our own home and the pride that bestows is a result of a marketing scam. Owning property has been a staple of the American experience throughout our entire history. Our history is replete with examples of the American citizen trying to carve out his piece of this land. But to the writer of the article that dream is a con strewn on us. And we don't even know it.

The writer cites examples of how the government has been involved in this. Starting in the 1800's when land was being sold very cheap or given away so as to foster settlement of the new western states. In the 1900's government set up campaigns to foster home ownership. Even after the Great Depression President Roosevelt created the Federal Housing Authority and later Fannie Mae to get lending on home mortgages started again. We see the campaigns continuing through the Second World War. Even up till the present time when Bill Clinton and George Bush encouraged home purchasing through their administrations policy's and laws. 

I can see how the writer sees the immense help and financial assistance provided by government over the last two centuries as a negative. She seems to believe the government should not be involved in the societal development of home ownership in this country. The undue influence of the government, their legislation and work with private industry was not necessary or wanted according to her. Again I can't agree because I feel that we would have found our own way of buying homes without government help. The government made it easier when times were tough or when economy was slowing. 

Later in the article  the writer again states how we were brainwashed into thinking home ownership was a special need for us. Maybe she doesn't experience the deep human need to call ownership of a home and piece of ground an integral part of the our life experience. She also states the "lack of Mobility" the purchase of a home creates. The financial mistake of putting all of ones assets into one thing. She goes on to state how a mortgage is a millstone around our necks. 

With faint praise she does state there are a few pluses that are stated in the article. Owners of homes invest more time and money on upkeep. You can do your own repairs and also it affords you to indulge you gardening hobby. But there seem to be even more negatives of home ownership like detached homes, as opposed to apartments, use 49% more energy. Which leads to the increased use of oil. The brainwashed citizens are again manipulated to feel they have to move out of the cities because they dirty and crime ridden. But now are a very pleasant place to live. It's also unfair that home owners get tax breaks and renters do not. This is unfair.

I have really enjoyed reading this article because it is very well written. I must admit Barbara Kiviat is an excellent writer. She obviously is highly educated and skilled in her craft. Her point of view is unique to say the least and I will read more of her articles soon. Yet I find her conclusions all wrong. She is a product of the current culture idiom of blame everyone but yourself when you screw up. 

In the book there is a deep slant against home ownership. The arguments against it just don't hold water. Trying to blame the government for pushing the idea of home ownership is wrong. Most Americans given the choice to own or rent, would probably own. To blame the high cost of ownership to renting is ludicrous. Of course it costs more to own. Repairs, taxes, insurance, mortgages, etc. make it more expensive. Rent if you want to save money, but your home is not yours. It belongs to someone else. And that's the big difference. Its like the difference between marriage and dating. You have a bond between your house you own and yourself. As you do your spouse and you. 

Its sad to blame the government, the banks, lenders and all financial institutions for making those poor people sign up for those mortgages. I say it was the personal responsibility of the borrower to know if they were able to replay the money they borrowed. Ultimately, the owner is responsible for his actions and the resulting failure or success of their decision. Why not bring back personal responsibility and repercussions for our actions. 

Home ownership is part of the American Dream and human experience. Its in our DNA to crave our own hearth and home. And when you do, be sure your able to pay for it.

Is Ditching Your Mortgage An Option?

If you owe more on your mortgage than your house is worth you have an underwater mortgage. What options do you have? Do you give up paying the mortgage and leave the house to foreclosure. 
 
People look at this problem two ways. First, there are those that think it is unethical and shameful to walk away from an obligation. Secondly, those that think walking away is nothing compared to what the banks have done, making a profit on bad loans and those that gambled on mortgages. 
 
If we look at it from a strictly economic position. At what point are you so far under that there is no way you will ever be even in the foreseeable future. Not walking away would be the wrong thing to do. If your 50% underwater on a $400,000 home how is not walking away the right thing to do for you financial life. 
 
If you compare your mortgage payment to the rental payment for the same house, is the rental payment lower than the mortgage payment. If your mortgage payment is $2600 and the rental payment is $1600, what do you do? Then it would make sense to walk away because you would be saving $1000 month. Over ten years that would come to $120,000. If you did this the you would have this money and your credit report would have been cleared of the foreclosure years ago. If you did stay and paid your mortgage, you may have some equity or still may be underwater at the end of ten years. 
 
Some good news from Moody's Economy.com , 62% of major metropolitan areas will have their home values return to pre-recession levels by 2016 . But if that is inconceivable to you, some experts say it may take til 2030 or 2040 to return to those levels. 
 
Still the stigma of being foreclosed on is strong in some people. The discarding of an obligation so big is so negative to people they find it hard to chose that decision. Yet you could, after 7 years have a clean credit report by then and the stigma may have passed. You could purchase a house and start over. What ever choice is made, both options are gut wrenching.