Although It Doesn't Seem Like It, Homeownership in America Has Returned to Normal

Homeownership rates in America are much lower than just a few short years ago.

Yet homeownership rates are now normal when viewed from a historical perspective.

How can this be?

Well, the answer is simple. The first several years of the new millennium weren't normal.

In fact, although destructive to the financial health of countless individual American families and our nation as a whole, the housing bubble was indeed a one time fiasco, albeit an enormous one.

And as a result, an entire generation of Americans came to erroneously believe that normal meant what was happening between the middle 1990's and the early 2000's. Home prices escalated more from 1995 through 2006 than they had in the prior 100 years. In fact, during that boom period they more than doubled in inflation adjusted terms after essentially having been flat for the entire prior hundred years plus.

Artificial housing demand was stimulated by buckets of 'free money' there for the taking. This abundance of 'free money' in turn created unsustainable and artificial demand which caused home prices to increase to unsustainable levels. Buyers of the 'American Dream' with little or no saved money became temporarily 'happy homeowners' --- until the unaffordable fiasco ended, that is.

Then the bubble burst, and foreclosures and a lousy high unemployment economy became the new 'normal' throughout our wonderful land. We're still sobering up today and will be for some time to come --- maybe a long time.

The Homeownership Rate Is Now The Lowest Since 1989, But There's a Silver Lining puts the story of American housing in its proper perspective:

"The U.S. homeownership rate continued to decline in 2015, hitting its lowest level since 1989. But economists saw a silver lining in that number.

The seasonally adjusted homeownership rate declined to 63.8% in the first quarter of 2015 compared with 65% in the first quarter of 2014, according to estimates published by the Commerce Department on Tuesday.

For the second consecutive quarter, the number of total households–renters and owners–jumped significantly. Because many of those new households are renting, that can drive down the homeownership rate as a percentage of total households, while providing a glimmer of hope in the long term.

The report estimated that renter households increased by more than 1.8 million from the first quarter of 2014, while the number of owner households decreased by 386,000. . . .

Economists have been waiting for 20-somethings to emerge from their parents’ basements and begin renting on their own. That is important for the owner-occupied market because, eventually, those renters will likely buy homes.

“Many of those new renter households will become homeowners, but probably not soon,” said Jed Kolko, chief economist at Trulia.

The homeownership rate has fallen steadily since 2005, when it peaked at 69.2%. That followed a decade long campaign to expand the homeownership rate, launched by President Bill Clinton in 1995 and embraced by President George W. Bush in the early 2000s.

Economists said that they expect the homeownership rate to plateau at some point in the coming months but that it will likely be a long wait before it improves significantly. In part that is because people who went through foreclosure are struggling to repair their credit and accumulate down payments to return. Younger people are also putting off marriage and children and thus homeownership."

Summing Up

Housing should not be viewed by individuals as an investment -- at least not a good one.

And excessive borrowing to purchase that 'dream home' can be hazardous to a person's financial health -- the dream can all too easily become a nightmare.

Government policies and easy credit created the conditions for the recent housing debacle for which we'll be paying for a long time to come.

The recent recession and current lousy economic recovery in large part are results of this government enabled housing debacle.

Let's hope the lessons have been learned by one and all, both as individuals and as government officials, with respect to the effects of excessive and speculative borrowing and living beyond our means.

That's my take.

Thanks. Bob.

Baltimore Today, Where Tomorrow? ... Cities, Schools, Students, Unions and Politics ... Proximate vs. Root Causes

Riots are occurring in Baltimore. As a result, the schools are closed today.

But apart from safety, maybe closing the city's schools is not such a bad thing, assuming We the People are preparing ourselves to tackle the root causes --- as opposed to the proximate causes --- of the fundamental problems in too many large American cities with inadequate systems of education and a resulting lack of work opportunities for the young and old alike.

People with a solid education do better in life than people without one. And knowledge, aka showing up, thinking, working hard and acting right, are learned behaviors necessary for a life well lived.

But when our system of education is inferior and knowledge isn't gained in sufficient quantity at an early age, our future opportunities and odds for a successful standard of living are diminished. Then we tend to believe it's 'hopeless' to believe in a better future.

As a result, sometimes riots happen, looting takes over and the city shuts down. That's Baltimore today.

The proximate cause, of course, is the death of a young man while in police custody. The root cause, however, is more likely the lack of opportunity and hope for the future of citizens in inner city Baltimore today.

In my view, a lack of a solid education and not knowing how to act as members of a civil society all too often result in widespread poverty and ignorance (not stupidity but ignorance).

So what about We the People setting about working hard to improve education? Isn't that perhaps the root cause of what's happening in Baltimore today?

Shutting Bad Schools, Helping Students is subtitled 'Relocating children to a new school isn't popular, but research shows it is a boon to their education:'

"As difficult and disliked as school closures can be, a new study being released Tuesday by the Fordham Institute indicates that the students usually benefit. When we looked at the impact of closures on their achievement, we found that, on average, children directly affected by closure gained significantly—the equivalent of an extra month of learning in their new schools.

Shutting schools is politically dangerous. Just ask a big-city mayor or superintendent who has tried it. In Chicago, Mayor Rahm Emanuel has had to fight for his political life after taking heat for closing scores of schools in 2013. Even with school budgets drowning in red ink, authorities in Chicago, New York City, Washington, D.C., and many other places have faced intense resistance to school closures. Survey data helps explain: Nearly 60% of Chicago voters disapproved of the school closures supported by the mayor.

So shutting schools is unpopular. But what if that’s best for the kids trapped inside?

For our new study, we looked at Ohio, home to cities that have struggled with sluggish economies, waning populations and competition from charter schools. . . .

As one might expect, these urban school closings affected mainly disadvantaged pupils. In the nearly 200 closed district and charter schools we studied, 73% of students were African-American and more than 85% were poor. The average student in a closing school scored at approximately the 20th percentile on Ohio’s math and reading tests. . . .

To suggest the size of the educational impact of closure, we presented the findings as “additional days of learning,” which assumes that a year’s worth of learning happens over a 180-day school year. This metric captures the incremental benefit of an intervention—in this case, school closure—on test scores, and is frequently used in education research to convey the results of statistical analyses.

The research reveals that displaced students typically receive a better education in their new school, relative to what they would have received in their closed school. Three years after closures, the public-school students had gained, on average, what equates to 49 extra days of learning in reading—gaining more than a year of achievement growth, as measured by state reading exams. In math, they gained an extra 34 days of learning, as measured by state math exams. In the charter sector, displaced students also made gains in math—46 additional days. These learning gains correspond to an improvement that moves students from the 20th to 22nd percentile in the achievement distribution.

Across both sectors, when students landed in higher-quality schools than the ones they left behind, the gains were even larger—60 days in both math and reading for public-school students, and 58 and 88 days, respectively, for charter students. In other words, students displaced into a higher-quality school make gains that boost their achievement from the 20th to 23rd percentile.

These results suggest that charter and district authorities should welcome school closures as a way to improve the education outcomes of needy children. Of course they must also be judicious, take into account the supply of higher-quality schools, and work with parents and community members to ease the transition. But done properly, shuttering bad schools might just be a saving grace for kids who only get one shot at a good education."

Summing Up

Far too many schools in American cities aren't operated for the benefit of their students.

As a result, our society becomes weaker, opportunities are lost and our overall
American economy and quality of life suffer.

If we never get serious about improving education in our cities, our society will continue to deteriorate. But the good news is that the choice is ours to make. It's not for the teachers' unions and local politicians to decide.

Will We the People finally address the root causes of our problems or, as has long been the case, simply sit back as observers and choose to condemn the actions of either the police or the rioters? The choice is ours.

That's my take.

Thanks. Bob.

A Sobering Look at the Present and Future States of American Colleges with the Leader of Purdue University

Mitch Daniels, after a successful career in politics, is the leader of Purdue University and an outspoken critic of the status quo.

His views are very much on point and relevant to our system of higher education in America today ---and tomorrow as well.

How to Save American Colleges is subtitled 'The Purdue president on freezing tuition, how to reduce student debt, and busting the accreditation cartel' is worthwhile reading in its entirety:

"It doesn’t much matter where you go to college.

What matters is “how you go,” says Purdue University President Mitch Daniels, the former governor of Indiana. He then lays out the results of the Gallup-Purdue Index, a national survey of 30,000 college graduates that was first released last year. The survey attempts to quantify not only what graduates earn but also how well they are navigating adult life.

A mere 39% of college graduates report feeling engaged with their work, and in that group as many hail from top-100 schools as don’t. The three most important contributions that college makes to a sense of workplace thriving after graduation: Having one professor who made you excited about learning, feeling as though teachers cared about you, and working with a mentor. Graduates who checked those boxes were more than twice as likely to sense they are flourishing at work.

But only 14% of those surveyed said they had hit that trifecta in college. Other positive factors from undergraduate experience: working on a long-term project, having an internship and participating in extracurricular activities. Where graduates went to college barely registered as a predictor of job satisfaction. . . . after Mr. Daniels arrived at Purdue -- His first order of business: freeze tuition.

“I had a sense, first of all, it seemed like the right thing to do. Not to skip over that. But secondly that we probably could do it without great difficulty,” he says. For decades college tuition has outpaced inflation, forcing students to increase their borrowing, but next year’s Purdue seniors will have never seen a tuition increase. . . .

Not many colleges have followed . . .

The jig is about up. “I don’t know what the rate of the shake out will be, but you can already see the front edges,” Mr. Daniels says, referring to colleges that have begun shutting down. “A year or two ago, it was schools you hadn’t even heard of. This year it was Sweet Briar,” he says, of the 114-year-old Virginia women’s college that announced last month it is closing because of “insurmountable financial challenges.”

Mr. Daniels notes: “The top 10 endowments have something like a third of all the money, and the top 40 have two thirds or close to it. If you’re outside that group, and you’re charging these tuitions, I hope you’ve got a Plan B.”

Mr. Daniels lists what he has discovered are the top concerns of Purdue students—the cost of tuition, the price of room and board and textbooks—and seems to be working his way down that list, including nitty-gritty projects like reducing the cost of the meal plan by 5%. The college has deputized 18 loan counselors to warn students about borrowing too much; in the past two years, total debt has dropped $40 million. . . .

Mr. Daniels has also set out to measure what Purdue students are learning. More than 35% of college students at a range of four-year institutions showed no growth between freshman year and commencement in areas like critical thinking and writing, according to research by Richard Arum and Josipa Roksa in their 2011 book “Academically Adrift: Limited Learning on College Campuses,” a work Mr. Daniels keeps on his bookshelf. Similar findings emerged from a 2005 Education Department report that found more than half of four-year college graduates could not compare viewpoints in newspaper editorials.

“I do think there’s a duty to try to validate a product charging this much money. People are saying: Show us there’s growth during those four years,” he says. “Particularly if you’re associated with a university you think is doing a fine job, I see this as an opportunity more than a defense mechanism.” The Purdue faculty, however, seems less enthusiastic about the opportunity—and though Mr. Daniels doesn’t say so, some teachers seem to be slow rolling his efforts by claiming they need more time to develop what they deem an academically valid standard.

Mr. Daniels also has some advice for Congress as the Higher Education Act of 1965 comes up for reauthorization. “Clearly an opportunity in deregulation,” he says. The act’s provision for Free Application for Federal Student Aid, a form that students use to figure out federal aid eligibility, has 108 questions, many of them useless.

Another problem: The aid-application system requires the disclosure of parental savings in addition to their current income, meaning it punishes parents who planned ahead. A potential new wrinkle in government hostility to saving for tuition came in January, when President Obama floated the idea of taxing so-called 529 accounts used by middle-class savers putting away money for their children’s education. A week later the administration backtracked amid irate public reaction. . . .

As a college administrator, Mr. Daniels has also taken notice of the bureaucratic accreditation process that is a prerequisite for receiving federal funds. Six regional groups blessed by the Education Department, as well as a coterie of program-specific organizations, sign off on an institution’s programs. The ostensible goal when Congress coupled federal funding with accreditation in the 1952 G.I. Bill was to protect students from colleges hawking worthless degrees.

That hasn’t happened. Instead, universities devote considerable resources to a useless process. Almost no institution misses the mark, and since accreditation is done geographically, an upper-tier school like Purdue is accredited by the same agency that has given accreditation to Indiana University East, where the six-year graduation rate is about 18%.

Purdue pays $150,000 annually in direct accreditation fees, working with any combination of 17 agencies—but that doesn’t include time. Stanford University Provost John Etchemendy said in a 2011 letter that the school spent $849,000 in one year of a multiyear accreditation. “One suspects you have some basic inertia and some folks would rather spend their time being busy with this than doing something more productive,” Mr. Daniels says with a faint smile. “I refer of course to the people on other campuses.”

‘All this time and money and in the end some really lousy schools get accredited, so I’m not sure what the student—the consumer—learns.' . . .

Mr. Daniels has made a habit of searching out what “ought to be looked at” in his two years running Purdue, getting his school in shape for when the higher-education bubble implodes. It’s all part of trying to provide the accountability that students and parents are starting to demand. “Higher education has to get past the ‘take our word for it’ era,” he says. “Increasingly, people aren’t.”"

Summing Up

Mitch Daniels is an outstanding public servant.

He speaks the truth and acts accordingly.

Not very many of our so-called leaders are willing to risk doing those two things.

They're too busy running to stay in office.

And we're worse off as a result.

When the rulers, aka We the People, don't take charge, far too many of the purported 'servants' take advantage of the 'rulers.'

In turn, that weakens us, both as individuals and as a society.

That's my take.

Thanks. Bob.

Without the Requisite Knowledge and Understanding, Being Free To Choose About Debt, Housing and Knowledge Doesn't Always Work to Our Advantage ... It's Especially Harmful to the Government's Intended Beneficiaries ... The Poor and Middle Class

Far too many Americans owe too much money for the knowledge we've gained, the houses we occupy, and the debt obligations we've undertaken.

A college degree is not an automatic ticket to financial security. Neither is a house an automatic ticket to financial security. And debt is never free.

Yet a lack of knowledge leads us to conclude that we 'can't miss' by taking on mountains of debt in getting that expensive college degree and by purchasing a 'no to low money down' home as soon as possible after graduation. Nothing could be further from the truth.

Nearing Peak, U.S. Home Price Gains to Slow has this to  say in relevant part:

"Housing starts, as reported by the Commerce Department, have been in a deep funk ever since the U.S. housing bust and Great Recession hit with such ferocity in 2007. They sank from an annual pace of more than two million in the 2004-2006 period to around 500,000 in 2009. They’ve bounced back since, but can’t seem to get much over the hump of one million a year, even though population growth and immigration alone would seemingly dictate construction of at least 1.4 million homes annually. . . .

 

One theory holds that growing income inequality has stymied the millennial generation (folks born between 1982 and 2000) from playing the same role in energizing the housing market as did their parents and grandparents. This is the most populous generation of potential home buyers. Yet the millennials have largely been missing in action in the home market, forced by college-debt burdens and sketchy incomes to double up in apartments or remain in their parents’ basements rather than form and head new households. . . .

 

In addition, 27% of the owners of the lowest-priced third of U.S. homes remain in negative equity (owing more on their mortgage than the value of the dwelling), making them reluctant to do anything . . . .

 

As a consequence, . . . first-time buyers—millennial or otherwise—have sunk to 28% of purchasers of existing homes; the normal historical level is 40%. Without a strong cadre of first-time buyers, the entire residential real estate ecosystem stagnates. Move-up activity languishes because not enough people are buying their first homes, allowing others to purchase more expensive digs.

 

Likewise, future home price growth figures to be tempered by continuing tightness in mortgage credit. True, the government in recent months has tried to entice more lending to first-timers. For example, for folks with strong credit, it has cut mortgage down-payment requirements, to just 3% from 20%, on loans that Fannie Mae and Freddie Mac guarantee.

 

But lenders aren’t loosening credit standards much, either to mortgage borrowers or smaller home builders, who in the past supplied much of the starter-home inventory. And who can blame them? . . .            

                                                    

FEW OBSERVERS HAVE as acute an understanding of the residential market as Yale economist and Nobel Laureate Robert Shiller. He was co-creator of the Case Shiller home price indexes and has done extensive academic research on housing prices in the U.S. and abroad....

 

Shiller evinced concern about the prospects for homeownership in the U.S. . . . many buyers during the boom years, aided and abetted by real estate industry cheerleaders, made the mistake of regarding homes as an asset class, like stocks or bonds. This is clearly not the case.

 

Homes, in fact, are a consumption item that depreciates, albeit at a much slower pace than, say, cars, requiring much upkeep spending to hold value. In fact, about the best one can expect in home appreciation over the long term is to match inflation. That’s what a study of U.S. home prices from 1890 to 1990 showed. Actually, Shiller found that prices outpaced inflation by a trivial 10 basis points (a tenth of a percentage point) annually. . . .

 

Americans no longer expect lush annual gains in home values. And . . . Shiller detects reluctance on the part of many to shoulder the long-term commitment that a home requires. “People are clearly beset by insecurity over their careers, both as a result of globalization and job displacement by computers,” he observes. . . .

 

The future course of home prices is immensely important to the U.S.

 

Residential real estate accounted for $23 trillion of Americans’ total 2014 year-end net worth of $83 trillion, according to the Fed, affecting people across the entire income scale."

 

Summing Up

 

Americans owe too much and in our slow growth debt ridden global economy, we are earning too little.

 

Both K-12 and college education costs have skyrocketed in recent years, and student loans are at historically staggering levels.

 

Meanwhile, the great American home pricing bubble has burst in a big way.

 

As a result, far too many people are deeply in debt, with student loans and home mortgages, along with credit card and auto loans, leading the charge.

 

The government's attempts to help kids from low and middle class earning families borrow heavily to get expensive college degrees and then acquire low money down home mortgages have backfired in a big way.

Government policy makers have clearly demonstrated once again that the law of unintended consequences is alive and well, and that the road to financial hell is indeed paved with good intentions.

 

So now we all suffer, but in the end, we have nobody to blame but ourselves. We the People are the real 'rulers.' We are free to control our own destiny.

 

The basic American freedom to choose is a wonderful thing, but exercising that freedom without the requisite understanding and knowledge --- especially about the perils of debt --- can be dangerous to our individual and nation's future health and well being.

 

That's my take.

 

Thanks. Bob.

Health Care Costs, Premiums, Deductibles, Subsidies and Wage Increases ... ObamaCare Won't Help

Health care costs aren't rising as quickly as they did for many years, but don't get your hopes up. While it may appear that costs are abating in the health care sector, they aren't --- at least not in inflation adjusted terms.

The fact is that health care costs are increasing at a much faster rate than other costs are rising, including wages. Thus, health care as a percentage of our economy continues to grow uninterrupted. Things aren't improving, regardless of what the politicians may say and want us to believe.

And besides that, ObamaCare and government created monopolies in the health care sector will cause prices to rise down the road by far more than we would experience in a healthy competitive environment for health care. See The ObamaCare Effect: Hospital Monopolies.

The slow growth non-inflationary government driven U.S. economy has resulted in low employment, underemployment and low wage increases compared to health care cost increases. The lack of inflation generally has caused health care costs in percentage terms not to rise as high as historically has been the case. In inflation adjusted dollars, however, it's a different story completely.

When we include the impact of health care premiums, co-pays and deductibles, the real cost of our health care system continues to outpace other costs by a wide margin.

Why Low Growth in Health Costs Still Stings has the story:

     

Kaiser Family Foundation

"In my last Think Tank piece, I {President and CEO of Kaiser Family Foundation} reported that just 3% of Americans felt health costs had been rising more slowly than usual, even though they have been growing at record low rates in recent years. The chart above shows why that might be the case: The gap is widening between growth in wages and what workers pay for health premiums and deductibles. The gap between deductibles and wages is especially yawning, reflecting the steady growth in deductibles seen in recent years. Since 2006 wages have grown 23% while deductibles for single coverage have risen 108%.

The rate of increase in health spending and premiums in recent years is about as low as I have ever seen it. But for most people the pain from health-care costs is more intense, because the divide between out-of-pocket health costs and individuals’ wage growth has widened. Deductibles in particular could be the emerging issue in health policy.

An improving economy with, one hopes, more robust wage growth would help ease the sting of out-of-pocket health costs. But all signs suggest that out-of-pocket health costs will continue to rise faster than worker earnings. No employer I know wants to increase deductibles, if only because raising cost-sharing is so unpopular with employees. But employers have limited options to forestall premium increases, and they know that unless they do so their health premiums will continue to rise and it will be more difficult to raise wages and hire more workers. Ultimately, employers need better ways to control health-care costs."

Summing Up

The next time you hear that health care cost increases are abating, remember that they are in fact increasing at a faster pace than salaries are being raised.

And remember too that premiums, deductibles and co-pays are being increased because health care costs continue to be out-of-control.

The lack of general inflation, due to declining energy costs and a lousy economy, has made health care cost increases not as high as they used to be, but that's no reason to cheer.

What We the People really need is a faster growing private sector economy, but that doesn't appear to be anywhere on the political agenda in Washington. 

That's my take.

Thanks. Bob.

Harmful Government 'Help' and the Law of Unintended Consequences ... Low and Middle-Income Individuals Suffer Most from Student Loan Delinquencies

Student loan delinquencies are highest among the individuals most in need of student loans. It's another great example of 'good' government intentions followed by the law of 'bad' and unintended consequences.

That said, who can be surprised when government programs fail to produce the promised results?

In any event, and with respect to unpaid student loans, the people most likely to default are the ones who the government is trying to help the most --- the students who come from low income families.

As news broadcaster Edward R. Murrow said, "The obscure we see eventually. The completely obvious, it seems, take longer."

Fewer low income borrowers benefit from student loans has this to say about low income borrowers and student loans:

"The borrowers struggling the most to pay off their student debt are exactly the people that student loans are designed to help. . . . low-income borrowers were more likely than their wealthier counterparts to default or be at least 120 days delinquent on their payments within five years of graduation, according to data released Thursday by the Federal Reserve Bank of New York. More than half of borrowers who left school in 2009 — during the depths of the Great Recession — and were living in households that earned less than $40,000 a year when they took out their student loans, were delinquent on their payments or in default within five years of leaving school. . . .                                    

“It presents a very difficult dilemma for policy makers,” Donghoon Lee, an economist and research officer at the New York Fed told reporters at a press conference Thursday. “These are the very groups of borrowers that student loans are intended to help the most, but at the same time these borrowers are struggling the most with their student loans.”. . .

Theoretically, student loans offer a pathway for poor Americans to reap the benefits of a college degree; bachelor’s degree holders earned $23,000 a year more than high school graduates, on average, in 2014 and were less likely to be unemployed, according to the New York Fed. . . .

But the benefit of taking out loans to attend college is particularly low for those who never graduate, a scenario low-income students are more likely to face. In 2013, about 21% of students in the bottom income quartile who entered college earned their bachelor’s degree by the time they were 24, according to a February report from Pennsylvania Alliance for Higher Education and Democracy and the Pell Institute for the Study of Opportunity in Higher Education. That’s compared to 99% of students who entered college from high-income families."

Summing Up

Education is a strong indicator of future earnings. All else being equal, the more education the better.

And this is especially the case for those who come from low and middle-income families.

That said, lots of low income individuals attend inferior K-12 schools and enter college unprepared to do the academic work necessary to be successful and graduate.

And if the student leaves college prematurely with lots of debt but no degree, that student probably would have been better off not going to college at all.

So when government programs encourage the unprepared to borrow money to attend college, or when the student isn't serious about doing the work required to get that coveted degree, a pile of debt awaits our 'poor' performer as he enters adulthood.

Government intentions which aren't combined with thoughtful actions are just political acts of grandstanding by politicians.

For the intended beneficiary and 'poor' borrowing student, these political showboat performances represent financial nightmares in the making.

That's my take.

Thanks. Bob.

The Cost of Attending College is Shockingly High, but the Pay for the Majority of College Teachers is Shockingly Low ... What's Going On?

The cost of attending most colleges today is too high and essentially out of control.

And this very real out-of-control cost situation is the reason why students and their families can't afford to pay the bills on their own and why individual states can't continue their generous subsidies.

And it's also why the student loan mess has become such a huge financial issue. In fact, more than 30% of student loans currently scheduled for regular payments are now delinquent. It's not a pretty picture.

Yes, college is too expensive. But that's not even the biggest problem.

No, the biggest problem is finding out where all the money is going that the colleges receive from students, parents, local, state and federal governments in the form of direct payments, grants, subsidies and loans. Where it's not going is to the teachers doing the majority of the teaching, that's for sure.

In fact, according to a just released study, the compensation for more than 50% of the teachers at colleges (part-time and adjunct college teachers) is shockingly low. And get this --- 25% of those teachers are even receiving government provided benefits intended to aid the poor.

In my view, the biggest cost problem is the out-of-control administrative and overhead bureaucracy. Value for money is a missing part of the equation for too many American institutions of higher education. But then why do colleges even exist, if not to provide a quality educational experience for students by offering them the 'biggest possible bang for the buck?' 

Now let's do a simple math experiment. We'll assume that 27 students are enrolled in each class and that each student takes five classes per semester, or ten classes per year. Each course is worth three hours of credit, or 30 earned credit hours per year. That's a 'full load' and the student will be on track to graduate in four years after having successfully completed a total of 120 hours of academic credits.

So far so good, but now comes the shocker.

The teacher of those students (assuming he or she is an adjunct professor, or part-timer, will be paid a total of only $2,700 per course, or $27,000 per year, for teaching those ten classes.

That represents a cost of $1,000 per student per year for each of the 27 students. But if college costs each student ~$5,000 or $10,000 annually, excluding room and board, where does the other $4,000 or $9,000 go that the student pays to attend? Beats me.

25% of college adjunct faculty get government assistance offers up the gruesome details:

"A quarter of the growing number of part-timers who are teaching college students need some government help to get by, according to a study from the University of California Berkeley Center for Labor Research and Education.

Nearly 100,000 of these part-time faculty, generally known as adjuncts, benefit from the earned income tax credit and, to a lesser extent, Medicaid and the CHIP health-care program for children, the Supplemental Nutrition Assistance Program, previously known as food stamps, and Temporary Assistance for Needy Families, or TANF, according to the study.

“It’s shocking, but it’s the reality,” said Carol Zabin, research director at the Center for Labor Research and Education. “Universities are depending much more on part-time and adjunct faculty.”

Indeed, the American Association of University Professors reported this week that well over half of the college academic labor force is part time. That includes both graduate teaching assistants, which account for 12.2%, and other part-timers, or adjuncts, which are 46.7% of the total.

Adjuncts can teach a range of courses, but are generally kept to under 30 hours a week and are ineligible for university-provided health insurance. Some are paid by the credit hour, while others are paid by the class or semester, making it hard to collect data on average adjunct pay, said John Barnshaw, senior higher education researcher at the American Association of University Professors.

The Coalition on the Academic Workforce says an adjunct on average is paid $2,700 for teaching a three-credit class.

Of course, other workers rely heavily on food stamps and other government aid, but they tend to be in low-status jobs like fast-food work, which pays closer to the hourly minimum wage."

Summing Up

If the biggest share of the cost of attending college isn't going to pay the teachers, and obviously it isn't, then where is it going?

And if the lion's share of the money being spent for college isn't being used to educate the students, then why spend it?

Isn't government great? And aren't our institutions of higher learning wonderful stewards of the public money and always acting in the best interests of their 'customers,' aka students?

My take is no. Not even close.

Thanks. Bob.

Saving for Retirement ... Start Early ... Internalize the Rule of 72 at an Early Age

We all know that time lost is gone forever, the early bird gets the worm, that tomorrow is never just 24 hours later than today, and so forth.

And so it is true with saving and investing properly for our retirement years as well. Never put off until tomorrow that which should be done today.

In other words, our future self is depending upon our present self to 'take care of business' now so the future can be enjoyed thoroughly and without experiencing unnecessary and completely avoidable financial worries.

Delaying retirement saving can cost you --- a lot tells the present versus future story in a straightforward manner:

"When it comes to saving for retirement, let’s face it: Procrastination isn’t unusual.
Now, a new study quantifies just how pervasive — and costly — such behavior can be.

According to a survey . . . , 68% of adults ages 55 and older admit to having gotten a late start on their retirement savings.

While, on average, the 968 respondents said 25 was the right age at which to start saving for retirement, they report having taken action 10.6 years later, at 35. Reasons for the delays include the usual suspects: Other priorities (40%), confusion over how to get started (23%), and difficulties setting aside the money (20%).

What’s the big deal about delaying? It turns out that making up for lost time isn’t easy. In fact, . . . someone who saves 6% of a $36,000 salary (that grows by 1.5% a year) starting at age 25 will have close to $500,000 by age 65, assuming a 3% employer matching contribution and a 5% annual return. But to reach the same target, someone who starts saving at 35 has to contribute 12% a year. For someone who starts at 40, the magic number is 16.5%. . . .

The reason why, of course, comes down to one word: Compounding."

Summing Up

The power of compounding is real indeed. The 'magical' rule of 72 needs to be taught and understood at an early age. The rule is that a double of any amount invested takes place each time the number of years invested times the average annual rate of return on the amount invested equals 72. {For example, 9X8, 12X6, 18X4 all equal 72. Thus, 9 years at 8% or 8 years at 9% means 1 grows to 2.}

And our schools are failing big time by not teaching the rule of 72 to the young. The simple fact is that beginning to save and invest early -- not borrow -- is an absolute winning approach to later individual financial security and happiness.

The 'magical' rule of 72 makes that last double a real biggie when the process is begun at age 20 and not age 30. How big? 

Well, one dollar which grows 7% annually will double ~5 times between age 20 and age 70. That's the simple rule of 72 working for the early saver and investor. $1 becomes $2 at age 30, $4 at age 40, $8 at age 50, $16 at age 60 and $32 at age 70.

That same dollar invested at age 30 grows to $16. Thus, $1 will likely become $16 or $32, depending solely on when it's invested.

The math is simple. Becoming knowledgeable about the 'magical' Rule of 72 and then developing the habit of saving and investing early in life is what needs our immediate attention.

That's my take.

Thanks. Bob.

Going from "You Owe Me" to "I Don't Owe You" is a Great Plan --- Excessive Personal Debt Is a Bad Hole to Dig -- But If You're Already in That Hole, Please Do Yiurself a Favor and Stop Digging

We are a heavily indebted nation and world.

As individuals we are all too often in even worse shape than the nations and world we inhabit.

Excessive personal debt is both debilitating and burdensome, and that's especially the case in today's (and tomorrow's too) largely inflation free environment.

That's simply due to the fact that the long playing game of borrowing money in today's dollars and then paying them back over time in cheaper inflation adjusted dollars has ended.

What used to work to the benefit of borrowers in an inflationary economy now works to the detriment of debtors in a low inflation environment.

In other words, the money we borrow and owe today will generally need to be repaid, both principal and interest, in today's dollars. And to top it off, salary increases in this 'new normal' low to no inflationary economy will continue to be low and will require that today's real money be used to repay the real money that we borrow tomorrow and beyond.

Yes, inflation is the friend of the debtor. But alas, the debtor is now on his own in this low inflation environment where house price increases and salary increases are hard to come by.

The Emotional Cost of Debt captures the essence of the non-financial aspects of our indebtedness problem well:

 

"One of my all-time favorite “Seinfeld” episodes is where comedian Kenny Bania gives Jerry Seinfeld a brand new Armani suit and tells Jerry that they can call it even if Jerry takes Kenny out for a “meal” sometime. Seems like a reasonable deal, right? Jerry gladly accepts the offer and then ends up taking Kenny out to a restaurant and since Kenny was full from a hot dog he recently ate, he decides to just order soup. Kenny and Jerry argue about whether soup is a side dish or a meal and inevitably Jerry loses the argument. Jerry left the dinner with one of the worst three-word phrases hovering over his head: You owe me! . . .

Debt comes in many shapes and sizes. But no matter how large or how small the debt, it certainly takes an emotional toll on us. . . . Consider the mortgage debt that feels like you will never be able to really pay off. How about the credit-card and student debt that is piling up on Americans across the country?

Waking up every morning thinking that you owe someone can be a burdensome load to carry, no matter your age or stage of life. . . .

Carrying any type of substantial debt for a long period of time can extract several types of negative emotions.

• Why Me? . . . money arguments are one of the leading causes of divorce. Resentment is a strong emotion that can come between couples specifically over debt. Perhaps it is a student debt that one partner brought into the marriage. Or what if one spouse wants a fancy car that requires a huge loan while the other partner drives the minivan?  Debt can cause the “why me” syndrome, where you think that any other way of life besides the one you have now would be better.

• High Anxiety. Ask most people why they work and they will tell you that they have bills to pay. It’s often the mortgage, the car payment or the monthly credit-card bill that seems to creep up every month. This anxiety takes a toll on your performance at work and your attitude at home. It can make you grumpy, irritable, and despondent.

• Complete Denial. For those of you who have consistent credit-card debt or are on your third home refinance, you may have sent yourself into denial about being in debt at all.   You have just succumbed to the fact that you’ll always owe people and it doesn’t really matter anyway. . . .

Being debt free is much more than calculating your net worth or checking something off the to-do list. Getting rid of the words “You owe me,” be it financially or personally, will allow you to live a much happier and more fulfilling life. . . . Make your plan to pay off your debts and it just might be the smartest money move you make in 2015."

Summing Up

Being heavily in debt is debilitating in many ways. But being needlessly indebted is both a very widespread and bad habit.

If you're not heavily in debt, please don't become so. Your future self will be happy that your present self 'took care of business.'

But if you are already deeply in debt, stop digging immediately. Don't keep making the hole deeper.

Then start paying off the highest interest cost debt first. That's credit cards.

Next proceed down the list of auto loans, home equity loans, student loans and home mortgage loans.

Change the words of creditors from -- "You owe me!" -- to what becomes your straightforward message to them --- "I don't owe you!"

If you can dream it, you can do it. And working hard and diligently to avoid or rid yourself of needless debt is very much worth the doing.

That's my take.

Thanks. Bob.

Government Lies About Spending and Intentionally Bad Accounting ... There Is No Such thing as Free Money ... Not for Anyone ... Government Truth Telling About Financing Simply Doesn't Exist

Although not all, the vast majority of U.S. government officials at the local, state and federal levels make up their own rules about truth telling. They lie, in other words.

They seek to get and stay elected by telling us what too many of us want to believe and what they believe they need to say to remain in office. And We the People allow them to call this sham and charade public service.

So let's prepare to get ready for more and more of this happy talk as enter the upcoming and far too lengthy presidential and congressional 2016 election seasons.

Take government spending and savings on student loans, for example.

Now we're asked to believe that college can be free for students if taxpayers will only foot the bill. But this is pure nonsense.

Even if taxpayers aren't required to pay up immediately and government borrows or prints the money instead, the money isn't free, and especially not to the intended recipient or beneficiary. Eventually the young will become older and be forced to pay the bill in the form of higher taxes, a lower standard of living, or a slower growing economy. That's what happens to a government dominated debt ridden society.

So the next time you hear about free community college, the Affordable Care Act, free public education, Medicare cost control or anything else, take a moment to consider that free lunches don't exist --- not even for those who are the immediate beneficiaries. The bill will come due down the road, and if we don't pay it, our kids will.

Ending Federal Loan Fraud tells the government's 'Gruberish' story simply and succinctly:

"‘We’ll try and balance the budget in a 10-year period,” said Senate Budget Chairman Mike Enzi (R., Wyo.) in January. “And we hope to do it without gimmicks and bad accounting.” That last point is crucial. Avoiding behavior that would get a private citizen sent to prison seems a reasonable aspiration for elected officials ....

A great place to start is the accounting for federal lending programs which deliberately understates their risks. Readers may have noticed that every time federal student-loan subsidies expand, liberals like Senator Elizabeth Warren (D., Mass.) hail it as a taxpayer windfall. She gets away with this because administrative expenses and market risk aren’t included in the loan cost estimates.

“The government is exposed to market risk when the economy is weak because borrowers default on their debt obligations more frequently and recoveries from borrowers are lower,” explained the Congressional Budget Office in a report last year. “When the government extends credit, the associated market risk of those obligations is effectively passed along to taxpayers, who, as investors, would view that risk as having a cost.”

They sure would. CBO reported that while the Department of Education’s four largest student-loan programs were expected to yield an official savings of roughly $135 billion from fiscal 2015-2024, the programs would likely cost taxpayers $88 billion under fair-value accounting practiced outside the Beltway.

An official $14 billion projected taxpayer gain at the Export-Import Bank was revealed as a $2 billion projected loss. And the official $63 billion bonanza expected from the Federal Housing Administration’s single-family mortgage guarantee turned out to be a $30 billion taxpayer shellacking.

Mr. Enzi’s office says he supports fair-value accounting for federal credit programs. His House counterpart, Rep. Tom Price (R., Ga.), has been shining a light on this government racket for years. Now they can do something about it by using the budget resolution to require that CBO practice honest accounting in official scores of legislation."

Summing Up

Do our government officials in effect lie to We the People?

Of course, they do. Every single day. It's called politics in today's America.

And they get away with it simply because we allow them to do so.

It also makes their political lives easier not to deal with the eventual and long lasting negative consequences of their actions on We the People in general, and the next generation of Americans in particular.

How long will We the People put up with this? While I don't know that, I do know this --- it's been far too long already.

At least that's my take.

Thanks. Bob.