Recession: We're Not Out of the Woods Yet
The U.S. Census bureau released its annual report on income, poverty and health insurance last week, and for anyone who proclaims that the recession is ending or the economy is turning around, the numbers are staggering.
"The recession has plunged 2.6 million more Americans into poverty, wiped out the household income gains of an entire decade and pushed the number of people without health insurance up to 46.3 million," report Carol Morello and Dan Keating.
You can expect next year's numbers to be worse, says Robert Greenstein, executive director of the Center on Budget and Policy Priorities.
In 2008, 39.8 million Americans were living in poverty, which is $22,025 a year for a family of four. We haven't seen that many poor people since 1960 and it's because many people have shifted from full-time employment to part-time.
Harvard University economist Lawrence Katz says "We've basically seen a lost decade. Taken together, only the top ends up growing, on average. For the typical American family, the 2000s have been a disaster." Get more details from Millions More Thrust Into Poverty (Sept. 11).
Heated Debate and Leftover Chat Questions
I'm not one to shy away from a debate, especially when I'm right. So when I was challenged during my last online discussion about recommending premarital counseling, I got my back up.
A betrothed reader asked about the need for life and disability insurance for her and her fiancé. I gave her some advice.
Then for good measure, I tossed in -- as I always do to engaged couples -- that she and hubby-to-be should be sure to get premarital counseling.
That comment started our little debate, with her finally writing: "I think non-financial advice doesn't belong in a financial chat. I think it is unfortunate that I receive commentary based on your value system instead of simply receiving sound financial judgment."
Do people not understand the meaning of "columnist?"
Do people not understand that columnists bring to the table their research, reporting, opinions and, yes, shockingly, their own values?
But my recommendation has less to do with my values than just good sense. What's more financially sound than recommending engaged couples get some counseling to make sure they are on the same page about a lot of things, including how they will handle their finances together?
So many -- too many -- couples spend far more time picking the song for their first dance than discussing their financial values.
Further, values play a huge role in how all of us handle our money. That is why I'll say it again. Money problems typically have more to do with people's emotional baggage then having too little or too much money.
Others didn't think I was out of line:
"Just a quick word of support for those who think you shouldn't deal with ISSUES - it's all ISSUES, baby!"
"Michelle, I SO agree with you and I'm not even married. When a friend of mine got married a few years back, her aunt gave her a book called '1001 Questions to Ask Before You Get Married.' I glanced through this book and don't remember most of the questions, but one stood out to me - 'If you go out shopping on your own and want to purchase a non-essential big ticket item, at what price would you pause and think to call your spouse?' When spouses have wildly different answers to this question, you can imagine the arguments that might break out after an afternoon of shopping. Everyone should know that managing money is a big and important part of partnering up. Counseling helps, one would hope, to address these issues -before- you get married and merge finances."
Since that is settled, here are some leftover chat questions I didn't get to:
Q: I currently have two credit cards with high balances; approximately $16,000 at 7.99 percent and $6,000 at 24.99 percent. Don't have a savings at this time. Money has been tight, but my husband and I have been able to keep up with our bills because he is receiving unemployment. We currently have two vehicles, one of which I am almost finished paying off ($1,000 left). I have been considering selling one of the cars to pay off the credit card debt. Is this a good idea? As my husband is currently not working and the job market in his field is slow, we only really need one car right now. I catch a commuter van to work.
A: If you don't need a second car, I would sell it and pay down the credit card debt. But I would also keep some of the money to start an emergency fund.
Q: Are you in favor of arranging your withholdings so that you get "a big fat tax refund"? I always thought I'd rather have that money in the bank, earning interest for me, rather than loan it interest-free to the government. My perfect tax return would be zero owed and zero refund, but I'd rather pay a couple hundred bucks than get two thousand back.
A: I'm with you. Why allow the government to hold your money interest-free for a year, especially if you have debts to pay?
Q: I bought my 2000 Honda Accord new, 10 years ago. I have 210,000 miles on it, and it hasn't given me much trouble. I figure I've already gotten my money's worth out of it. In the past two years, though, I've had some repairs that total about $2,000. Now my transmission is slipping. I know that might be a very costly repair. 1) Should I just replace the car? I have the cash saved to buy another car, new or barely used, without a loan. And 2) Do you recommend buying a car new, certified used, or plain old used?
A: My rule for getting rid of an old car is to keep it until it becomes so unreliable that you aren't sure when it will break down. But if you can see a problem coming and schedule the repairs, keep the car and fix it. Even a repair bill of a few thousand dollars is far less the price of a new or even used car.
Having said that, if you have the cash to buy a car (new or used) without a loan and you want more reliability, then you have earned the right to trade up. And may I suggest that you either donate the old car or give it to someone in need of a car? That's what I've always done when I thought it was time to replace my vehicle. I give my old cars to a relative in need. The last car went to a niece in college.
Thought you might like to see one person's rule of thumb of when to replace a car: "My general school of thought for car replacement: When the average monthly maintenance of your vehicle in the last 12 months is greater than 50 percent of the car payment, it's time to get a new one. Fifty percent is my cut-off point, primarily because the more a car starts breaking down, the repairs generally start getting more frequent and more expensive."
New Round of Foreclosures As ARMs Reset
Another wave of foreclosures may hit soon, according to a report by Fitch Ratings.
Real estate reporter Dina ElBoghdady writes that an estimated $134 billion in option ARMs will reset in the next two years. On average, monthly payments are expected to jump 63 percent, or $1,053, a month.
Option ARMs, or pick-a-pay loans, allow owners to choose how much to pay each month.
"Nearly all the borrowers who took out this type of loan from 2004 to 2007 chose to pay less than the interest due. Sometimes they paid as little as 1 percent interest," says ElBoghdady.
Read more about this coming trouble in Another Wave of Foreclosures Looms (Sept. 9).
Tough Economy Strips Pride
It can be particularly hurtful to a man's pride to lose a job when he is a family's shared or sole breadwinner.
I want to hear from men who are experiencing prolonged unemployment. How are you handling the economic and emotional challenges?
Write to me and share your stories. Please send comments to firstname.lastname@example.org.
Did you know this is Life Insurance Awareness Month?
I know. Another thing to worry about. But do you have enough life insurance? Do you even know if you should have life insurance?
If you are unsure about your life insurance needs, write to me. I'm looking for all types of people who want a life insurance checkup - young, old, single, married, kids, no kids, people who don't carry enough insurance but think they should. Write to me at email@example.com, and please put "Insurance Checkup" in the subject line.
Educating the Young
A reader expressed concern about missing the PBS special "Your Money, Your Life." If you missed last week's premiere, you can view the full episode here.
The show targets the young and features helpful fiscal tips from celebrities and personal finance experts (including me!).
You can view my advice here by selecting "Expert Voices" under the video feed, scrolling down to the bottom, and clicking on "Michelle's Mantras."
Charity Brown contributed to this e-letter.
You are welcome to e-mail comments and questions to firstname.lastname@example.org. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.