Daily Archives: December 9, 2019

The Cuts financial advice columnist Charlotte Cowles answers readers personal questions about personal finance. Email your money conundrums tomytwocents@nymag.com

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I got into a heated argument with my dad the other day about my future plans. Im 25 and trying to save up enough to move out of my parents house by 2020, when their lease is up. Since I started working at 18, I have been paying all my bills and contributing about $250300 per month in rent. When I told my dad about my plan to move out, he was upset that I wouldnt be helping them out financially anymore, and said I was being ungrateful for not thinking of their impending retirement.

I do plan to help out my parents one day, once Im more financially stable. They are immigrants who have worked very hard to get my siblings and me where we are. They also dont have a 401(k) or any other retirement plans due to their legal status throughout the years. Its also normal in our culture to help our parents, and I understand that theyre getting older and want to stop working eventually.But I dont think its fair that they expect me to sustain them and myself at this point in my life. To me, it makes more sense for me to create my own life and then, once Im more established, pitch in a certain amount to help them every month. Whats my obligation here? And how can I talk to them about this without getting into huge fights? I feel so lost and confused.

Let me first point out that you are not ungrateful. You sound like a thoughtful, responsible daughter who wants to be there for her parents. But youre also an adult, and wanting to live independently is normal and healthy. So lets plot your graceful exit.

Your first obligation is to set up your finances so that you wont be in the same situation as your parents someday. As you mentioned, they worked hard to give you and your siblings a better life. They also taught you to be financially independent at a young age. Presumably, they want you to be financially independent at an old age, too which involves making smart decisions about your money right now.

To figure out your next steps, I called Cameron Huddleston, the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. Most parents dont want to be a burden to their children, she points out. Even in certain cultures where its more common for parents to expect support, I dont think any parent would want to compromise their child financially. Its worth noting that this could be part of your dads concern: He may think that if you leave home, youll be worse off, not better (along with him and your mom). If hes right, it shouldnt necessarily stop you, but youll need a very clear plan either way.

Huddleston recommends drawing up a concrete budget with short- and long-term goals. Ask yourself what your priorities are. What are you going to pay in rent when you move out? How much will you spend on groceries? What will you be saving? I would add: How about a three-to-six-month emergency fund in case something happens? And do you have your own retirement savings account set up yet? Its counterintuitive, but the earlier you start putting money into an IRA or its equivalent, the more your money will grow over time thanks to compound interest (and the less likely that youll have to lean on your own kids someday, should you have them).

Im not saying that your finances have to be perfect before you move out. You also dont have to make all of your decisions from the standpoint of saving money if that were the case, most of us would live with our parents (pretty miserably) all our lives. The point is, you want to make sure all your numbers add up, and put yourself in a good position to land on your feet.

You also mentioned siblings. Have you had a conversation with them about how you all are planning to help your parents down the line? Unless they also live at home, how did they manage to extricate themselves? If you can get at least one other family member in your corner, itll help you feel less alone.

Which brings you to your next step: having the talk. Youll want your parents to understand that you arent abandoning them. In the immediate future, this could include providing support that isnt monetary. When their lease is up, could you help them move to a smaller, more affordable place? If you end up living nearby, could you cook them dinner once a week, or help them with household chores occasionally?

To initiate the conversation, Huddleston recommends starting from a place of gratitude (especially considering your dads previous comments): You might say, I appreciate everything youve done for me. Youve helped me so much. Now I am at a point where I need to become a financially independent adult. Set up a time in advance so that they arent caught off guard (Could we have dinner together on Saturday? I want to talk to you about something).

And if things start to go off the rails, back away. When emotions take over, the conversation is not going to go anywhere good, says Huddleston. If that happens, simply say, Look, I can see that this is upsetting you right now. Lets think about it more and talk about it later. (This may take a Herculean effort on your part make sure youre going in with a cool head and practice saying this beforehand.)

Ultimately, your parents cant force you to live with them forever. This is your decision, and you want to make it as kindly and responsibly as possible. I agree that youll be better equipped to help them out again someday if youve had the experience of establishing your own household, and you can point that out to them. But remember, it doesnt have to be your whole argument wanting financial independence can be reason enough. And finally, dont be guilt-tripped about a hypothetical future. Plan as best you can, and when the time comes for them to really need your help, youll be there.

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Im 25 and My Parents Want Me to Support Them! - The Cut

The humble savings account is one of the most powerful financial tools available to help you reach financial goals.

Different from checking accounts that help you transact business with your money, a savings account is specifically designed to help you safely store and earn interest on your money.

Technically speaking, a savings account is a deposit account, usually federally insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC).

Banks offer several types of saving products like money market accounts, fixed investments and time deposits such as a certificate of deposit (CD). But the common savings account is certainly one of the most important accounts to have at any stage of life.

The main purpose of a savings account is to offer account holders a convenient way to save money.

It is difficult to keep track of savings when they are co-mingled with general funds - and that makes it all too easy to end up spending money instead of saving it.

Another purpose is to earn interest on your savings.

Even though funds on deposit in a savings account are liquid (can be accessed when you need them), savings accounts usually come with restrictions. The most familiar savings-account restriction is Regulation D, which limits the number of withdrawals or outgoing transfers to six per statement period. If you exceed that limit, there is a fee.

You may think charging a fee to access your own money is onerous, but there are solid reasons for this regulation - and it can actually help you become more financially secure.

Regulation D stems from the Federal Reserve. This rule requires banks and credit unions to impose fees or other penalties when you exceed the limit of six withdrawals per month per account. (Fortunately, ATM or teller deposits and withdrawals are not included.)

So how does charging a fee to access your money help you save?

If you think about it, Regulation D encourages savers to plan their withdrawals and overall finances. In effect, the fact that banks can charge an excess-withdrawal fee serves as a subtle deterrent to squandering your savings away on unnecessary things.

There is another purpose, looked at from a bank's point of view. Money in a savings account tends to be far more stable than checking-account balances. Therefore, the bank is allowed to hold back smaller reserves against those balances, which allows them to lend a larger percentage of savings-account balances.

Those loans are their main source of profit. When you see a bank advertise so many billions in assets, those assets are not buildings, but loans - because loans show on their books as assets (people owing them money).

In turn, banks pay interest on the deposits in savings accounts out of their profit. So this regulation fosters a kind of win-win proposition for both banks and savers. Savers are encouraged to keep their savings on deposit where they earn interest, and banks have a predictable source of funds for lending.

It's fairly easy to find and open a savings account; but by taking a little time to shop for a higher interest rate, you could save money faster.

"Competitive banks generally maintain the best rates over time," according to Richard Barrington, MoneyRates' Senior Financial Analyst, CFA.

MoneyRates.com specializes in monitoring the banking industry; and our studies show that the best savings accounts not only offer the highest interest rates, they do so consistently.

That's an important factor to remember when you're considering financial institutions, and here's why:

When banks offer high interest rates on a consistent basis,it's because they are making the choice to compete.

What that means for you is that, by finding one of the best savings accounts when you first open your account, you

All in all, finding one of the best savings accounts can pay off for you year after year.

Where to Find the Best Savings Account Rates

Financially successful people almost invariably have one or several savings accounts that they consider fundamental to their success.

But a lot of people have savings accounts. Does that mean all savings account holders are financially secure?

Not necessarily.

The secret is knowing how to use your savings account to accomplish financial goals, like eliminating debt or building a nest egg for retirement.

Think of it in terms of playing defense and offense in sports. Defense is where you are protecting your net worth and offense is where you're building it.

In the process of becoming financially successful, debt is the mortal enemy. One of the best ways to avoid debt is through the smart use of savings accounts.

Paying for emergencies

Say your furnace gives up the ghost on the coldest night of the year, and it'll cost $6,000 to fix.

A lot of people reach for their credit card at this point. And they know they'll be paying it off over the next year at a rate of $500 every month. For the first month, they'll have to add $145 in interest.

Ouch.

Over the year, they'll pay close to $1,000 in interest at prevailing credit card rates.

Obviously, the smarter way to handle your finances is, before said emergency strikes, to pay $500 a month into a savings account you set aside for emergencies. That's playing defense against paying unnecessary interest.

Financially successful people don't look at the microscopic interest rate the bank pays on that savings account. They see the $1,000 in credit card interest they'll save. Effectively, they are earning 29% on that money, in that they get out from having to pay it.

With an emergency fund, you can still pay the $6,000 bill with a credit card if you want the points - knowing that you'll simply pay off the credit card bill in full when it comes due at the end of the month.

The nice thing about an emergency fund is you don't know exactly which emergency will present itself.

It can be the furnace. It can be a car that breaks down. It can be a close relative's funeral in a far city. However, while we can't know the nature of the emergency, we know that life is life and some financially painful event can rear its ugly head, usually at the most inconvenient time. When that happens, having a savings account set up as an emergency fund ahead of time softens the blow, often by thousands of dollars.

Another example of the defensive use of a savings account is buying a car.

Cars are mechanical devices and they wear out, meaning it's a guarantee that they'll need to be replaced sooner or later.

Most people deal with this by taking out a car loan and making payments. Their monthly budgets are set up around those payments.

When the car is paid off, it's off to the dealer to get the next car, with the next set of payments - because they've become used to living with those payments. For the vast majority of Americans, making car payments is a part of daily (or rather monthly) life.

A better way, though, is by using a savings account, as follows:

Today's cars are built with sufficient quality that they usually outlast their payments.

Once the car is paid off, keep making those payments - only now make them into your savings account.

If your car payment was $500 a month, you'll have $18,000 in your savings account after three years. On top of the old car you're trading in, you either won't need a car loan for the new car, or you'll only need a tiny one. By keeping up this program, you'll be debt-free in no more than four years or so.

After that, you'll be able to buy a new car every three or four years without ever needing a car loan (and the monthly payment) again.

The same principle applies to vacations. Many put their vacations on a credit card and pay it off over a year, in time for the next vacation.

If you're going to take that vacation every year, it's far better to put the same payment into a savings account. As with the emergency fund, you'll effectively earn about 20% or whatever the prevailing credit card interest rate is.

The examples above can be viewed as using a savings account defensively to eliminate debt. However, there is another way one or more savings accounts can transform your finances from survival to prospering. Most personal finance experts agree there are four keys to financial success:

The defensive use of savings accounts addresses the third item on the list. Smart use of savings accounts can also be a key in implementing the fourth step, which is the most important.

It is impossible to retire or become financially independent without a sufficient nest egg. "Nest egg" is just another term for "investment." Unless you want to work until you keel over, building up an investment base, therefore, is the most important key to a solid financial future.

Unfortunately, many of the investment options available to the person on the street require more to get started than they have available. For instance, most brokerage accounts require a minimum of $500 or $1,000 to get started. Another good investment opportunity might be buying rental real estate, e.g. the house next door. Unless you received a large bonus or inheritance, you might not have enough for the down payment.

A savings account is the ideal way to bridge that gap.

Savings accounts usually have no minimum to get started. That makes them the ideal staging ground. Simply put money - whatever you have - into a separate savings account, and keep doing that. Soon enough it will have the minimum you need to make that investment you've been eyeing.

The humble savings account may be the least glamorous of all the products and services financial institutions offer but, properly used, it can be one of the most powerful tools to help you achieve financial success. It is an excellent way to execute the strategic side of finance - buffering you from financial emergencies as well as helping build funds to invest as you work toward financial independence.

More here:

What is a Savings Account: Why You Need it - MoneyRates.com

Express News Service

HYDERABAD: Fire (financial independence, retire early) is all the rage these days. Theres plenty of literature and attention given to the size of a corpus one should save to be financially independent. But if your goal is to retire early, the key also lies in keeping a limit on your annual withdrawals.

Among the options, the four per cent rule is popular, considered safe and is adopted globally. But it works on the premise that most of the savings comprise investments in stocks and bonds and hence withdrawals primarily include interest accruals and dividends.

Financial planners arrived at the four per cent figure using historical data on stock and bond returns over the 50-year period. But if your savings include sizeable bank deposits or small savings schemes, public provident fund etc, the percentage of withdrawals will have to factor in the fixed interest income component, unlike equities and bonds, where income is calculated based on hypothesis.

Theres no one-size-fits-all method to determine the withdrawal rate. Based on individual households expense, a conservative safe withdrawal rate should be arrived respectively to prevent depletion of retirement savings prematurely. Such a rate should be identified based on the portfolios value at the beginning of retirement. Knowing the withdrawal rate also informs how much you need to save for retirement.

Another alternative to the safe withdrawal rate is dynamic updating, a method that in addition to considering projected longevity and market performance, factors in the income you might receive after retirement and re-evaluates how much you can withdraw each year based on changes in inflation and portfolio values.

Irrespective of whether you follow a safe withdrawal rate or a dynamic approach, there are some dos and donts to be followed. First among them is adherence to the withdrawal rate. If you adopt a four per cent rule, ensure not to exceed it even once to avoid a spill-over affect on the portfolio.

Second is keeping pace with inflation. One way is setting a flat annual increase of four per cent per year, which is the Reserve Bank of Indias inflation band currently or adjusting withdrawals based on actual inflation. The former provides steady and predictable increases, while the latter effectively matches income to cost-of-living changes.

Lastly, the pre-determined withdrawal rates may not work if your savings include high-risk investments, prone to market volatility.

Read more from the original source:

Dreaming of an early retirement? Here is how you can FIRE your way to it! - The New Indian Express

Elisha Smith ArrillagaDecember 5, 2019

In many years of advocating for educational justice in California, one of the things Ive learned is that well-intentioned policies can have unfortunate consequences.

Elisha Smith Arrillaga

The states high school exit exam, for example, was supposed to raise student performance when it was approved in 1999, but after about a decade, officials had to admit that not only was the test failing to improve outcomes, it also discriminated against English learners.

They dropped the test.

Californias 2010 truancy law, which held parents responsible when their kids didnt show up for school, resulted in some parents being arrested, charged and even jailed in what many considered a severe overreach of the criminal justice system.

Now, in an effort to address troublingly low graduation rates at California State University, we are in danger of once again adopting a well-meaning but misguided policy that will deepen already entrenched problems in our public education system.

To be fair, higher education officials have good reason to be concerned: too many CSU students, especially low-income students, struggle to complete their degrees. The six-yeargraduation rate for low-income students is just 56 percent.

For low-income black students, the average is 50 percent, and for Latinx students, its 54 percent. Clearly, CSU must do more to counter systemic inequities and better support its students.

However, a proposal being debated by the CSU Chancellors Office and Board of Trustees would offer little help while causing real harm by decreasing college access for students of color and low-income students.

CSU leaders are considering adding a new admissions requirement: a fourth year of quantitative reasoning (which could include various math and science courses). Right now, high school students must take math courses such as algebra and geometry or science courses such as biology, chemistry or physics.

The new requirement would mean students would also have to take courses such as statistics or coding to qualify for admission.

Having majored in mathematics, Im thrilled when students get access to advanced coursework in math and science. But, as most educators will tell you, adding a new college admissions requirement doesnt necessarily mean students will take more quantitative reasoning courses or will come away better prepared.

In fact, given the inequities that plague our states K-12 system, the proposed requirement would actually prevent many students especially those from marginalized communities from being eligible for the CSU system.

How? First, just because the state insists on students taking certain courses to qualify for college admission, that doesnt mean their schools offer those courses.

Its been 30 years since the state adopted the college preparatory course sequence known as A-G, and yet more than a third of California districts dont offer the necessary A-G courses. These districts tend to serve students of color and low-income students. Our research shows, for example, thatschools in low-income communities areless likely to offer advanced math courseslike Calculus and Physics.

There is also a shortage of high school teachers who are qualified to teach advanced math and science courses.In 2016-17, more than 12,000 substandard permits and credentials were issued in California and about half were in math, science and special education. More than two-thirds of these teachersworked in low-income communities.

To address the teacher shortage, CSU is touting itsplan to spend $10 millionover the next four years to recruit more math and science teachers, in part by providing more financial aid and creating new credential pathways.

But Long Beach Unified received a $7 million, 5-year grant to do the same, which suggests that it will take far more for the entire state to fill its schools with qualified math and science teachers.

Without sufficient access to college prep courses or teachers, students of color and low-income students are already shut out of the CSU system at a disproportionate rate. Adding another admissions requirement would double down on this inequity, creating an unnecessary barrier for these students.

Thats why the Education TrustWest and more than 60 other educational justice and civil rights groups areurging CSU trustees to reject the proposed requirement.

In addition, the classroom teachers and principals who spend each day with Californias students are lining up against it. The California Teachers Association, California School Boards Association, Association of California School Administrators and even CSUs own faculty have called on CSU to drop the proposal.

And yet, CSU trustees are still considering the idea; they will vote on it in January.

They should vote no and instead partner with the California Department of Education to advocate for increased funding for and access to A-G coursework and qualified teachers, especially in underserved schools and districts.

Given the linguistic diversity of California students, CSU should strive to quadruple the number of bilingual teachers. It should also continue to follow through on recent remediation education reforms that arealready showing results.

College remains a vital pathway to financial independence for countless young Californians. Our state university system is absolutely right to want more students to graduate. But denying entrance to those with the greatest need and unrealized potential is the wrong way to do it.

Elisha Smith Arrillaga is executive director of The Education TrustWest.

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Requiring fourth year of high school math will leave more students behind - EdSource

David S. D'AmatoDavid S. DAmato is an attorney and adjunct law professor whose writing has appeared at the Institute of Economic Affairs, the Future of Freedom Foundation, the Centre for Policy Studies, the Ludwig von Mises Institute, Liberty Funds Online Library of Law and Liberty, the Foundation for Economic Education, and in major newspapers around the world.

DAmato is on the Board of Policy Advisors for the Heartland Institute and he is the Benjamin Tucker Research Fellow at the Molinari Institutes Center for a Stateless Society. He earned a JD from New England School of Law and an LLM in Global Law and Technology from Suffolk University Law School.

Established in 2011 as part of a series of reforms responding to the financial crisis, the Consumer Financial Protection Bureau (CFPB) will soon be at the center of a Supreme Court battle on the fundamental nature of the Constitutions separation of powers.

Government agencies such as theCFPB exist in a nebulous fourth dimension, outside of and free from ordinary constitutional constraints, empowered to act sometimes like a legislative body, sometimes like a judicial one, and sometimes like an executive/enforcement agency. Concentrated power of this kind is just what the three-branch structure of the Constitution was designed to preclude. Its authors believed that government bodies exercising all three of these kinds of power were bound to act tyrannously, with no real incentive for self-restraint.

And the CFPB is unique even among other such agencies in that its current structure prevents the president from firing its director except in cases of inefficiency, neglect of duty, or malfeasance in office. The Constitution, on the other hand, empowers the president to dismiss any officer of the executive branch at any time, for any reason. The current law not only insulates the CFPBs director from democratic accountability by neutering one of the presidents constitutional powers, it establishes a funding stream for the bureau that exists outside of Congress normal appropriations process.

The CFPB and its proponents have hailed this funding approach for ensuring that the CFPB is truly independent of Congress, meaning that the CFPB somehow exists as a thing apart from both political branches. Like other similar agencies, it amounts to a de facto annulment of the Constitutions three-branch system and, in principle, a disavowal of the rule of law. Should this provision of the law that created the bureau be found unconstitutional, the question remains whether the Court can separate it from the rest of the statute, that is, whether the rest of the lawand thus the bureau itselfcan be salvaged.

Brief and drafted in general (and frequently vague) terms, the Constitution is Americas political Rorschach test, apparently able to accommodate the full spectrum of mainstream political positions, everyone sure that her political positions are consistent with the legal requirements set out in its text. Without a philosophical mooringthat is, a principled appreciation of the idea of the separation of powers itselfit is easy enough to square just about any political system with the Constitution. The fight over the CFPB represents a much older one on exactly what kind of government Americans should have.

As political scientist Joseph Postell observes, the Progressive Era witnessed a fundamental rebuke of the theory of government by consent through elected representatives, regarded by progressive reformers as undemocratic and outmoded, and as antithetical to an administrative state that rested on expertise rather than political accountability.

It is unfortunately necessary to point out here that this style of administrative government, based on the arbitrary prerogative power of unelected officials, is not at all liberal, but is a conscious repudiation of liberalism, which stands for the rule of law (as opposed to the rule of expert discretion). The counter-revolution of Progressivism wanted a new kind of government in which trained, credentialed experts would act as the independent administrators of social and economic relations. Thomas C. Leonard explains: The state expert does not merely police unfair and inefficient trade practices; the state expert administers trade, in the same way that the business expertthe scientific manageradministers a large business organization, via planning, management, and centralized direction.

The problem is that, in the government context, independent just means not in any way accountable to the people, not responsive to the democratic process. Predicated on the fundamentally undemocratic idea that experts in government simply know better than either the people or our representatives, progressivism would have an independent expert body charged with solving every perceived social ill.

Government bodies should never act independently, at least not in the sense that progressives favor. Such bodies and their actions are legitimate only insofar as they represent the will of the people and are consistent with the rights of free and sovereign individuals. To the extent that independence means anything in the case of the CFPB, it means that a relative handful of bureaucrats, accountable to no one, should have the power to make rulesreally lawsthat all must follow. If the political term for this is independence, the more straightforward term is illegitimate exercise of power.

Anything approximating a good government, if such an idea can be invoked with any seriousness today, would be a mere service provider, offering, like a market actor, a needed service (protection) for a reasonable price. Todays U.S. government has no incentive whatever either to confine itself in such a way or to charge a fair price. It acts only as we should expect it to given the circumstancesthat is, given its independence from the will of the people and from the constraints provided by individual rights. It takes what it wants and does what it wants, quite without thought to that will or those constraints. A more effective check on the power of financial institutions would be for Americans to develop the sense that it is they, not federal government agencies, who should be independent. But dont hold your breath.

[Originally Published at Townhall]

Consumer Financial Protection Bureau Represents Unaccountable, Illegitimate Exercise of Power was last modified: December 9th, 2019 by David S. D'Amato

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Consumer Financial Protection Bureau Represents Unaccountable, Illegitimate Exercise of Power - Somewhat Reasonable - Heartland Institute