How to Raise Spoiled Kids: Sweet 16 Party April 28, 2006
We all are trying to save on monthly costs, cut tax costs, or spend less to gather enough for a major purchase that has meaning in our lives, such as a home, college tuition, retirement, or emergency expense (at least those of us in the personal finance blog world and responsible spenders). I’ve been able to cut out $290 per month and counting, without noticing any difference in my lifestyle. But when I read about MTV’s ‘Super Sweet 16′ show about super-spoiled 16 year olds, I get sick to my stomach. I mean, all the effort by parents working and saving money for a secure future goes down the drain thinking about kids who throw temper tantrums because they want a party that will cost upwards of $200,000, goes down the drain. This behavior by children starts with the parents. One parent who is on the MTV show says:
“If you can afford to have a grand celebration, then why not,” said Dr. Kothapalli, who immigrated to the United States from India in the mid-1980’s. “It’s the American way. You work hard and you play hard.”
It’s no mystery that hearing this from parents results in kids like the one who says:
“We both want to lose three pounds,” said Priya, who received a Mercedes convertible and an assortment of diamond jewelry for her birthday. Her sister’s graduation gift package included a Bentley, diamonds and two homes in India.
“I was really surprised,” Divya said, “because I was only expecting a Bentley and one house.”
If you want to instill responsible money habits in your kids, they need some wisdom from parents about finance before they can become responsible citizens of the world, not to be wasteful. How sad when we are in a world where most people are dealing with poverty, environmental disasters, war, and energy crisis. I hope these parents who are raising these kids come to their senses.
Source:
MTV’s ‘Super Sweet 16′ Gives a Sour Pleasure
NY Times
By LOLA OGUNNAIKE
Published: April 26, 2006
Economic Classes in the USA April 25, 2006
Our family grew up in what I think is an upper class neighborhood. I had friends whose family had huge homes, nice cars (Ferrari, Porsche, Benz), and parents who owned businesses or were executives. Our family was comfortable, but we didn’t own the 6000 sq. ft. mansions, sports cars. In other words, I believed that we were upper middle class family in an upper class neighborhood. Our discussion about class in America prompted me to think about what class I am in. Although I knew that the lower class didn’t have much net worth or did not hold management-type jobs, I never thought about what made a family middle class vs upper class.
According to wikipedia, the US has no legally-recognized social classes. Elites exist, but are numerous and there is no universally recognized hierarchy of people. Generally, sociologists use a five class model:
- Upper class
- Middle class: Upper-middle classs
- Middle class: Middle-middle classs
- Middle class: Lower-middle classs
- Lower class
| Upper class | Upper-middle classs | Middle-middle classs | Lower-middle classs | Lower classs | |
| Proportion | 1% to 3% of the U.S. population | 10% or so of the U.S. population | 40% or so of the U.S. population | 30% or so of the U.S. population | 20% of the U.S. population |
| Net worth (not including home) |
above $500,000 | between $250,000 and $500,000 | between $125,000 and $250,000 | $50,000 to $125,000 | $0 to $50,000 |
There’s a lot of fuzzy borders between the classes, and there are no clear cut answers, but this gives us some idea of the classes in America. It’s said that the wealth of the top 1% in the United States equals the wealth of the lower 95%. I belive that the spreading wealth gap is causing a smaller proportion of middle class in American society. The reason may be downsizing in some industries of the American economy, competition from lower-paid foreign workers and contractors, and the systematic elimination of unionized labor.
There’s also a lot of discussion on Oprah’s message boards about class in America where there’s some interesting perspectives. Do you ever think about what class you’re in? Do you worry about the widening income gap between classes?
Source:
Wikipedia - Social structure of the United States
http://federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf
Women Shopping Habits and Class in America April 24, 2006
According to a Financial Times article today, lower-income women (with less than $45,000 annual household income) confined their weekly shopping to the mass merchandisers, super-centers, and dollar stores while high-income shoppers (with annual household income of more than $75,000) shopped in drug stores, department stores, specialty stores and warehouse clubs.
…women shoppers were “even more prudent and price conscious and even less willing to pay a premium for convenience” than two years ago. Their attitudes to shopping are all focused on saving money.
From what I’ve seen with friends and family, it seems that every family, regardless of economic class shops at discount warehouse stores (such as Sam’s Club or Costco) and are more conscious of prices. Perhaps the growing gap between low income and high income shoppers widening is a big reason that the lower, middle, and upper middle class are increasing in number.
Speaking of classes, The Oprah Show had an episode about class in America. Jamie Johnson, an heir to the Johnson & Johnson Pharmaceutical company, shares with Oprah some interesting and depressing facts about the rich and poor gap:
- The top one percent of Americans own roughly 40 percent of the country’s wealth.
- The top one percent possesses more wealth than the bottom 90 percent combined.
- An average member of the top one percent earns roughly $862,000 a year while a majority of Americans earn only $34,736. That’s what the average CEO earns in less than one day of work!
Do you think this lopsided wealth, concentrated on the top 1% of Americans is related to the topic of shopping habits above?
Source:
Shopping Habits Shift as Women Watch Their Wallets
by Lauren Foster of Financial Times
My Definition of the 10% Rule April 20, 2006
Books, financial advisers, personal finance blogs often suggests that earners save 10% of what they earn. Since the US national savings rate is in the negative territory now, in the consumerism society of the USA, how is it that everyone expects America to save 10%? I’ve always wondered about that 10% number. None of the publications I’ve read were that clear on whether that 10% is pre-tax or after-tax or is it 10% of your disposable income. I know it doesn’t really matter, because either way, saving something is better than spending more than you earn. But it can make a difference. For example, the difference between my pre-tax savings of 10% and after-tax savings of 10% is approximately $5000.
Does saving on your 401k retirement count towards your savings? I’ve always trained my mind that anything put into my 401k is just money never seen. I don’t count it towards savings, net worth, etc. So when I do get to see it someday, it’ll be found money. So in my book, when people say we should save at least 10% of our salary, I see it as 10% of my after-tax, discretionary money. I’ve been able to do that without any major lifestyle changes by changing small habits, and reducing my fixed costs. From a MSN Money article, the savings picture in the US is pretty bleak:
In 1981, families saved an average of 11% and owed 4% of their income on credit cards. By 2000, the average savings rate had already fallen below zero, and credit-card debt had gone up to 12% of income. Today, she says, “boomers have a bigger problem with debt than anyone else. Half of them do not have a retirement account.”
In the same article, I agree with the quote by Jeff Seely, CEO of ShareBuilder.com, “Do not let people borrow against their 401(k). This is your retirement money. Don’t touch it.” That’s partly why I don’t even count that as my savings, because I don’t intend to touch it until I retire.
Do you count your 10% savings after-tax? Does retirement count? Inquiring minds want to know.
Source:
Why can’t Americans save a dime?
MSN Money
Tax Due Today! What Now? April 17, 2006
Tax day is here for the US. So if you owe money to the IRS, you’ll need to send payment along with your request for an extension. Otherwise, you will be subject to interest and penalties on the amount owed. I went for quick peek at the post office this morning, and saw a long line to mail out tax forms. Hope you weren’t one of those people! If you’ve already sent in your tax forms, congratulations. But there are some things you can do to start preparing for next year. Here are some suggestions:
- Review your tax withholding for 2006 - if the government owed you money this year, consider reducing your withholding amount so you don’t give away a free loan to the government.
- Organize your receipts and spending - get a file organizer or a folder where you can save your receipts and expense records so you have them in one place. This has helped me reduce time for tax preparation.
- Create a spending budget for 2006 - knowing where your money is going is a key to saving money. Stick to your budget!
- Put away emergency money - If you received a refund, or a year end bonus, put it in an emergency fund, so you will be comfortable when an unexpected event comes along.
- Donate to charity - Each year, I donate to charity, but I wish I had more to donate. During this season, having a tax return or bonus allows me to donate. Do so now before you lock away your money or spend it.
- Chill - Reward yourself for your hard work. Be nice to your family and neighbors, and enjoy the warm weather!
Tax Return Deadline and the End of Cheap Money April 14, 2006
Congratulations on Finishing your Tax Returns…That is unless you have yet to finish them. If you haven’t finished your tax returns, you have until Monday to send them off. Check out Bankrate.com’s 10 things to check before you send off your return. If you have completed them, congratulations! Take the weekend to relax, or go out for dinner.
Not to spoil your tax celebrations, but it looks like the era of cheap money may finally be nearing its end. Today’s NY Times article today shows why borrowers will soon be paying more on mortgages and home equity loans, even though economists have struggled to explain why long-term interest rates have remained relatively low, given the government pushing up interest rates by increasing its benchmark short-term rate, now at 4.75 percent.
Driven by a stronger economy and a nearly two-year money-tightening campaign by the Federal Reserve, the rising level of interest rates across the board is expected to have the biggest impact on people who took out home loans with low introductory interest rates that are set to adjust in line with market rates in the next few years…
The Mortgage Bankers Association estimates that the burden of higher interest costs would fall on about 7 percent to 8 percent of all homeowners. The rest have either paid off their mortgages or face no immediate increase because they took out fixed-rate mortgages or refinanced their earlier loans to mortgages that hold rates steady for 5 to 10 years.
At the same time, new homebuyers will be paying more.
The average national 30-year fixed mortgage interest rate was 6.43 percent last week, up from 6.21 percent at the start of the year and 5.71 percent at the start of 2005, according to Freddie Mac. The introductory interest rate on a five-year adjustable-rate mortgage was up to 6.11 percent, from 5.78 percent in January and 5.3 percent a year ago.
(mortgage chart courtesy of Bankrate.com, as of 4/14/06)
Source:
Treasury Rate Signals Burdens for Borrowers
By VIKAS BAJAJ, New York Times
Published: April 14, 2006
How to Save on Tax Rates on Cigarettes in the USA April 12, 2006
So the title is a bit misleading, but I was reading an article in the New York Magazine about the three year anniversary of the smoking ban, and whether or not it has been good for business. None of the restaurants interviewed think that the ban in restaurants and bars had a negative impact. I’m not a smoker myself, so I don’t mind this law. But reading this got me thinking that if you smoke, you’re cigarette expense must add up with all the taxes on it. It’s been said that taxes on cigarettes is the best smoking cessation program. Here in NYC, tax rate on cigarettes is $1.50, and in NJ it’s even higher at $2.40. (Here’s a cigarette tax rate table by State in Jan 2006.)
Rhode Island has the highest cigarette tax at $2.46 per pack. I don’t know how much packs cost, but I’m sure $7 is normal for NY area. How much does a pack a day smoker spend per month? That’s an extra $200 per month on cigarettes. The cigarette tax in Canada is even higher than in the US. In Canada, between 63% and 79% of the price of a package of cigarettes is tax. In New York, by comparison, the tax on cigarettes is 38%.
I’m sure smokers hear it from their non-smoking friends and family, so I’m not going to emphasize the health implications of smoking, but if you are a smoker in debt, cutting down on the smokes should save you a lot of money. Is that why some smokers always seem to ask to borrow a cigarette? I wonder if many personal finance bloggers are smokers?
Sources:
State Excise Tax Rates on Cigarettes
New York Magazine article
The cost of smoking (Canada)
7 Days Until US Tax Due…Do You Owe Money? April 10, 2006
There’s one week left to file your income tax return and contribute to your IRA (April 15 falls on a Saturday, so you have until April 17 to mail your returns this year). I know, I state the obvious, since you probably have an interest in personal finance and are visiting this site. But I have a story about one of my ex-coworkers. I had a conversation about taxes one time a few years ago, and I asked him a question about deductions. He told me that he has no idea and that he didn’t file his tax in the previous years, so what does he know? Here’s how our conversation went:
Me: Do you know if our computer purchases are tax deductible?
Co-worker: I don’t know, I don’t pay tax.
Me: You didn’t pay tax for your computer purchases?
Co-worker: No, no, I don’t pay income tax.
Me: You didn’t pay income tax? Do you have some tax shelter?
Co-worker:No, I just don’t believe in it. I read that income tax is optional, so I don’t bother with it.
Me: So how do you know if you owe money? Or better, if Uncle Sam owes you money?
Co-worker:It’s not worth it. I don’t owe any anyway. I haven’t paid in 4 years.
Me: Sorry to break it to you, but income tax is not optional, but if you don’t owe money…
I was shocked that someone actually believed that tax is optional and didn’t pay tax for four years. I tried to contain my shock, but how could I? This co-worker is pretty smart, but who does this??
In any case, if I know that someone owes me money (US Government), I’m going to file taxes on time. This year, most of my deductions were from my mortgage interest, so I got a return of over $5000. Since we’re moving this summer, I can’t put that into savings but at least I’ll have enough to cover for moving expenses. So do you owe money? Either way, there’s 7 days left to file!
Teens Have a Low Personal Finance IQ April 6, 2006
According to a nationwide survey released Wednesday, high school seniors answered correctly only 52.4 percent of questions about personal finance and economics.
- Just 22.7 percent knew that income tax may be charged on the interest earned from a savings account at a bank if a person’s income is high enough. Nearly 51 percent said that earnings from savings account interest may not be taxed. In the last survey, 23.9 percent chose the correct answer.
- Nearly 38 percent correctly said that retirement income paid by a company is called a pension. That’s up from 34.2 percent who answered right in the last survey. Still, close to 59 percent in the current survey thought it was called Social Security or a 401(k).
- Only 28.6 percent knew that a bond issued by one of the 50 states is not protected by the federal government against loss. In the previous survey, 35.3 percent chose the right answer - that such bonds are not federally protected against loss.
There’s a clear gap between what students know about personal finance literacy and what they are taught in schools or at home. Personally, I think education starts at home and parent’s kids learn from the parent’s everyday living. Oprah mentioneds in her debt diet show that people need to live more consciously and know the reason for debt and the spirit of money rather than treading just above water to keep up with the Joneses. If parents aren’t keeping up with financial literacy, their kids certainly will not learn from them.
Source:
Survey: Teens Lack Financial Literacy
AP Story
$1,260,000 Apartment April 4, 2006
That’s the average price of a Manhattan apartment, according to a quarterly report released by the real estate brokerage firm Brown Harris Stevens. The price is up 15% from last quarter and 8% higher than 2005. If that’s the average price (add up all sales and divide by the number of apartments sold), and there are supposedly 62,773 millionaires in Manhattan, how do the rest of the 2 million or so people afford to buy? Or how do the average Manhattan-ite afford to rent?
Real estate is a localized market, so what’s happening in Florida or Arizona doesn’t always apply to NYC. Everyone is talking about the real estate bubble, but based on the average sale price, I don’t see it in NYC…yet.
Source:
Brown Harris Stevens - Market Reports
Previously: Expensive Rental Apartments