Living Wages and the Service Economy

One of the stories that seems to be dominating the news in recent months is the plight of low-paid workers in the service industry.  Most recently, a story about Wal-Mart workers organizing a food drive for other employees so that they could have a Thanksgiving dinner has gotten a great deal of attention.  This comes on the heels of a McDonald’s helpline advising employees on how to apply for food stamps and locate food pantries and other assistance for the poor.  McDonald’s is not alone in this regard.  It is estimated that public assistance for fast food workers costs U.S. taxpayers $7 Billion a year.  This means that the U.S. government is essentially supporting this industry.  Noted financial commentator Barry Ritholtz asks the obvious question: “Why are profitable, dividend-paying firms receiving taxpayer subsidies?” Continue reading

Low Interest Rates Through 2014 and Beyond

Ben Bernanke, in a speech on November 19th, made it very clear that the Fed is likely to hold interest rates low for an extended period of time.  This comes on the heels of similar comments by his likely successor at the Fed, Janet Yellen, during her confirmation hearings.  On top of this, inflation numbers released on the morning of the 20th show almost no increases in consumer prices over the past year and existing home sales have just registered a drop.  In related events, Larry Summers just gave a widely-noted presentation to the IMF in which he warned that the U.S. may be settling into a long-term economic malaise.  Larry Summers, who was previously a contender to be the next Fed chairman, surely considered his comments to the IMF very carefully. Continue reading

Handcuff Volunteers and the Rally of 2013

The S&P500 is up by 26% for the year-to-date, despite the fact that employment growth is anemic, the labor participation rate is at its lowest point in thirty five years, and inflation-adjusted GDP growth is experiencing a long-term slowing (see chart below).  GDP turns negative in recessions—this is the definition of a recession—but has historically recovered much faster than we have seen in the post 2008 years. Continue reading

60-Second Retirement Savings and Income Checkup

I think that the American public has largely tuned out the myriad studies showing that most households are woefully under-saving for retirement.  Even if we’d prefer not to think about this issue, however, it is crucial to regularly check on how we are doing.  There are two major questions.  First, during your working years, are you saving enough?  Second, during retirement, how much income can you sustainably plan to draw from your savings each year?  The good news is that there are some simple tools that you can use to do a fast estimate of how you are doing, how much you need to save to stay on track, or how to get on track. Continue reading

Impacts of the U.S. Budget Freeze

With the U.S. government failing to reach agreement on budgetary issues and on raising the debt ceiling, there is considerable discussion of what this would really mean.  From what I have read, the issues are quite straightforward.  If the U.S. government does not raise the debt ceiling, the Treasury will not have sufficient funds available to meet all of its obligations, starting sometime in mid-October.  For the time being, many government workers have been furloughed and services suspended.  Continue reading

Review of Pound Foolish by Helaine Olen

I have been hearing a lot about Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, by Helaine Olen.  Without having read the book, it sounded like a muckraking survey of the ways that the financial services industry fleeces individuals. Commentators in the financial services industry have been broadly critical of the book.  Larry Swedroe, a well-known advisor and journalist concludes that “problems are well exposed, but investors are left in the dark about how to deal with those issues. This book has many positive aspects, but in the end, it comes up short of helpful.”  Morningstar’s John Rekenthaler comes to a similar conclusion in his review, suggesting that the book is entertaining and worth reading, but is somewhat biased in terms of telling Olen’s audience what they want to hear.  The reviews and controversy inspired me to read the book myself, and it is a fairly quick and enjoyable read for those interested in the issue.  Continue reading

Planning for College Costs, Part II

In part 1 of this article, I explored how you can estimate how much college will cost and how much you need to save, going forward, to accumulate enough savings to cover the amount that you plan to contribute towards your child’s college costs.  One of the major variables in this calculation is what you assume about how you will invest the money that you save.  While you can design a portfolio yourself, it is also worth looking at funds that combine the major asset classes into portfolios at various risk levels.  Continue reading