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In April, LIMRA, a think-tank for the financial industry, completed a survey intended to focus on the savings and investment preferences of those living and working in the United States. After receiving responses from 2,697 Americans, a representative sample of the country, LIMRA was able to determine that 49 percent of the country is not saving for retirement. Additionally, more than half of Americans between the ages of 18 and 34, at 56 percent, are not saving for retirement.

Saving for retirement — and receiving the associated tax benefits through typical investment types like 401(k) plans and IRAs — requires a public trust in the financial industry. On one side, financial planners, investment salespeople and brokers, columnists, and bloggers are encouraging the use of financial products that, through both apparent and hidden fees, enriches the industry, while on the other side, investment firms are the beneficiaries of massive taxpayer bailouts and frequently in the news for using taxpayer money for paying their executives bonuses that defy the laws of gravity.

Wall StreetIt may be true that the reason many Americans do not save for retirement is ignorance. There are typical excuses for not saving for retirement, such as the lack of good, seemingly trustworthy information about the options that are available, the lack of knowledge about the benefits of investing in 401(k) plans and IRAs, or the belief that during tight personal economic times, not a cent is available to save for the future. After the recession, however, many people just see the financial industry as unworthy of trust. Organizations like LIMRA, working for the industry and promoting financial products, are unlikely to bring this attitude to the public attention.

The industry is more interested in shaming people unwilling to get on the boats rather than analyzing the leadership capabilities and trustworthiness of the boats’ captains.

I’m saving for retirement with 401(k) plans and IRAs. When possible, I choose plans that have low fees, but the choice is not always up to me. Employees may be able to choose from a selection of investments inside their 401(k) plan, employees can’t choose their company’s 401(k) administrator and broker without a coordinated effort among a large portion of employees. That would be nearly impossible in a large company. Unions are intended to solve some of these issues, but it can often reach the point where being a member of a large union is much like working for a large employer. The power of any individual is limited.

The 401(k) is ingenious for the financial industry, particularly now that it’s automatic. In a perfect world, every single employee is enrolled in a 401(k) plan on their first day on their first job. The investments may not perform well over time, but that’s not particularly relevant for the financial industry. As long as every American is investing a portion of their paycheck every week, two weeks, month, or other period, 401(k) administrators and brokers will continue to thrive. The employee probably benefits when retirement approaches, but that is by no means guaranteed. All you need to do is look at the portion of Americans who planned to retire in recent years but saw their nest eggs trampled on during the recession.

Investors bear the responsibility for changing their risk profile as they near their planned retirement, but there is a mixed message. The financial industry says you need to stay invested in stocks (highly volatile, highly risky) as you approach retirement because most people need their funds to last several decades throughout retirement while at the same time warning people to risk only what they can afford to lose. When people receive conflicting information, making decisions becomes more difficult. And when the conflicting information is coming from the same source — that is, the financial industry — the default reaction is the lack of trust.

Does the financial industry wants to do American citizens a favor by providing options for saving for retirement? No. The financial industry wants its companies to not only stay in business but to profit as much as possible. And to that end, it sells products — investment opportunities — designed to enrich the companies and their shareholders. There’s nothing wrong with this, because consumers will only buy products they need or desire enough. Companies will sell towards that need. And when only half of Americans have discovered retirement savings vehicles like 401(k) plans and IRAs, the industry will resign itself to doing a better job in explaining to the country why their products are needs, not wants.

Saving for retirement is important. For most people, stocks are the only investment type that can grow wealth quickly enough to provide the dream retirement so impressed upon Americans through media. It’s risky, as recent would-be retirees have seen. Thanks to the cognitive dissonance resulting in the understanding that the promotion of retirement is a result of the financial industry trying to increase profits on a large scale rather than corporate concern for the well-being of a nation and the knowledge that Americans must do something drastic to save money in order to fulfill the dream of quitting work, some Americans choose to invest while others would sooner give away their firstborn rather than drink the financial industry’s Kool-Aid.

LIMRA may be right — that most people who do not invest for retirement with 401(k) plans and IRAs have not done so because the industry’s message hasn’t successfully penetrated their consciousness. That may be due in part to a lack of education, but for others, it’s a lack of faith and trust in the industry.

Photo: zoonabar
LIMRA

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Tavis Smiley and Dr. Cornel West have been working hard to bring the issue of poverty into the consciousness of the citizens and political discourse of the United States. As a team, Smiley and West have been touring city to city, speaking to audiences concerned about the increasing wealth gap in this country. Their book, The Rich and the Rest of Us: A Poverty Manifeseto, is the culmination of their observations of American citizens throughout these travels.

While the economy is technically in recovery from the Great Recession, a vast slice of Americans have not experienced a real recovery. A “jobless recovery,” where the beneficiaries of an improving economy are the wealthy while the middle class struggles with unemployment, is not a real recovery. Despite this disadvantage, the prevalence and pervasiveness of poverty is still astonishing. According to Smiley and West, 150 million people in this country are in or near poverty. That number represents one out of every two individuals — half the country.

Tavis SmileyThe issue of poverty, affecting this number of individuals, is bigger than poverty itself. The government tallies 46 million Americans living in poverty according to the 2010 census and the government’s own definitions of poverty. Many more individuals are affected by poverty because they are living dangerously close. Many middle class households, particularly those already living in debt or in a paycheck-to-paycheck situation, are one lost paycheck away from a dangerous financial situation, and many families are already experiencing a personal decline due to the inability to find gainful employment.

Poverty has traditionally been a problem classified as urban or rural. Minorities have been and are disproportionately affected by poverty, but poverty is not a suburban problem, too. With white, middle-class families now facing the issue of poverty, whether by losing a job or being dangerously close to not being able to afford their homes, the issue is gaining more attention. While poverty is making life difficult for an increasing number of Americans, those in or seeking office, whether Democrats or Republicans, are not concerned. In order to receive a voice in political discourse, you need money. While the United States may have been founded on the ideals of freedom and liberty, these have generally only been granted to an elite selection of its inhabitants. The distribution of social power is expanded only by revolution among the disenfranchised.

Smiley and West contacted Consumerism Commentary with an interest in speaking to me about these issues — to defend their position, and to open my eyes to the realities faced even by the middle class in this country, many of whom are the “new poor.” We arranged an interview for the Consumerism Commentary Podcast, airing Sunday, May 13. Unfortunately, Dr. West was unable to participate in the interview at the last minutes as he was in New York waiting for a verdict after a conviction related to a political protest in that city. Tavis Smiley was able to participate, but our time together was short. We weren’t able to address all the questions I had prepared, but the discussion was valuable.

Listen to the entire discussion with Tavis Smiley, podcast host Jay Frosting, and myself, Luke Landes, once it is available this weekend. Smiley is the host of Tavis Smiley on PBS and The Tavis Smiley Show on Public Radio International. Update: Listen to the podcast here.

In the interview, Smiley dispelled many of the myths about poverty. One such myth is the idea that those in poverty are entirely to blame for their financial situation.

On Consumerism Commentary, I’ve written that taking personal responsibility for your decisions, financial and otherwise, plays the biggest role in achieving financial security and independence. This is today’s American promise: “Anyone can make it in America.” The media love rags-to-riches stories, even if it doesn’t reflect a reality for the majority of Americans. It’s true that this country’s brand of capitalism is favorable to the situations European immigrants left behind. Religious intolerance, a caste system based on ancestry, and an economic system wherein generally only the first-born male would have rights to any property drove pioneers to create a new society or join a country with a promise to create a better life for yourself. Never mind that doing so displaced others who occupied the land here.

Even in this new society, you had to be a member of the elite to receive the rights as endowed. Not everyone begins on equal footing. The lack of early educational opportunities throughout this country is one of the strongest causes of generational poverty. As Smiley addresses in the podcast, Washington state is the home to large multi-national corporations, providing a huge advantage to those who reside in Washington thanks to the tax these companies pay. The educational opportunities in Washington state far outshine the opportunities in Washington, D.C., for example. Until a quality education for the entire country is given priority, generational poverty will continue to exist.

In the interview, we also address the issue of austerity. The concept of reducing the deficit and national debt is and should be a high priority for policymakers, but the timing of austerity measures, such as reducing funding to societal programs, is just as important. Smiley argues that we cannot cut the budget for these important issues when the economy is not “flowing,” saying that the budget is being balanced on the backs of poor people. Budgets are moral documents, and you can determine a country’s real priorities by evaluating where the money is going. If this country does not address the economy for the 99 percent — those who have seen no benefit from this “jobless recovery” — rather than the “1 percent,” Smiley warns of the downfall of the United States as a world leader.

No empire in the history of the world that at some point did not falter or fail. Every empire had its day. Americans don’t want to think we could be dangerously close to the edge… Poverty is the moral and spiritual issue of our time.

Time did not permit us to explore all the topics I would have liked to cover in the interview with Tavis Smiley. For example, I would have liked to talk more about the Occupy movement and getting a national stage for the issue of poverty. In recent weeks, civil rights are again receiving national attention, from the perspective of same-sex marriage. Not to minimize that issue of equal treatment under the law for all individuals, poverty deserves the same attention from our nation’s leaders.

Be sure to subscribe to the Consumerism Commentary Podcast to hear the interview with Tavis Smiley, where we address more topics related to poverty than are outlined above, as soon as it is available. Be sure also to read The Rich and the Rest of Us: A Poverty Manifesto. Update: The interview is now available as a podcast here.

Photo: DC Central Kitchen

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Art Is Not a Good Investment

This article was written by in Investing. 10 comments.

A few months ago, art and money were connected in the news when Andreas Gursky’s “Rhein II,” a photograph depicting a still river and walkway, became the highest-valued photograph sold at auction. The buyer paid $4 million to walk away with the larger-than-life print. Art is in the news again today, with one of Edvard Munch’s renditions of “The Scream.” At a recent Sotheby’s auction, “The Scream” was sold for $119.9 million. This price set a record, making “The Scream” the most expensive work of art ever sold at auction.

For those who have the money to spare, art is a popular investment. Trading masterpieces of art among a small subsection of the population, less than 1 percent, is not without criticism, however. Many artists do not live to see their works become valuable, and do not benefit from the high prices sought for their work. I addressed both the criticisms and the benefits of giving art a significant societal value in the article about “Rhein II.”

The Scream - Edvard MunchWhile it may be good for society to value art highly, is it a good investment for any one individual who has millions of dollars to spare?

Well, first of all, there is art accessible at all levels of investment. With research, you might find works available for $50 that could certainly increase in value over time at a rate better than what financial advisers offer as typical long-term stock market returns. Art is not an investment solely for the 1 percent. And with the right buying choices, your smaller investment in living artists has a more direct effect on the artist community.

Investing in art isn’t going to be right for everyone. While some consider art to be one of the best investments outside of real estate, the economy has seen would-be real estate investors struggling when the market isn’t robust. The same is true with art. The market is subject to bubbles, the latest trends play a significant role in determining prices, and you may not be able to sell your art at the price time you need the proceeds. Artists whose work have proven to appreciate and are highly recognized as masters, like Dali and Picasso, have price appreciation almost guaranteed, but the barrier to entry for investments in proven artists is too high for investors without the desire to risk large sums of money.

Outside of artists whose works have proven worth, it’s risky to invest in art with the goal of making a killing between the purchase date and the sale date. Even the best research won’t guarantee performance. To mitigate the chance of loss, when choosing art, find something you like. As long as you enjoy looking at your art collection, you won’t mind as much holding onto it until it has the ability to fetch the price you desire — which may be never. At the auction where “The Scream” sold for $119.9 million, one fifth of the pieces on the auction block failed to sell because no investors were willing to pay the asking prices.

Another problem with investing in art is the due diligence required to avoid scammers and fraud-minded people in the industry. Even experts can be wrong about forgeries. Investments in art are not subject to the same kinds of regulation that allows investors to feel generally safe and confident when investing in stocks and mutual funds.

Unless you have the financial ability to invest in artists whose names you know from high school or your college’s Art History course, you might be better off staying away from investing in art if your purpose is finding the next Rembrandt.

Photo: br1dotcom

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How much time do you spend in front of the television, socializing with friends, or watching movies? I freely admit that I spend too much time watching television. There are certain television programs that entertain me, and particularly during stressful times in my life, I need some type of outlet that makes me laugh, raising my spirits. As a single man living alone, I don’t have the opportunity right now to unwind at the end of the day by spending time with family.

This is, of course, an excuse or a rationalization of why I don’t just spend more time working. A new study, wherein the researchers’ intent was to reevaluate whether the consumption gap between the wealthy and the poor grew alongside the income gap between 1980 and 2010, also has indicated a correlation between education level and leisure time. The authors of the study then make the connection from education level to wealth, when asked by the Wall Street Journal.

Low-educated men saw their leisure hours grow to 39.1 hours in 2003-2007, from 36.6 hours in 1985. Highly-educated men saw their leisure hours shrink to 33.2 hours from 34.4 hours… Low-educated women saw their leisure time grow to 35.2 hours a week from 35 hours. High-educated women saw their leisure time decrease to 30.3 hours from 32.2 hours. Educated women, in other words, had the largest decline in leisure time of the four groups.

Movie marqueeThe higher a person’s level of education, the less time they spend on leisure activities like watching television, going out to see movies in a theater, socializing with friends, talking on the phone, and playing games. The study authors content that as unemployment has grown at a higher rate for lower-education individuals, that factor has contributed to about half of the change in leisure time for that segment of the sample.

How do we get from a measurement of education to a measurement of wealth? The study authors contend that education is a proxy for wealth, as level of education tends to correspond with income. There are probably some pieces missing in this leap from education to wealth in general, but if nothing else, a higher education opens more opportunities for traditional methods of earning income. (There are always counter-examples, with Ivy League dropouts forming companies that go onto being worth many billions of dollars, but that is exceedingly rare.)

No one is pointing to a causality — that working more and spending less time on leisure activities alone — will result in an increase of income. But if there is a correlation, it makes sense. There is, however, a perception that those at the top of the corporate ladder, earning more money, do not “work harder” than rank-and-file employees. On the job, employees during the grunt work may work just as hard or harder as an executive whose primary function seems to be attending meetings and farming out work to his or her underlings while consolidating reports and presenting reports to the Board of Directors, for example. This study doesn’t look at how hard one works at the workplace, but at how much leisure time is used outside of the office.

There is a message: get to work. Those with higher incomes spend less time on activities outside the office that aren’t productive. Family time is excluded, of course. Highly-educated individuals (who we’re assuming are also earning higher incomes) are more likely to spend time at home cooking and caring for children.

Do rich people work harder? Can less time wasted on leisure activities like watching television translate to higher income?

Photo: angeloangelo
Wall Street Journal, National Bureau of Economic Research

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The Next Credit Crunch

by Flexo
Captain Credit Crunch

There are signs that the economy might be in more trouble in the near future. One of the symptoms of the recession was the credit crunch. Banks and other lending institutions tightened up their previously loose standards for extending credit, and in order to prop up their own organizations financially, banks held on to the ... Continue reading this article…

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Government-Reported Inflation

by Flexo
Helium balloon inflation

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 ... Continue reading this article…

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Men Choosing Fatherhood Over Careers

by Flexo
Child and father

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, ... Continue reading this article…

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Student Loan Interest Rates Set for Increase

by Flexo
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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