Author Archives: macksb

Credit Unions a Popular Antidote to Fraud

The 1980s featured bankrupt Texas savings and loans. Then, in the mid-2000s, Countrywide failed to clearly disclose to customers the spike in their subprime mortgage payments in year 3. In 2016, 5 million customers learned about their fabricated Wells Fargo accounts. And last year, Equifax breached 140 million customers’ privacy.

No wonder people are flocking to the friendly credit union in their church, labor union or workplace.

The widespread fraud reports making headlines with regularity have fed a perception that “fraud happens in the banking world and a lot of it goes unpunished,” said Mike Schenk, senior economist for the Credit Union National Association (CUNA).

“It’s not just Countrywide as an abstract concept. It’s that Countrywide put people into these toxic mortgages to make a buck.”  The 2008 stock market and housing crashes, fueled partly by the collapse of several subprime lenders, hammered this point home.

credit union table

CUNA has a bold marketing message: credit unions care more about their customers than impersonal banking behemoths. Schenk said he has the evidence to prove credit unions are benefiting from Wall Street’s financial shenanigans: membership increased an “astonishing” 4 percent in 2017, as the U.S. population grew less than 1 percent.

Of course, most banks aren’t bad guys, and they provide services that small credit unions can’t.  Banks frequently upgrade their technology – Bank of America’s ATMs are cutting edge. Large banks also have much larger networks of ATMs and branches, and they can service the large corporate accounts credit unions aren’t equipped to do.

So, what do credit unions do better?  Here are their three big advantages: …Learn More

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Timing of Social Security Checks is Key

It’s a simple concept. Deposit retirees’ Social Security checks right before their big-ticket bills come, especially rent.

The U.S. Social Security Administration’s current schedule for depositing pension checks in bank accounts is based on each retiree’s birth date– it can be the second, third, or fourth Wednesday of each month.

The problem is that cash-strapped, low-income seniors receiving the earlier checks, on the second or third Wednesdays, can fall into a common behavioral trap: they spend the money soon after it comes in and then can’t cover the rent, mortgages or credit cards due at the beginning of the following month.

According to a clever new study, people who get these early monthly checks are at greater risk of resorting to desperate measures like payday loans than are seniors receiving them on the fourth Wednesday.

Such measures of financial distress are occurring “even though the pay schedule is known in advance,” write researchers Brian Baugh and Jialan Wang.

The advantage of Social Security deposits made on the fourth Wednesday is that retirees can get the big expenses out of the way first, forcing them to make do for the rest of the month with the money they have left. Indeed, people with fourth-Wednesday deposits had fewer bounced checks, account overdrafts, and payday loans, the researchers found. …Learn More

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Arcane but Shrewd Retirement Solution?

Hyacinthe Rigaud’s portrait of King Louis XIV, courtesy of the Getty Open Content Program

Tontines might be a nifty idea for retirement income. Too bad they haven’t been legal here for a century.

Tontine is a fancy word for betting on how long you’ll live – in a good way. Here’s the concept in a nutshell: many people pool their money in return for guaranteed regular payouts for life, similar to an annuity.

The people who live to, say 90, will receive ever-increasing financial payoffs, because the number of participants in the pool will invariably shrink over time.  The catch is that the investors who die young won’t receive as much income as the men and women who live the longest – but they won’t need the money either.

A new study by the Center for Retirement Research (CRR) takes a close look at an idea that is tossed around among finance experts: modifying tontines to use them as a source of retirement income.

Some criticize them as a dubious investment, but they’ve stood the test of time. King Louis XIV of France was the first monarch to raise public funds using tontines, a 1650s creation of Italian financier Lorenzo Tonti. More than a century later, they caused financial hardship among middle-class investors, laying some of the groundwork for the French Revolution.

Tontines made it into American popular culture in the M*A*S*H* television show. Because Col. Potter was the last man standing among his World War I Army buddies, he got the only remaining bottle of brandy from a cache they’d found and drank while camped out in a French chateau. Tontines popped up again in an episode of The Simpsons: grandpa Abe Simpson and Mr. Burns fight over some valuable German paintings in a tontine their Army unit had created back in World War II.

Credit for the idea of a retirement tontine goes to a paper by two professors at York University in Toronto, Moshe A. Milevsky and Thomas S. Salisbury. In his new report, CRR researcher Gal Wettstein agrees that tontines might be a useful way to get regular retirement income – with modifications. …Learn More

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Video: Kids Say the Darndest Things

The children in this video have a delightful take on our cultural attitudes and mores about money – what it is, what it can do, and whether to share it.

The interviewer borrowed the format Art Linkletter used when asking kids questions on his Emmy Award-winning television show, “Art Linkletter’s House Party,” which aired between 1952 and 1969 – as boomers and their parents will remember.

The new video about kids and money is posted on the American Financial Services Association Education Foundation’s website.  The foundation’s mission is to educate people about responsible money management, starting with young children and teenagers.

The adorable factor makes this 6-minute video fly by.Learn More

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An Ever-Expanding Sandwich Generation

Two new “sandwich generations” are getting into the thick of things: Generation X and Millennials.

Baby boomers first latched onto this label as they juggled caring for their parents and children simultaneously.  With lifespans continuing to increase, the squeeze from parental caregiving is tightening among Gen-X and Millennials.

As baby boomers and their parents get older, all three generations are feeling the financial strain of this familial obligation, which people take on either because “it is what family has always done” or “there was no other option,” according to caregivers’ responses to Northwestern Mutual’s new annual survey of adults between the ages of 18 and 64.

A separate 2017 report, by the Center for Retirement Research, estimated that one in five people will, at some point in their lives, care for their elderly or ailing parents. They spend an average 77 hours per month assisting elderly parents with everything from simple activities like getting out of bed and taking medications to frequently driving them to doctors’ offices.

The largest group in Northwestern’s survey are adult children caring for parents. The other caregivers identified in the survey care for adults under 65 or children who are either ill or have special needs or disabilities – there were no questions in the survey about routine childrearing.

The major findings indicate that parental care has significant financial and lifestyle implications, which disproportionately affect women: …Learn More

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Dependence on Social Security is Striking

Social Security chartA retiree’s sources of money are often described as a three-legged stool: Social Security, pension, and savings.

But many seniors’ financial support looks more like a single, sturdy pillar: Social Security.

This is shown dramatically in new U.S. Social Security Administration (SSA) estimates of just how critical the federal program is to millions of older Americans.  The data speak for themselves:

  • One in two retired households counts on Social Security for 50 percent of their total income.
  • One in four gets virtually all income – 90 percent – from the program.

The differences among myriad demographic groups also follow the usual socioeconomic patterns, according to the SSA researchers, Irena Dushi, Howard M. Iams, and Brad Trenkamp. …Learn More

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Future Retirees Financially Fragile

Retirement contributionsThe scary thing about fully retiring is the obvious thing: the ability to earn stops cold.

Most retirees live on what they get from Social Security and what they can spend from their savings, if they have any.  So how many older Americans with fixed incomes can accurately be described as being in difficult straits financially?

Only about 10 percent of retired people today are being forced to cut back on food and medications to pay their other bills, concludes a summary of recent studies on retirement income by the Center for Retirement Research (CRR), which supports this blog.

Tomorrow’s retirees have a more troubling outlook, in part because they will be dramatically more reliant on 401(k)s.

The typical middle-income worker in Generation X, who ranges in age from 37 to 53, can expect his savings to supply 42 percent of his total income when he retires.  Savings are necessary for just 27 percent of the total income of current retirees born during the Great Depression and World War II, according to one of the studies summarized by CRR and conducted by the Urban Institute and U.S. Social Security Administration. …Learn More

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