The Connection Between Heavy Student Loan Debt and Low Home Sales, AKA Government's "Helping Hand" ... The "Paradox of Thrift" and the Lousy Economy

Debt levels have reached dangerous levels in the U.S. today, and it's not just government debt either.


In fact, ongoing efforts by the government to incentivize our young people to borrow buckets of money to attend college, and then buy cars and homes, and even pay too much for ObamaCare in order to enable the oldsters to pay lower premiums, have all added up to the ugly indebtedness mess in which too many of our fellow Americans find themselves today.

To which I say this to students and all young people  --- Beware of government's helping hand. It's an unaffordable one for which in the end, you will pay.


In simple terms, "government aid" in the form of inducements to borrow for college and to purchase homes is playing a large part in keeping us from enjoying any kind of a sustainable and meaningful economic recovery. The economic picture's not a pretty one, and a healthy economy is not right around the corner. We owe too much for that happen anytime soon.


But there's some good news in that otherwise ugly picture as well. What is harmful to the economy as a whole, at least for the short haul, is good for individuals.


That's known as the paradox of thrift, meaning simply that if we each as individuals do what's best for us and start our adult lives by saving and avoiding new and onerous debt, the economy as a whole will suffer in the short run as it necessarily adjusts slowly to that painful but necessary new set of behaviors. And that's the unfolding picture before us, whether we as individuals choose to see it as it is or not.


In other words, we have to reducing our debts, and young people are noticeably beginning to do their part. While that's great for the young among us, the result is slow going for our economy as a whole and probably for another several years. To repeat, it's called the paradox of thrift and means simply that what is good for us individually is nevertheless not good for the short term economy as a whole.


How Student Debt May Be Stunting the Economy has the story:


"Is student loan debt holding back the economy? There’s some new evidence that the answer may indeed be a big “yes.”

In the past, it was easy to ignore the role that student borrowing might play in the overall economy. A decade ago, there was only about $300 billion in such loans outstanding, and even now the $1.1 trillion in student loan debt is dwarfed by mortgage debt. But people who borrow money to pay for their education can’t simply walk away without paying, unlike with mortgages, car loans or credit cards; there is no equivalent of foreclosure, and student loan debts aren’t cleared by bankruptcy.

That may all be great from a lender’s point of view. But there’s a growing body of evidence that rising levels of student loan debt are restraining the ability of young adults to enter the “grown-up” economy — to buy a car and to buy a home and start filling it with big stuff.

While the overall level of student debt may not measure up to that of mortgages — $8.2 trillion — it is highly concentrated among a small slice of people — those in their 20s and 30s — who are the engines of a great deal of economic activity. One of the crucial reasons the housing market has not expanded enough to support robust economic growth is that young adults are not setting up their own households at anywhere near the historical norm.

Might higher student loan debt burdens be an important reason? After all, a person with monthly student loan payments of $300 — about what you would expect for the average new loan balance of $29,400 at government-subsidized interest rates — is going to be more inclined to bunk with roommates or Mom and Dad.

One more solid piece of evidence for this theory is contained in the latest report on household debt issued by the New York Fed, and an accompanying post on its Liberty Street Economics blog.

In the not-too-distant past — until just before the 2008 financial crisis, to be precise — around 30 percent of 27- to 30-year-olds had debt issued backed by a home. Even more interesting, 33 percent of the people in that age bracket also had student loan debt.

But since then, the proportion of 27- to 30-year-olds with mortgages has plummeted to around 22 percent, according to the New York Fed data, which is also consistent with the trends in homeownership identified by the Census Bureau and other data sources.

Fewer Young Adults Are Taking Out Mortgages       

Since the financial crisis, fewer young adults have been borrowing money to buy a home, and the decline has been steepest among those who also have student debt.

Proportion of 27- to 30-year-olds with a home mortgage

%

30

20

10

0

Has Student Loan

No Student Loan

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Proportion of 27- to 30-year-olds with a home mortgage

%

30

20

10

0

Has Student Loan

No Student Loan

2004

2006

2008

2010

2013

Federal Reserve Bank of New York

Here’s what’s most interesting, though. The proportion of adults in that age bracket who have a mortgage has fallen most sharply among those who have student loans as well. Unlike in the past, when they tended to be more likely to have mortgages (perhaps because of better credit, or more inclination to take out loans), they now have mortgages at a lower rate than those with no student debt.

A similar story holds with auto loans. In 2008, 37.6 percent of 25-year-olds with student loan also had an auto loan, but by last year that had fallen to 31.4 percent.

There is some good news in the New York Fed report; young adults had somewhat better credit risk scores in 2013 than in 2012.

And there could be more to the weak housing market than just student debt overhang. The researchers, Meta Brown, Sydnee Caldwell and Sarah Sutherland, also mention the possibilities of limited access to credit and a possible shift in young adults’ preferences away from home buying.

But the evidence certainly fits an explanation of higher student debt levels as a significant factor standing in the way of a stronger recovery."

Summing Up

Government rules and regulations have long encouraged us to take on too much debt --- with too little knowledge about the future ramifications of doing so.


As a result, too many of us begin adulthood behind the proverbial burdensome debt 8-ball with high student loan balances and expensive mortgage loans.

These government sanctioned, guaranteed and encouraged student loans have now reached levels where both the financial security and future financial well being of far too many of our young people have been placed in serious jeopardy.

In turn, the housing industry is being impacted negatively and will continue to restrain economic growth and needed jobs for the foreseeable future.

Personal financial literacy, education and knowledge are all sorely lacking and needed in our schools and colleges.


But there's good news too.

In the long run, young people acting responsibly with respect to taking on new debt will be a wonderful thing for America.

In the meantime, it's slow going as we right the wrongs of the past and take the necessary steps to get our debt situation under control.


There's no free lunch.

That's my take.

Thanks. Bob.

Government Sanctioned Coercion and Public Sector Unions ... Forced Payment of Public Sector Union Dues ... Whatever Happened to Our Freedom to Choose?

Free choice and unions don't mix well --- not at all.


And state governments dominated by Democrats tend to enact laws that force public sector employees to pay dues to unions who in turn support the Democrats at election time and who then make the laws that finance and support the public sector unions. The circle is unbroken, and the employees and taxpayers pay.


Meanwhile, the politicians and the union leaders smile --- maybe even laugh. But not always and not all the time. To repeat, Democratic politicians depend on the support of unions and especially public sector unions, to support them at election time. In turn, those same candidates after election will support the unions. And the employees will pay, as will the taxpayers.


Here's how it works. For this game of you scratch my back and I'll scratch yours, otherwise free to choose employees in the public sector are often forced by state law to pay tribute, aka dues, to the public sector unions purporting to represent them in their battles against We the People, aka the government employer.


In public sector union elections, it's not the majority of employees affected that decides whether a union represents employees. To the contrary, it's the number of employees voting. Thus, if 21% of the 100% of all eligible voting members want a union and only 40% of eligible members vote, the union wins. That means the employees 'win the privilege' of paying the dues and the politicians supporting the care and feeding of public sector unions get elected and supported financially. Get the picture?


Let's look at a real world example of what happens when employees are free to choose whether to pay dues to public sector unions. Michigan and home health-care workers serve as a great example of politics in action and what good government and free choice can mean to previously coerced dues paying union members --- and taxpayers too.


Michigan Union Collapse is subtitled 'SEIU membership fell 80% in a year once it wasn't coerced:'


"The conceit of the modern union movement is that workers would be clamoring to join if the rules weren't rigged in favor of employers. The reality is closer to the opposite. Witness what happened in Michigan, where new data show that workers fled the Service Employees International Union Healthcare affiliate when their membership was no longer coerced.

Democrats gave the SEIU a huge membership gift in 2005 when then-Governor Jennifer Granholm allowed more than 40,000 home-care workers to be unionized. The majority of the workers were independent contractors or family members who care for disabled relatives at home. But because the workers received Medicaid subsidies, they were suddenly reclassified as "public" employees for the purposes of unionization.

In early 2005, the Michigan Employment Relations Commission set a vote-by-mail election for home-care workers. According to the Mackinac Center Legal Foundation, of a total of some 41,000 workers who could join the new collective-bargaining unit, there were 6,949 votes to join the SEIU and 1,007 opposed to the unionization. The union did a victory dance and began collecting dues.

Then in 2012 Michigan state lawmakers passed legislation that excluded home-care workers from the state's definition of public employees. The bottom has since fallen out of SEIU Healthcare's membership. According to reports filed with the Department of Labor, in 2012 SEIU Healthcare Michigan reported 55,265 members. In 2013 the number fell to 10,918, a loss of 44,347 union members, or about 80%. . . .

A challenge to the Illinois version is currently being heard by the Supreme Court in Harris v. Quinn, a case that could end the coercive arrangements nationwide.

The schemes were promoted by Democrats, who then benefitted when union chiefs spent their mandatory dues windfall on electing more . . . Democrats. The Wolverine state's collective-bargaining agreement allowed the SEIU to take home 2.75% of a home health-care provider's Medicaid compensation. From 2006 when the dues vacuuming began until 2012 when state lawmakers voted to end it, the union sucked up more than $34 million from Michigan health-care workers. But as membership has fallen, so has the cash. According to the Labor Department filings, the union took in $7,119,322 in dues and fees in 2013, down from $12,078,838 in 2012.

Michigan passed a right-to-work law in 2012, making union membership voluntary across the state for all public workers. Before the law passed, the state workforce was 17.5% unionized. It is going to be fascinating to see how much that number declines now that workers have a right to choose."

Summing Up

State right-to-work laws give employees the freedom to choose whether to belong to unions and whether to pay union dues or not.

Public sector unions are a cozy and dependable back scratching ally of the Democratic party.

As a result, public employees and taxpayers are often forced to pay, even if they would otherwise choose not to pay. Political back scratching is expensive, and the bill isn't paid by the politicians.

We the People are forced to pay for the government we don't want, and their public sector union cronies laugh all the way to the bank in far too any cases.

It's time the various governments started working for us, and it's time to stop coercing government employees to pay dues to the public sector unions, aka the politicians' partners in crime.

That's my take.

Thanks. Bob.

Investing the Sensible Way ... It's All About Balancing Risk and Reward ... Risk is Just a Four Letter Word

Risk is a four letter word, meaning simply that it's everywhere all the time.


We can eat too much or too little, exercise too much or too little, and take too many risks or too few.


But one thing is for certain.We won't be able to steal second base without first taking our foot off first base. Yes, risk is, and to reach our goals, we have to take some reasonable risks.


That said, in investing, the odds are with long term investors who are somewhat knowledgeable of the basics, and further assuming that our savings and investment goals are realistic and properly executed. However, when it comes to risk adjusted long term savings and investing, the use of common sense isn't very common.


Proof most investors are clueless tells the story well:


"Investing is about trade-offs; you simply can’t have it all.


So if you need to make 10 percent above inflation to meet your future needs, but you are only willing to assume minimal investment risk in an attempt to generate those gains, something has got to give.


That give and take — the push and pull of emotions — is inevitable, but . . . investors aren’t particularly accepting of those compromises, and instead are living in a world of unrealistic expectations and conflicting sentiments, leaving them hoping impractically that events will work out their way because they see no other route to success. . . .                                  


{In a recent survey} Americans said they need to earn average annual gains of 9.8 percent above inflation to make their financial needs. . . . inflation since 1964 has averaged 4.2 percent annually, which means the average American has to generate 14 percent (annually) . . . .


The Standard & Poor’s 500 index has an annualized average gain of 10 percent over the last 50 years, meaning it’s unlikely most investors actually achieved their need level in the past; they have little reason to expect to hit the target going forward, even if inflation stays very low for the foreseeable future.


Similarly, more than 70 percent of investors said they would prioritize asset growth over principal protection, but 56 percent say they are only willing to take minimal risk to achieve high returns. .. .                                       


High returns while taking minimal risk is a pipe dream; if asset growth is your priority, taking risk is crucial.


Likewise, three quarters of investors . . . only own investments they understand well, which makes sense until you hear that just one-quarter of all investors surveyed felt their overall investment knowledge was particularly strong.


If they’re not relying on investment knowledge, investors are playing the market the way most people bet at the track or in the casino, by playing hunches. Nearly 80 percent of investors surveyed . . . said they simply follow their gut instinct.


That’s not financial planning.


Countless studies show that whether it’s your gut or your heart, emotions cloud judgment, with typical investors waiting too long for an uptrend to “prove” that it’s time to buy, then bailing when a downturn “verifies” that fortunes have turned. That’s why most investors buy high and sell low, even when that’s clearly not their intention. . . . 


In the end, perhaps the most important questions . . . asked involved what investors would do if their nest egg winds up being insufficient. Nearly half of the respondents said they would continue working, and nearly a third would rely on support from family members.                                        


If that’s not the outcome you want, it’s time to act and invest like it.


You can take few risks — if that’s all you can get comfortable with — provided you save more. You can trust your gut — rather than an adviser — provided you’ve learned enough to build a plan that not only minimizes indigestion but gives you a realistic chance of reaching your goals.


Hope and necessity won’t make your financial dreams come true.


If you are expecting things to work out for you “because that’s what has to happen,” trade some blind optimism for a dose of realism; the one standing between you and your goals is you."


Summing Up


History teaches that we can reasonably expect to earn from a diversified portfolio of blue chip stocks 6% annually in real inflation adjusted dollars over a long period of time. Thus, 10% in nominal dollars with a 4% inflation rate, or 6% in real money, has been the norm.


That historical 6% average annual real rate of return in stocks compares to minimal average annual returns in real estate, money market funds, and bonds (and bonds will be unlikely to earn anything in inflation adjusted returns during the next several years).


Using the compounding rule of 72, $1 invested in stocks by a hypothetical 20 year old should grow to an inflation adjusted $2 in 12 years (6x12=72), $4 in 24 years, $8 in 36 years and $16 in 48 years, or at age 68.


Accordingly, beginning investing as early in life as possible and investing that 'early money' in stocks makes sense to me, even considering the sometimes violent ups and downs of the market.


How about you?


We can all be smart and successful investors over time, but first we have to commit to saving and investing in a dollar cost averaging manner, and then controlling our emotions when markets go up and down, which they inevitably will and sometimes do violently. Then we mostly just sit back, and watch the magic rule of 72 of compounding work wonders for us over the long haul.


It's really that simple.


Find someone you trust to help manage your investments, but don't ever mistake a commission based selling stock broker for an investing pro. While some hand holding for novice investors is necessary in most cases, it need not and should not be costly. Paying any amount over one half of one percentage point of assets is paying too much.


That's my take.


Thanks. Bob.             

Lower Home Ownership Rates and the Many Financial Problems of the Young ... The Problem is Real and It May Be Lasting ... And That May Not Be a Bad Thing

Housing sales remain slow, and the situation doesn't look to improve meaningfully anytime soon, especially for first time home buyers.


High unemployment, low savings, burdensome student loans and credit card balances, a growing tendency to defer marriage and starting a family are the principal reasons for the change. And then there's the all important confidence factor resulting in general uncertainty about job prospects and the future economy. Lots of very real stuff for the youngsters among us to worry about, in other words.


Why millennials are hurting the real estate recovery is subtitled '4 reasons young Americans are staying out of the housing market:'


"First-time home buyers haven’t been much help in the housing recovery, but it isn’t because young adults stopped aspiring to become homeowners.


“Though they see a tough road to affording Homeownership, younger renters [those between the ages of 18 and 39] still are very likely to say that it’s in their future plans,” wrote Sarah Shahdad, strategic planning analyst with Fannie Mae, commenting recently on Fannie Mae’s National Housing Survey.


“The vast majority still plan to own someday; about half plan to buy a home the next time they move.”


It’s just that, right now, economic realities and life decisions are getting in the way. And those obstacles have repercussions for the broader housing market, because the absence of young buyers is one big reason why the housing recovery hasn’t been stronger.


Lack of savings, less-than-perfect credit and stifling loads of student-loan debt are continuing to hold young adults back from Homeownership, Shahdad and others say. Societal trends also play a role in why they’re not buying, as people are waiting longer to get married and have children—life events that tend to spur home purchases. . . .                                


“The [25 to 35] age cohort…probably has had the hardest time recovering from the Great Recession,” said Rick Sharga, executive vice president of Auction.com, an online real estate marketplace.... While some industry watchers have suggested a shift in attitudes away from Homeownership, . . . it’s too soon to know whether people truly have a waning interest in owning homes. But one thing’s for sure: Young people have plenty of hurdles to becoming homeowners....                                      


The following are key reasons first-time buyers are sitting on the sidelines—for now.
                                        

Unemployment and low savings

The unemployment rate for 18-to-29-year-olds was 9.1% in April, which rises to 15.5% if you include those who have given up looking for work . . . .


Forget that without a job it’s just about impossible to get a mortgage. (It’s also hard to rent: Twenty-nine percent of adults younger than 35 live with their parents, according to Gallup poll results released earlier this year.) A slow start to earnings also means a slow start to saving.


“The majority of younger renters report having insufficient assets to cover a 5% down payment plus closing costs on a typical starter home,” Shahdad wrote.
                                        

Low credit scores

Millennials also have the lowest credit scores, according to a report by Experian.


Their average . . . credit score for millennials is 628, compared with 735 for the Greatest Generation, 700 for baby boomers and 653 for Generation X. . . . Young adults tend to have a high utilization rate on their credit cards, an average debt of $23,332 and high incidences of late  payments....
                                       


Student debt


People with student loan debt also have more education, which should pay off in higher incomes in the future and make them great mortgage applicants, said Trulia’s Kolko. But when they’re first starting out, having more student loan debt makes it harder to get a mortgage, and paying loan installments each month makes it more difficult to save for a down payment.


In 2012, 1.3 million students who graduated from four-year colleges (or 71%) had student loan debt, up from 1.1 million in 2008 and 900,000 in 2004 . . . . Graduating seniors with student loans had average debt levels of $29,400 in 2012, up 25% from $23,450 in 2008. . . .                                


Delaying marriage, family


The median age of first marriage is about 27 for women and 29 for men, according to the U.S. Census Bureau. In 1950, it was about 21 for women and 24 for men. . . . 


“Because people are marrying and having kids at an older age, many young people might spend more years renting apartments and living in cities, before moving to the suburbs,” Kolko said."


Summing Up


The "American dream" of home ownership has turned into a nightmare for many Americans in recent years.


And the idea that housing prices have nowhere to go but up has turned out to be a piece of fiction as well.


So now young people are coming to grips with the burdens of excessive debt and the employment issues associated with a slow growth economy too.


Our millennials are wising up, in other words, and while in the long term that's good for America, in the interim period of adjustment it's not a good omen for employment, the economy or the housing industry.


That's my take.


Thanks. Bob.                    

Stagnant Pay for College Grads .... Declining Pay for High School Grads .... Politics Sucks

In terms of its potential for growth, the economy sucks.


That's because politics sucks.


While the politicians debate climate change and income inequality, real inflation adjusted incomes don't rise in the case of college grads and continue to decline in the case of all others.


Does College Pay? tells the story with facts. You know ---facts ---- those things largely missing from the political discussions these days:


"Over time, a large and growing majority of incoming freshmen have ranked making more money as a “very important” reason for going to college . . . .

And in fact college graduates do — and will continue to — make more than high school graduates. The recent average wage for a college educated worker comes to $29.46 an hour, compared to $16.20 for a high school educated worker.

But the key to getting ahead is not simply making more than someone else. The key is rising wages, and by that measure, even college-educated workers have hit a wall.


Here is the situation in two graphs.

The first graph shows the “college premium,” which is basically the percentage difference between the pay of college grads and high school grads. The graph is widely misinterpreted — by students and parents — to mean that wages for college-educated workers go nowhere but up.

I asked the Economic Policy Institute to annotate the graph to show how much of the premium is from real wage gains for college grads, and how much is from wage declines for high school grads. In the 1980s and 1990s, college grads strongly outpaced high school grads. But since then, the better pay performance of college grads is due to high school students losing ground, not to college grads pulling ahead.

This second graph, taken from a recent editorial, shows the prolonged stagnation in pay for college educated employees.

I am not trying to talk anyone out of going to college.

Graduating from college still means better job prospects. And there are ways to try to buck the wage-stagnation trend, like choosing an in-demand major, though — let’s face it — most people are not cut out to be electrical engineers. . . .

What’s missing from the picture is a thriving economy to employ college graduates in jobs that require advanced education. With too few jobs, there is also too little competition for workers to drive wages up in the jobs that do exist."

Summing Up

The economy is slow and unemployment remains unnecessarily high.

Higher government spending, higher taxes and higher public sector employment gains won't change the picture for the better. Only for the worse.

Only private sector investment will make things improve for al Americans in a meaningful and sustainable way.

And as long as things like the Keystone Pipeline decision and taking appropriate actions to reduce government spending (at all levels) aren't taken, both our national economy and our fellow citizens will continue to pay the price in terms of fewer jobs and lower pay.

Facts are stubborn things.

Politics sucks.

Oh, and one more thing.

Happy Mother's Day. Bob.

Keys to Success in College and and Later In Life .... Taking the Course 'Life 101'

Lots of young people currently are actively considering which college to attend in the fall. Some are even questioning whether to attend.


The cost of college and the burdens of debt associated with student loans, as well as the general lack of preparedness for doing college work upon entry, have been discussed in recent posts.


But other than the academics and the costs, what's really important about the overall college experience, all things considered, and what are the long term success factors?


In College, Nurturing Matters summarizes the contents of a recently published study on college and later-in-life success factors:


"A report issued Tuesday by Gallup and Purdue University asked graduates several questions about their college tenures, including the six below, which are listed along with the share of students who strongly agreed with the statements.

• I had at least one professor at [College] who made me excited about learning. (63 percent)

• My professors at [College] cared about me as a person. (27 percent)

• I had a mentor who encouraged me to pursue my goals and dreams. (22 percent)

• I worked on a project that took a semester or more to complete. (32 percent)

• I had an internship or job that allowed me to apply what I was learning in the classroom. (20 percent)

• I was extremely active in extracurricular activities and organizations while attending [College]. (20 percent)

Students who strongly agreed with the above statements were as much as twice as likely to have a strong sense of well-being and engagement at work.

But the sad part was that only 3 percent of respondents strongly agreed with all six measures.

The report has a strong message for students who are asking about which school to attend, for employers who are deciding which people to hire and for colleges that are negotiating their curriculums. It concluded:

“The data in this study suggest that, as far as future worker engagement and well-being are concerned, the answers could lie as much in thinking about aspects that last longer than the selectivity of an institution or any of the traditional measures of college. Instead, the answers may lie in what students are doing in college and how they are experiencing it. Those elements — more than many others measured — have a profound relationship to a graduate’s life and career.”"

Summing Up

Amen to the criticality of the six enumerated success factors cited above.

Looking back on my own experience, I was lucky indeed to be able to meet and get to know many of the people I met and who genuinely took the time to care about me as a person.

Thus, when I think back on formal education as well as my early working years, much more than the books I read, it was the professors and leaders I met and came to know, and the things I experienced (both good and bad) that most influenced whatever success came along later in life.

As the old saying goes, we get out of something that which we put into something, and that's certainly true about our "formative" and early adulthood years spent getting "educated."

Of course, real 'education' is a never ending and lifelong endeavor.

That's my take.

Thanks. Bob.

More on the Sad State of U.S. Education .... It's Going from Sad to Sadder

Most kids leaving high school and entering college, or hoping to start a career, are often not capable of doing the college or job related work required for success. They leave high school woefully unprepared for the future.


In that regard, a new report released yesterday has the gruesome story, and it's not a pretty one. We need to ask ourselves why we are spending so much time and money on educating our children in grades K-12 and getting such a sorry end product.


Here's what I say --- If we dare to try something new, what's to lose? Besides, it just may work wonders and come to the rescue of future generations of individual Americans and America as a whole, too.


Federal Test Shows U.S. 12th-Graders Aren't Improving in Reading or Math has the summary:


"Despite years of efforts to lift U.S. academic performance, 12th-graders showed no improvement in math or reading in federal test scores released Wednesday, underscoring concerns that the country isn't generating career- and college-ready graduates.

Students' 2013 performance in the National Assessment of Educational Progress didn't budge since the prior one in 2009. About 38% of students scored proficient or higher in reading, while about 26% did so in math—matching the 2009 results. A majority of students received marks of below basic or basic for both subjects in both years.                

                  

Lower expectations for what graduates should study and know are part of the problem . . . . Students get a mixed message—students have a low bar to graduate from high school but it's not a high enough bar to really pursue a career actively when they leave . . . .

SAT scores for the graduating class of 2013 were flat from the prior year, with 43% of students deemed prepared for college-level classwork, according to the College Board, which administers the test. At the international level, results announced last year from the 2012 Program for International Student Assessment show American teenagers slipping in world rankings in math, science and reading. . . .

The latest 12th-grader test scores showed ethnic and gender gaps remain, with non-Hispanic white students outperforming blacks and Hispanics in both reading and math.

U.S. Education Secretary Arne Duncan said test scores have been improving in lower grades, but high-school results were troubling, even as graduation rates have risen. "We must reject educational stagnation in our high schools, and as a nation, we must do better for all students, especially for African-American and Latino students," he said in a statement. . . .

The report did highlight that more-advanced course work goes hand in hand with higher test scores.

Students who discussed their interpretations of readings more frequently and those who took higher-level math courses, such as precalculus and calculus, tested better than average."

Summing Up

When kids graduate from high school, most are not career or college ready.

That makes them individually, and our country as a whole, more and more uncompetitive internationally. 

There are no silver bullets to fix this problem of epic proportions.

Hard work and school choice, including vouchers, are the keys to fixing our educational system in America, and it must be fixed.

That's my take.

Thanks. Bob.

Caveat Emptor (Let the Buyer Beware) ... Student Loans and Personal Financial Literacy ... College Debt Should be Avoided or at Least Minimized

Loans are not gifts. They are "purchased" by borrowers and must be repaid at a future date --- with interest --- compounded over time.


Lenders of money are not concerned with the best interests of those to whom they are lending money. This applies to student loans as well as to all other borrowings.


Caveat emptor, aka let the buyer beware, is very much in play when borrowing money, and the decision to borrow tens of thousands of dollars to attend college is a great place to acquire a basic education in personal finance.


Personal financial literacy is critically important, and the time to start helping our youth learn the basic lessons of finance is when they're young --- before entering college. By so doing they can make college a good investment and not a waste of money, much of which is borrowed money at that.


The college decision and how to finance it is also an excellent time to come to realize that in the end we're responsible for the wisdom of our financial decisions, and to understand and internalize that debt is to be avoided if possible, and minimized if needed.


That's simply because what we don't borrow doesn't have to be repaid. Instead that "unborrowed" money can be saved, invested and socked away for our family's future long term benefit. We'll have plenty of uses for it along the way to and during old age. That's for sure.


So here's the plan ---- learn the meaning of the word "value" at an early age and then apply it relentlessly and in a self interested manner throughout life. So know the facts about saving, borrowing and investing, keep the score and then make sense of what you do with money, starting with student loans for college, if not before then.


The 10 most common student loan mistakes has sage advice for those contemplating taking out student loans:


"Student loans are complicated. And, unfortunately, most freshly-minted freshmen sign those promissory notes without having a clue about student loans (let alone know what a promissory note is).


Before you sign on the dotted line, take time to understand your student loan options. And be sure you’re making the best choices.


1. Assuming you need them


Yes, about 60% of students borrow annually to cover their college costs, according to the Chronicle of Higher Education. But that means that 40% don’t.


Contrary to popular belief, you do not have to have student loans to get through college. There are plenty of ways to get around them:

• Choose a cheaper school, and pay in cash
• Opt for a school with a great scholarship for you
• Go to a work-based school for free
• Work while attending school part-time
• Put off school for a year to save up

As you’re making your college choice, don’t just assume student loans — especially tens of thousands of dollars worth — are a necessary evil. In some cases, you might be OK taking out some loans. But you don’t have to use them to get a decent degree.


2. Not exhausting other options first


Before you even apply for student loans, you should be shooting for every single grant or scholarship you can possibly get. . . . Remember, the more free money you get, the less student loan money you’ll need!
And while you’re at it, be sure you understand education-related tax credits , which could put money back in the bank for you (or your parents), making school more affordable.


3. A major new survey by Gallup finds that it isn’t where you go to college that is predictive of whether you are successful at work and happy in life — rather, it matters what you do while you’re in school that counts.


When you get your federal student loan offer . . . you’ll see how much the government is offering you in loans. If you’ve (unwisely) chosen a very expensive school that you really can’t afford, you may actually need the full amount to cover tuition.


But if you’re like most college students — especially those at state schools — you don’t really need that whole amount to cover tuition, or even room and board. Unfortunately, many of these same students take the full student loan amount — either because they want to use loans to fund their frat parties or because they don’t know they can accept less than they’re offered.


Carefully evaluate your actual needs, and only take the amount that you must have to pay tuition for that year. If you need student loan money to cover books, car insurance and other expenses, consider getting a part-time job.


4. Not figuring out monthly payments


One way to keep from taking out more than you need in student loans is to take a few minutes to figure out your monthly payments. Many college graduates are shocked to find out how big a chunk student loan payments will take out of their shiny new post-college paychecks.


5. Not keeping track of your debt


We get it. You’re a student. You deal with a lot of paperwork, and you’re probably not all that organized. This makes keeping track of student loan paperwork difficult. . . .                                       


Also, you need to keep track of the actual amount of your debt. It’s easy to lose tabs on how much you’re borrowing, in total, since you’re just taking out loans once a year for a four-to-six year education track. Make a spreadsheet of how much you borrow each year, and probable monthly payments that you’ll shell out eventually. That, alone, should keep your borrowing in check.


6. Skipping out on interest payments


Unless you qualify for a subsidized student loan (which is based on income), your loans will start accruing interest immediately. The biggest problem here is that your interest will capitalize, which means the outstanding interest is added to the loan’s principal. This means you’re now paying interest on an even bigger principal amount. Let’s let the numbers illustrate:

Let’s say you take out a $5,000 loan for your first of four years of college. The loan is in deferment for 54 months — four years of school plus the standard six-month grace period. On a loan with a 6.8% interest rate that capitalizes annually, your new loan balance when you enter repayment is a whopping $6,722.65!                                        

Because you let that $1,722 in interest capitalize, you’ll now pay around $78 a month on that loan (in a 10-year repayment plan), as opposed to $57 a month otherwise. If you let the loan capitalize and then make minimum payments, you’ll pay a total of $9,283, as opposed to the $6,904 you would have paid otherwise.


What does all this mean? You can — and should — make interest payments while you’re still in school. Even on hefty student loans, monthly interest isn’t too much to tackle. And even if you can only pay part of the interest, you’ll save a fortune in the long run.


7. Turning to private loans


Private student loans have a place for some students, but most shouldn’t turn to them first. Federal student loans typically have lower interest rates and much more flexible payment terms. . . .


8. Asking your parents to co-sign


Some parents automatically assume they need to co-sign on student loans, and this may be the case on private loans. But most students can take out federal loans on their own. And your parents shouldn’t co-sign unless they’re really OK making your student loan payments if you run into financial problems later on....                                       


9. Not updating your information with your loan servicer


Student loan servicers are used to their debtors changing address frequently, and they’re good at tracking people down. But if your student loan servicer doesn’t have your current address, you could miss important information about your loans — like when, who, and how much to pay. . . . 


Your student loan servicer will report those late payments to the credit bureaus, which will seriously ding your credit score.                                        


10. Choosing the wrong payment plan


Once you enter repayment on your student loans, you can choose a variety of repayment plans (assuming your loans are backed by the federal government). These plans give you some flexibility in your actual payment, which can be helpful if you can’t find a job or aren’t making much money.


The standard repayment plan has your loans repaid within 10 years, which is good. You want to choose this one if at all possible — even if you have to give up lattes and nights on the town to make your student loan payments. With the standard plan, you’ll pay much less interest over the life of your loan.


Other options — like extended repayment and income-based repayment — are tempting because of their lower monthly payments. But be sure to calculate how long it’ll take to pay off your loan under these plans, and how much interest you’ll pay over time."                                       


Summing Up


Knowledge is power. Information leads to knowledge.


Saving and investing lead to investment gains and personal financial security whereas borrowing, debt and interest expense lead to a lifetime of financial stress


Young people should not begin their adult lives behind the proverbial debt 8-ball. Financially, that means getting a solid education, including an understanding of the widespread benefits of debt avoidance or minimization --- student loans, credit cards, home mortgages and auto loans, one and all.


Debt avoided doesn't have to be repaid, and debt avoided enables the savings and investing benefits to begin.


Be a good buyer in all things, and education is one of the most important things to buy wisely and well.


Tuition is needlessly high at many schools, and the educational benefits often aren't commensurate with the costs. See Elite Colleges Don't Buy Happiness for Graduates.


When selecting and enrolling in college, students and their families should make certain that they make sound decisions and get their money's worth.


That's my take.


Thanks. Bob.

Stealing from the Next Generation(s) .... It's All About Too Much Government Spending and Wasteful Ways ... In Other Words, It's the Spending, Stupid!

Government spending is out of control and has been for a long time. A very long time, in fact.


While the debate about taxes and debt goes on, the government just keeps upping the spending to unconscionable levels.


Instead of concentrating on how much government is spending and assuring ourselves that We the People are getting the biggest bang for our bucks, we instead pay far too much attention to proposed tax increases, especially on the rich, and the ongoing huge fiscal deficits and the ever growing national debt that results from that spending and taxing.


So let's just keep it simple.


In fact, if we want to get a handle on all this excessive, do-gooder and protective paternalistic government, all we need to focus on is the level of government spending, regulations and waste. And then we'll quickly and easily see the negative impact of government on what otherwise could have been private sector risk taking and investment as well. And on the loss of higher employment and more tax dollars too.


Due to political pandering and game playing, our nation's economic health and many of our fellow citizens' well being are in sorry conditions, to put it bluntly.


Robbing the Next Generation of Fiscal Freedom tells the sad story graphically, simply and succinctly:


"The deficit has fallen from the Washington agenda with remarkable speed. No one is talking about a “grand bargain.” The White House and House Republicans have proposed competing budgets, but neither side expects significant action. And, in any event, current-year deficits are shrinking rapidly.


Beltway deficit hawks are baffled and depressed–and still warning that the long-run picture, though somewhat improved, remains worrisome. Some are looking for new ways to illustrate the problem, realizing that warnings of imminent financial crisis or soaring interest rates have a Chicken Little quality to them and that ominous mountain-like charts showing the trajectory of future government debt aren’t persuasive,


In a new book, “Dead Men Ruling: How to Restore Fiscal Freedom and Rescue our Future,” Urban Institute economist C. Eugene Steuerle highlights a new way to illustrate the reasons to worry about the status quo. He starts with federal revenues past and projected under current law, and then calculates how much is left after paying Social Security, Medicare and other benefits promised under law and interest on the federal debt – that is, how much is left for scientific and medical research, education, infrastructure, defense and government salaries. The answer: Less and less.

In 1974, 50% of federal revenues were remaining for Congress to allocate as it saw fit. In 1994, it was 27%. This year, it’ll be 16%.


“Dead and retired policymakers put America on a budget path in which spending will grow faster than any conceivable growth in revenues – even if the president and Congress never create any other spending program,” Mr. Steuerle writes.


“Yesterday’s policymakers have robbed their successors of fiscal freedom,” he says."


Summing Up


Keep your eyes on what really matters to the future of our kids and grandkids ---- government spending and its growth.


Whether that growth is financed by a cheaper dollar, more taxes or higher debt levels, the effect in all cases is bad.


Substituting bureaucratic  government "wisdom" for the risk taking entrepreneurialism of free people operating in the private sector is always a bad idea.


When government spends, even if it borrows to do so, that leaves less money for present sand future private sector entrepreneurs and risk takers to invest in profit seeking and job creating business endeavors of their own choosing, including the right to fail as well as to succeed --- but with their own money at risk and their own time invested, of course.


To repeat, watch the government spending. Our "public servants" will be trying everything possible to convince us that more money is needed to do all the wonderful things they intend to do --- but never in fact accomplish --- and in the end that money is "paid for" in many ways, both seen and unseen, by all of us.


And it's all so wrong. Very, very wrong.


That's my take.


Thanks. Bob.

The Plight of the "Forgotten" Middle Class in America and the Young Among Us ... A and B (Government Officials) Say that C (Middle Class Taxpayer) Must Pay to Help X (Government Beneficiary) ... Meanwhile, Economy Grows Slowly and Good Jobs Are Hard to Find ... In Fact, "Not-So-Good" Jobs Are Hard to Find Too

The young among us have it really tough these days. And the hard working middle class Americans among us have it especially tough.


And the more the government gurus come to our aid, the higher our taxes and debts will increase to enable government officials to get their hands on our money, and much of which money our government will spend in an effort to help us. It's the law of unintended and unfortunate consequences at work yet again, and it's help that's not helping. Not a bit.


Welcome to the Well-Educated Barista Economy describes the situation thusly:


"A century ago, Henry Ford startled the world by doubling his workers' wages, with some reaching the unheard-of level of $5 a day. Although accounts of Ford's motivation differ, his decision fit into a larger context: A mass-production economy requires a mass-consumption society. In the absence of broad-based, steadily rising purchasing power, the engine of economic growth will sputter and die.


Fast-forward four decades to the day in the early 1950s that a Ford executive was showing United Auto Workers President Walter Reuther around a state-of-the-art automated assembly plant. The executive pointed to some gleaming new machines and asked Reuther, "How are you going to collect union dues from these guys?" Reuther replied, "How are you going to get them to buy Fords ?" News accounts record no answer to either question; nor do the ensuing 60 years.

This brings us to the present day—to a slow-motion recovery that thus far has left millions of Americans unemployed or underemployed and millions more outside the workforce. One key reason for this sluggish performance is a housing industry that is falling far short of a normal rebound from recessionary lows.

Economists estimate that long-term demand for new housing units should average about 1.5 million a year. After overshooting badly between 2000 and 2006, the market collapsed to barely half a million by 2009. New housing starts have increased since then to an annual rate of just under one million, far below long-term trends. According to Neil Irwin of the New York Times, T in Your Value Your Change Short position                        investment in new residential property today represents a smaller share of the U.S. economy than at any other time since World War II. If it returned merely to its postwar average share, growth would jump by 2%, adding 1.5 million jobs and knocking a full point off the unemployment rate.

So why aren't there more housing starts? Answer: Because new households are forming at less than 40% of the normal rate. Young adults are living with their parents at much higher rates than before the Great Recession. Many cannot afford monthly rental costs, let alone come up with the down payments they need to qualify for mortgages.

This reflects the continuing travails of young adults in a slack labor market. Among recent college graduates ages 20 to 29, the Bureau of Labor Statistics reports, unemployment stands at 10.9%, more than three points higher than in 2007. A study from the Federal Reserve Bank of New York finds that of the recent college graduates who have managed to find work, more than 40% are in jobs that do not require a college degree; more than 20% are working only part-time; and more than 20% are in low-wage jobs.

They are not alone. A recent report from the National Employment Law Project found that low-wage sectors such as food services and retail trade accounted for only 22% of jobs lost during the Great Recession but fully 44% of jobs gained since the bottom. Mid-wage jobs accounted for 37% of losses but only 26% of gains; higher-wage jobs, 41% of losses but only 30% of gains. The wage structure of the entire economy has shifted downward since the Great Recession, and young adults trying to start careers and families have been the principal, but hardly the only, victims.

These developments are jarring. For the past generation we've been telling ourselves and our children that demand for higher-order skills is surging and that a college education is the key to the future. But ... since 2000. . . . "high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers, . . . pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force altogether." Well-educated baristas and unemployed high-school graduates are flip-sides of the same phenomenon."

Discussion and Analysis

Our government has now "helped" so many people that we've created an ugly homemade monster in the form of the current high unemployment and underemployment, debt ridden U.S. administrative state. The plain fact is that this government growth has greatly inhibited private sector growth, and that's come at the cost of good paying jobs. It's that simple.


We've become more like Europe than we're willing to admit, we're in debt up to our eyeballs, and the young college attendees and graduates are paying the biggest price of all --- lots of debt, no spending money and no good job prospects.


Over 130 years ago, the modern day version of the big government tax and spend administrative state was described as follows:


"As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X, or in the better case, what A, B and C shall do for X. . . .


What I want to do is look up C. I want to show you what manner of man he is. I call him the Forgotten Man. Perhaps the appellation is not strictly correct. He is the man who is never thought of....


He works, he votes, generally he prays ---- but he always pays. . . .


William Graham Sumner
1883."


Summing Up


There are far too many Forgotten Men in America today, as represented by the middle class hard working C.


Meanwhile, there are too many (1) direct government employees (federal, state and local), as well as too many (2) government subsidized academic (K-12 and college inclusive) and medical employees, and even too many people (3) classified as "disabled," along with other early government subsidized retirees living off the hard working middle class C these days.


And there are far too many self serving and wrongheaded decisions made by the politicians A and B, for which C must pay.


As a result, the productive tax paying private sector is shrinking in relation to the growing,  unproductive and tax taking public sector.


That means the economic base is struggling, and good jobs are harder to come by.


C needs help. He must remain as the "Forgotten Man" of America no longer.


The futures of our young are at stake --- very much so.


That's my take.


Thanks. Bob.