Is There a Personal Debt Crisis on the Horizon?

Credit CardIs There a Personal Debt Crisis on the Horizon?

Typically, when you get real burned you change your ways. It looked that way during the financial crisis of 07 to 09. Consumers had binged on credit for so long and it finally caught up with them. As a result, you would think that consumers would work harder to get rid of whatever debt that they had and vow never to get into it again. Well, I believe that the answer is yes and no. Yes, they wished that they were out of debt but they can’t because of the wrong type of dependency.

Consider these statistics provided by www.wallethub.com:

“U.S. consumers racked up $34.4 billion in credit card debt during the second quarter of 2016, which is the largest second-quarter accumulation since at least 1986, according to the personal-finance website WalletHub’s 2016 Credit Card Debt Study, released today. This development lends credence to the notion that we are flirting with financial disaster, coming on the heels of last year’s record increase in credit card debt ($71B) and last quarter’s record-low first-quarter pay-down ($27.5B).

Furthermore, we are now on track to surpass $1 trillion in outstanding balances for the first time by the end of 2016.”

There are three important points to make.  First, we are on track to surpass the old record of debt that was set before the financial crisis and eclipse over 1 trillion dollars in debt.   Second, there was the largest increase in debt during the second quarter in 30 years.  Finally, consumers do pay debt down.  However, that didn’t happen in the second quarter with the lowest “pay-down” of debt in history during a second quarter.

It gets more disturbing.

Experian put out this statistic concerning sub-prime debt.  Sub-prime debt is credit extended to low credit score consumers with interest rates in the middle to upper 20% range. It is next to payday loans as far as horrible credit to take out.

“The first six months of 2016 has shown that the total credit card limits among the subprime and deep subprime credit range totaled $6.4 billion, the highest amount reported for those groups in the last five years.”

Now let me sum it up.  We are setting records in consumer debt with a good percentage of that debt being high interest rate debt.

The subprime debt market is exploding.  There is a ton of cash waiting to be lent out if you are willing to accept high interest rates.  It is all driven by investors investing money into the sub-prime debt market.  If the need is there, consumers with all types of credit can easily get money.  Do you really think that consumers are borrowing money at high interest rates to buy flat screen TV’s?  No, I think that the financial crisis took care of that temptation.

Is consumer spending increasing at the same rate as debt balances.  No, not even close.  There is only one conclusion that we can come to.  The consumer is having to resort to credit to pay for living expenses.  With a never ending flow of credit available, this robbing Peter to pay Paul works until the money dries up.  The money should start to dry up once the delinquencies start to increase.

Bottom line is that the consumer is far from healthy and these statistics point to a bad ending.  Don’t forget that consumer spending is responsible for 2/3rds of economic growth.  That points to the fact that economic growth has been so anemic.  All of the signs are there for debt crisis 2.0.

As I always have said – debt is not a problem until it is a problem then it comes an overnight financial nightmare!

Bob Brooks is host of the Prudent Money Radio show. Bob is also a financial advisor who helps people set and achieve financial goals. For more information or to set up a phone consultation, email Judy Parrish at judy@prudentmoney.com .

Wells Fargo Commits Fraud and Gets a Hand Slap

9646294945_cafa3b828f_bWells Fargo Commits Fraud and Gets a Hand Slap

  Fraudnoun – Wrongful or criminal deception intended to result in financial or personal gain.

Employees of Wells Fargo created millions of unauthorized bank and credit card accounts without the consent of their customers.  Why did they do it? They wanted to boost their sales figures and make more money. As a result, 5,300 employees were fired and the bank was fined 185 million dollars.

Now if you or I committed fraud (and yes this is fraud), we would go to jail.  Anyone going to jail over this?  Of course not!

Listen to the spin that is coming from Wells Fargo.

The CEO on Mad Money had this to say:

“We are sorry. We deeply regret any situation where a customer got a product they did not request,” Stumpf said, “There is nothing in our culture, nothing in our vision and values that would support that. It’s just the opposite. Our goal is to make it right by a customer every time 100% and we didn’t do that, we feel accountable.”

Let me take the spin out.

“We are sorry (we got caught). We deeply regret any situation where a customer (had fraudulent transactions in their name) got a product they did not request,” Stumpf said, “There is nothing in our culture (apparently no oversight), nothing in our vision (except we would do anything to make money) and values (seriously what values?) that would support that. It’s just the opposite. Our goal is to make it right by a customer every time 100% and we didn’t do that, we feel accountable.” (because we got caught)

Sorry Mr. Stumpf – I think that this speaks a lot about your company values which you are in charge of.  You had 5,300 employees involved in this fraudulent act.

Does the CEO feel responsible?  Of course not!  He is not going to resign over this little ordeal. Carrie Tolstedt was the Wells Fargo executive in charge of the unit where employees opened unauthorized accounts.  (Just a note:  The CNBC article said where employees “allegedly” opened unauthorized accounts.  Come on CNBC – 5,300 people were fired and a largest fine in history was handed down.) She recently left the bank (probably knew that she was about to be busted) with 124.6 million in stock, options, and restricted shares.  Don’t worry about Ms. Tolstedt – she will be just fine.

When is it not ok to commit fraud?  Why do the banks commit crimes and get away with it?  These companies should have the biggest of fines brought against them to where their pocket books truly feel it. How about jail time for fraud?  How about the board of directors firing the CEO and other executives because it happened under their watch?

Where are the politicians?  Why aren’t they going after the big bank?  They go after baseball players for using performance enhancing drugs.  Yes, that really matters.  I guess the political ramifications are just too much.  So, they turn and look the other way.  After all, they depend on the campaign contributions.

Although 185 million is a lot to you and me, it is nothing to a banking giant such as Wells Fargo. Every American should boycott this bank and send a message. If they are capable of pulling off a con like this, what else will they do in the future when no one is watching?

The unfortunate aspect of this story is that no one in the media appears to be outraged by this display of unethical behavior. Unfortunately, that is what has happened to this country.  There is so much of it we don’t even think twice anymore.

Bob Brooks is host of the Prudent Money Radio show. Bob is also a financial advisor who helps people set and achieve financial goals. For more information or to set up a phone consultation, email Judy Parrish at judy@prudentmoney.com .

“Trade-ins” of iPhone 6/6s Models Soar – Decluttr Releases Current Value/Stats

pexels-photo-58625 (1)“Trade-ins” of iPhone 6/6s Models Soar;
 Decluttr Expects iPhone Trade-Ins to Peak This Week, Prior to New Apple Announcement

September 2, 2016 – Recommerce site Decluttr.com says it has experienced a surge in iPhone 6 trade-ins as consumers anticipate the launch of Apple’s newest model. The company is reporting a 73 percent boost in the past month alone, and is predicting an influx of the iPhone 6 and 6s models will be traded-in following Apple’s press conference scheduled for September 7.

The site, which offers cash for unwanted smart phones, DVDs, CDs, video games and electronics, believes the increase comes from consumers’ desire to make additional cash to purchase the iPhone 7. With trade-in values of older phones immediately decreasing once a new model is announced, savvy-iPhone users are taking advantage of higher trade-in prices before the iPhone 7 launch date is confirmed. Current trade-in value from Decluttr on iPhone 6 models in excellent condition will give consumers between $300 and $400.
·         iPhone 6, 128gb –  $306
·         iPhone 6s, 128gb  – $400
·         iPhone 6 plus, 128gb –  $326
·         iPhone 6s plus, 128gb  – $395

Data from Decluttr has shown that once a new Apple model is announced, the predecessor can lose up to 12 percent of its value the week after the announcement, so consumers frequently act fast to get the highest trade-in value.  Typically, smart phones can lose up to 65 percent of their value after just a month of being released.

When the iPhone 4 was launched in 2010, it was valued at $599. By the time of the iPhone 5 announcement in 2012, the trade-in value had dropped to $102 – losing 83 percent of its original value. The iPhone 5s experienced a similar devaluation.  Valued at $749 when it launched and plummeting to just over $390 after the iPhone 6’s launch. That’s a loss of 58 percent of its value in just 24 hours.

With the iPhone 7 launch just around the corner, consumers are looking to get the best price from their current model as Liam Howley, group marketing director at Decluttr.com says, “Decluttr has seen a substantial increase in the number of iPhones being traded-in on the site, especially the iPhone 6, where we have seen 73 percent growth in customers wanting to get the best price possible for that specific model before the iPhone 7 is announced and starts shipping.

“Not only do we pay the top prices, we also we offer a price guarantee on all of our electronic items, so what we quote will be the final amount sent or we’ll send the item back for free, unlike some other sites which will pay out less than they originally offered or offer inflated ‘up to’ prices to tempt you in.”

Decluttr has a five-star rating on Trust Pilot, giving customers confidence in knowing they will get the best service from the site when they trade-in their unwanted items.

About Decluttr
www.Decluttr.com is a completely free and easy way for customers to get cash for their unwanted CDs, DVDs, video games, mobile phones and other electronics including Games Consoles, Tablets, iPods and more all in one place. The company’s website and smartphone Apps mean that anyone can easily sell their unwanted products and reap the benefits – from making a little extra cash and freeing up valuable space in the home, to reducing the need for borrowing and minimizing their impact on the environment. www.Decluttr.com gives customers an instant reward value for their unwanted stuff using a smart valuation engine named ‘Val’ and it pays out via check or bank transfer on the next working day after the goods are received. Customers will soon be able to donate to charity too. The service is completely free to use, there are no auction or seller fees and they even pay the shipping.  Since launching in 2013 Decluttr has paid out over $6m of debt-free capital back into the economy, putting extra cash into the hands of consumers and fueling further spending and has been featured on the likes of Good Morning America, ABC News and Fox News

For more information on trade-in values, visit www.decluttr.com.

Is Your Car a Safety Hazard?

mercedes-benz-1036353_960_720Is Your Car a Safety Hazard?

In 2015, the automotive industry saw a new record number of automotive recalls. 51.4 million cars were recalled in 2015.

The most infamous recall is the Takata Airbag. The airbag which is installed in the majority of brands can explode without warning sending shrapnel flying through the air. They estimate that this could affect 61 million cars. People are on a wait list as long as a year to get them replaced. What’s worst, some car manufacturers are actually putting them on brand new cars with the plan to replace them in three years. Why three years? It is estimated that these defects don’t show up for at least three years. Also the manufacturers don’t disclose this at any time during the sale of the car.

There is obviously a problem. What is contributing to it? I think that it is about profit and unions.

Car manufacturers are cutting corners in order to make as much money as possible. They are outsourcing parts buying the cheapest possible. They are focusing on the technology and the toys which sell cars rather than the workmanship.

I interviewed Stephen Kohn who is considered one of the top Whistle Blower Attorneys in the nation. He said that the Auto industry is the only industry that is not protected by whistle blower laws. Whistle blower laws keep industries honest because anyone can blow the whistle on you and do so anonymously. However, not the case in the automotive industry. If you are caught being a whistle blower, you could lose your life. As a result, this is an industry controlled by unions that can get away with anything.

The biggest problem with these recalls is that they are safety related issues. So it makes sense to consistently check to make sure that your car is not showing up on the list. You can go to this site and plug in your VIN and see if there are any active recalls on your car.

This is just the beginning of the problems. What do you get as the automotive industry is racing to create driverless cars? Well, you get one big hackable computer on wheels. Can you imagine someone hacking into your car and controlling it? Do you think that the automotive industry is going to make sure that can’t happen?  That would take time and money to work out all of those kinks. Do you think that hackers are going to easily figure it out? It has already happened. If you think through it, as technology continues to advance the potential for problems mounts.

Why the 401 K Plan Might Not Be the Best Option

ScalesWhy the 401 K Plan Might Not Be the Best Option

Employees are fighting back against their company’s 401 K plan and suing their employers based on excessive fees and costs. Some of these lawsuits are legitimate. Some employers are not acting in their employee’s best interest. At the same time, many of these lawsuits don’t make sense. Yes, cost is a consideration. However, it is not the sole reason that 401 K plans are not always the best option.

There really is only one reason you would want to invest into a 401 K plan. It is the free money that comes along with the employer match. If an employer is willing to give you money for participating, then you would be crazy not to participate. Beyond contributing up to the match, you need to do some investigation to make sure it is worth using the 401 K plan as your primary investment vehicle.

Here is what you need to check:

Fees

I doubt that this will be a problem given a year or so of lawsuits. I am sure that employers are double checking to make sure that their retirement plans are priced efficiently

Check and make sure that the plan is charging reasonable fees. What are reasonable fees? The same fees that you would be paying for mutual funds outside of the plan. Most of the time you will find the same funds in your plan offered to the retail investor through a broker. For instance, Fidelity Growth Fund can be the same fund within the 401 K plan and available outside of the plan through Fidelity. They should have the same expense ratios. You can go to www.morningstar.com and see what each fund should be charging. I definitely wouldn’t be helping fund a commission to an advisor or paying for administration costs. Further, I wouldn’t be paying an advisor a management fee for doing nothing.

Choice

This is where most 401 K plans let people down. There are two ways to look at choice.  First, there is number of available funds. If your 401 K plan only has 6 to 8 funds, then that is a problem. It is tough to properly diversify a portfolio with a limited number of funds.

Then there is the type of funds for the purposes of diversification. If you have a plan that has 20 funds in it and 18 of the twenty funds all do the same thing, then that is not a very good plan. Most 401 K plans are only set up for moderate or higher risk investors. Today most 401 K plans don’t have conservatively based stock funds that are needed for conservatively based investors.

Unfortunately, 401 K plan providers are moving towards using just index funds that track investment indexes such as the stock market. Most of those index funds would not be appropriate for a very conservative investor because they are taking 100% market risk.

If not a 401 K plan, then what do you use?

First,  you can see if an IRA makes sense. Beyond that you can also set up a taxable investment account. There are plenty of options.

The bottom line is that you want to be saving, investing, and managing for risk. The type of account you use is secondary.

Bob Brooks is host of the Prudent Money Radio show.  Bob is also a financial advisor who helps people set and achieve financial goals. For more information or to set up a phone consultation, email Judy Parrish at judy@prudentmoney.com .

Is Pokemon Go Putting You in Danger of Identity Theft?

15855489588_6c209780a9_bIs Pokemon Go Putting You in Danger of Identity Theft?

Adam Levin, cyber security expert and author of his new book Swiped shared with me on the Prudent Money Radio Show the security risks hidden in our homes and on our phones. From Smart TVs, to coffee markers, and even apps on your phone – your personal identity is at risk now more than ever by hackers. He refers to Identity Theft as the “third certainty” in life.

There are some people who feel like there’s nothing they can do at all – it’s inevitable – or that they aren’t important enough to be a victim of identity theft. Then there are the ones that think it will never happen to them.  The main goal of any cyber thief is to exploit anything and everything for their gain – it has nothing to do with your net worth or assets. Having your name, address, social security number, date of birth is where the money is at; it is precious information that is sought out in the black market.

Identity Theft Protection Plan:

There is a philosophy when it comes to creating a ‘portfolio’ that protects your identity and credit. Adam Levin says you need to (1) build it, (2) nurture it, (3) manage it, and (4) protect it. Meaning – you have to be proactive. “In the world we live in, you will have an issue with identity theft.”

Part of any identity theft protection plan is a good antivirus program. I asked Adam, “How do you know which protection to choose?” Adam focused the answer around – “what do you want to protect?”. He suggests that you use the most sophisticated malware you can get. Most importantly research it on Google and read reviews.

Is Pokémon Go a Security Threat?

Pokémon go is the most downloaded iPhone app ever created and is found on 5% of all Android devices.  It also serves as a good example that you need to be careful.  The developers inadvertently set it up to where you give them authorization to have full access to anything in your Google account.  Since the discovery, they have corrected it.  However, it does serve as a good reminder to be careful.  All it would take is the databases of one of these App developers to get hacked and get all of your information.

Smart TVs That Can Spy on You 

TVs, appliances, HVAC, Smart Mattresses, devices to turn off and on lights and other appliance in home (ex. Amazon Echo); every single one of these gather, store and send information to the manufacturer in order to produce more effective products. Also, since all of these devices are wired to be informational logs – they can be hacked just like everything else. If the NSA can be hacked, so can your coffee marker.  Plus, could your Smart TV be spying on you?  Adam Levin addresses that in my interview.

For information about the book, click here. To listen to the interview, click here.

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