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April 2012


Over the twelve months ending with March 2012, the increase in the consumer price index (CPI-U) as reported by the Bureau of Labor Statistics, often referred to as the inflation rate, is 2.7 percent (2.3 percent if you exclude food and energy). While these numbers are below the historically-cited norm for inflation, 3 percent, the numbers are still troubling for some people.

Government-reported increases in the consumer price index do not tie to any individual’s experienced increase in the cost of living. No person can assume that if wealth grows by the rate of inflation that life is just as affordable as it was a year ago. For example, if my income was $100,000 in 2011 and $102,700 in 2012, although my salary would be keeping pace with inflation, it’s likely that I still would find that this year’s income would not afford me as much as last year’s income was able to afford me.

Helium balloon inflationWith $100,000 in a high-yield savings account, the $750 I would have earned in before-tax interest not only loses to government-reported inflation, it would be pathetic compared to any rate of increase of expenses I experienced personally.

Part of the problem is that the CPI-U is calculated by measuring the change of price of a variety of consumer goods, but each type of good is weighted according to its importance. The level of importance is taken as an average importance across all citizens based in or near cities in the United States. Thus, the weighting may not be appropriate for any one individual. For example, as of the last CPI-U calculation, gasoline for vehicle fuel was weighted 5.7 percent. 5.7 percent of the year-over-year increase in consumer prices can be attributed to the increase in gas prices.

Any one family’s exposure to the cost of gasoline could easily be greater than 5.7 percent. A household with two incomes might involve a husband and wife who both commute an hour or more to, and an hour or more from, their places of work. For a family like this, the effect of an increase in gas prices could be much more devastating to their finances than the CPI-U would indicate. The increase in this category year-over-year is 9.0 percent. So if for any family, gasoline accounts for more than 5.7 percent of all expenses, the real cost of living would have increased more than the reported inflation rate.

We are often concerned with finding investments that provide a return higher than inflation. Financial planners consider inflation one of many benchmarks. If you want to maintain purchasing power with your funds, you’d look for a low-risk investment that meets or stays on par with the rate of inflation. The government even offers inflation-protected securities, whose yields are designed to artificially keep pace with the rate of inflation, thus providing investors a method of investing with a guarantee of not losing “purchasing power.”

The comparison between investment returns as experienced by one individual and a calculation of an average increase of prices is invalid. Financial experts continue to use the average inflation rate as a benchmark for individuals because it’s easy and can seem to apply to an entire population at once — even if it really applies to no one.

The criticism of the CPI-U as a personal rate of inflation doesn’t end with the idea that an average measurement doesn’t apply to any one individual. The method of calculating inflation has changed over time, and modern calculations are criticized for masking the truth. If the rate of inflation were to be calculated the same way it had been four decades ago, the rate would be significantly higher. The public is sensitive to bad economic news, and it’s safer for the government officials who are in power to continue to report subdued numbers. The Bureau of Labor Statistics should be free from political influence, but that’s an impossible ideal, especially over the course of a generation or two.

As a result of the realities behind criticism of the inflation rate, real inflation in the cost of living is destroying your net worth. Inflation keeps investors chasing returns that, while being better than earning nothing or losing money, are not high enough to continue a standard of living. Fifteen years ago, the most popular television sets might have cost an average of about $500. This was before LCD technology and high-definition became widespread. Today, the average cost of the most popular televisions might be $1,000. Today’s LED-backlit LCD HDTVs, while $1,000 today, would have cost more than $10,000 a few years ago when the technology was new. So in one sense, advancements in technology lower consumer costs, but offsetting that reduction is the consumer demand for better equipment, and that demand outpaces the decline in prices. Nobody’s buying the first generation iPad today.

Photo: Kai Hendry
Bureau of Labor Statistics

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Last week, I acknowledged recent survey findings from the Pew Research Center showing that women are beginning to value success in their careers more than men value their own. It’s a historical twist, brought about by the idea that women entering the workforce is no longer related to a necessity, but an innate desire. Women, as a group, have a higher level of education and are increasingly choosing to pursue a successful career path.

With young children at home needing care and an increasing cost of outsourcing that care, many families need to choose a parent to stay home while the other earns money with an occupation. Women are still subject to compensation inequity — again, as a group — but in an increasing number of families, the wife is out-earning the husband. The choice is often simply financial; whoever earns the most money or has the potential to earn the most continues in their career path, while the other parent stays home to care for the child or children.

Now that more men are staying home to care for their children while their wives concentrate on their careers, it’s easier to shatter one of the long-standing myths about fatherhood. Previously, men who chose to pause their path to career success were judged inadequate to survive in the world of business.

Men are raised to value work as their main source of worth and self-esteem. Society’s underlying message is that men who make sacrifices and choose family over career advancement do it because they can’t succeed at work. But we are at the beginning of an epic shift in cultural norms. More men are finding parenthood meaningful and that is raising the status of fathers. Some men are trading career advancement for time with their family because they value the fulfillment they find in fatherhood, not because they can’t hack it in the job market. More men than ever feel that being a good father is a significant accomplishment in life.

Child and fatherResults from a survey performed last year by the University of Nebraska indicate that 75 percent of men consider being a parent very important, while only 48 percent had the same opinion about having a successful career. It’s possible, however, that there is a new stigma against being overly concerned with financial success, and this psychological aversion to being associated with the stereotypical careerist might prevent people from answering in a survey in a manner the respondent might think reflects poorly on themselves. There’s a tendency, also, to answer surveys as if one is an ideal. In other words, I might answer a survey as if I were an ideal version of myself rather than reflecting a true self-analysis.

Even if that is the case, it reflects the idea that stay-at-home-fatherhood is now a more respected life choice than it has been in the past.

Having a two-income family is still a luxury, and when at least one of the two incomes is significant enough to afford a solid living for a family of three or more, it’s a blessing. Most middle class families, when both parents are working out of necessity, it’s the ability to stay home with the children that is a luxury. It can be a difficult choice, particularly if one parent’s income is roughly equivalent to the cost of day care for his or her child or children.

The argument fails to consider yet another reality of life: one parent, either a father or a mother, struggling to earn an income and take care of one child or more, without a spouse for support.

For men: Would you put your career on hold — possibly forever — if it made more financial sense for you to stay at home with your children?

For women: Would you be willing to pursue your career full steam ahead while your partner develops a closer bond with children through more time spent with them during formative years?

Photo: Chris. P
Fathers Forum, CNN, BabyCenter

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Today on the Consumerism Commentary Podcast, Jay Frosting and Luke Landes talk with Kim Palmer, author of Generation Earn and creator of Palmer’s Planners. Consumerism Commentary discussed Palmer’s Planners recently.

In the interview, Jay, Luke, and Kim discuss household financial planning for right-brained thinkers and money issues for young people and women.

Consumerism Commentary Podcast
Palmer’s Planners: S07E02 / 158

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Table of contents

Palmer's Planners on Etsy[00:00] Introduction from Jay Frosting
[00:33] Interview with Luke Landes and Kim Palmer
[00:49] Overview of Palmer’s Planners for right-brained thinkers
[03:15] Break down your overall strategy into low-level tactics
[04:18] Selling on Etsy to find more visually-focused customers
[06:10] Traditional publishing vs. self-publishing
[10:17] Becoming a mother inspired new planners and ways of working
[11:39] Does HBO’s “Girls” reflect real attitudes about money?
[15:53] Understand student loan rules and keep up with changes
[17:37] Trends among women’s salaries and priorities
[21:10] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

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Banks are still struggling with the decisions executives made to maximize profit from overdrafts by rearranging the order of withdrawals to customers’ detriment. By December last year, Bank of America settled a class-action lawsuit related to overdrafts and was expected to pay $410 million. That decision is being appealed by a plaintiff, so it will still be a long time before the results are determined and class members receive compensation, if any.

Earlier this year, JP Morgan Chase settled a related class action lawsuit for $110 million.

Citizens Bank is the latest bank to come to terms with the way it took advantage of customers. This bank has agreed to pay $137.5 million to settle.

For the most part, banks continue to engage in the process of reordering withdrawals processed on the same day (whether the withdrawals be through checks, electronic direct debits, or ACH transactions) to optimize the possibility of collecting multiple overdrafts. The largest withdrawal is processed first, and subsequent withdrawals are processed from largest to smallest. Banks offer a reason for this order. They claim that the largest withdrawals are often the most important, such as rent or mortgage payments, and want to ensure these payments have the strongest possibility of being processed. That explanation doesn’t hold up for customers with overdraft protection, though, because this service allows all withdrawals to be processed — for a fee.

Furthermore, banks at the time of the lawsuit often allowed for multiple overdraft fees on a single day. With a $200 bank balance and withdrawals of $20, $50 and $300 in one day, the customer could be charged three different overdraft fees of $35. This is obviously more profitable for the bank than allowing the smaller transactions to be processed ahead of the larger withdrawal. Since the media attention surrounding the lawsuit, some banks have changed their policy to allow for only one overdraft fee per day, but many banks continue this practice.

So far, the only new regulation regarding overdraft fees requires banks make the service optional. Customers can opt to have transactions declined when the funds are not available to cover the withdrawal. Banks still steer customers towards overdraft protection as they feel it is a better experience for the customer, and, of course, a significantly profitable approach for banks.

Are you a customer of Citizens Bank? Have you ever had problems with Citizens Bank’s overdraft fees and policies?

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Review of Capital One 360′s Remote Deposit

by Luke Landes
ING Direct

Several readers contacted me yesterday with this piece of good news. After months of promising its customers to launch the new feature soon, Capital One 360, formerly ING Direct, now offers remote check deposit. The delay was likely caused by the efforts that resulted in Capital One purchasing ING Direct USA. Previously, in order to ... Continue reading this article…

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Student Loan Interest Rates Set for Increase

by Luke Landes
College students

Unless Congress acts soon, student loans subsidized by the government will become significantly more expensive. Mandated interest rates on subsidized student loans will jump from 3.4 percent to 6.8 percent for the 2012-2013 school year. With unemployment still high for recent graduates, increased interest rates will add to the debt burden. Tuition costs are still increasing as ... Continue reading this article…

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The Rich and the Rest of Us

by Luke Landes
Cornel West and Tavis Smiley

Dr. Cornel West is a Princeton University professor and author. Tavis Smiley is a television and radio talk show host and author as well. The two have known each other for a long time, and last year they toured the country to hear from citizens and talk about the issue of poverty in America. After ... Continue reading this article…

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Money Basics: Investing

by Luke Landes
Money investing

April is National Financial Literacy Month in the United States. This brings attention to the lack of a financial education young people receive in this country, both from their parents and from the education system. I disagree with most people about how to solve this issue. Many call for mandatory high school courses in personal ... Continue reading this article…

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More Women Than Men Value Career Success

by Luke Landes
Career woman

A new survey by the Pew Research Center shows women have surpassed men in placing value on career advancement. Among 18 to 34-year-olds, 66 percent of women consider being successful in a high-paying career or job is one of the most important things or very important, compared to 59 percent of men. In 1997, 56 ... Continue reading this article…

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Podcast 157: Credit Card Application Fees

by Luke Landes

Today on the Consumerism Commentary Podcast, Jay Frosting and Flexo talk with Matt Schulz, Vice President of Content for InvestingAnswers.com. They discuss the implications of a recent legal ruling that excludes credit card application fees from the limit on fees that credit card issuers can charge within the first year. Consumerism Commentary Podcast Credit Card ... Continue reading this article…

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The Over-Marketization of Social Behavior

by Luke Landes

Do you reward your children with money for performing well in school? Do you use the promise of an allowance to ancourage appropriate behavior in the family? These are big issues, because they take appropriate behavior and can turn the incentive to financial gain. Children growing up believing that financial gain is the reward for ... Continue reading this article…

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Your B of A Satire Website Targets Bank of America

by Luke Landes

The Rainforest Action Network is an environmental non-violent activist organization, working to influence corporations to consider the environment during the course of business. They’ve had Bank of America in their sights in the past, bringing attention to the way the bank puts profits ahead of the health of the communities in which it exists. The ... Continue reading this article…

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Sprint in $300 Million Tax Fraud Lawsuit

by Luke Landes

In order to offer better prices to customers, Sprint has allegedly under-collected and underpaid New York State sales taxes by $100 million. If the Attorney General’s allegations are true, Sprint could end up owing the state government as much as $300 million or more due to underpayment penalties. Sprint is denying the charges, claiming they’ve ... Continue reading this article…

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IRS Looking For Your Offshore Bank Accounts

by Luke Landes

The more money you have, the more likely you are to cheat on your taxes. The rich have more opportunities to try to hide assets and income from the Internal Revenue Service, particularly through offshore bank accounts. In the United States, banks are required to report income earned by their customers on savings and investments. ... Continue reading this article…

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How to File a Free Income Tax Extension

by Luke Landes

I finally provided my tax details to my accountant yesterday. As I expected, there won’t be enough time to work out the details before today’s tax filing deadline, so I’ll be filing extensions. In years past, when I filed for myself and my taxes were simpler, I usually waited until the last day. My procrastination ... Continue reading this article…

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Aurora Bank’s Deposits to Be Acquired By New York Community Bank

by Luke Landes

Last year, I opened a money market account with Aurora Bank, a division of Lehman Brothers. If it seemed like an odd thing to do, it probably was. Lehman Brothers had filed for bankruptcy in 2008, yet in 2011, they were promoting their online retail bank and looking for new customers. Not wanting to associate ... Continue reading this article…

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Podcast 156: Financial Intelligence

by Luke Landes

Today on the Consumerism Commentary Podcast, Jay Frosting speaks to Joe Knight, co-author of Financial Intelligence: An Illustrated Guide to Knowing What the Numbers Really Mean. They discuss why and how employees in non-financial roles should learn to read financial statements, largely because accounting relies on a lot of educated guesses and biases. Consumerism Commentary ... Continue reading this article…

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Buffett: Buying Houses Better Than Buying Stocks

by Luke Landes

On CNBC a few weeks ago, Warren Buffett told the television-viewing audience, among other things, that he would purchase a couple hundred thousand single-family homes right now, if it were practical to do so. That seems like a ringing endorsement of buying residential real estate for its value as an investment. If the buyer also ... Continue reading this article…

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Most Wealthy Individuals Earned, Not Inherited, Their Wealth

by Luke Landes

When I first read The Millionaire Next Door by Thomas Stanley and William Danko, it didn’t inspire me. It’s not that I disagreed with the authors, but I found the book uninteresting. It was one of the first financial books I read after beginning Consumerism Commentary, and it came highly recommended from readers here and ... Continue reading this article…

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How to Be a DIYer Without Time or Talent

by Gerri Detweiler

This is a guest article by Gerri Detweiler. Gerri is the host of Talk Credit Radio and serves as Director of Consumer Education for Credit.com. She is the author or co-author of five books, including Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights. Her next DIY project is to (finally!) ... Continue reading this article…

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