As Congress tries to hash out health care reform (and wrangle over a public insurance option), many have wondered about the place of long-term care. Most have said including it in reform is too expensive. However, new legislation may help mitigate some of the costs — and provide a savings vehicle for those who expect to need help with long-term care costs in the future. It is called the Community Living Assistance Services and Supports Act (CLASS Act — don’t you love how they name these things?). NPR reports on the main thrust of the act:

That legislation, which is part of the committee’s health bill, would let workers choose to have government deduct money from their paychecks — maybe $65 to $100 a month — and put it in a savings account. When they get old or disabled and need care, they could then use that money.

Anything that encourages automatic savings is generally a good idea. I would be interested to know whether the savings account would offer a high yield, and whether you could direct some of the money to be put into conservative investments. Of course, since it would be a long-term investment, I would favor index funds. I think that something similar to retirement accounts now — complete with tax advantages and the ability to direct some investments — would be in order. But it doesn’t look like that has really been thought out.

In any case, it is fairly obvious that health care reform on all fronts is needed. The private sector has largely dropped the ball, and offering a public option for health insurance (perhaps something similar to what our elected officials have access to) is a good first step. And you wouldn’t be forced to choose it if you could get a better deal elsewhere. A public option would introduce something akin to competition in a market where, quite frankly, there is very little.

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A few months ago, President Barack Obama announced a foreclosure prevention plan called Making Home Affordable. The plan included provisions for those who wanted to refinance, but couldn’t because of their loan to value ratio. Refinancing would be encouraged for those who had a loan to value ratio of between 80% and 105%. The idea was to help those whose home values have dropped in response to housing market troubles.

Unfortunately, the program has been seeing limited success. It relies on voluntary help from mortgage lenders, and it excludes those with even higher loan to value ratios. Yesterday Obama made a move to expand the Making Home Affordable program. Now, those with a loan to value ratio of up to 125% are eligible. There are also continuing incentives to encourage mortgage lenders to deal with homeowners.

As far as the housing market is concerned, this new move is unlikely to have a huge impact immediately. It probably won’t even arrest falling home values, or do much in terms of stabilizing the overall housing market. But it does have the potential to help prime borrowers who are looking to refinance to a lower rate. Mortgage interest rates are still relatively low, and refinancing could save folks who made good homebuying decisions a great deal of money.

It even benefits people like me. I bought my home two years ago with 5% down and a 30 year fixed rate. Obviously, I haven’t had time to make up a lot of ground in terms of home equity. My home has lost some value in the last two years, and I have a loan to value ratio of about 94%. (The new rules don’t change my eligibility.) We can easily afford our mortgage payment, but I wouldn’t mind if I got an interest rate that is 1 percentage point lower. Plus, there are places in town offering no-fee refinancing. We could refinance to a 15-year loan and only pay $200 more per month, saving us a great deal over the long haul.

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I remember the days of my undergraduate career. Every year, tuition went up. I had a scholarship, so it didn’t impact me that much, but student fees generally rose along with tuition. And every year that my husband has been in grad school, we’ve watched tuition increases and student fee hikes. But this year, things are different. Yes, tuition is going up. But it’s not going up by quite so much. BloggingStocks reports on the new tuition hikes:

Tuition is up only 4.3% for the coming school year, the lowest rate of growth in 37 years, according to a survey of 350 private schools by the National Association of Independent Colleges and Universities. This is down substantially from the 5.9% increase for the 2008-2009 school year. Of course, this is for tuition only and does not include room and board inflation.

To further help some folks, financial aid is seeing an increase of 9.2%. So that means that, for some, it may actually be manageable to keep up with tuition hikes this year. But, as the BloggingStocks article points out, room and board have likely gone up as well. This might offset some of slowed inflation in tuition and fees.

Money troubles and higher education

It is getting more and more difficult for the schools themselves, as well as the students. This is because new money is down as benefactors reduce their contributions. (After all, the number of billionaires is decreasing, and those who are still billionaires have, well, billions less.) Not only that, but many universities have trusts and other investments that are significantly reduced in value, thanks to a bear stock market. While these investments will eventually rebound, for now it means less money to go around — and in some cases staff cuts and project terminations. The project my husband is working on here at USU got cut. He is fortunate in that a graduate in the department moved on and vacated a spot on a different project. He was successfully shifted, and retained his position. But not everyone is so lucky.

Image source: Widosu via Wikimedia Commons

One of the biggest concerns facing many Americans right now is retirement.

Looking at the damage done to retirement investment accounts, thanks to the financial crisis and the current bear market, some are looking for ways to encourage new options for retirees. Even for those with longer time frames until retirement, there is still fear. Even if retirement investment accounts recover and grow between now and retirement in 15 - 20 years, some are concerned that the next crash could pull the rug out from under them just as they retire.

Another problem revolves around the longer life expectencies that retirees are expected to have. Few people now will have enough in their retirement funds to last the 20 to 30 years that people will soon be expected to live after retiring.

Enter an ambitious new bill aimed at shoring up retirement.

In the House, the Retirement Security Needs Lifetime Pay Act (H.R. 2748) is being proposed. This bill would allow a tax break for those who take their retirement investment accounts and used them to buy a lifetime annuity. CNN Money offers a look at two of the main tax breaks offered in the bill:

1. You will be allowed to exclude 50% of annual annuity payouts from a non-qualified plan (one you invested after-tax dollars in) from taxable income. The annual maximum exclusion would be $10,000.
2. You will be allowed to exclude 25% of annual annuity payouts from a qualified plan (401(k), IRA and other tax-deferred accounts) from taxable income.

Additionally, there will also be incentives to purchase what is known as longevity insurance. This is actually another kind of annuity. You wait until you are much older — usually in your eighties — to start taking payments. As a result, the payouts are normally higher. And they would start about the time your retirement investment accounts may be running somewhat lower.

Whether or not this is the answer to the problem of investment-based retirement accounts remains to be seen. But it is clear that there are some definite concerns about the ability of Americans to have enough money throughout retirement. An annuity might be helpful. However, the downside to an annuity is that you trust the management of it someone else. I think I will need to consider the matter further (and see whether this bill makes it through and the tax breaks materialize) before deciding an annuity is right for me. So far, though, I am fairly content with my Roth IRA, which is funded largely with index funds.

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I really liked this world resources map post on the Mint.com blog. I’ve noticed that Mint.com offers a variety of interesting visuals on its blog. I know that there are plenty of people who manage their money through Mint, and it does appear to be a very valuable resource.

At any rate, here is the map. What do you notice about where the resources are?

Clearly, there is a reason that we are in the financial position we are in. We are primarily focused on consuming. While exporting industry and raw materials may not be something feasible going forward, we do have the innovative potential to export ideas, technology and highly educated workers to other countries. It would be interesting to see what a map of knowledge resources looks like.

And it would be even more interesting to see where the U.S. placed on that map.

One of the biggest changes to financial system regulation presented in President Barack Obama’s regulatory reform proposal calls for the creation of an agency devoted to protecting consumers. This new agency could demand any number of reforms from banks and other financial institutions. It could require greater transparency, simpler financial products and even set caps on interest rates that could be charged for certain kinds of loans.

The new standards could also be applied to mortgage lenders, forcing them to provide the option of mortgages with simple terms, and requiring mortgage lenders to offer the best available mortgages. It might even mean that mortgage lenders have to (gasp!) make sure that borrowers can actually afford the home loans that they are getting.

In addition to protecting the run-of-the-mill consumer, Obama also wants to protect investors. His regulatory reform would require that hedge funds engage in greater disclosure and would institute the regulation of derivatives and credit default swaps.

Regulatory reform: What is needed? Or does it go too far?

While some are applauding the consumer protection measures, others are concerned that they go too far. What happens when the government sticks its fingers too much into the regulatory pie? As expected, reactions to the proposed consumer protections pretty much fall along the following lines:

1. Consumer advocates call them a good balance.
2. The banking industry insists they go too far and will ruin business.

I’m inclined to call them a good balance. Consumer protection is badly needed right now. While over-regulation is a stifling influence, prudent regulation can be something that eventually helps everyone. No, the economy won’t boom like it did during the era of de-regulation. But what did a massively growing (and artificially stimulated) economy get us anyway? A massive recession to balance the growth, that’s what.

What do you think of the new consumer protection agency proposed by President Obama?

Image source: Wikimedia Commons

This past weekend, while I was enjoying the beauties of nature — and the company of my family — in Idaho, the leaders of the G8 were having a meeting in Italy. Members of the G8 spent most of the time patting themselves on the back, telling each other that they had done a marvelous job of stimulating the global economy. Many of them began discussing “exit strategies” to counter the future effects of possible hyper-inflation as a result of rampant borrowing and quantitative easing.

At any rate, it is clear that G8 leaders think that the recession is very nearly over (if it hasn’t ended already). The IMF expects that the U.S. economy will begin growing again next year — albeit at a rather sedate pace. There was a great deal of optimism in general over the weekend. However, it doesn’t appear as though the markets are buying it. Equities around the world, as well as commodities are falling. While investors believe that the recession will come to an end, they do not seem to think that the economy will begin recovering as quickly as world leaders seem to think.

Jobs continue to be lost, and it appears that unemployment in the U.S. is likely to hit 10% before things start to stabilize. And housing prices still have not hit a bottom. Before true optimism with regard to the economy can be found, the labor market and the housing market need to reverse their current direction.

What do you think? Is the recession almost over?

Image source: Miranda Marquit

My brother just graduated from college, but he’s not looking for a new job. Instead, he’s working at the furniture store he’s been at for the past couple of years. It’s a little difficult right now for college grads (which is why so many of them are going to grad school, or taking on internships). The unemployment rate is at a more than 25 year high of 9.4%.

However, it’s not just the economy that can make a job search difficult. My first job after I got my B.A. was as a cashier in a farm and ranch store. Not a lot of jobs for communications majors in the small Southern Utah town where I completed my undergraduate studies. My husband worked as a telemarketer.

But we’re not the only ones with jobs right out of college that didn’t pay well or have anything to do with our majors. Some of today’s most successful people had surprising jobs right after college. CNN Money offers this information on first jobs right out of college:

• Carol Bartz, CEO of Yahoo: Sold banking software
• Sumner Redstone, CEO of Viacom: Spy (okay, this is a cool job to have anytime)
• Steve Ballmer, CEO of Microsoft: Dessert maker
• Jeff Zucker, CEO of NBC: Researcher at NBC (great example of moving up through the ranks)
• Tim Armstrong, CEO of AOL: Teacher

What was your first job out of college?

Image source: Wikipedia

Radio personality Mark Kaye had rapper Flo Rida on his show not to long ago. To welcome him, Kaye put together a rap song, “Floconomy.” It’s an amusing look at how “difficult” it has been during this recession for the wealthy and the famous.

Happy Friday!

Today, the Federal Reserve released its quarterly report on household wealth. According to MarketWatch, the report contained this information on net worth:

Household net worth fell at a 9.9% annual rate in the first three months of the year to $50.4 trillion, the lowest in more than four years. Net worth — assets minus liabilities — peaked at $64.4 trillion in the spring of 2007, the Fed said in its quarterly flow of funds report.

This is the 7th consecutive quarter that saw a decline in household wealth. While there are some bright spots in the report (more disposable income, lower credit card debt), the fact remains that many people are seeing their overall net worth decline. Home values are declining and investment portfolios are experiencing losses. Since many people have a great deal of their assets tied up in their homes, it is little surprise that the bursting of the real estate bubble has hit net worth. Additionally, with the losses to the stock market, the assets many had in their retirement accounts are dwindling. As I see it, there are two things you can do to reduce the psychological burdens that come with these losses:

1. View your primary residence as a purchase: Instead of thinking of your home as an investment, think of it as a long-term purchase. Consider the intangibles that come with your home (a yard for your kids, your own space, etc.).
2. Remember the long-term value of the stock market: Even though your retirement account may be suffering now, over time stocks gain overall. If you keep investing now, there is a good chance that in 10, 15, 0r 20 years, you will see significant gains.

This still doesn’t change the fact that your net worth may have fallen. However, if you stick with the sound personal finance fundamentals of reducing debt, building your savings, engaging in prudent investing and making your mortgage payments, your net worth will recover — and eventually thrive.

How has your net worth been affected by the recession?

image source: Wikimedia Commons