Picking Up the Pieces

In response to the current market crisis the Alliance for Investor Education (AIE) lists 12 of the best Web-based resources for investing in uncertain times.

Founded in 1996, the Alliance for Investor Education Web site at http://www.InvestorEducation.org provides investors with access to a full range of information they need to make wise investment decisions. The 19-member Alliance for Investor Education is dedicated to facilitating greater understanding of investing, investments and the financial markets among current and prospective investors of all ages. We pursue initiatives for education and join with others to motivate Americans to obtain objective information and increase their knowledge and understanding of
investing.

Complaints Concerning Aggressive Bill Collectors Surge

The Associated Press reports that last year more consumers filed more than double the complaints that were submitted in 2003 regarding abusive bill collectors.

Nearly 39 percent of the people who complained to the FTC last year accused an agency of either demanding a larger payment than legally allowed, or seeking money they didn't owe at all.

Most Consumers Have Accepted and Banks Are Progressing Toward Full Adoption of Check Truncation

A recent GAO report indicates that consumers are generally satisfied with the new check clearing processes established under Check 21.

Most bank consumers seem to have accepted changes to their checking accounts from check truncation. In interviews with bank consumers, the majority of them accepted not receiving their canceled checks and being able to access information about their checking account activity online. Several reported that they did not need the "extra paper" from canceled checks and that image statements and online reviewing was more secure than receiving canceled checks. Eleven percent of the 108 consumers still preferred to receive canceled checks. Most consumers reported that they were not significantly concerned about their ability to demonstrate proof of payment using a substitute check or check image rather than a canceled check and few reported that they suffered errors from the check truncation process. Also, GAO found that the federal banking regulators reported few consumer complaints relating to Check 21.

Check 21 Act: Most Consumers Have Accepted and Banks Are Progressing Toward Full Adoption of Check Truncation. GAO-09-8, October 28. Highlights

Are Retirement Savings Too Exposed to Market Risk?

This is the question Alicia H. Munnell and Dan Muldoon raise in their most recent brief at The Center for Retirement Research at Boston College.

The stock market, as measured by the broad-based Wilshire 5000, declined by 42 percent between its peak in October 9, 2007 and October 9, 2008. Over that one-year period, the value of equities in pension plans and household portfolios fell by $7.4 trillion. Of that $7.4 trillion decline, $2.0 trillion occurred in 401(k)s and Individual Retirement Accounts (IRAs), $1.9 trillion in public and private defined benefit plans, and $3.6 trillion in household non-pension assets.

This brief documents where the declines occurred. This information is interesting and important in its own right. But the declines also highlight the fragility of our emerging pension arrangements. Today the declines were divided equally between defined benefit and defined contribution plans, but in the future individuals will bear the full brunt of market turmoil as the shift to 401(k)s continues. Much of the reform discussion regarding private sector employer-sponsored pensions has focused on extending coverage. But the current financial tsunami also underlines the need to construct arrangements where the full market risk does not fall on pension participants.

You may also want to see a previous post on the testimony before the U.S. House of Representatives Committee on Education and Labor, byPeter Orszag, Director of the Congressional Budget Office.

Your Disability Free Life Expectancy

Retirement fund wiped out by the stock market crash? Thinking of working a little longer? How long will you be able to work? The answer depends on your disability free life expectancy. This is the number of additional years of life without a work limiting disability. Alicia H. Munnell, Mauricio Soto, and Alex Golub-Sass present updated calculations for trends in disability free life expectancy in a recent paper entitled, "ARE OLDER MEN HEALTHY ENOUGH TO WORK?" from the Center for Retirement Research at Boston College.

This study reinforces previous research indicating that disability free life expectancy is strongly linked to the expected socioeconomic characteristics. The authors also point out, however, that disability free life expectancy has increased by much less than total life expectancy. The following table presents their calculations for 50 year old males. For this age group life expectancy increased by 4.2 years between 1970 and 2000, but disability free life expectancy only increased by 2.7 years. The surprising result is that once socioeconomic factors are held constant for most groups there has been little change in the disability free life expectancy. Their results indicate that, "with the exception of college-educated whites, disability-free life expectancy has remained virtually unchanged or worsened for each group."

Expectations at Age 50 of Years Spent in Various States of Health, 1970-2000

Census Releases Residential Housing Sales for September 2008

Housing sales showed a slight increase in September, but residential home sales were 36.1 percent below year to date sales for the preceding year.

Sales of new one-family houses in September 2008 were at a seasonally adjusted annual rate of 464,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.7 percent (±12.1%)* above the revised August rate of 452,000, but is 33.1 percent (±8.9%) below the September 2007 estimate of 694,000.

Report here

Most Americans Don't Have a Will

A recent survey by Findlaw.com found that nearly 60 percent of Americans lack a will, the most basic financial planning tool.

The survey found that people are more likely to have a will as they get older. More than half of Americans age 50 and older have a will. But the numbers steadily drop among younger adults. Only about a quarter of people between the ages of 25 and 34 have a will. Among Americans between the ages of 18 and 24, the figure drops to less than ten percent.

The Effects of Recent Turmoil in Financial Markets on Retirement Security

The congressional testimony by Peter R. Orszag, Director of the Congressional Budget Office on The Effects of Recent Turmoil in Financial Markets on Retirement Security has been posted by the CBO. It is an understatement to say that his remarks were not upbeat. From the second quarter in 2007 to the second quarter in 2008 the value of assets in pension funds declined by 10% and there have been significant declines since then. He states that, "Those developments have probably left private-sector defined-benefit pension plans’ obligations exceeding their assets by a greater amount than last year." The state of defined contribution plans may be even worse since over two-thirds of assets in defined contribution plans are invested in equities. The share of retirement income coming from pensions is greater at the upper income levels.

Investment Company Factbook

The 2008 Investment Company Factbook is a compendium of data on the mutual funds industry. The 2008 Factbook provides a snapshot of the industry in 2007. Here are a few of the many interesting data that can be found at this site:

• 54% of mutual fund assets were in stock funds
• More than four in ten U.S. households own mutual funds and among these households the average mutual fund investment was about $100,000.
• 64% of households have more than half their financial assets in mutual funds
• 76% own defined contribution retirement accounts and 57% of households purchased their first mutual fund through their defined contribution retirement account

FDIC Insurance Coverage Increases

The FDIC has increased basic coverage on federally deposit accounts from $100,000 to $250,000 under the Emergency Economic Stabilization Act of 2008. The increase will last until the end of 2009. To see if you bank is covered and how coverage can extend beyond the $250,000 limit go to Bank Find. In addition, the National Credit Union Administration has posted a slide presentation that incorporates the new limits and explains how the limits are applied to different types of accounts.

The Federal Deposit Insurance Reform Act of 2005 combined the Bank Insurance Fund (BIF) and the Saving Association Insurance Fund (SAIF) into one fund the, Deposit Insurance Fund, that provides protection for all federally insured deposits at banks and savings and loans. Deposits at credit unions are covered in a parallel manner by the National Credit Union Insurance Fund that is backed by the full faith and credit of the United States government

How Did We Get In this Mess?

The best and most concise answer as to how we got in this mortgage crisis can be found in a brief article by Professor John M. Quigley in "Compensation and Incentives in the Mortgage Business" published by the Berkley Electronic Press. He also explains how a restructuring of incentives can avert future problems.

One does not need to invoke the menace of unscrupulous and imprudent lenders or of equally predatory borrowers to explain the rapid collapse of the mortgage market as house price increases slowed in 2006, before ultimately declining. There were certainly enough unscrupulous lenders and predatory borrowers in the market, but the incentives faced by decent people—mortgagors and mortgagees—made their behavior much less sensitive to the underlying risks. The only actor with a stake in the ultimate performance of the loan was the mortgagee. Everyone else had been paid in full—way before the homeowner had made more than a couple of payments on the loan.

Home Price Comparison Index

Given falling home prices you probably don't want to think about how much less your home is worth today. However, you might have some fun comparing the cost of your home with one in another region of the country. Caldwell Banker has created a site that allows you to quickly approximate how much your home might cost in any of the participating 340 markets across North America.

The 2008 Home Price Comparison Index

Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior

You always knew it was a lot harder to pull money out of your wallet rather than a credit card. It is now a proven fact according to a study produced by Priya Raghubir, PhD, of the Stern School of Business at New York University, and Joydeep Srivastava, PhD, of the Robert H. Smith School of Business at the University of Maryland, College Park. Their study showed that people were willing to spend more when they used plastic money.

The conceptual underpinning of our research is that payment modes differ in transparency or the vividness with which individuals can feel the outflow of money, with cash being the most transparent payment mode. We argue that the more transparent the payment outflow, the greater the aversion to spending or higher the “pain of paying” (Prelec & Loewenstein, 1998), leading to less transparent payment modes such as credit cards and gift cards (vs. cash) being more easily spent or treated as play or “monopoly money.” Further, to the extent that the transparency of paying underlies differences in spending behavior, altering the salience of parting with money should attenuate the difference across payment modes.

Want to cut back on your expenditures, then experience the “pain of paying” by using cash. Are we no more than rats in a cage responding to electro shock?

You can download the study at APA Online.

How Much Does That Fuel Hog Cost You?

You can find out at the Fuel Economy Site created by the U.S. Department of Energy. Try the Fuel Cost Calculator.

Bankruptcy filings, state by state, 2005-2008

There is an interactive map at CreditCards.com that lets you track bankruptcy filings by month. As you scan throught the months you will notice the parts of the country that have been hit hard by the recent mortgage crisis.

HOPE for Homeowners Act of 2008

New mortgages issued by FHA approved lenders will refinance distressed loans at a discount for homeowners that are at risk of losing their homes. In return the FHA will share in the future appreciation on the home. The sharing arrangement will continue until the owner sells the home or the mortgage is refinanced. Only homeowners who are unable to afford their mortgage payments will quality. Investors and speculators are not eligible.

See HUD Hope for Homeowners . Free foreclosure prevention assistance is available at Hope Now.

IRS Seeks to Return $266 Million in Undeliverable Refunds And Economic Stimulus Payments to Taxpayers

The Internal Revenue Service is looking for taxpayers who are missing more than 279,000 economic stimulus checks totaling about $163 million and more than104,000 regular refund checks totaling about $103 million that were returned by the U.S. Postal Service due to mailing address errors.

You can check your payment at Where's My Stimulus Payment?

Social Security Announces 5.8 Percent Benefit Increase for 2009

Monthly Social Security and Supplemental Security Income benefits for more than 55 million Americans will increase 5.8 percent in 2009, the Social Security Administration announced today. The 5.8 percent increase is the largest since 1982.

See Annoucement