Social Security update

Page 392 of the student textbook states that the Social Security trust fund will be depleted by 2044.

Last month the Social Security and Medicare Boards of Trustees projected that the theoretical combined OASDI trust funds will be depleted in 2034 (see table below).  OASI is Old Age and Survivors Insurance and DI is Social Security Disability Insurance.  Others components are Medicare Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) ^[1].

According to the projection, even after depletion, continuing tax income would be sufficient to pay 79% of benefits in 2034 and 74% in 2090.  Though I do not expect to ring in 2090 and may not even see 2034, many of you will see both!

The textbook further notes: “ . . . the government is somehow going to have to come up with the funds to make good on its pile of IOUs to the Social Security trust fund.”

Allen W. Smith, Ph.D. (Ball State and IU grad) stated that “The government has embezzled all surplus Social Security revenue, generated by the 1983 payroll tax hike, and spent the money on wars and other government programs. None of the money was saved or invested in anything.” ^[2].

The U.S. Department of the Treasury^[3] reports that at the end of calendar year 2015 our national debt was more than $18.9 trillion dollars ($18,922,179,009,420).  As of June 30^th, 2016 it has grown by nearly ½ billion dollars ($459,412,131,371) to about $19.4 trillion ($19,381,591,140,792).

U.S. Census Bureau estimates that our population is 321,418,820 ^[4] so our national debt represents $60,300 for every man, woman and child in America (about $143,791 per household).  Without even touching the principal, the interest expense alone is $215.44 every month, for every household.

With $19 trillion in debt and no budget at all – let alone a balanced one - it is unrealistic to believe that our federal politicians will hold themselves accountable for unsustainable promises made decades ago by their predecessors.  After all, to be elected and remain in office they’ve made quite a few of their own.

Rely on nothing from government.

KEY DATES FOR THE TRUST FUNDS
	OASI	DI	OASDI	HI
First year cost exceeds income excluding interesta	2010	2019	2010	2015
First year cost exceeds total incomea	2022	2019	2020	2021
Year trust funds are depleted	2035	2023	2034	2028

[1] Source: Social Security and Medicare Boards of Trustees, Summary of The 2016 Social Security and Medicare  Annual Reports <http://www.ssa.gov/oact/trsum> accessed 07/24/2016.

[2] Source: Allen W. Smith <http://www.fedsmith.com/2013/05/23/government-owes-2-7-trillion-to-social-security> accessed 12/10/2014.

[3] Source: U.S. Department of the Treasury, Bureau of the Fiscal Service <http://www.treasurydirect.gov/NP/debt/current> accessed 07/24/2016.

[4] Source: U.S. Census Bureau <http://www.census.gov/quickfacts> accessed 07/24/2016.

News and articles that have recently caught my attention

This morning I posted the below for my online students and thought that some of you might enjoy it.

 

Credit scoring

• 6 Ways to Get Your Official FICO Score Free (Money Talks News)
• Should You Use A Personal Loan To Boost Credit? (Bankrate.com)

Debt Behavior

• The 10 Deadliest Credit Card Mistakes (Money Talks News)
• 9 signs you have too much debt (CreditCards.com)
• Buried under student loan debt? Here are some things you can do (TODAY.com)
• Credit use by generation: Who's doing the best job? (CreditCards.com)

Fraud

• Millennials most likely to fall prey to scams (CreditCards.com)
• Tech Support Scams | Consumer Information (Federal Trade Commission)
• FTC and Florida Charge Tech Support Operation with Tricking Consumers Into Paying Millions for Bogus Services (Federal Trade Commission)

Information Security / ID Theft

• 1,025 Wendy’s Locations Hit in Card Breach (Krebs on Security)
• Acer Breach Lets Slip 34,500 Credit Card Numbers (LaptopMag.com)
• Feds Warn of ‘Serious’ Flaws in Popular Anti-Virus Software (Money Talks News).  The federal government is warning the public about newfound issues with long-established anti-virus brands Symantec and Norton.
• Protecting your child’s identity (and their credit) (Money Management International)
• Is Your Phone Infected With Chinese Malware? (Money Talks News).  Check Point report at <http://blog.checkpoint.com/wp-content/uploads/2016/07/HummingBad-Research-report_FINAL-62916.pdf> (24 pp).
• Credit paranoia or credit smart? Which precautions are worth it.  Think about your identity sort of like a puzzle. The more pieces a thief has, the easier it is for them to commit ID theft.

Life Events

• 6 Life Events That Call for Professional Financial Advice (Investopedia).  I would add college to the list!

Saving

• Seven Habits of Highly Effective Savers (Money Management International)

Change

       
        Yesterday on LinkedIn there was reference to a Scott Adams December 13, 2015 Dilbert comic about embracing change.  I noted that change for the better is a good thing, but change merely for the sake of change is not.  "Hasten slowly.”
        The hasten slowly I remember first seeing on a sundial at a monastery roughly 30 years ago. It was new to me then, but as it turns out the notion dates back as far as Augustus, the founder of the Roman Empire.  Along with the millennial support for Bernie Sanders’s socialism, it’s yet another reminder that that everything old can be new again.
        I found a short piece that I wrote 14 years ago titled, “Change Management Overview”, reproduced below.

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        The roots of change management as a field of specialty can be traced at least to Edgar Schein’s 1969 work on process consultation and possibly as far back as the late forties or early fifties depending upon one’s viewpoint.  Since the early days the field has been steadily developed by people who recognize the business and social needs to integrate human interaction and processes with business processes.

        Change management experienced a dramatic bent toward technology during the 1990s.  Even today, many people equate “change” with technological improvements.  While it is true that technology is involved in many change processes, the need for ongoing technological advancement is now accepted as one business necessity of many; it is no longer the driving force of change management.

        There are three basic classifications of change, each demanding a unique blend of competencies for effective management:

• Transformation is a process that occurs when an organization must radically alter its way of doing business.  The source of the need might be primarily internal, such as a switch in company leadership and strategy as when Lee Iacocca took on the responsibility at Chrysler.  An external source might be illustrated by the current economy’s impact on the transportation industry.  The semi-trailer manufacturer Wabash National Corporation is one local example.  Transformation has a clear onset, may have a loosely defined end, and requires tremendous insight, a high tolerance for risk, and a well-reasoned yet highly adaptable strategy.
• Transition occurs when there is a particular need identified that will improve performance, such as when a new technology, policy, or product is introduced.  A merger may be a transition rather than a transformation if company histories, cultures, operating procedures, and people are highly attuned.  A transition has a beginning and an end, and several transitions may be present during a transformation.  A transition requires clearly defined goals and a more rigid strategy.  Transitions typically require planning and management capability plus specific competencies in areas such as training or technology. 
• Development is an ongoing process in organizations with a culture of continuous improvement.  Development might include succession planning, specialized training, and individual and team problem solving.

        Development tends to be more proactive than reactive, and it ideally permeates the entire organization.  Development is typically an important component during both transition and transformation and requires strategic planning capability, trusted leadership, and the ability to effectively organize and troubleshoot virtually any process.

        The most effective development leadership has the ability to anticipate internal and external changes, to be on the leading edge of trends, and to establish trends when appropriate.  As developmental effectiveness increases, the instance and negative impacts of transition and transformation decrease.

        It is apparent that a particular change within an organization may fall into more than one classification.  It is also true that a single external event may call for a different level of change from one organization to another. 

       We should avoid change merely for the sake of change; case studies demonstrate that there is often costly confusion and unconscious and conscious resistance.  We must create and maintain a culture of continuous improvement and openness to change; those organizations with a learning culture suffer the least.

ID Theft and FTC Consumer Complaints

        On March 1st the Federal Trade Commission (FTC) released its 2015 Consumer Sentinel Network Data Book that reports complaints received by the FTC during the year.  For the first time in 16 years, identity theft DID NOT top the list.
        This year identity theft was edged out of first place by debt collection, which the FTC attributes to its ramped up enforcement against companies violating the Fair Debt Collection Practices Act.
        The complaint categories making up the 2015 top 10 are:

	Number	Percent
Debt Collection	897,655	29%
Identity Theft	490,220	16%
Imposter Scams	353,770	11%
Telephone and Mobile Services	275,754	9%
Prizes, Sweepstakes and Lotteries	140,136	5%
Banks and Lenders	131,875	4%
Shop-At-Home and Catalog Sales	96,363	3%
Auto-Related Complaints	93,917	3%
Television and Electronic Media	47,728	2%
Credit Bureaus, Information Furnishers and Report Users	43,939	1%

        The founder and president of Javelin Strategy & Research, a company mentioned in a 2012 identity theft video, has since warned that social media users are a growing target for identity theft.

        A 2012 BankRate.com article  says that paying with a credit card or debit card makes you vulnerable, and mobile phone users are also a target.
        In March 2014, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray warns, "your information is always at risk, every day."
        My own interest in the topic likely dates back to 2002 when Walter Kevin Scott – a convicted felon - was working as benefits manager for the Indiana Public Employees’ Retirement Fund (PERF).  Mr. Scott had used a false Social Security number in the hiring process, and the State of Indiana had hired him unaware that he had served time in a federal penitentiary -  for identity theft!
        During his trial it was disclosed that from November 2001 to August 2002, Scott had unlimited access to the Social Security numbers of 1.2 million current and former public employees and their families  -  the equivalent of nearly one in every six Hoosiers.  Investigators found personal information and pension fund balances of 750 people during a search of Scott's home after he quit working at the fund.
        A few years later we began to hear more about breaches, most notably in universities.  In May of 2005, the Lafayette Journal and Courier listed ten universities that had already reported breaches in that year, including Purdue and IU.  Also in 2005 it was reported that identity thieves set up fake businesses and gained access to up to 160,000 consumer records from data broker ChoicePoint.
        Heartland Payment Systems Inc. - one of the largest processors of credit and debit card transactions in the U.S – was hacked in 2009.  With vague explanation, one local bank sent new debit cards to replace ones that were not even near expiration.  When the Target and Home Depot names appear in the news we all noticed, but how many of us would even recognize the name Heartland Payment Systems or ChoicePoint?
        The Identity Theft Resource Center (ITRC) tracked 781 U.S data breaches in 2015, the second highest number since it began tracking breaches in 2005.


Top breaches in 2015:

• Business sector 40%, up 8.1%
• Health/Medical sector 35.5%, down from 44.1%
• Banking/Credit/Financial 9.1%, nearly double the number reported in 2014
• Government/Military 8.1%
• Education sector 7.4%

        The ITRC defines a data breach as an incident in which an individual name plus a Social Security number, driver’s license number, medical record or financial record (credit/debit cards included) is potentially put at risk because of exposure.  As of March 16, 2016, the ITRC reports 155 breaches with 4,314,045 records exposed.
        In 2014 Krebs on Security reported that a nationwide beauty products chain discovered a breach in its payment systems and a fresh batch of 282,000 stolen credit and debit cards reportedly went on sale in a popular underground crime store.  That same month, Indiana University reported that information including names, addresses and Social Security numbers of those who attended any of the university’s campuses from 2011 to 2014 was unsecured for more than 11 months because security protections weren’t working correctly.
        Purdue associate professor of communication Josh Boyd states, “The recent security breaches . . .  are a good reminder that the online environment involves no guarantees.  If you put information online and somebody really wants it, it’s vulnerable.”
        The use of a credit monitoring service cannot prevent ID theft, but it may help you to discover fraud.  About the well-publicized Target security breach during the 2013 Christmas shopping season, Purdue professor of cyber forensics Marcus Rogers warns, "People have to be vigilant for the next six months, year, even up to two years.”
        The ProtectMyID credit montoring service offered by Target is a product of Experian, a credit reporting agency, and monitors changes only to a consumer's Experian credit report.  According to Consumer Reports, “The service can give consumers a false sense of security, and Consumer Reports can recommend this deal in its present form only as being better than nothing, and only for consumers who understand its significant shortcomings.”
        Credit Karma has been advertised much during recent years.  Credit Karma is a service that provides no-cost (so-called “free”) credit scores, credit reports, and credit monitoring from TransUnion.  In 2014, Credit Karma settled with the Federal Trade commission on charges that the company “failed to take reasonable steps to secure” its mobile apps, ‘leaving consumers’ sensitive personal information at risk.”
        To monitor your own reports from Experian, TransUnion, and Equifax, you may order copies through www.AnnualCreditReport.com.  For information about how to order by phone or mail, see the FTC's "Disputing Errors on Credit Reports".  If you’d like an estimated credit score, use a credit score estimator for which you do not disclose identity information.
        A high score can be useful at times, but do not make it your primary focus.  The Fair Isaac Corporation (the "FICO" people) tells us that 65% of a credit score is related to payment history and amounts owed.  So as it turns out, some of the actions that can increase your score also make financial sense!  Pay bills on time, every time, and don’t take on too much debt.  Then make sure that the information on your reports is accurate.
        It has become clear that no institution, public or private, is immune to data insecurity.  My guess is that by now just about every one of us has been a victim of ID theft whether we know it or not, and there’s nothing that we can do to change that.  Since there is so much that is outside of our control, it does make sense to at least control what we can.  Remain vigilant, and from today forward the less information that you provide - and the fewer places where you provide it -  the better.
        Especially if you have a rural mailbox, consider a post office box instead, and remember that outgoing mail is just as important as incoming.  For several reasons, seniors are a very vulnerable population, and if you have a loved one who is aging watch for signs of fraud.  Whether credit card statement, checking account statement, or utility bill, look through every line and understand what is behind every charge.
        Not all misinformation on a bill or in a consumer report is necessarily fraud – mistakes do happen.  But certainly make sure that all information is accurate.  If you know someone who has been denied a checking account, you might mention the ChexSystems consumer report and Bank On Tippecanoe; those outside of the Lafayette area may see Bank On Indiana.
        The CFPB explains how to check a minor child’s reports from the three major credit reporting companies.  The Indiana Attorney General informs consumers how to place a security freeze with Equifax, Experian, and TransUnion.  The Attorney General has also produced an ID Theft Victim Kit that outlines the steps to follow if a consumer becomes aware that personal information has been stolen or used by someone else.
        Considering the outrageous number of major breaches reported during the past three years I’ve just been unable to keep up with tracking.  Nevertheless, quite some time ago I reached the same conclusion as Lafayette editorial cartoonist Dave Sattler following Jimmy John’s September 2014 breach, “The recent security breach by Jimmy John’s as well as Target, eBay, and Home Depot has many wondering How do we protect our identity . . .  One way is to bring back an old friend . . ."
        Take care.

Kurt Burnett

 

America Saves Week

February 22 - 27, 2016 is America Saves Week, coordinated by America Saves and the American Savings Education Council.


Started in 2007, the Week is an annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status. Typically thousands of organizations participate in the Week, reaching millions of people.


The 2015 Annual National Survey Assessing Household Savings revealed across the board improvement in the past year.


    •  71% are spending less than their income and saving the difference, up from 68% in 2014.

    •  52% are savings at least 5% of their income, up from 47% in 2014.

    •  40% are making good or excellent savings progress, up from 35% in 2014.

    •  78% had no or were reducing their consumer debts, up from 76% in 2014.

    •  66% have sufficient emergency savings, up from 65% in 2014.


With more societal encouragement and support, more Americans will be persuaded to Set a Goal. Make a Plan. Save Automatically.


How You can Participate in America Saves Week with Tweet chats, Facebook events, and Webinars.


    •  9th Annual America Saves Week Survey

Calculating Credit Card Interest and Payments

During the 1970s a minimum credit card payment of 5% was common.  Then Andrew Kahr, an industry consultant, became a sort of hero by convincing his clients – the credit card companies - to reduce it to 2%.  He also championed the zero percent introductory rate that we see heavily advertised even today.

The challenge for this week?

Chad and Kate have a credit card balance of $6,500, with an 18% APR and a minimum payment of 2% per month.  If they pay only the minimum payment each month, how long will it take to pay it off?

The CreditCards.com minimum payment calculator revels that, if paying the 2% minimum every month, it will take almost 44 years to pay it off, and they will have paid $17,896.66 in interest.  Of course this assumes no late or missed payment fee, no new purchase, and no interest rate increase for more than four decades.

I can probably think of something else that I would rather do with $18k.  How about you?

From a recent Purdue Federal Credit Union (PFCU) agreement:

“When you receive your billing statement you may pay the full amount due or a lesser amount, but the least you may pay is the minimum payment amount shown on your billing statement. Your minimum payment will be any amount past due or over-the-limit plus the larger of 3% of your new balance or $20.”

In other words, assuming there’s no past due balance and we’re not over the limit, the minimum payment on an initial $6,500 would be $6,500 x .03 = $195.00.

The advertised annual percentage rate (APR) would be 11.5% - 17.5%, “based on your credit worthiness."

Unfortunately we don’t know what our actual interest rate will be until we already receive the card, and when we feel that magical power surge through our hands.

But let’s assume a 15% APR, then the first month’s interest payment will be $81.25, and the payment applied to the principal is $113.75.

In this scenario, it would still take more than 14 years to pay off the original $6,500 of spending and they would pay more than $4,000 in interest. But they would save more than $13,000 in interest charges compared to the other scenario.

The couple has also saved $6,500, and is exploring savings options to build that to $10,000 for a home down payment within six years.

If you were their very best friend and they asked you for guidance, then what would you say?

One alternative for Chad and Kate would be to pay off the credit card debt with cash on hand, and then begin to save for the home down payment.  For example, $130 saved every month would build to $10,000 in about 6-1/2 years, even at zero percent interest!  If they could save $195.00 then they would reach their goal in just a bit over 4 years.  Note that I do recommend saving for at least a 20% down payment.

From the last that I heard, there are somewhere around 5,000 credit card issuers, but the top four combine to hold more than 50% of the market, in both the number of cards issued and in dollar volume.  If you have a credit card, check to see if it’s in the Consumer Financial Protection Bureau credit card agreement database.

I searched “Citibank NA” and it listed 40 agreements; some of them are clearly labeled, such as "My Best Buy Credit Card", “My Best Buy MasterCard“, and "SearsCharge PLUS Account", but others are labeled such as “Agreement 1” or “Agreement 61”.  Two were simply labeled "0".

If you have a card issued by Citigroup, JPMorgan, Bank of America, Capital One, or another top issuer, then happy hunting!

Best regards,

Kurt Burnett

---------------------------------

February 4, 2016

• 2016 personal debt might be a bigger problem than it was in 2015 (Debt.com)
• Bank Credit Cards (Nerdwallet) -  Not a particularly catchy title, but this article offers thorough explanations of how credit cards work.
• Is That Credit Card With the Annual Fee Really Worth It? (Associated Press)
• No Degree? Here Are 10 of the Best Paying Blue-Collar Jobs (MoneyTalksNews)
• These college majors will leave you drowning in debt (Money Management International)

January 28, 2016

• Ask the Experts: Which debt should I pay off first? (Money Management International)
• Bad credit? Subprime cards aren’t your only option (CreditCards.com)
• Most Unreadable and Wordiest Credit Card Agreements (Kurt Burnett)
• Survey: 5 in 6 Americans admit to impulse buys (CreditCards.com)
• Why we all lie about credit card debt (Money Management International)