Janet Yellen takes income inequality seriously...Fed bows out of bond buying...Who are financial advisers really working for?...And more
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Federal Reserve Board Chairwoman Janet Yellen recently spoke on income inequality, and her view is pretty stark. “By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then,” Yellen said. While others have noted this before, the fact that the world's most powerful central banker is concerned about income inequality may give the idea some room to grow, notes SFGate. Just how big is the wealth gap? Yellen pointed out that the average net worth of the poorest half of all households (about 62 million individuals and families) had fallen to $11,000 in 2013 while that of the wealthiest 5% of all households had risen to $6.8 million.
SECOND THOUGHTS: What can we do? Yellen suggests some "building blocks of opportunity" to level the playing field. She says we need to improve education and other resources for children while easing the unequal debt burden of college on the less well-off. That would require some government spending. Next, Yellen suggests improving opportunities to build wealth through business ownership. And the final building block is inherited wealth, which while concentrated among the wealthiest families, play an important role in intergenerational mobility. “I have only just touched the surface of the important topic of economic opportunity. I do believe that these are important questions, and I hope that further research will help answer them,” Yellen said.
The Federal Reserve pronounced that the economic recovery was now strong enough for it to end the bond-buying campaign it had used to drive long-term interest rates – including mortgage rates – to record lows over the past two years. The Fed's rate setting committee ended two days of meetings by proclaiming that the $1.66 trillion worth of treasury and mortgage debt it purchased had served its purpose and helped employers create more jobs. Although the end of the campaign was widely expected to drive up mortgage rates, they are at or near 2014 lows this month.
SECOND THOUGHTS: The nation's bank-for-banks began buying $85 billion worth of debt a month in September 2012, a fairly even split between Treasury bills and bonds backed by thousands of home loans. By flooding the mortgage market with money, it pushed mortgage rates to record lows in an attempt to revitalize a real estate industry still struggling to overcome the financial crisis and recession. In a process the Fed referred to as tapering, it began reduced those purchases to $75 billion in January, $65 billion in February and March, $55 billion in April, $45 billion in May, $35 billion in June and July, $25 billion in August and September and a final $15 billion this month. Through September, employers added an average of 227,000 jobs a month and the unemployment rate has fallen faster than expected, to 5.9%. “I do think this has been a success story,” Carl Tannenbaum, chief economist at Northern Trust told The New York Times.
The fiduciary standard is a stringent requirement for financial professionals, stipulating that they must provide advice that is always 100% in the consumer's interest. But not all "advisers" have to follow that standard and it's creating some confusion and problems for those seeking out sound advice. "If brokers continue to call themselves advisers and advertise advisory services, customers believe they are receiving objective advice that is in their best interest," Arthur Laby, a professor at the Rutgers School of Law, told the New York Times. "In many cases, however, they are not,". Many stock brokers are only required to recommend "suitable" investments that may be more profitable for them than their customers.
SECOND THOUGHTS: Dodd-Frank gave the Securities and Exchange Commission the authority to propose a rule that brokers act as fiduciaries, but the agency is still deciding whether to move forward with such a law. The Labor Department is set to issue a new proposal in January that will broaden fiduciary requirements for retirement accounts. Although that's a move in the right direction it's still "investor beware" until some new regs are enacted. Investment advisers registered with the SEC or a state securities regulator are required to customer interests first. CFPs take a pledge to do the same. But if you really want to put a prospective adviser to the test the Times says have them sign an oath stating they will act as fiduciaries.
We opened nearly 800,000 new home equity lines of credit in the 12 months ending in June, according to the housing data company RealtyTrac. That was up more than 20% from the previous year and represented the most new HELOCs since the 12 months ending in June 2009. “This recent rise in HELOC originations indicates that an increasing number of homeowners are gaining confidence in the strength of the housing recovery and, more importantly, have regained much of their home equity lost during the housing crisis,” says Daren Blomquist, a RealtyTrac vice president. Riverside, California, Las Vegas and Cincinnati topped the markets with the biggest jumps in HELOCs.
SECOND THOUGHTS: HELOC originations in June were still 76% below the previous peak in June 2006, according to the RealtyTrac report. But the return to using equity should be done with extreme caution and for a very narrow set of reasons. It's important to remember that borrowing against your home puts it at risk of foreclosure if you can't pay the bill. And for most purchases, the risk isn't worth it. Here are 4 smart moves for using home equity. Let's not try to turn our homes into an inexhaustible piggy bank again.
Women's 401(k) balances are far lower than men's, but it's not for lack of saving. In fact, women beat out men when it comes to putting money away. They are 10% more likely to enroll in their workplace savings plan and put away a large portion of their paycheck, according to an analysis of more than 1 million 401(k) plans by The Vanguard Group. Yet women only have an average 401(k) balance of just $78,000, well below the men's average of $121,000.
SECOND THOUGHTS: Why the disparity? Place at least some of the blame on the wage gap. Women in the survey earned an average of 40% less than men. That's especially true among high-income earners, where males were bringing in much more cash, explained Jean Young, a Vanguard senior research analyst, to CNN Money. Of course, females also work an average of 12 years less during their careers and take time off to raise kids or care for a spouse or aging parents. And we have to remember that 401(k) plans, while very important, only represent a portion of an individual's full retirement picture.
The 70 million Americans who receive Social Security benefits will receive a 1.7% cost-of-living adjustment to their monthly payments in 2015. That will boost the average retirement benefit from $1,250 to $1,271 a month — an increase of $21 a month or $252 per year. Since 1975, the annual cost-of-living adjustment, or COLA, for Social Security has been linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That's set each October for the 12 months ending September 30. The Bureau of Labor Statistics announced the CPI-W this morning, allowing Social Security recipients the chance to calculate how much they'll get next year.
SECOND THOUGHTS: The 2015 COLA of 1.7% is up slightly from the 1.5% increase recipients saw in 2014. Yet this is the third year in a row that the increase will be less than 2%. The COLA was less than 2% only three times for the first 35 years after Congress enacted automatic Social Security increases. But next year will mark the fifth time in the past six years that the COLA has been less than 2%. "In the last several years, we have had extremely low inflation," economist Polina Vlasenko, a research fellow at the American Institute for Economic Research, told ABC News. "Basically because inflation is low, the cost-of-living adjustment is going to be low, too. It's supposed to just compensate you for inflation."
The Consumer Price Index climbed 0.1% after decreasing 0.2% in August, a Labor Department report shows. Excluding volatile food and fuel, the so-called core measure of inflation also advanced 0.1% after being little changed in August. A slowdown in global economic growth and declining energy and commodity costs are expected to restrain price pressures this month.
Starting next year, Facebook and Apple will offer a new kind of perk to female employees. Both companies will pay up to $20,000 to cover egg freezing, or a procedure called oocyte cryopreservation, according to Quartz. The procedure extends a woman's years of fertility by extracting viable eggs and storing them for use at a later date. But it's not cheap, with an initial cost of up to $12,000 and another $1,000 per year for storage, according to Bloomberg Businessweek.
SECOND THOUGHTS: Is this female empowerment or companies telling female employees to delay having children? Quartz points out that the plans for the new $120 million Facebook campus include day care for dogs but nothing for children. However, both Facebook and Apple offer fairly generous child care perks. Facebook offers four months of paid leave for new moms and dads, a $4,000 new-parent bonus and child care subsidies. New mothers at Apple get four weeks off before delivery and 14 weeks after. “We continue to expand our benefits for women, with a new extended maternity leave policy, along with cyropreservation and egg storage as part of our extensive support for infertility treatments … We want to empower women at Apple to do the best work of their lives as they care for loved ones and raise their families,” Apple said in a statement.
Listen up, AT&T wireless customers: You could be owed some cash. That's because AT&T just agreed to pay $105 million for what's known as "cramming," which is adding unauthorized charges from a third party to phone bills for things like ring tones, trivia and horoscopes. Of that $105 million, $80 million has been earmarked for refunds, so if you think you're owed a refund, go to the FTC website and file a claim by May 1, 2015.
SECOND THOUGHTS: This is just another example of why you need to check your wireless bill every month. AT&T got a 35% cut of every unauthorized transaction, which typically added $9.99 per month to a bill, so it had little incentive to stop these charges. The FTC filed a similar lawsuit against T-Mobile for the exact same abuse in July.
Tesla Motors CEO Elon Musk recently unveiled the new Model D, a high-performance version of the Model S (pictured here). It's a dual-motor, all-wheel-drive sedan that goes from zero to 60 in 3.2 seconds, putting it on par with the Porsche 911 Turbo and Mercedes-Benz E63. Plus, the car has auto-pilot technology that allows it to change lanes automatically, park itself and come on its own when summoned. Oh, and it gets an extra 10 miles on a charge than the current Model S — 275 miles.
SECOND THOUGHTS: Tesla continues to expand the boundaries of electric car performance and engineering. It does not build glorified golf carts, and some day we'll all be able to take advantage of those advances. But it won't be next year when the Model D goes on sale. While the price hasn't been announced, this is not an electric car for the masses. The MSRP on a 2013 Model S is $92,220, according to Edmunds. And all of the extras on this new hopped-up version will surely set you back some more. Engadget points out that you can price out a Model S and extras on Tesla's site. The autopilot comes in a tech package that's an extra $4,250. And a second motor adds an extra $14,600 (including the tech package, 21-inch wheels and Smart Air Suspension).
If you're still recovering from the polar vortex, never fear: heating bills are dropping this year. According to the Department of Energy, homes with natural gas will pay 5% less in heating bills this winter compared with last year. Those that use oil can expect to save 15% this year, too. While prices of these fuels are going up, this winter is forecast to be warmer than last year, which means people will just use less fuel. The biggest savings will be found in the Midwest: Those homes that use propane can expect bills to drop by a whopping 34%. Unlike natural gas and oil, propane costs are lower this year.
Customer payment card data has been compromised at 395 of the nation's approximately 4,500 Dairy Queens. Malware called Backoff accessed the fast-food chain's computers through a third-party vendor between August and October of this year. Customer names, credit and debit card numbers, as well as expiration dates, were all available within the hacked systems. It appears that a disproportionate number of the affected restaurants were in Kentucky, Indiana and Pennsylvania. Click on the link above to find a list of the outlets where data were compromised.
SECOND THOUGHTS: If you used a debit or credit card at one of the restaurants that was hacked from August through October, Dairy Queen will offer you free identity repair service for a year. It's also a good idea to change your passwords, PINs and contact your financial institutions. But why can't we just eat our ice cream in peace? The Dairy Queen hack is just one of several companies that have been hit over the last year. Customer payment card data has also been compromised at Target, Supervalu, Michaels, Neiman Marcus and P.F. Chang's, notes CNN Money. Even financial institutions are under attack. JPMorgan recently announced that 76 million customer accounts had been hacked. So keep your eyes peeled for more company cyberattacks — hackers seem to be on the prowl.
When the JPMorgan hack was made public in August — which compromised the names, phone numbers, addresses and email addresses of around 76 million households — officials said the hackers targeted at least four additional financial companies. Now the estimate is up to 14, and that number could keep rising, according to Bloomberg News. Citigroup, HSBC, E*Trade, Regions, Fidelity and ADP are all said to be part of the attack. Some of those institutions have declined to comment on the hack. Others, like Fidelity, offered up some reassurance. “We have no indication that any Fidelity customer sites, accounts, information, services or systems were affected by this matter,” Vincent Loporchio, a Fidelity spokesman, told Bloomberg.
SECOND THOUGHTS: Should you be worried that your financial institution is on the list? Government officials aren't exactly at ease. Nobody can figure out the motive behind the attack (no money has been stolen), and the source is still unclear three months after the massive hacks were first discovered. But for now, other than being cautious, changing your passwords and PINS, tracking your accounts closely and contacting your bank if anything seems fishy, there's not much you can do. Of course, it never hurts to give your bank a call and ask them how you can help to beef up security.
It's fairly common knowledge that drinks are overpriced at bars. But just how much more are we paying for a bar cocktail versus something homemade? According to SeriousEats.com, the cost of all of a cocktail's ingredients is typically about one-fifth of the price you'd pay for it at a bar. So if you're wondering about your favorite drink, Quartz put together a nifty calculator that does the math for you. It lists the cost of the ingredients, the bar markup on it and how many drinks you'd have to make at home to pay less than you would at a bar.
SECOND THOUGHTS: At a bar, we're paying for more than just the drink. The atmosphere, professional bartender and lack of cleanup are all part of the deal. Plus, it's not always ideal to buy ingredients in bulk at a liquor store, especially if you only want a specific drink every so often. But if you like mixing your own cocktails at home, it can pay off in the long run. For instance, a bourbon and ginger with one ounce of Buffalo Trace, three ounces of ginger ale and a lime wedge would cost $1.33 for ingredients. If sold for $12 at a bar, that would be an 802% markup. After making the drink just three times at home, you'd pay less than you would at a bar, according to the Quartz calculator.
Big banks are about to get hit with a new round of charges from the Justice Department. What this time? There's evidence that a dozen or so foreign and American banks manipulated foreign currencies, gaming the market, according to The New York Times. In order to make a profit, investigators suspect that banks drove up the price of foreign currencies and sold them to clients at an inflated price. Traders at the banks allegedly met in chat rooms to collude. According to the Times, not only is the Justice Department looking to obtain guilty pleas from banks, it will also indict several traders for playing a part in the manipulation.
SECOND THOUGHTS: What scoundrels. Many of the banks suspected of manipulating currency — Citigroup, JPMorgan Chase, Barclays, Deutsche Bank and USB — have also been involved in other major investigations, namely the Libor scandal. Several banks have already struck settlements with government regulators over charges that they manipulated the London interbank offered rate, but those cases could be reopened if investigators are able to argue that these recent transgressions violate the earlier settlements. It's never-ending with these Wall Street folks.
National home prices in August rose by just 6.4% year-over-year, according to a report from CoreLogic, a market analysis firm based in Irvine, California. That's the slowest pace in nearly two years. Just last year, in August 2013, home prices saw an impressive 11.4% growth year-over-year. And in October 2013, home price appreciation reached a peak of almost 12% year-over-year. So what gives? "The pace of year-over-year appreciation continues to slow down as real estate markets find more balance," says Mark Fleming, CoreLogic's chief economist.
SECOND THOUGHTS: Slowing home price gains throughout the nation could be a boon for some and a burden for others. “Continued moderation of home price appreciation is a welcomed sign of more balanced real estate markets and less pressure on affordability for potential home buyers in the near future,” Fleming says. Yet the data from CoreLogic shows that home prices remain 12.1% below their peak in 2006. That means that homeowners struggling to make payments still might not have the equity they need to refinance or sell their home.
New estimates put the number of households affected by the cyberattack on JPMorgan Chase this summer at 76 million and the number of small businesses affected at 7 million, according to The New York Times. The breach exposed the names, addresses, phone numbers and email addresses of its customers. Chase claims that no customer money or account information, such as passwords or Social Security numbers, had been taken by the hackers. Still, the depth of the breach has investigators puzzled and many (rightfully) worried.
SECOND THOUGHTS: What's a JPMorgan Chase customer to do? While no money or account information appeared to be stolen, hackers still gained access to more than 90 of the bank's servers, obtaining the highest level of administration privilege. "The usual advice applies: If you get an email or a call from a JPMorgan rep, feel free to thank them for contacting you and hang up. Customers should always initiate that contact by looking at their credit card or statement for the contact number; you simply can't trust that an incoming call or email is legitimate and not a phishing attempt," Tod Beardsley, engineering manager with security firm Rapid7, told USA Today. Beyond that, about all you can do is change your mobile app passwords and PINs, track your accounts closely and contact Chase if there's any unusual activity. Caution is the name of the game now.
The average cost of a rental apartment rose to $1,111 a month in the third quarter, up 3.4% from the same time last year, according to a new report from Reis Inc., a New York-based real estate research firm. Rents rose 6.4% in San Francisco, the biggest increase in the 79 markets the study tracks, closely followed by a 5.9% increase in San Jose and 5.7% rise in Seattle.
SECOND THOUGHTS: The relentless rise in housing costs over the past five years may be running out of steam. The vacancy rate rose to 4.2% in the third quarter from 4.1% the previous three months. That was the first increase since the end of 2009 and indicates that the construction of new apartments is finally catching up with demand. Indeed, only 13 of the 79 markets had a vacancy rate of less than 3% in the third quarter, down from 16 this spring. (Reis measures what is called "effective rents" or what tenants pay after any landlord price breaks, such as a free month.)
According to a study from the Pew Economic Mobility Project, the average Gen Xer has $29,122 in wealth while their parents had $65,171 at the same age. This is in spite of the fact that 75% of Gen Xers earn more than their parents did. Part of the problems is that Gen Xers are carrying six times more debt than their parents, primarily due to student loans. So less savings. More debt. Not a pretty picture for the post-baby boom crowd.
SECOND THOUGHTS: What gives? It's not that Gen Xers are lazy or bad with money. The generation born between 1965 and 1980 has had to cope with dramatically higher costs for housing, health care and education, which makes it harder to save for retirement and build wealth in other ways. "Gen X has bigger hurdles to overcome than previous generations did to achieve financial security," Diana Elliot, research manager at Pew, told CNN. "They are on track to be the first (generation) in recent history to fall behind previous generations in terms of wealth accumulation." Our secrets to successfully save for retirement can help you make the best of a difficult situation.
These work-based accounts that allow you to sock away pretax money to pay for health care-related costs have never been as popular as they should be because of one big drawback: Any money not spent by the end of the year (or within a few months of the end of the year) was forfeited to the government. Now, the Treasury Department has given employers the option of allowing workers to roll over up to $500 into the next year's FSA. So when open enrollment period rolls around, ask your HR department if you can do that at your company. If you can, you should think long and hard about signing up for this money-saving benefit.
An estimated 2 million Americans 60 and older are now carrying $43 billion in unpaid student loan debt, according to a new report from the Federal Reserve Bank of New York. That's up from 700,000 seniors, who owed just $8 billion in 2005. Worst of all, about 140,000 of those debtors are having their Social Security benefits garnished after falling behind on the payments. Some loans were taken out decades ago for their own education. Some are more recent to pay for their kids' or grandkids' schooling.
SECOND THOUGHTS: Saying no to your children can be hard, especially when it’s for something you wish they could have. But this is why we think more Americans need to say no to their children when it comes to cosigning college loans. As this data shows, a growing number of moms, dads and even grandparents are getting stuck with a debt they can't hope to repay. And if you have already cosigned a loan for one of your kids or grandkids, you need to have your name removed as soon as the terms allow.
The Social Security Administration is once again sending printed benefit statements to all Americans. You'll be receiving a statement every five years until you turn 60 and then annually after that. Social Security began phasing out mailed statements to most workers in 2011 to save an estimated $70 million a year, hoping workers would track their benefits online (www.socialsecurity.gov). But few used the website, and Congress passed a bill reinstituting paper statements.
The Federal Reserve maintained its commitment to hold short-term interest rates at record lows for a "considerable time." But documents released after Wednesday's policy meeting showed that it definitely expects to begin raising rates sometime in 2015. The federal funds rate is expected to rise from essentially 0% today to 1.125% by June and 1.375% by the end of next year, and to top out at 3.75% by the end of 2017. For savers, that should mean a return to reasonable returns on CDs, money market and savings accounts over the next three years.
SECOND THOUGHTS: The government's bank-for-banks controls short-term interest rates through what's called the federal funds rate, which is what commercial banks pay to borrow money from each other through the Fed. That rate has been essentially zero since December 2008, which has allowed commercial banks to get virtually all of the money they need for free and allowed them to drive all types of savings rates to practically nothing. But the Fed's governing body seems increasingly committed to reversing that policy sometime next year, and banks are beginning to realize they'll need to rebuild their deposit base. Indeed, some banks have already begun to offer slightly better returns in an attempt to corral as much money as they can before deposits become substantially more expensive. (See, for example, how that's affecting top 5-year CD rates. With the Fed clarifying its plans for future rate hikes, that trend should accelerate.