Entries for October 2008

If you were about to release a movie on shopping addiction, would you decide that now—as consumer spending plummets and the economy grinds to a slow crawl—was a bad time?

Advertising Age asked that very question, since "Confessions of a Shopaholic," starring Isla Fisher, is scheduled to hit theaters early next year. The movie, which is based on a book by Sophie Kinsella, revolves around a woman—who happens to be a personal finance reporter—who goes into debt buying the latest fashions. Just over 70 percent of respondents in Advertising Age's online poll said they would go ahead with the project, while the rest said they would hold off.

Dear Alpha Consumer,

Do you know if my biweekly 401(k) contribution (on my paydays) is invested based on the market price of mutual funds at the beginning of the day or the end of the day?   I know that normally one shouldn't be concerned about such things, but when the market swings up or down by 7 percent on a given day, it can make a difference.

When the market ends up 9 percent one day and down 5 percent the next, it's hard not to be concerned about the timing of investments. I asked Fidelity, the country's largest retirement plan administrator, when, exactly, 401(k) money from paychecks gets put into the market.

Anyone who stumbles upon Ivanka Trump's new blog, launched earlier this month, is greeted with the glamorous business woman's thoughts on how budgeting during a slowdown need not mean boring midday meals.

She writes, "With gas and food prices on the rise, more and more people are skipping the deli line and bringing lunch to work to save money. This is great, but all I hear is how boring a brown bag lunch can get and how people want something different, especially when they are stuck at their desks—something I completely relate to."

Many consumers are unlikely to even notice today's widely anticipated Fed rate cut, aimed at further encouraging lending and spending. While a Fed cut generally translates into lower rates on credit cards, mortgages, auto loans, and other types of borrowing, analysts say this time will probably be a little different. I spoke with Mike Larson, a real estate analyst at Weiss Research, to get his insight:

First, a Fed cut can't change that banks are nervous about lending to consumers right now because of fears that an extended economic slowdown will make it difficult for them to pay those loans back. "The obstacle is not the price of credit, it's the availability of credit," says Larson. If you don't have a good credit score, down-payment money (in the case of a mortgage), and a reasonable debt-to-income ratio, then it's hard for borrowers to get financing, regardless of the going interest rate.

In this week's issue of the magazine, I write about a new trend in retail: stores willing to customize products to your specifications instead of selling the same thing to everyone. Examples include wine, M&Ms, jewelry, and sneakers. There was one development that didn't make it into the article—RFID tags that let companies know exactly who you are and where you're looking.

Researcher and consultant Amudhanvel "Vel" Dhinagaravel says that in the not-so-distant future, we'll all have some kind of card in our wallets that lets stores know when we walk in. The stores will then customize their advertising to target whoever is walking by. Imagine, for example, that you often buy high-end orange juice. When you walk into a store, the displays post advertisements for expensive orange juice listed at full price. But when someone else—who tends to go for discount orange juice—walks by, the advertisements switch to emphasize sales in the orange juice section.

If this concept makes you uncomfortable because it sounds a bit too much like Big Brother watching your every move, you can take comfort in two facts: First, you are not alone. Companies are well aware that consumers don't like the feeling that they are being watched, so will very likely tread carefully. Second, this "new" technology isn't really that new. If you have a loyalty card at a grocery store, for example, the company is already tracking your purchases and marketing to you accordingly. Coupons at the end of receipts are often tailored to customers based on their purchases. So, in some ways, Big Brother is already watching.

What do you think—is new technology like this creepy or useful?

Over the weekend, I spoke with WTOP about the benefits of credit unions. Because they're owned by their members, they often offer lower fees, lower interest rates on loans, and higher rates of returns on savings. Many people assume they're unable to join but are, in fact, eligible through their cities, workplaces, or religious communities. (To find a credit union near you, you can check out NCUA, Find a Credit Union, or the Credit Union National Association.) Another benefit: Credit union accounts, just like FDIC-insured bank accounts, are insured up to $250,000.

When the markets are tanking, it's hard to watch your contributions to investment accounts evaporate. That's just what one reader, Terry, had on his mind when he asked:

I moved about 50 percent of my 401(k) into a stable value fund about three weeks before the Wall Street drop. The rest of my funds are in five different funds, all of which have dropped quite a lot in the last two weeks. Should I leave them alone? Should I get back into them at some point when their value is about 30 percent lower than when I got out of them?

With banks wilting, credit elusive, and retirement accounts slashed, this holiday season is going to jingle a little less than in years past. One survey by coupon site RetailMeNot.com found that almost half of shoppers plan to spend less on the holidays than they did last year, and TNS Retail Forward predicts that the season's spending will be the weakest since the 1991 recession.

While the newfound frugality will dismay retailers struggling to boost sales, it's actually, in many ways, good news. Strong consumer spending has helped drive the economy, but it has also drained family piggy banks. The average American is now responsible for over $17,000 in outstanding loans, excluding mortgages. At the same time, the holiday season's emphasis on shopping conflicts with the simpler lives that many consumers say they want.

Today's guest entry comes from chef and ecologist Aaron French, whose work focuses on the connection that food forms "between humans and our environment." He has a master's degree in ecology, is the chef of the Sunny Side Cafe, and writes the EcoChef column for 10 newspapers in the San Francisco Bay area.

In these times of financial uncertainty, everyone is looking for ways to save money and to make purchases more efficient. Certainly, we can buy less and buy what is on sale, but there are less obvious routes to efficiency as well. And as we change our buying habits to save money, we also can make a change for the environment.

Dear Alpha Consumer,

I just started a new job and want to roll over my 401(k)'s from my previous two jobs to my new one, so that my money is all in one spot. But I'm scared to move my money because with the market volatility right now, what if I lose out on major gains? Also, I heard that the majority of a person's lifetime gains are typically made on just a handful of days. Is that true? What should I do?

You should move your money without worrying about the market's ups and downs, says Diane Young, director of retirement and goal planning products at TD Ameritrade. Since you have decades until retirement, missing a few days is unlikely to do any major harm. While some research has suggested that significant gains happen on a relatively small percentage of trading days, trying to figure out and avoid those days is a strategy known as "market timing," and one that's pretty much impossible to execute, since no one knows when the market is going up or down.

For this week's Alpha Consumer Podcast, I interviewed Tom Romary, chief executive of Yapta.com, which helps consumers track the ups and downs of airline ticket prices and get refunds when their purchased tickets become cheaper. As a former vice president at Alaska Airlines, he also gives us an inside look at what's happening to the industry, and how we can navigate—and avoid—some of the price hikes.

Here are three of his tips:

• Consider the total cost of the trip, not just the ticket. Because airlines now charge for so many add-ons, from food to baggage check to changed itineraries, consumers should factor in all those costs in advance, and expect to pay them.

• Know your refund rights. Most airlines give refunds to customers who have already purchased tickets when the price drops, but only if you purchased the ticket directly from the airline itself.

• Think of all the extra charges as a good thing. They mean a lower ticket price, so each customer pays for only what he wants.

You can also get the Alpha Consumer Tip of the Week on saving money while buying wine.

This month's selection for the Alpha Consumer Book Club is Margaret Atwood's Payback: Debt and the Shadow Side of Wealth. While Atwood may be most famous for her novels—including The Handmaid's Tale, which looks at totalitarianism—her most recent book explores why we think about debt the way we do. Why do we accept it as part of our lives? Why does it sometimes seem shameful? Why do some of us take on too much of it? Those questions are, of course, especially relevant now, as our entire economy reels from the days of easy credit and subprime mortgages.

Atwood begins with a story from her childhood. When she started earning money as a baby sitter, she opened a bank account. The interest earned on that account baffled her. She writes:

This weekend, I spoke with WTOP about how the government bailout plan affects consumers, including the impact of additional bank account protections, and why having a strong credit score is especially important right now. Listen now, download in iTunes, or subscribe via RSS feed.

Are you spending more time on your sofa? Settling in with a good movie? Retreating to coziness is the new "painting the town red" as consumers try to deal with depleted investments and rising prices.

The futurist and business consultant Faith Popcorn has upgraded the trend she has previously identified as "cocooning" to "uber-cocooning" to signify the increased emphasis on home. According to her survey, almost 3 in 4 consumers say they spend "a good deal of time at home." Popcorn says that's because they view "home as the safe haven from the increasingly threatening outside world."

Last night, I spoke with CNBC's Carmen Wong Ulrich about how to hedge your heating bill this winter. Many heating companies offer deals that let you lock in the price of oil ahead of time so you don't get unexpectedly high bills if the price of oil goes up this winter. But there's a big downside: If the price of oil goes down, you lose, because you're stuck paying those higher prices.

Here are some tips:

• Contact your local heating company. Many companies offer special programs that let consumers either lock in prices in advance or spread out hefty winter payments over the entire year. But the easiest thing to do is to put aside cash before winter begins that will serve as a cushion in case prices go up. That way, you don't risk paying extra if prices end up going down.

With banks increasingly picky about giving out loans, now is the perfect time to boost your credit score. Anyone with a 720 or above will have a much easier—and cheaper—time borrowing money. Because few people go to the trouble of getting their credit reports, they often don't even realize there are mistakes until it's too late, when they're sitting across the table from a reluctant loan officer.

But going from a 600 to 800 isn't always easy. I recently heard from Ann, a 65-year-old from San Antonio. She said that she had tried correcting errors on her own credit report—including asking for the removal of addresses and names that she has never had—but found it very difficult to get the credit bureaus to remove those mistakes.

This morning's Commerce Department announcement that September retail sales were down 1.2 percent disappointed economists, who had expected a milder decline. It was bad news for retailers, too, who count on the upcoming holiday sales to boost their revenues.

The news got me thinking: For those of you already mulling over your present lists, are you scaling back? I'm wondering if the new "it" toy this year won't be a toy at all but something more frugal, and perhaps more thoughtful. A father might give his young son a day of eating whatever he wants instead of the latest Elmo incarnation. Or a daughter might remember the name of that author her dad loves and get his latest book instead of a new cashmere sweater.

In response to my recent story on the market meltdown, several readers posted questions about what they should do with their investments. Here are my answers:

I would like to invest in General Motors stock at $4.89 a share. Am I completely crazy?
—Joe Thompson

The last thing I'm going to do is recommend you buy a volatile stock like GM. Just because it's trading close to its lowest price since the 1950s doesn't mean it's a steal. The share prices have already recovered somewhat from last week's plunge but not by much. As I write this in the middle of the day on Tuesday, shares are trading around $6.60. So, while it's not too late to purchase what some would consider extremely cheap shares, the key thing you need to know is that you'd have to be willing to take on a lot of risk to buy in just as most investors are running for the exits. As analyst Daniel Silver told Barron's, reports that GM could merge with Chrysler have helped out GM's share prices, but the company is still in dire straits.

Check out this week's edition of the "Carnival of Personal Finance" over at Greener Pastures, where you can get tips on understanding the financial crisis and dealing with the stock market declines. For a glass half-full perspective, check out the Personal Financier's explanation of why the current downturn offers a useful learning opportunity.

This week has been hard on anyone with money in the stock market, even if it's through a 401(k) that won't be tapped for years. If the almost 40 percent decline since October 2007 has you feeling blue, here are some tips for dealing with the crisis:

• Hole up. Cook, rent movies, or schedule time on your couch and celebrate the basics that you can still count on, whether it's a favorite meal or favorite person. There's something comforting about knowing that even when times are tight—and they might get extremely tight—you can still enjoy yourself.

Yesterday, David Walker, former head of the Government Accountability Office, criticized both presidential candidates for failing to lay out a plan for cutting the national debt. He has long railed against the lack of spending controls and mounting government debt, and this financial crisis has made his perspective especially relevant.

As for consumers who don't have enough money for retirement, Walker says some people will just have to work longer—and he argues that's not a bad thing. The economy needs workers to grow, and health studies suggest people live longer when they continue working. So, in his view, we should be happy when we have to keep working well after age 65.

You can catch Walker in the new film, I.O.U.S.A.: One Nation. Under Stress. In Debt ., and companion book by the same title.

We know that Americans have lost millions in the stock market in recent weeks, but how will that affect the election? Will the fact that you've lost money, or feel less certain about the economy, change your vote?

Political experts say that for some voters at least, the answer is yes. Thomas Mann, senior fellow at the Brookings Institution, points out that historically, voters hold the party of the president responsible for bad economic times, and that hurts Sen. John McCain. He says, "We've had elections with bad economic conditions, during periods of war, and in periods of an unpopular president. In virtually all of those times, the opposition party has managed to win a comfortable election." Since all three of these situations are in effect now, Mann expects a victory for Sen. Barack Obama.

For this week's Alpha Consumer Podcast, I interviewed Rhonda Mims, president of the ING Foundation, and Valerie Brown, president of the ING retail annuities market segment. The ING Foundation recently completed a survey on black women and money that highlighted the group's generosity—more than a third had lent family or friends more than $1,000 in the past year—as well as the need for financial planning, something shared by all demographic groups.

Mims and Brown recommended a website, finra.org, that allows consumers to check up on financial planners. They also offered these tips:

• Use an automatic savings plan.
• Start with a workplace retirement plan.
• Join an investing club for women.
• Resist impulse purchases.
• Use credit cards sparingly.

You can also hear the Alpha Consumer Tip of the Week on opening those pesky plastic packages.

Meanwhile, if you're wondering whether this morning's Fed cut will affect you, here's an explanation of how it could lower rates for credit cards, auto loans, and mortgages.

We’ve been talking a lot about retirement calculators lately, but how do you pick a good one? A Web search for “retirement calculator” will bring you all kinds of free, online tools. But not all of them are equally useful. Some ignore inflation while others assume an overly optimistic view that income will grow by 3 percent a year or that the rate of return on investments will be 10 percent.

I prefer calculators that let you decide all the variables. They require more effort, but then you can see for yourself how a rate of return of 6 percent, or 3 percent, would affect future retirement income. Here are other factors to look out for:

Over the weekend, I spoke with WTOP about why retirement calculators can be helpful and what to look for when choosing one. Listen now, download in iTunes, or subscribe via RSS feed.

Facing the news that the stock market has plunged more than 300 points isn't the best way to start a Monday morning. As possible bank failures loom and our retirement accounts lose value, I think it's an ideal time to focus on what we do have. There are plenty of ways to frugally enjoy life, as many of our grandparents who lived through tougher times well know.

With that in mind, I'm continuing the "business of pleasure" series, which looks at industries—including coffee, chocolate, and now wine—that bring us enjoyment. I interviewed Tyler Colman, author of Wine Politics: How Governments, Environmentalists, Mobsters and Critics Influence the Wines We Drink. Before you tell me that wine is one of the first luxuries that should be cut during tight times, consider this: There are simple ways to reduce spending on wine without eliminating it altogether, such as buying bottles at the liquor store and refraining from ordering a glass with dinner at a restaurant. This month's Food & Wine magazine recommends plenty of bottles under $20. (If you're like me, anything over $8 is a splurge, and there are plenty of tasty bottles for less than $10, too.)

Today's guest entry comes from Roderick Simmons, founder of the blog Helping You Live Better :

In addition to a weakening economy, our country has experienced some of the worst natural disasters in American history over the last three years. As a Mississippi resident, I experienced Hurricane Katrina firsthand, and I've put together these money-saving tips to help people rebound from such tough times:

• Look for coupons before shopping. Major retail and grocery stores, including Walgreens, Wal-Mart, Rite Aid, and Kroger post their coupons online, so you can see what's on sale prior to shopping. Rite Aid has instant coupons that you can use for online purchase, and Walgreens has coupons you can print out. Or, you can register and receive a weekly E-mail.

I could have taken a vacation to Greece with the money I've lost in my retirement account this year. When I told my husband that my 401(k) balance had plunged 17 percent since January, he said the solution was to stop looking at it.

He has a point, but there's something to be said for embracing the shock of just how paltry many of our nest eggs have become. According to a recent report by the Transamerica Center for Retirement Studies, most of us guess how much money we'll need once we stop working. Only 1 in 10 people does any sort of calculation at all. That might help explain why, on average, Americans are on track to replace less than 60 percent of their income during retirement. Financial experts generally recommend that retirees replace at least 80 percent, given the rising costs of healthcare.

Alexandra Armstrong, a financial planner in Washington, has been fielding four or five calls a day from customers, especially those in retirement, worried about their investments. Her advice: Stay the course. "We think things will eventually get better," she says.

The biggest concern retirees have, she says, is that their income will go down. Armstrong tells them that while she can't promise them that companies won't cut their dividends—and indeed, some companies already have—it won't mean a material change in their income, which also comes from other sources such as money market funds.

William Isaac, chairman of the Federal Deposit Insurance Corp. in the 1980s, says banks need confidence, not a bailout. "I don't see how the expenditure of $700 billion will give people any confidence in the economy. It's not going to happen," he says. Instead, he'd prefer tax incentives and investment credits or even tax cuts directly to consumers, which could boost spending, at least in the short term.

In fact, Isaac thinks the bill, if passed, could hurt the economy by undermining confidence. Says Isaac, "I think the dollar could decline and commodity prices could go up," as oil already has.