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A group of fresh, unemployed lawyers have banded together to sue law schools. 73 alumni have filed at least fifteen class-action lawsuits, alleging the schools inflated employment figures and salary data to attract students and increase rankings. The real goal of the lawsuits seems to be to effect systemic change in the education industry and associations that accredit law schools, like the American Bar Association.

Schools are in the business of generating alumni, and to a great extent, use as many marketing tricks that any company uses in order to influence public opinion. It’s true that a 90% graduate employment rate looks better than a 75% rate on paper, and I’d be more inclined to choose a school with a higher employment rate, with all other factors being equal. But a 90% graduate employment rate doesn’t guarantee that I would receive the job I want after graduation, even if I were in the top 10% of the class.

Furthermore, I’ve come to the conclusion over the years that any statistic used for marketing purposes is subject to manipulation in an attempt to further the goals of marketing. Hard numbers give the impression of fact. From an early age, we’re trained to believe that one plus one equals two, in all circumstances, and numbers are truth. Statistics can be misleading in many ways, and are used more often to try to convince others of a point of view rather than quantify facts in reality.

Law school graduationThe group of lawyers probably can’t prove that the blame for their unemployment situation rests with the law schools. There are many factors that contribute to unemployment, including the overall economy, local job markets, and the effort, skills, and self-marketability of each alumnus. It doesn’t appear as if the former students are suing to have the schools compensate them for the lack of expected income from working, but they are suing to enlighten the public to the issue of misleading statistics throughout the educational industry.

Mutual funds must advertise that “past performance does not guarantee future results.” Even if a graduate employment rate were perfectly measured and accurately reflected exactly what a potential student understood the number to be, a good rate today is no indication that the rate will continue to be high by the time the school awards a degree or certification. If my index mutual fund returned 12% last year and lost 8% this year, I can’t sue the fund manager or the stock market for not providing the dividends I was hoping for. If fraud was involved, it might be a different situation. Perhaps misleading statistics like graduate employment rates are somewhat fraudulent, but I don’t see a parallel as schools do not typically promise that students will be employed at the level they’d like after graduation — and in the case of lawyers, after passing the bar exam.

There might be better ways of raising the issue of misleading statistics in the marketing endeavors in which institutes of education engage. Using the courts to make a point is only one tool that’s available to increase awareness of an issue. When you’re a hammer, though, everything looks like a nail.

Several years ago, while I was completing my Masters in Business Administration degree, I considered attending law school. Ultimately, I decided not to pursue a law degree and to focus my energy on my business instead. I think I made the right decision.

Photo: CubanRefugee
WNYC

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Although the home mortgage interest deduction is one of the most oft-cited benefits of owning a home, most taxpayers don’t take advantage of it because it requires itemizing taxes. If itemized deductions including mortgage interest paid throughout the year exceed the standard deduction, a taxpayer can take advantage of the benefit.

The benefit isn’t as great as it sounds. If you pay interest, it certainly does help to get a tax benefit, but it rarely tips the balance of the long-term financial effects of renting vs. buying a house. Don’t let the real estate industry sway your opinion about owning a house through this faulty rationale. And certainly don’t decide to take out a mortgage if you were intending to buy with cash. Since this is a deduction, your taxes are reduced by only a percentage of the interest you pay, related to your tax bracket.

The home mortgage interest deduction is currently endangered. The Obama administration and Congress are looking for ways to cut spending, and this tax deduction is on the table for consideration. Some estimated put the cost of this deduction at $100 billion each year.

Despite the cost and its overstated effects, the tax deduction has helped convince renters to become homeowners — at least among people I have spoken with. In other words, for the cost of $100 billion, the economy has seen the benefit of a growing real estate market for many years. This law has made the National Association of Realtors, a lobbying group for the real estate industry, very happy, and they are working hard to prevent the government from eliminating the tax deduction.

There are many rules that determine whether you can claim the interest you pay on your mortgage for a tax deduction. The rules help ensure that the benefit goes to home owners rather than “investors” who earn a living from flipping houses, though due to market conditions the past few years, that activity has been less of an issue.

The interest you pay for construction, purchasing or improving your primary or secondary home, whether through a mortgage, home equity loan, or home equity line of credit, qualifies. There are limitations, though. You can deduct interest paid on up to only $1,000,000 of home acquisition debt. For home equity debt, which is any loan that was taken not to construct, purchase, or improve a house, you can deduct interest paid on up to only $500,000 of this debt or the fair market value of the home, whichever is less. For taxpayers who are married, filing separately, each of these limits is reduced by half.

Normally, the total of all of your itemized deductions are limited by income, but that income limitation was lifted in 2010. It could be lifted again if the benefit is not eliminated.

Question for homeowners: Do you take the home mortgage interest deduction? Question for everyone: Should this deduction be eliminated for the sake of reducing the national budget deficit?

Photo: Wonderlane

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I used to work for a company in the financial services industry. Another branch of the corporation I worked for is involved with institutional money management. This department manages institutional investments like company retirement plans and pensions. This is a service they provided to other companies of various types, much like Fidelity and Schwab offer 401(k) management and administration to companies. This could be considered an in-house service, so as an employee of the company, my 401(k) plan was managed by this branch of the same company.

You would think that given the company’s standing within the financial industry, the 401(k) plan would include smart investment choices. Unfortunately, most of the funds available are high-priced, actively-managed mutual funds and annuity funds. There is one stock market index fund available, but its expense ratio is significantly higher than those of the low cost index funds found elsewhere. Nevertheless, I wanted to take advantage of the company’s matching contribution — after all, that’s free money — as well as the tax savings, so I relented and participated in the plan.

401(k) plans — and 403(b) plans available to non-profit and educational organizations — suffer from poor investment choices. They are often significantly more expensive than the index funds you can find for IRAs. A fund’s expenses play a significant role in an investor’s ability to grow wealth over time. A low-cost fund could save an investor over a hundred thousand dollars over the course of a career when compared to a similar fund with above-average expenses. Even taking inflation into account, this will be a significant amount of money.

Schwab has announced that they are now offering a selection of new 401(k) investment choices designed to cater to investors who are keen on keeping more of their money in a program called Schwab Index Advantage. It isn’t clear from the announcement whether the available funds will match what’s currently available to retail investors, but if they aren’t the same funds, they should be similar in cost. The Schwab S&P 500 Index Fund has an expense ratio of 0.09%, lower than even Vanguard’s competing retail S&P 500 Index Fund with 0.17%.

The brokerage also offers companies the ability to provide employees with investment advice and planning tools for an unspecified low cost. The GuidedChoice system will help employees make ongoing decisions regarding their retirement investing, and this should help employees save more for retirement. It’s individualized advice, which isn’t common with retirement plans. Most employees are lucky if their retirement plan comes with a web application that helps them determine an asset allocation strategy; individualized advice could, if the advice is good, help investors grow their nest eggs in a way that’s most appropriate for their goals.

Are you satisfied with your 401(k) retirement plan, its choices, and its included advice?

Charles Schwab

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I’ve spent the last decade of my life focused on my finances. I started because I had no money and a job that was taking more from me than it was providing in income. I knew I had to make some changes if I wanted to build any kind of future for myself. Soon into this journey, I founded this website, where I’ve written about my own financial situation and tracked my balances on a monthly basis.

Over the years, my financial situation has improved. Rather than focusing on and tracking every cent as I was doing in 2003, a necessary step to train myself to save money and value everything I was earning, I now am significantly more relaxed. I still track my bank account balances. Eventually, I stopped tracking every cent I spent with cash. Cash spending became such a small percentage of each month’s income that it became unnecessary for me to enter every receipt (or every remembered transaction for those where no receipt was provided) into Quicken. I have been using credit cards for most expenses. (I was using credit cards to take advantage of rewards, which I didn’t start doing until I was out of debt, spending less than I was earning, and making conscious spending decisions.) The credit cards helped me carefully track my expenses.

My ability to improve my financial condition has been partly due to my public tracking. When my numbers are published online, I have to admit to my mistakes and accept criticism from readers when it’s due. Knowing that I will be reporting the details of my bank accounts helps me to continue making good decisions with my money.

At the end of the year, I take the chance to look at my life from a broader perspective. I now have ten years of history in my Quicken file. I’ll be thirty-six years old in a couple of months, so my finances have been a focus for almost all of my adult life. And for those of you, readers, who know me only through this site, only as “Flexo” or Luke Landes, you may think that an obsession with personal finance rules my life. The good news is that this isn’t true; outside of Consumerism Commentary, when I see my friends and family, personal finance is not usually a topic of discussion.

With ten years of history in Quicken, I can easily see my own financial progress over time. At the end of 2001, the world was still shaking from terrorist attacks in New York and Washington, D.C., and my life was uncertain. With no money, no job, no girlfriend, and no place to live, I knew I needed to make changes in my life. That’s what I did.

Continue reading to see the numbers. Read the full article →

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Netflix Wal-Mart Class Action Lawsuit

by Flexo
Netflix

A few years ago, Netflix and Wal-Mart allegedly entered an agreement where Wal-Mart agreed to exist the DVD rental business and promote Netflix’s service and Netflix would not sell new DVDs to compete with Wal-Mart. A group of Netflix customers have banded together to enter a class action anti-trust lawsuit against the two companies for ... Continue reading this article…

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The Buffett Rule: Tax for Millionaires

by Flexo
Warren Buffett

As a continuation of President Obama’s jobs proposal (economic stimulus) for curbing spending and increasing federal government revenue, the administration is taking a cue from famous investor, Warren Buffett. On many occasions, Buffett has claimed that wealthy Americans do not pay a fair share of the tax burden relative to their means to do so. ... Continue reading this article…

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The 2011 Economic Stimulus: Mortgage Refinancing

by Flexo
Mortgage Refinance

The American Reinvestment and Recovery Act of 2009, the 2009 economic stimulus bill, provided an opportunity for homeowners in trouble to qualify for mortgage modifications. The Home Affordable Modification Program (HAMP) and the “Making Home Affordable” provided support for lenders who worked with homeowners. Part of the requirement for qualifying for the modification program is ... Continue reading this article…

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Nominate Your Favorite Blogs and Products for the Plutus Awards

by Flexo

I don’t normally like to interrupt the stream of personal finance articles with something that’s more related to the website than it is to money, but this is an important message that can help support the entire community of blogs that focus on writing about personal finance. If administration-type articles don’t interest you, skip ahead ... Continue reading this article…

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