Archive for February, 2009

Just about anyone could tell you what they’d do if they won the lottery, but how many people have a financial plan for disaster? Do you know what you’d do if you lost your job and had to survive without income while you searched for a new job? What if you became disabled and unable to work?

The most obvious way to prepare for disaster is to save enough money to cover your living expenses for at least three to six months. Of course, this is easier said than done when the majority of Americans are living paycheck-to-paycheck, even in good times.

In a New York Times article called “Preparing Your Budget For Disaster,” Wisconsin financial planner Kevin McKinley has an interesting suggestion for financial disaster preparedeness that might seem a bit counter-intuitive. Borrow more money from a home equity line of credit or a credit card while you still can, he says, since the availability of the funds could disappear without notice. Once you’re unable to borrow and you’ve depleted your savings, you’ve run out of options. Borrowing money before disaster strikes means you can pay it back slowly over time and keep cash in savings for emergencies.

Toyota, the world’s biggest car maker, said it expects to lose $3.8 billion at the end of its 2008 fiscal year, which ends in March, the New York Times reported. It would be the company’s first net loss since 1950.

For now, the company is responding by cutting costs 10% and postponing construction of new plants worldwide. It’s still investing in hybrid-electric vehicles.

It will be interesting to see whether the company’s 60-year practice of “lifetime employment” is scrapped amid such intense cost-cutting pressures.

Does the idea of lifetime employment sound pretty good to you right about now?

The bad news is getting to be a little overwhelming ⎯ millions of jobs lost; banks, car makers and possibly credit card issuers in need of a bailout; depleted retirement accounts and a gloomy short-term outlook.

Could things get any worse?

Actually, there is a silver lining to this recession. Let’s look at what we have to be thankful for:

1. 93% of working adults have a job. While thousands have been pink-slipped in nearly every job sector, most of us are still working. Plus, unemployment benefits have been extended for those who need continued support.
2. Interest rates are low. Interest rates on all types of loans (except credit cards) remain historically low, so if you need to borrow money for a business, home or car, this is a good time to do so. The caveat, though, is that the bar has been raised for those who wish to qualify for the best rates. What used to be considered a “good” credit score is now considered mediocre at best.
3. Personal savings are up. For the first time in more than 20 years, Americans’ personal rate of savings is on the rise again. In May 2008, we boosted our savings rate as a nation to 4.8% (although that’s a far cry from our peak savings rate of 14.6% in May 1975).
4. We got a wake-up call. Too many Americans were living beyond their means, buying homes they couldn’t afford and overextending themselves to enjoy a better lifestyle. The housing market shake-up has done much to return a lot of people to saner practices, like “saving up” for a purchase, wasting less and deferred gratification.
5. Everything’s on sale. Amid declining sales, retailers are desperate for your business. Great deals can be found on everything from car sales to clothing.
6. You’ll get better service. It’s another by-product of declining consumer spending; sales clerks will be more attentive and polite, and you just may get a “thank you.”
7. We’re not making OPEC as wealthy as before. While prices at the pump remain relatively low (for now), Americans still aren’t logging the miles on their odometers like they did before. That makes things tough for the OPEC cartel, because reduced demand forces prices lower. In the long run, permanently altering our driving habits reduces our reliance on foreign nations and gives us breathing room to develop alternative energy technologies.
8. Expanded bottle bills stand a better chance of passage by state legislators. That’s because state governments are desperate for the extra revenue they could potentially reap from unredeemed deposits. In New York, state officials estimate they could collect $119 million annually by collecting unclaimed deposits on water, iced tea and juice containers. Right now, beverage makers keep the unclaimed revenue. Diverting these savings to the states and municipalities could beef up state coffers and benefit residents through green initiatives.
9. Momentum is building for more efficient technologies. Just as expanded bottle bills are earning renewed enthusiasm from lawmakers, other better, more efficient ways of doing things are also gaining fast-track status because saving money is what it’s all about in a recession.
10. The fiscal stimulus package will benefit every taxpayer. The nearly trillion-dollar fiscal stimulus package will help repair our aging transportation infrastructure, invest in our schools and support job creation in many industries.

There, now, don’t you feel a little bit better now? For an added injection of upbeat thinking, visit www.happynews.com.

One might have thought that the green energy industry was poised for success with such a strong supporter in the White House, but banks unwilling to do what they’re supposed to have caused yet another industry crisis.

Without support from the economic stimulus package still being molded by the House and Senate, wind and solar power installation will continue a freefall from an industry expansion that’s been going on for the past few years, the New York Times reported.

The number of banks subsidizing the industry’s expansion has dropped from 18 to four, sucking the lifeblood from wind and solar development.

The factories building parts for solar and wind energy installations are laying off workers, and industry experts see a 30-50% decline in installations during 2009 if the government doesn’t do something. (The cost of solar panels for consumers, which has already fallen 25% in the past six months, is expected to drop another 10% by midsummer.)

Even Texas billionaire T. Boone Pickens, a big proponent of wind power, has reined in his wind farm plans.

Passage of the stimulus package won’t guarantee a quick fix. It will take time, experts say, for the industry to recover.

Why won’t banks lend? Have the risks of default grown so much that no individual, company or industry is worth the risk? How long will this waiting game last? Lenders say it’s too risky to lend money in a recession, but the recession won’t end until banks unfreeze credit. Surely by now they’ve learned how to gauge risk. Let’s make lending a legally binding requirement for recipients of government funds.

Wall Street Journal writer Neil Templin wrote an amusing explanation of what’s behind his shopping impulses. When there’s a lag between the moment of impulse and the opportunity to purchase, those impulses become less urgent. It’s one thing to fantasize about a widescreen TV when you can’t afford to buy it, but once the purchase is within your grasp, reality sets in. Where will you put the thing? Will it dominate the living room like an oversized Christmas tree? Soon enough, the urge to buy melts away.

It reminds me of my own experience with Fig Newtons. A really cool kid at school always ate them at lunch. I decided I must have them. My mother obligingly bought them and packed them in my lunch box. That day in the cafeteria, I proudly ate my Fig Newtons. And promptly threw up.

Just as with widescreen TVs, reality often overrides the fantasy.

Says Templin, “But even when I buy something I like, I often find myself vaguely disappointed. The car that seems so magical in the dealer’s lot is just a car a few weeks after you take it home.”

Separating an object’s utility and function from its “je ne sais quoi,” a fiction that’s fabricated by overeager marketing copywriters, can help consumers quell any buying impulses still lingering into the recession. It’s a useful trick.

How do you manage your shopping impulses?

When faced with a recession, people talk about cutting back on all the non-essentials to reduce spending and keep their budgets in line. Things like cable TV, coffee shop lattes, and brand-name items are the first to go for many people. But what are you not willing to give up, even in a recession?

So-called sin stocks, like gambling, liquor, and candy companies, perform well even during a recession, according to USA Today.

1. Cigarettes
   Despite the well-known health effects of smoking, there are millions of people around the world who would rather sacrifice something else than give up their cigarettes. Despite the global economic downturn, several tobacco companies are reporting increased profits.
2. Alcohol
   Whether you’re the type of person who enjoys a glass of wine with dinner or a six-pack of Budweiser in front of the TV, it’s a luxury many people won’t give up during a recession. In fact, Anheuser-Busch is moving forward with price increases to keep up with the rising costs of raw materials.
3. Cell Phones
   Everywhere you go, you’re bound to see people chatting on their cell phones. Phones that were once a novelty and a luxury for people with large disposable incomes are now considered a necessity by many, regardless of how much money they earn. Personally, I think cellular phone providers would have to start canceling cell phone accounts for non-payment before people would give them up!
4. Candy
   Surprisingly, many candy makers (including Cadbury and Hershey) are also reporting increases in profits during the last quarter, despite the recession. Seems people are buying sweets to comfort themselves — or simply don’t feel the cost of a candy bar is going to break the bank.
5. Beauty Care
   Some women just couldn’t do without their makeup bag or every-other-month appointment at the beauty salon. From manicures to pedicures, hair waxing, hair cuts, coloring and styling, brand-name beauty products rarely see a big decline during a recession.

What about you? What types of products or services will you keep, even during the recession?

Filed under the category of “things we already know,” a quarterly Federal Reserve Board survey of senior loan officers confirms that despite the injection of billions of dollars into banks via a taxpayer-funded bailout, the flow of money loaned to consumers remained largely frozen during the last three months.

The January 2009 survey showed a moderate loosening of mortgage lending standards, although a majority of credit card lenders continue to maintain the tighter lending standards that were reported in the last survey of loan officers, taken in October 2008.

Here are a few highlights from the survey of 53 domestic banks and 23 U.S. branches of foreign banks:

• Mortgages
About 45% of domestic bank respondents said they had tightened lending standards on prime mortgages over the past quarter (compared to 69% who reported doing so in the previous survey). Nearly 50% of those banks that sold nontraditional residential mortgages reported having tightened lending standards on those loans. Only four banks reported making subprime mortgage loans during the past three months.

About 15% of domestic banks said they had become either “somewhat” or “much less” willing to make consumer installment loans during the past quarter, compared to about 45% of banks that said this in the last survey.

• HELOCs
About 60% of domestic banks said they tightened lending standards for home equity lines of credit during the past quarter, down from 75% in the October 2008 survey.

About 40% of domestic banks said they reduced the size of existing HELOCs.

• Credit Cards
Almost 60% of banks said they tightened lending standards on credit card and other consumer loans; this figure remained unchanged since the October survey.

Nearly 55% of banks said they reduced the availability of credit cards and other consumer loans to consumers who did not meet credit score thresholds.

About 45% of banks said they lowered credit limits for either new or existing credit card customers, compared to 60% who reported doing so in the October survey.

Major banks, including Citigroup, which already received $45 billion in taxpayer money, will likely need much more money in coming months, the International Herald Tribune reported recently.

Should they get it?

As thousands more are added to the rolls of the unemployed nearly every day, competition for those few jobs that are available has heated up. In past years, over-eager job candidates might print their resume on fuchsia-colored paper, slip a videotaped message to prospective employers in the mail or, God forbid, “flesh out” their resume with non-existent work experience or educational degrees.

There’s a smarter way to grab the attention of hiring companies and make yourself stand out from the competition. If you’re a decent writer, it’s easy to create your own online blog with regular, if not daily, posts about your chosen area of expertise. Find a subject you’re very familiar with (ideally, one that’s related to your career interests). If, for example, you’re in marketing, you can blog about cutting-edge trends or your own successes and failures working on previous projects. The goal is to position yourself as an expert in your field and as someone who stays abreast of current developments, even when you’re between jobs.

Even if you’re not Ernest Hemingway, you can still maintain an eye-catching blog by spotting compelling news items that relate to your field and then briefly commenting on them, including a link back to the original news story.

The unemployment support site, www.thecanned.com, for example, was created by two former college roommates who reconnected years later after simultaneously losing their jobs. Career blogs can take on virtually any subject. Whatever you decide to write about, try to imagine the reaction it would elicit from a potential employer.

It’s best to start blogging before you’re laid off because then you’ll have a ready supply of at least a few months’ worth of posts. When you start pursuing job leads, include a link to your blog in your cover letter and resume to wow prospective employers.

Along with filing for unemployment benefits and updating your resume, creating a professional blog can be one of the most important things you do following a layoff.

Do you use any special strategies when looking for a job?

More states are turning to gambling casinos as a revenue source that can help fill looming budget gaps, a January 25 Washington Post article reports. There are proposals on the table in at least 14 states to create or expand existing casinos or slots, some in the same states that in past years fought hard to tighten restrictions on gambling.

So while government leaders are afraid to inflame voters by forcefully taking their money in the form of higher taxes, they apparently prefer a form of pain-free “taxation,” taking money from those who willingly lose it in a rigged system that takes money disproportionately from lower-income working families.

The top five percent of lottery players account for 51 percent of lottery sales, according to the Century Foundation, and this group is heavily weighted with low-income wage earners. In fact, lottery players with incomes below $10,000 spend six percent of their annual income on gambling, more than any other income group.

It’s a tough call that forces legislators to choose between cutting school funding or raising the sales tax, both hugely unpopular moves, and permitting an assortment of large, new development projects to move forward. While no one’s forced to visit a gambling casino if they don’t want to, historically, the states haven’t always welcomed casinos with open arms for a variety of other reasons.

You might say that the affluent build their wealth through investment growth, while those of lesser means play the lottery.

Is it fiscally responsible and acceptable for states to balance their budgets by using the revenue gained from gambling?

February 22 to March 1 is America Saves Week. It’s a good opportunity to take a closer look at your saving and spending patterns and perhaps ratchet up the former to help you weather the recession.

Some said it couldn’t be done.

Americans’ personal savings rate is on the rise again after a long, gradual slide that started in the spring of 1985.

The recession finally prodded American to boost their savings rate, to 4.8%, in May 2008, according to historical data from the U.S. Department of Commerce, Bureau of Economic Analysis. The bureau has tracked America’s savings rate on a monthly basis since January 1959.

The data show that Americans were more dedicated savers through the 1960s, 1970s and into the early 1980s, with saving rates ranging between 7% and 12%. (The personal rate of savings peaked in May 1975 at 14.6%.)

Then, from May 1985 on, the savings rate consistently remained in the single digits, between 6% and 8%. It was a time of relative economic prosperity, greater reliance on imports, increased personal consumption and higher federal defense spending.

The personal savings rate continued in a generally downward direction, and it remained below 6% from 1994 on. In 1994, the U.S. was considered the world’s most competitive economy even as it ranked #1 in the widening gap between rich and poor.

An absolute low point in savings was reached in August 2005 when the personal savings rate dropped to -2.7%. The economy would begin to cool off sharply in the fourth quarter of that year.

If historical rates of saving are any indication, it seems as if tough times rally long-dormant frugality, but that times of prosperity distract from saving.

Does your personal rate of savings vary according to necessity, or are you steady as she goes?