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How Savers and Consumers Differ On Gas Prices
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The price of gasoline divides America into savers and consumers like no other issue.
The biggest differences between savers and consumers come in their attitudes toward energy policy. In his book the Age of Turbulence, Alan Greenspan wrote at the end of the energy chapter: "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil."
If it is true, it is a policy: war for oil. I have never had anyone say that to me, nor have I heard any politician or major news service advocate, or try to justify, war as an oil policy.
It does illustrate the contrasts of savers and consumers on policy because it is the ultimate consumer policy: plentiful oil must be available no matter what.
Expanding Energy Supply is a Priority
American policy has been mostly consumption policy because it emphasizes production. Drilling for oil is a production policy, but so are wind energy and solar energy.
Those who advocate off shore oil drilling want to expand supply, but those who want to expand wind energy or solar power also want to expand energy supply.
The oil drillers often argue with the advocates of wind and solar energy, but the argument is over environmental policy and relative cost.
Both sides are saying technology will allow us to have the energy we need or want at reasonable prices.
Savers Limit Gas Usage No Matter the Price
Alan Greenspan suggests a policy of "… significantly higher gasoline prices to wean us off gasoline-powered motor vehicles."
That pressures people to save fuel, but unless savers have some way to cut their consumption by as much as the percentage increase in price, it will cost them much more. That is why savers want to limit the gallons they use no matter the price.
Savers know gas mileage for cars can be much higher and they want to mandate automobile mileage standards so that everyone has the choice to use less energy and save money. They want to expand rail service and have less air travel because rail uses less energy per passenger mile.
Savers look for ways to reorganize physical space so that people can live closer to work and shopping. They look for ways to make it cheaper to move closer to work: a tax deduction for all moving costs, for example.
Notice that Congress has many ways to compromise on policy. A little more off shore drilling can be traded for higher automobile mileage standards.
America needs policies that save energy and money.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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HSBC Direct Extends 3.50% APY to 9/15/08
HSBC Direct is extending the promotional 3.50% APY rate on their online savings account until September 15, 2008.
The promo, announced in June, was intended to end on August 15.
Here's the text of the email they sent to account owners Tuesday:
Customers like you have told us how much they love our big fat rate. And as far as our customers are concerned, we can’t give them too much of a good thing. So that’s exactly what we’re going to do.
- You’ll keep earning 3.50% APY* on all balances in your Online Savings Account.
- That’s 9x the national savings average.±
- Deposit more now to take full advantage of our great rate extension.
Now’s the time to watch your savings grow. So deposit more today.
The 3.50% rate puts HSBC at the top of online savings accounts, tied with FNBO Direct and Goldwater Bank.
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Savers, Have You Considered Junior College?
In the process of saving for college, families sometimes forget saving on college. There are few bargains left, but allow me to suggest the junior college. It could be the last of America's educational bargains.
In the year ending June 2006, there were 713,000 associates degrees granted in the United States. There were less than 500,000 a year until after 1990, when growth in the AA degree began to pick up. Associates degrees are now growing faster than Baccalaureate degrees, although the BA degree has almost 1.5 million degrees.
Less known are the many certificate programs at Junior colleges that run one year or less. There were 229,000 certificates awarded for the year ending June 2006. There another 183,600 awards granted in specialty programs that run between 1 up to 4 years.
Combined, there are well over a million people leaving junior colleges with degrees and certificates.
In addition to the many technical and allied health programs, junior colleges have a whole slate of English, math and social science courses that fulfill two full years of requirements at four-year colleges. A state's four-year college accepts their state's junior college credits.
Another advantage comes because junior colleges are usually sprinkled around a state at many locations and so they are convenient to attend without changes in address or work schedules.
There is also reason to believe the quality of instruction continues to rise because there is a growing surplus of qualified faculty with masters and doctorate degrees. Many of these people have work experience and want to get into teaching.
More and more junior colleges are hiring from the same pool of faculty as the four year colleges, and this is especially true in large metropolitan areas where the surplus is likely to be even bigger.
In Virginia in 2007, the average tuition and required fees for a full time student at the 4 year colleges was $7,083. At the many junior colleges, it was $2,524 — a savings of $4,559 a year with a full time course load.
Most states have similar or bigger disparities. If we figure a savings of $4,559 from the beginning of the first two years at 4 percent interest until the end of a four year degree, the savings is $10,853.36. Even at two percent interest is the savings is $9,771.91.
For savers who want a four year degree, think junior college.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Should Corporations be Taxed to Avoid Speculation?
In the last chapter of his new book, The Age of Turbulence, former Federal Reserve Chairman Alan Greenspan says new technology innovations sometimes slow down so much that new machinery and equipment is not worth the investment for corporations.
For example, the fall off in investments after 2000.
"The slow down in innovation is particularly evident in the dramatic swing in corporations' use of their internal cash flow from fixed investment to buybacks of company common stock and cash disbursed to shareholders in the process of implementing mergers and acquisitions."
After citing some investment data, he concludes, "A corporation returns equity capital to shareholders when it cannot find opportunities for prospective risk-adjusted rates of return superior to the rate of return that the corporation returns from existing assets. Large cash disbursements to shareholders are usually a signal of lowered prospective rates of return on fixed investments available to the corporation, the likely result of a slowed pace of profitable new application of innovation."
Wow! Chairman Greenspan tells us corporations sometimes have profits but few capital investment opportunities, so they turn to speculative buying and selling of stocks for implementing mergers and acquisitions. Buying and selling in mergers and acquisitions creates work for lawyers and securities dealers along with speculative opportunities, but it creates nothing new for Americans.
The federal government could sell bonds to finance public projects like the construction of levees for New Orleans and the Mississippi river. Some of the loanable funds that keep going into assorted mergers, acquisitions and other speculations could be redirected to an important public project.
However, public projects mean new taxes to pay interest and principal. Taxes are already high for millions of Americans who oppose new taxes.
If Mr. Greenspan is correct and corporations have profits for speculation while public projects like New Orleans' levees go unfunded, then higher taxes on corporations and lower income and payroll taxes for individuals would decrease America's savings available for speculation and increase America's savings available for public projects.
Notice I did not say it is fair or unfair to change taxes, only that the distribution of income and taxes will change how America saves and invests. Remember savers, the value of your savings depends on the quality of America's investments.
What should we do about taxes? You decide.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Alan Greenspan on the Turbulence of Savings
In his recent book, The Age of Turbulence, former Federal Reserve Chairman Alan Greenspan discusses savings.
"The shift of shares of world Gross Domestic Product since 2001 from low saving developed countries to higher saving developing countries has increased world saving so much that aggregate growth of savings world wide has greatly exceeded planned investments," he writes. "Or to put it another way, the supply of funds looking for a return on investment has grown faster than investment demand."
His tenure as Federal Reserve Chair began in 1987, so there is also some saving and lending history that he writes about. Speaking of banks in 1987, he says "[they] were in serious trouble."
And what was their problem? "… [Too] much speculative lending; in the early eighties, the major banks had gambled on Latin American debt, and then, as those loans went bad, like amateur gamblers trying to get square they'd bet even more by leading the whole industry into a binge of commercial real estate lending."
Amateur gamblers? Too much real estate lending? Isn't that what we have just been having?
When we save and earn an interest return, we entrust banks and financial intermediaries to use our savings wisely. The best loans for an economy create long lived physical assets.
On the news, I often hear that America's infra-structure needs improving. The levees in New Orleans and now on the Mississippi river need expensive capital improvements.
If banks use loanable funds as amateur gamblers when America needs levees, then it's not just banks that are in serious trouble as Mr. Greenspan mentions.
Remember savers, the more our savings are used to produce new products and new technologies, the more valuable your savings in the future.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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WTDirect Ups Savings Account to 3.26% APY
Just over a month since dropping their rates to 3.16% APY, WTDirect is increasing their savings account to 3.26% APY.
From the email I got:
As of June 19th (today), WTDirect's Savings Account rate is officially INCREASING to 3.26% APY - This marks the first rate increase in 9 months!! The rate continues to be in the top 5% of all banks.
As far as we can tell, this is not a temporary adjustment like HSBC's 3.50% APY until August 15, so it's great to see more upward motion.
Minimum balance to get into WTDirect is $10,000, so it's not for savers starting out. But once you open it, there's no minimum to avoid fees.
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Money Saving Links: 6/13/2008
This week's Carnival of Personal Finance was hosted by Prime Time Money, and it included Savings Onion: Where Our Money Goes.
Here are a few of the highlights from the carnival:
Is your savings account costing you? - OneChanceToLive
It is not only possible that your savings account is costing you money, but it is highly likely!
How to Stop Living Paycheck to Paycheck: 7 Steps - Discover Debt Freedom
If you're tired of living paycheck to paycheck and never having any extra money around to save or take a holiday, there are a few things you may be overlooking that could help you stretch the money you make while reducing the amount you have to pay each month.
Reminders from Omaha - Goal of Financial Freedom
Everyone wants to invest like Warren Buffett and Charlie Munger. I was able to find this article talking about the 6 timeless advice offered by Warren Buffett that we should all think about.
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Should You Sell Your Gas Guzzler to Save Cash?
I just heard a story on the TV about a guy who wants to sell his gas guzzler and get a high mileage car to cut his gas bill. Trouble is he owes $8,500 on his car loan and all he can get for his guzzler is $3,000.
He loses $5,500.
As all good savers know, he should only sell if he can save a minimum of $5,500 plus interest. According to the United States Department of Transportation, the average passenger car travels 12,400 miles a year and gets 22.4 miles per gallon for gas. That works out to 46 gallons of gas a month with a monthly fuel bill of $184 if we use $4.00 a gallon for the gas.
I regret to say that is probably low, but we will go with it.
Double his gas mileage and he saves $92 a month. Figure a savings of $92 a month for 5 years at 4 percent interest, and the savings is $6,119.84. Sad to say, but the $5,500 he loses would also accumulate interest. If we use the same 4 percent interest over the same 5 years, the total he loses is $6,715.48.
He loses $6,715.48 to save $6,119.84; a net loss.
This particular comparison does not account for the price of the new car, only the loss on the trade. If we assume he is going to own a car, either an old one or a new one, the premature trade represents the loss from not using the remaining life of the old car, which I hypothetically set at 5 years.
Different interest rates or time remaining for the life of the car will affect the result.
However, the most important comparison is the price of gas. Using $5.00 a gallon with the same mileage and interest rate, savings will hit $115 a month with a total of $7,649.80. At $5 a gallon, he can save doubling his mileage. He should trade the car. For those with mileage over the average of 12,400, saving gas money also will be more likely to pay.
I did the calculations on MS Excel using the FV, future value, function. It has a help file. Try it yourself for your exact situation.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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