The problem with statistics is that they’re so darned confusing. At first glance, this looks like good news all around:

The number of people without health-insurance coverage fell to 45.7 million in 2007 from 47 million in 2006, the government said in its annual snapshot. The number of uninsured children also declined, slipping to 8.1 million from 8.7 million.

Median household income, adjusted for inflation, rose 1.3% to $50,233 — the highest level since 2000. Income includes items such as earnings, interest, alimony and unemployment compensation. For households at the 20th percentile, income fell 1.5% to $20,291. For households at the 80th percentile, income rose less than a percentage point to $100,000.

Meanwhile, following three years of annual declines in real earnings, both men and women experienced gains in 2007. The real median earnings for men working full-time and on a year-round basis rose 3.8% to $45,113, with women’s earnings growing by 5% to $35,102.

The downside is that poverty as a percentage of the population is up a bit, as is the actual percentage of those who are uninsured.

That, as it turns out, is a bit of a conundrum. If you back out the numbers, a decrease from 47 million to 45.7 million of actual uninsured but an increase from (as the article says) 14.1% to 15.3% of the population being uninsured means that somewhere in that year we actually lost about 35,000,000 people.

That seems like it might blip across the nightly news at least in passing, don’t you think? That’s pretty much … California.

Hmmm.

What could it be? It may be that they just surveyed households and didn’t actually account for actual people (using an average of number of adults and children in a household, for example), or … maybe a bunch of uninsured people just fell over dead, taking them out of the pool, or … it may be that uninsured people are more likely to be completely destitute and homeless, making them more difficult to find than they were a year ago, or … maybe someone in the Census Bureau just needs new batteries in the adding machine.

OR as a slightly sarcastic, very bratty friend pointed out when I sent this article to a bunch of people asking them to tell me what they thought I might be missing in all of this, the 14.1% figure is actually from 2001. That makes a comparison to a year over year change (47 million to 45.7 million) kind of misleading, doncha think?

Bad, bad reporter.

When you’re looking at mutual funds, it’s easy to get drawn mostly to the returns. That’s the exciting and dramatic bit, after all. It doesn’t give you the whole story, though, because you can’t just look at returns without looking at the expenses of the fund.

We’ve already talked about sales loads a couple of times, so we’ll skip that - go here if you want a review. Today we’ll focus more on operating expenses, which aren’t paid directly by the investor (you won’t see anything on a statement that says “annual operating expense fee) but are paid out of the assets of the fund. That still impacts you because the higher those expenses are, the lower the return will be.

Fees are different than sales loads. Sales loads go to the broker and the broker’s firms, fees go to the fund itself. You might have an annual minimum balance fee, an exchange fee if you decide to switch funds within a family, or even sales and redemption fees that go towards the expenses of the fund.

12b-1 fees are marketing and distribution expenses. They cover the cost of printed materials, advertisements, mailing prospectuses, and even compensation to brokers to some extent.

Advisory fees pay for the brains behind the fund, the mutual fund manager.

Other expenses include just about everything else - staff salaries, legal stuff, buildings, etc.

There is also another expense that won’t show up on any fees (or in an expense ratio), and that’s the cost of making trades. A fund with a very high turnover (a measure of how much of a portfolio is changed every year) simply costs more in trading costs than a low turnover fund, and that comes directly out of your returns.

All of these expenses impact your final return, and they all come out regardless of whether your fund is up or down for the year. That means that in an up year, you’re not up as much as the stated return, and in a down year, you’re actually down more. It therefore behooves you to choose a fund with lower expenses and turnover if all else is relatively equal.

For a quick cheat if you’re looking to minimize expenses, focus on index funds. There can still be differences in the expense ratio but they should be mostly lower than other types of funds, you don’t need to pay a sales load to buy them from a broker because the only thing the fund should be doing is buying the same things that are in the index it’s tracking, and their turnover should be low because they should only be making trades when and if the components of the index change.

(or Math Skills =/= Personal Finance Skills or Math Skills != Personal Finance Skills or Math Skills [a symbol I don't know how to do in code] Personal Finance Skills … take your pick)

There is currently a debate in the United Kingdom regarding the integration of personal finance and math teaching, which is pertinent mostly because I think the flaws cited by the charity mirror how many parents think about teaching children about money:

The organisation cites a report by the London School of Economics, on behalf of the Financial Services Authority, which said that such education would not guarantee that pupils had sufficient knowledge to make financial decisions in adulthood.

Mr McKee said: “Financial capability is foremost about behaviour, not numeracy. It is about how to manage finances. This involves knowing what products do, making choices and being able to undertake financial decisions.”

I think where parents get stuck when it comes to teaching kids “about money” is that they stop not too far past the technical definition - teaching kids the difference between a quarter and a dime and how many it takes to make up a dollar isn’t personal finance, it’s fractions. Good lesson and probably a good way to teach fractions, but it really doesn’t address finance at all.

Personal finance isn’t really about money at all - it’s about short and long term motivations, incentives, disincentives, goals, choices, priorities, time, beliefs and values, community … remember, economics is a social science, not a math.

One of my major goals with this blog is and will be a focus on teaching children about personal finance, which will often mean that parents need to learn and role model as well because in money more than anything else, a lesson of “do as I say, not as I do” simply won’t work.

And I promise, I’ll start doing more of that soon. If you want a refresher or have just started reading Fools and Sages, the Ad Watch category has several posts that relate back to kids ultimately (they see what you buy, after all), and here are a few to check out:

College Students and Credit Card Debt

FTC To Take On Food And Beverage Companies?

Ditch The Cereal

Kids And Allowance

Kids and “Stuff”

Check Out The Library

Picky Eaters

What it is:

A pension plan that promises a specified payment to eligible employees at retirement.

What it means:

If your company offers a defined benefit plan, you essentially don’t care how much is put into the plan every year, you just know how much you are going to expect when you retire. These plans may say that you will get, for example, $50/month for every year of service. In that case, if you work for the company for 20 years, you will expect to receive $1000/month at retirement for the rest of your life.

Defined benefit plans are not as common as they used to be, mostly because of the high costs to companies to pay a lifetime benefit to employees who are living longer than the average retiree did fifty years ago. Some pension plans have gone bankrupt after having to take on excessive investment risk in order to keep up with required benefit payments.

Being frugal is like eating better or exercising - you know you should do it, you know you’d probably feel better if you did it, you know you’re just setting yourself up for big problems down the road if you don’t do it …

… but it’s just no fun.

It’s no fun, that is, until you actually start doing it, stay with it awhile and see some particular result that makes continuing not only preferable but actually enjoyable.

The challenge in money (as in health) is to find the motivation that makes sense to you. If your family has a history of heart disease and you’ve seen your parents and grandparents die at an early age, that might be your motivation. I would have to find some other reason because my family has no such history, and so it goes - everyone has their personal reason for making the choices they make. Finding your motivation to spend less is the same.

In the interest of helping you find your frugality impetus, here are a few that I came up with:

The Frugal Retiree - This is the one that most personal finance folks focus on - “if you don’t save enough while you’re working, you’re going to have to live in Social Security and work as a greeter in Wal-Mart and eat cat food and cut all of your prescription pills in half and leave your kids with the expense of burying you and paying off your debts! Arrrrgh!!”

For some people it works just fine but for most it’s too remote and scary to think about. Why stress about the future when the present is freaking you out all by itself? The bills have to be paid NOW, life is meant to be enjoyed NOW, everyone in the family all dies of heart disease by the age of 50 anyway, so why worry? Still, the Frugal Retiree lives in all of us because hopefully we will all live long enough to enjoy a retirement (second childhood), but there’s no point to just having money when you retire if you don’t know what you want to do in retirement so it’s usually more of a secondary motivator. Your primary motivators might be …

The Frugal Philanthropist - The frugal philanthropist wants to be able to support organizations and charities that mirror his or her values, and that can’t be done if every penny of income is spent on daily bills. Cutting expenses so that more money can be devoted to important issues, whatever those might be for any particular person, is not seen as a burden so much as a willing sacrifice.

Since the definition of “philanthropist” actually includes actions and money, it can be broken down further into The Frugal Activist and The Frugal Humanitarian.

The Frugal Activist - If you work 80 hours a week to pay your bills, how much time do you have to commit to your favorite cause? You can’t go to protests, you can’t canvas, you can’t participate in event planning, you can’t take time off to go help build houses for Habitat or schools in impoverished nations. All you can do is read with envy about others who somehow have the funds to do those things.

The Frugal Humanitarian - Similar to the activist, having a humanitarian motivation might mean that you refuse to buy items made in sweatshops, which means that in many cases you just go without. Or, if you take the more direct approach, how much time can you devote to a cause like being a mentor to a child, teaching adult literacy, working in a soup kitchen, going on volunteer missions or other activities like that if you have to work 10 hour days and then come home and manage a household? And speaking of managing a household …

The Frugal Stay-At-Home - If your family believes that it is valuable for one parent to stay home with children, especially if you feel the need to homeschool, frugality is key. Sure, we all know families where one parent earns plenty enough for the other to stay at home and live in relative leisure, but many, many more find that committing to one income means prioritizing expenses and cutting back.

The Frugal Greenie - It’s almost impossible for anyone truly committed to “living green” to avoid being frugal. Precycling, eating less meat (according to this analysis that the water used to make one pound of beef is about as much as you taking a seven minute shower every day for a year), reusing and repurposing items when you can, saving energy in your home and transportation, shopping for furniture at thrift stores or using Freeecycle, using the library - all green, and all frugal.

The Frugal Teacher - If you’ve struggled with financial issues and want to teach your children better than you were taught, you would do well to teach them frugality. Spending within their means is a lesson that will reward them for the rest of their lives and is the basis for every other personal finance lesson they’ll ever learn. There’s no point to learning about investing if you have nothing to invest, right?

The Frugal Health Nut- If health is your motivation, being frugal in the sense of maintaining a healthy weight and fitness level can save you thousands of dollars down the road in the form of not having to have medication for life or rely on medications that may or may not always be covered by insurance. In the short term, moving more towards a plant-based diet may or may not be more expensive, depending on what you were eating, but the cost of food should be weighed against multiple doctor visits with copays and prescription costs. And, the sheer stress of financial burdens is bad for you health.

The Frugal “In The Moment”-er - OK, I couldn’t think of a good name for this one, but I’m thinking about mourning the loss of experiences because we are bound to a job that takes us away from where we want to be. The Frugal “In The Moment”-er probably umbrellas all of the above, but in the interest of adding a few more specific motivations that all relate to the value of accumulating money for a distant retirement or to living your life now (but not under crushing debt because “living now” means having a new flat screen HDTV that covers an entire wall - unless that’s seriously, really, truly your thing), could being a little more frugal free up some work time so that you could …

• Coach your kid’s sports team?
• Be able to pay for your kids to try a new sport or a musical instrument if they wanted? (OK, this weekend I met a nice lady who said that she just went back to work because her son plays hockey and the fee just to join the league was $4,000, plus $1,200 for his goalie uniform, plus who-knows-what for all of the travel … all I could say was, “Wow, you are really committed,” but what I think I meant was, “Wow, you should be committed.” To be fair, though, we spend a couple thousand a year on sports when it’s all tallied up and when my brother and I were children and swam pretty much year round, I’m sure my parents spent well more than that)
• Go to more (or any) of your child’s school events?
• Take that trip to see a place that you’ve dreamed about your whole life?
• Spend more (or any) time in your garden?
• Reconnect with your partner with some real time together instead of passing hello-goodbyes?
• Visit your extended family more often?
• Take dance lessons, learn a foreign language, go back to school?
• Any dream that fits into the “If only I had the money, I would _____________________”

What’s your motivation?

I came across this site, Student Loan Justice, while reading an article in the New York Times about student loans. The founder, Alan Collinge, is definitely on a mission and the name of the site made me think of the Justice League … I just can’t quite think of a good custume.

But anyway …

From the article:

Student lending is a big business, one that has been the subject of many complaints over the past two years after revelations of questionable ties between lenders and colleges’ financial aid officers. More recently, tight credit markets raised the possibility that some students might not be able to borrow to go to college in the fall.

But much less attention has been paid to what happens to students after they borrow. Lenders who make loans guaranteed by the federal government can more easily take steps against borrowers — like garnishing wages and benefits — than they can with other kinds of unsecured consumer debts. And all student loans, federally guaranteed or not, are extremely hard to get rid of in bankruptcy proceedings, more so than credit card or other debt.

That’s right - student loans are specifically excluded from bankruptcy. If I recall correctly, there was this little problem a long time ago with students borrowing a bunch of money to go to school and then filing bankruptcy as soon as they graduated (and before they had a job) to get rid of the bills. A few bad apples …

Anyway, I can see why Mr. Collinge might be a little upset (even if he did kind of bring it on himself):

Mr. Collinge said he did not set out to be a student loan activist. But he backed himself into a corner in his research job at the California Institute of Technology in 2001 by asking for a raise. When he did not get one, he quit.

He said he found himself underemployed and gradually overwhelmed by about $38,000 in federal student loans; his lender wouldn’t grant a forbearance, he said. He had borrowed to study toward his two degrees and a certification, all in aerospace engineering, at the University of Southern California.

He went into default in 2001, and over the next three years his debt, with interest and fees, grew to $100,000. His best shot at a job, involving work for a military contractor, vanished when his debts kept him from passing a security check, he said.

Go to school, get a job, lose a job, can’t get rid of them in bankruptcy, try to get a job and get denied because your debt has tripled with penalties and interest. Seems like a pretty bad spiral.

I read quite a few of the “victim” stories on his site and there seems to be a recurring theme - these folks almost sound like they don’t think they have to pay back their debt. At all.

Collinge says that student loans are exempt from Truth In Lending rules and if that’s the case, they would be easy marks for unscrupulous salespeople, but whatever the real underlying issue is, a few things seem clear to me:

1. Students need to honestly assess the income potential from a particular course of study. I understand a love of your field but if you know you’re going into a field with incredibly low starting salaries, you really need to assess how much debt you’re willing to take on to get there.
2. Even students who think they’re going into a lucrative field need to dial it back a bit and assume that their starting salaries are going to be lower than they may be dreaming.
3. Not everyone has to get a bachelor’s degree from a traditional college and not work while doing it. Maybe a four year degree takes six years while you’re working full time.
4. Students need to understand that what they’re asking for is an uncollateralized loan - there is no asset to sell if they default, and that makes them an automatic risk and raises their rates. There’s no way to get around that, really.
5. Lenders do need to be held accountable and regulated (fined) heavily for any instance of deceptive practices.

While I can assure you that we’re not going to be trying this at my house because it looks absolutely vile, I can’t help but pass along this site I found because … it looks absolutely vile. I’ll admit I haven’t tried it and am pretty sure that at least my 9 year old would like it … but he liked 10,000 BC too, so he obviously has a warped sense of taste in many regards (in case this video doesn’t show up correctly, which it seems to be doing only intermittently, you can see it here or at the link above):

I honestly don’t know if this is actually all that frugal, I guess it depends on how many plastic cups, popsicle sticks and rolls of tape you end up using. I’m pretty sure I could do better as far as cost just by looking for super sales with coupons, I wouldn’t have to use up a bunch more plastic in the process, and I would be able to choose my flavor.

I say get a nice silicon spatula for extracting that last bit of jelly from the jar (which I’m sure you already have, right?) and skip this, but I just couldn’t resist sharing. Blech.

Of course school lunch prices have to rise just like everything else …

Prices on some school lunch lines are going up this fall as school officials, like many others, struggle to pay higher prices and delivery fees for staples like bread, milk, fresh fruit and vegetables. The price increases, generally about 25 cents a meal, come as school districts in New York and across the country try to eke more out of already tight budgets, with some switching to four-day schedules to reduce utility and busing costs, and others asking more of their students to walk to school or limiting out-of-town games for athletic teams.

…

“It’s 25 cents a day, but if you have three kids, over a week that’s the price of a gallon of milk,” said Harry A. Capers Jr., a past president of the New Jersey Parent-Teacher Association. “I think it’s something people will notice and I am really concerned about those who have to make tough choices.”

Doesn’t seem like a tough choice, really - just don’t buy the gallon of milk.

The article does say that the largest school district in New Jersey (Newark) will be raising prices $.25 per meal to $1.50 but that children who qualify for reduced lunch prices will not see an increase in their cost. That is a very good thing.

Meals for my grade schooler run $1.75. He is allowed to buy lunch one day per week, mostly because of the expense. $1.75 is not expensive, but it’s not as inexpensive as a homemade lunch. Ultimately, that’s what I don’t get about this article.

Reduced rate lunches in his school are $.40 - I definitely couldn’t beat that, so if he was on that program he’d eat at school every day. But for kids who are not on a reduced plan, how are the price increases going to create “tough choices?” Even with rising grocery store prices, I honestly believe (and can prove, but that’s another post) that parents can easily match the nutrition and also beat the price of a school lunch. PB&J just isn’t that expensive. Sure, your kids have to be OK with having pretty much the same thing every day but so what?! They’re kids, deal with it! Have the variety be in the rest of the lunch with different fruits and veggies and to keep everything chilly, fill up a reusable juice box** halfway with juice or water, freeze it overnight and fill it the rest of the way in the morning. It’ll be melted by lunch time but still cold.

But really, you CAN insert some variety into a lunch from home. Leftovers are fine if they’re tasty cold - I could eat pizza cold any time, and don’t even particularly mind pasta cold. You can make tortilla rolls and cut them into bite sizes (like those cream cheese ones everyone has at parties, but minus the spicy peppers probably), use small bagels to make sandwiches sometimes, and don’t forget the tried and true thermos for soups. You can pack a little container of ranch veggies for veggies, and it takes about five minutes to make a box of instant pudding and divide it into 1/2 reusable containers. Peanuts and raisins make a very quick sweet & salty snack mix, and you could even spend some time in the kitchen (with your kids - talking!) making cookies or homemade granola.

** If you get the reusable juice boxes, just ditch the straw and tell the kids to take the lid off and drink it like they’re drinking out of a carton - replacement straws are a pain to find and pretty much unnecessary - we’ve had the same containers for probably five years now, just think of how many juice boxes we haven’t thrown away!

I don’t know what to think about this, frankly:

The steep decline in vehicle sales and rapid shift in the market to smaller cars has prompted General Motors, Ford Motor and Chrysler to seek a significant increase in the $25 billion government loan program authorized last year to help them build more fuel-efficient vehicles.

The carmakers, each of which has lost billions of dollars in the last several years, say the loans would allow them to overhaul their plants more quickly than they can otherwise afford to in a dismal time for the United States auto industry.

They’re loans, so I guess that’s good - theoretically they would get paid back (I’m skeptical). I wonder if they asked for money when they started making huge trucks?

I went looking around for some more information and found this:

Even before the recent economic downturn hit, the domestic automakers struggled to secure low interest loans as their credit ratings were in the basement. Since $4 gas hit the use, those ratings have dropped through the floor, making it nearly impossible to raise the capital necessary to convert truck and SUV plants to produce more efficient vehicles.

However, the Federal loan section of the Energy Independence and Security Act of 2007 could be the automakers’ life raft. The provision calls for as much as $25 billion to be doled out in loans, with an interest rate of just 5 percent or less – that compared to the double-digit interest rates that domestic automakers are now facing. …

The only catch is that the automakers have to use the loans to build vehicles that get at least 25 percent better fuel economy than the average of similar vehicles, all while meeting emissions standards, according to Automotive News.

This sure smells like a thinly veiled bailout to me. Surely the automakers employ an economist or two, surely they read the news and knew that oil prices were going to go up. Surely they haven’t been completely unaware of the changing economic and environmental landscape.

You know, I don’t want to get all political here (we have enough of that going on in Denver right now as it is, thank you very much), but it does seem like there is a bit of a tendency for those who lean way right, be they huge mega-corporations or individuals, to ignore the amount of assistance they receive from the government (me and you) while at the same time complaining about our welfare state. I’m not saying ALL, but …

It was inevitable, and part of the process of negotiation I suppose:

… Comptroller of the Currency John Dugan wrote in an Aug. 18 letter that reform could have “unintended and undesirable consequences,” such as less credit being offered to consumers. The agency oversees most credit card issuers but doesn’t have the authority to propose rules like other bank regulators, including the Fed.

Dugan also said that banning issuers from raising rates except under limited circumstances “would severely curtail the ability of creditors to react to adverse changes in a borrower’s risk characteristics during the term of the account.”

The Comptroller, however, said he supports restrictions on credit card fees charged to consumers with less-than-perfect credit and on double-cycle billing, a practice in which finance charges are calculated based on two months’ worth of activity.

The American Bankers Association, a trade group, has expressed some of the same concerns as the OCC. The group has said that restricting banks’ ability to adjust rates for risky customers could lead to higher interest rates and fees being passed on to other borrowers.

“Unintended and undesirable consequences?” Please. How about the unintended and undesirable consequence of slackjawed, drooling credit card companies making billions off of loaning to people with the HOPE that they wouldn’t pay their bills so they could charge fees and raise their rates? Or the consequences that came from passing a bankruptcy bill that favors lenders? That unintended consequence is that people are pissed off. I think that people are starting to cut back, starting to really understand and want to tell the credit card companies, “go to hell, we’re going to go back to cash only,” so a lot of this whining just won’t matter.

And “restricting banks’ ability to adjust rates for risky customers?” If the credit card company had already identified the risky customers, rates should have started out high or credit should not have been issued. The credit card companies are not under some mandate to issue credit to everyone, for crying out loud. We’ve already discussed, and it’s been reported in other places, that raising rates is completely arbitrary anyway, “just a business decision.” They don’t get to claim a risk correlation only when it’s convenient, not when my 780-ish credit score wasn’t good enough to stop one company from trying to raise my rates 50%.

What they’re really saying is that raised rates and fees passed onto other borrowers would actually end up costing them money because those borrowers would go elsewhere. There’s no attempt here to protect the consumer from crazy over-the-top regulations, which is what the credit card companies would like for you to believe.

Bah.