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Is it lack of spending restraint or lack of income?? October 28, 2014

Posted by forwardfinancialplanning1 in Credit Cards, Economic Conditions.
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Came across some statistics recently that made me wonder, “What is the real cause of this negative development in US consumer finances?”
Money Zine evaluated debt growth and income growth over the past few decades and found: Back in 1980, the consumer credit amount per person was $1,540, which represented 7.3% of the average household income of $21,200. In 2013, consumer debt averaged $9,800 per person, which was 13.4% of the average household income of $72,600. In other words, consumer debt increased 70% faster than income from 1980 through 2013.

Clearly, credit is more widely available today than it was in 1980. So are we getting more than enough rope to hang ourselves? Credit card issuers demonstrate a willingness to readily extend credit as it is highly profitable for them. But, why can’t the average American “just say ‘no””?? Some in Washington would like us to believe that problems such as these are created by lack of income growth. While perhaps there is some truth to this supposition, I would suggest that a more likely factor is our collective lack of spending discipline. And, the federal government is in no position to criticize, as their spending record is many times worse. The big question is, “how long can this debt binge continue, before it threatens our civilization?”


Progress on credit-worthiness October 13, 2014

Posted by forwardfinancialplanning1 in Credit Cards, Economic Conditions.
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A recent report by the American Bankers Association offers hope to the beleaguered US consumer. The ABA says installment loan delinquencies are at secular lows and all home related delinquencies have fallen. Total debt delinquencies are at a 40 year low.

We have heard much about the struggles of the middle class and the lack of wage growth in our economy. But, perhaps the lessons of fiscal conservatism from the Great Recession have taken hold. Let’s hope that the lessons are permanent………….

Is this a sign of future fiscal prudence? January 21, 2014

Posted by forwardfinancialplanning1 in Credit Cards.
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Millions of Americans are burdened with credit card debt. This circumstance creates marital stress, jeopardizes futures and generally makes people miserable. But, a recent analysis by credit score provider FICO noted that credit card use is declining among young people. FICO reported that at the end of 2012, individuals aged 18 to 29 had average credit card debt of $2,087. This was down from $3,073 for this same age group five years earlier.

Is this a sign that this age group is going to avoid the mistakes of previous generations? Or, is their financial situation preventing them from indulging in the debt binge? Sociologists have observed that Gen X and Gen Y members demonstrate less loyalty to their employers because as children, they watched their parents’ suffer as they were downsized. Perhaps the current 18 to 29 year olds learned from the credit card stresses they’ve watched their parents endure…………

The “good old days” probably were………… October 29, 2013

Posted by forwardfinancialplanning1 in Credit Cards, Economic Conditions, Personal Budgets.
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One often hears the adage that “things were better in the good old days”. This cliché fails, of course to recognize our mind’s propensity to block out unpleasant memories while maintaining our more favorable impressions of the past. However, it’s hard to argue with facts and here are some very sobering ones.

The Economic Policy Institute maintains an enormous data base of statistics and publishes an on-going report entitled “The State of Working America.” This report found that for the US population as a whole, household debt as a share of disposable income rose from 22% in 1956 to 118.7% in 2011.

If this is progress, we really don’t need any more.

This could get really bad…………… May 10, 2013

Posted by forwardfinancialplanning1 in Credit Cards, Education Planning, Financial Planning.
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Much has been written about our debt-laden society with many crediting excessive personal debt and toxic mortgage debt as the principal causes of the economic downturn which began in 2008. Still others are lamenting the weakness of the recovery and noting the difficulties that “twenty-somethings” are having in finding meaningful employment.

A circumstance that bodes poorly for the expectation of an accelerating pace of recovery is student debt. Obviously, under-employed, debt burdened college graduates will be delaying family formation and home purchases. And, these delays will postpone the subsequent home furnishings and furniture sales. But, how bad is it? A Federal Reserve Bank of New York study recently determined that student loan debt is now approaching $1 trillion. This figure even exceeds our society’s previous nemesis, credit card debt. Student loan debt nearly tripled between 2008 and 2012 and was the only form of debt (compared to credit card, mortgage, revolving etc.) that actually grew during the Great Recession.

With the Baby Boomers retiring and the supposed “up-and-comers” having so much trouble achieving escape velocity, our consumer driven economy may be in for a long, slow slog out of the economic doldrums.

Some things you don’t learn from a book…………… April 24, 2013

Posted by forwardfinancialplanning1 in Credit Cards.
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Our society places a great deal of emphasis on education and obtaining a college degree has long been heralded as an important step in improving one’s employability. With student loan debt skyrocketing and unemployment/underemployment very high among “twenty-somethings”, this axiom is being challenged, as it should. However, debating the value of a college education is not the purpose of this posting.

What should be questioned is the financial savvy of our nation’s students. It’s long been noted that the average high school graduate can’t balance a checkbook. However, a recent study of college students revealed an even more distressing financial knowledge/behavior gap. The International Journal of Business and Social Science found that just 9% of college kids pay off their credit cards every month. With interest rates on cards as high as they are, students are clearly digging a deep hole for themselves and incurring punitive financing charges. There are many wonderful educators in this country who certainly have our students’ best interests at heart. Can’t they convey the on-going pain caused by compounding interest charges?

Government by the people,,,like the people March 31, 2013

Posted by forwardfinancialplanning1 in Credit Cards, Financial Planning, Personal Budgets.
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The news has been flooded with stories about public sector debt problems at home and abroad. It’s generally conceded that the US government has been running unsustainable deficits and has accumulated an enormous public debt. Likewise, all of us in Illinois have just about “had enough” with the fiscal mismanagement in Springfield. But, a recent report by the US Census Bureau indicates that maybe our elected officials are merely behaving like the people they represent.

In its report. “Household Debt in the US–2000 to 2011” the Census Bureau found that the median amount of debt held by households increased from $50,971 to $70,000. The largest increases in median debt was observed by householders aged 35-44 (to $108,000), 45-54 (to $86,500) and 55-64 (to $70,000). Not to be outdone, the 65 and older crowd doubled their median outstanding debt to $26,000. Furthermore, households 65 and older were the only age group whose likelihood of holding debt increased during this decade going from 41% to 44%.

So while our politicos deserve to be chastised for their inability to balance the books, much of US society isn’t behaving much better…….

Is your marriage typical? September 24, 2012

Posted by forwardfinancialplanning1 in Credit Cards, Financial Planning, Personal Budgets, Retirement Savings.
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Recent survey results from the American Institute of CPA’s  suggest that money is clearly a flash point for many couples.  The survey of 1,005 U.S. adults aged 18 or older (either married, or living with a partner) was conducted by Harris Interactive between Marrch 8 and 11 this year.  It found that on average, couples have three “money fights” per month.  Nearly 60% of respondents reported that differing opinions of “needs” versus “wants” triggered arguments, while 49% cited unexpected expenses as a reason for a flare up.   About 32% responded that “insufficient savings” causes spats as well.  The AICPA also found that the number of money disputes increases with age as married couples aged 45 to 54 averaged four incidents versus three for the survey population as a whole.

Quite frankly, these findings are surprising.  Based on clients we’ve met through the financial planning practice, an average annual total of 36 personal financial disagreements seems beyond comprehension.  Perhaps the fact that our clients are seeking assistance in managing this sensitive area suggests their awareness of its divisive potential.   And. like many challenging areas of life, awareness is the first step in successfully navigating the treacherous waters.

Pain on the collegiate front November 21, 2011

Posted by forwardfinancialplanning1 in Credit Cards, Education Planning.
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While some unemployed college graduates are voicing their frustrations by joining the Occupy Wall Street protests around the country, the financial challenge of funding a college education continues to be formidable.  Recently released statistics quantify the difficulty. 

According to a College Board report, tuition and fees at US public universities rose 8.3% in 2010, more than doubling the general rate of inflation.  Non-profit private colleges held their  increase to 4.5%  which appears reassuring until you consider that private university tuiton and fees now average $28,500 annually.  The College Board further reports that the average public university student who graduates with debt  (of course, not all students utilize loans) owes an average of $22,000, up from $15,000 a decade ago.  Debt holding private college graduates fare even worse with $28,000 of loans, an increase of $11,000 in the past ten years.

According to Mark Kantrowitz, publisher of FinAid.org, federal and private student loans outstanding  now approach $1 trillion and now exceed our nations’ collective credit card debts.  And much like credit card debt, holders are defaulting on student loans at a substantial rate.  Defaults during the first two years of the payback period reached 8.8% as of September 30, 2010.  This represents the highest default rate since 1997 and is particularly problematic as student lenders (in particular, the federal government) have much greater recourse than credit card lenders when pursuing student loan repayment.

Despite these ominous statistics, the percentage of people who feel they are saving enough to cover their children’s college costs is only 16%, down from 24% in 2007 (source: Fidelity Investments Annual College Savings Indicator Study). 

However, there is some encouraging news among  the gloom and doom.  A full 67% of parents have begun saving for college compared to only 58% five years ago.  Financial advisors are having a positive impact here as 50% of those families who are saving and also use an advisor are utilizing 529 plans.  Only 28% of families who have commenced savings, but without an advisor are participating in 529 plans.  Section 529 plans allow for tax free account growth when proceeds are used to cover qualified secondary education expenses.  Many states also provide residents with tax breaks on contributions to their 529 plans.

Now, if only the equities markets would cause these 529 accounts to grow, rather than stagnate!!  Perhaps then we could have a fighting chance of keeping up with ever increasing education expenses…….

My state is smarter than your state December 20, 2010

Posted by forwardfinancialplanning1 in Credit Cards, Financial Planning, Investing-General, Personal Budgets.
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The FINRA Foundation has been conducting survey research into the financial literacy and fitness of our country.  The results, while somewhat discouraging, are nonetheless interesting.  The website, www.usfinancialcapability.org contains state-by-state comparisons on topics such as “spending vs saving”, having a “rainy day” fund, non-bank borrowing (such as payday loans), and comparison shopping for most favorable credit card terms.  The site also attempts to measure and compare financial literacy with a five question quiz on some basic financial concepts.  Unfortunately, the nationwide average score is only three correct answers which suggests that the general public could clearly benefit from the advice available from a competent financial planner.  Take the quiz and see how you stack up!!