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Friday November 15th 2019

How the Recession Has Changed America

No matter where you go and what you do in America, there is a good chance someone is talking about the recession. Nearly everything you hear in the news is centered on the recession. Whatever the topic, it’s skewed to talk about how it has been affected by downturn. Not only has the conversation changed, but Americans are behaving differently as well.

Spending Less

If you were to visit a car dealership, you would probably see a huge inventory of SUVs for sale. People are becoming more conscious of the amount of money they spend. They are also becoming very creative in their methods to save money.

With most of America still feeling the effects of the recession, topped with high gas prices, few people see the value in purchasing a SUV with low gas mileage. Buyers are opting instead for fuel-efficient cars. The recession has subtly curbed the appetite for lavish, expensive luxuries for many of Americans.

Saving More

Since the beginning of the recession, Americans have become thriftier. Savings rates have increased substantially. More individuals are placing their money in savings accounts, hoping to save enough for a possible rainy day.

A large number of people polled by Pew Research admitted to now buying less expensive brands. Over half of the people polled stated that they have canceled vacations. In addition, 33% said that they have cut back on alcohol and tobacco products. Substantial portions (28%) of adults from the ages of 18 to 29 have moved back in with their parents. Individuals are using whatever feasible methods possible to cut back on spending.

Lower Wages

The recession has not only made individuals fearful of losing their jobs, but nearly 35% of Americans earn less than they once did. Many older individuals with decades of work experience have come to the realization that they will never earn the of amount wages they previously earned.

Back to Basics

The recession has created a desire to have a simpler life for many people. There is a change in how people define the American Dream. Fewer people are dreaming of big houses, multiple vehicles, and vacations every year. The recession has curbed the expectations of many people. Families and individuals are becoming more content with living in apartments, riding bicycles, and planning local festivities for their families.

Risk Aversion

Investors who once took on risks in the hopes of earning high returns are becoming more risk averse. Many investors were terrified as they watched their retirement plans and investment portfolios shrink to record lows. The volatility in the stock market has caused investors to put their money in safer investments.

Bond funds and money market accounts are now attracting the majority of new money. The Investment Company Institute reported that poll numbers showed that only 30% of investors were willing to take on substantial risks to earn higher possible returns.

Economists and financial experts say investors will remain risk averse for quite some time. A long-term bull market would need to occur for investors to have enough confidence to invest more money in stocks. The increase in bond investments is also due to Baby Boomers making a transition from stocks to bonds to protect their investment portfolio.

How Long Will it Last?

Some economists believe that the changes in Americans are only temporary. They believe consumers will start spending as that once did when the economy starts improving. Others believe that the recession has permanently changed the mindset of Americans, and spending habits will never return to what they were in the past.

Whether things will continue as is or return to what they once were, it is safe to say that the recession has drastically changed how Americans see the world, their own lives, and their money.

Credit versus Debit: What’s the Difference?

On the surface, debit cards and credit cards look very much alike. In either case, the user typically slides a wallet-sized piece of plastic through a card reader, and then signs a receipt or enters a Personal Identification Number (PIN), authorizing his or her transaction. Looking more closely at these forms of payment, you will notice a few fundamental differences. Let’s take a look at some of them.

Source of Funds

The most basic difference between credit and debit cards lies in the source of the funds used to conduct a purchase transaction. A debit card uses the money that you have previously deposited into a bank account, while a credit card essentially gives you a series of short-term loans that must be paid by the end of the month. With a debit card, it’s necessary to have the cash up front. With a credit card, you can make purchases even if you have not yet earned the money.

Protection from Debt

For this reason, debit cards can act as an excellent insulation against credit card debt. Credit card debt is the scourge that has enslaved so many people to an endless cycle of payments to credit card companies. The interest on their balances is so high, that a large portion of monthly earnings goes straight to paying for the interest.

With a debit card, it is still possible to overdraw your account, resulting in fees. Typically, a fee of around $30 is assessed on your bank account when this occurs. New laws in place require banks to alert you and only allow an overdraft with your prior permission. This makes it impossible to go deeply into debt with a debit card.

Purchase Protection

One advantage that credit cards have over some bank debit cards is purchase protection. If an unscrupulous person attempts to defraud you or fails to deliver on promised goods or services, then you can contact your credit card company to have the charge removed. This protection is mandated by law on all credit cards. You can still get this protection with a debit card, as long as your card carries the Visa or MasterCard logo. If your debit card is issued by a small local bank, then you shouldn’t assume that you are automatically protected; you should check with them on their specific policy and be sure there is a Visa or MasterCard logo on the card.

When Credit is Better

One of the greatest benefits of using a credit card instead of a debit card is taking advantage of rewards programs. You can get 1% or 2% cash back on all your purchases at the end of the year. Sometimes you can accumulate airline miles that you can exchange for airplane flights or for hotel or rental cars. There are also many credit cards with specific tie-ins with some of the major corporations. The GM credit card, for example, will allow you to accumulate credits that you can use to obtain a discounted price on your next GM vehicle. If you are responsible and can pay your bill on time, then these rewards are a great reason to choose a credit card instead of a debit card. If you don’t regularly make your payments on time, then these rewards end up costing you more than they give you.

Five Steps to a Better Credit Score

No it’s not a game. Although a credit score may seem like an abstract number with little relevance to your every day life, a low credit score may eventually have very negative ramifications. A credit score can be the determining factor of whether or not someone can afford a new home. A credit score is even used by some employers as part of the hiring process.

Do IDAs Actually Work?

A potent picture of a tear-stained face can send us delving quickly into our wallets. But making that giving a legal responsibility, and the sympathy of most citizens turns to a defiant glare. Why should our hard-earned end up in the savings accounts of the lowest societal denominators?

This is the controversy concerning Individual Development Accounts (IDAs). The dark horses of welfare, IDAs are special savings accounts for low-income persons and families. While entry requirements vary by state, participants must generally be within 200% of the Federal poverty line, have a steady source of income, and possess less than $5,000-$10,000 in net wealth, excluding home ownership and one car.

Money placed in an IDA is matched at a specified ratio (i.e. 1:1, 2:1, 3:1) either through a private organization or government assistance. Most IDAs have input limits, ranging from $500 to $3,000, and last between six months and three years. Generally, IDAs are for buying a home, returning to education, or starting a business. But IDAs are not just about money.

Participants are taught financial responsibility and literacy. Entrants are stringently screened prior to acceptance, and work one-on-one with business advisors, improving credit scores, developing entrepreneurial skills, and achieving a high level of business acumen. They get top notch business training at no cost, plus free money to put it into practice.

That’s the goal anyway. But does it work? Do IDAs make people richer?

In the short-term, yes. Programs such as San Francisco’s EARN; the Federal government’s AFI, which is the largest federally subsidized IDA program, averaging $25 million per FY, OCS, JOLI, and FSS; and the 21 states with IDA support (2009), have been shown to increase short-term savings. According to (2007), 168 million in government funds has been injected into IDAs thus far, leading to an average of $1,543 in savings per participant.

Participants like Jenny Robinson and Dametria Williams, formerly poor and hapless women, have used IDAs to begin their businesses and give them hope. IDA proponents proudly point to similar stories and claim victory.

But how does the future play out? Not so hopefully it seems. Long-term, IDA holders have trouble saving, maintaining their homes, or rising above their economic position. And sadly, the ones that need help most may not be getting it.

A study by Mills, Gale, Patterson, Engelhardt, Eriksen, Apostolov, and Emil (2008) shows that, although participants showed an increase in home ownership, IDAs had almost no “discernible effect” on other assets, net wealth or poverty rates, and that many participants withdrew matched funds for unqualified purposes. Another study by Grinstein-Weiss, Zhan, and Sherraden (2006), state that the most disadvantaged (i.e. African-Americans, the unmarried, least educated and poorest) show the least long-term asset improvement. And most subduing, the Kansas City TCF IDA program has an estimated 30% successful completion rate (2006). As a result, millions of taxpayer’s dollars are frittered away on good intentions.

Still, a few successes may be better than none. Social trends may start small and grow to include many. The success of one leads to the hope of another and so on. While it’s true that taxpayer funds are sometimes lost on these programs, the cash contributions come from banks. Taxpayers foot the bill for the financial counseling portion of IDAs.

These plans do appear to help those who are willing to put in the hard work achieve goals that would otherwise be unattainable, even unimaginable. It’s those individuals who simply cannot believe that they might ever be successful who fail to use these programs to full advantage. And for those who have never seen anyone they know succeed, it’s hard to believe they might ever achieve anything greater than what they see around them.

What Out for Forensic Audit Scams

The Federal Trade Commission has recently begun cracking down on forensic audits, which are a service provided by companies that claim to be able to negotiate lower mortgages by pressuring banks over legal issues in mortgage documents. These so called forensic audits are exploiting the financial needs of Americans. In a time when finances are a serious challenge, scams attempt to pull even more money out of the pockets of those in financial crisis.
The forensic auditors claim to work their way through homeowners’ loan documents in search of some sort of law violation. They claim that finding a violation could help reduce the mortgage costs, however, they do not assist the homeowner in obtaining the reduction from the supposed law violations. In addition, they charge large upfront sums of money to cover their services. These forensic audits frequently cost nearly a thousand dollars or more and most of the time, they do not help to lower mortgages.

The searches the forensic auditors perform on homeowners’ documents are looking to uncover several types of legal errors, including TILA law violations, RESPA law violations, accounting errors, and general legal mistakes. The forensic audit companies claim that they can use these errors as leverage to force mortgage companies into providing a lower mortgage, offering a bonus, or even surrendering the house to you for free.

Even if a homeowner qualifies for a loan modification due to some sort of legal issue, they are extremely unlikely to obtain it through the use of a forensic audit company. The only way to put legal pressure on a large institution like a bank, is to sue them. Suing a bank would cost so much money that it would not be worth any potential modification in the homeowner’s mortgage. Banks are large and powerful, they have no reason to care about one individual claiming that they broke some unheard of law in their mortgage contract.

Additionally, if the forensic auditors do not find any legal issues in your documents, than you have paid a huge sum of money and have not received any benefits from their service. The loss of the extra money will hurt your already difficult financial situation.

Smith and Gromann, one forensic audit company, is currently being charged by the Federal Trade Commission for wild claims that the company could lower 80 to 90 percent of homeowners’ mortgage payments through discovering law violations. The company was also charged with using a database of phone numbers without paying the telemarketing fees.

The first complaint filed by the Federal Trade Commission on the issue of forensic audits occurred in November of 2009. The original complaint was against the Debt Advocacy Center that was falsely claiming that they had helped 90 percent of their clients obtain cheaper mortgages. They were also accused of falsely claiming that they would offer refunds to clients that did not benefit from their services. None of these claims turned out to be true. The Debt Advocacy Center was also charged with illegally charging clients’ credit cards without their consent.

After the forensic audit scams were discovered, the Federal Trade Commission created Forensic Mortgage Loan Audit Scams: A New Twist on Foreclosure Rescue Fraud. The program is designed to help homeowners avoid being scammed and it also provides them with ways they can legitimately lower their mortgage payments.

Many homeowners become frustrated with their high mortgage rates and feel that there is no way to lower their mortgages. This is not necessarily the case. There are many ways to legally and legitimately lower your mortgage rate. Some banks are more flexible than others, but there are many that would be happy to help you lower your mortgage. Most banks have no desire to go through all the effort and the paperwork associated with repossessing your house or handling late payments. Visit your bank and ask them about legal and legitimate ways to lower your mortgage, they will be happy to assist you.

Forensic auditing companies are scams. They will not help you lower your mortgage rate and any legal issues they uncover will not be enough leverage to force the mortgage company into modifying your rates. Seek legitimate channels for mortgage modification and never pay an upfront fee for a mortgage lowering service like forensic audits.

The Right Way to Sell Gold for Extra Cash

Those commercials on the television and on the radio sound too good to be true. They say all you have to do is send them your gold jewelry and they will send you a check in return. Selling your gold jewelry to one of these companies can be safe when done properly, but selling your gold locally is much smarter, if you are lucky enough to have one available.

Debt Boot Camp: 5 Things You Must Do Now!

Credit cards. Car payments. Home equity loans. No matter what kind of debt you have, working yourself out of it can seem overwhelming, especially as your balances grow.

It is possible to reduce and eliminate your debt. Don’t expect it to be a quick fix, though; paying off debt requires patience and perseverance. Below are five essential steps that will put you on the path to a debt-free lifestyle.