BEWARE THE GENEROUS LENDERS

A pair of loan solicitations arrived in the mail today—not unusual, as they come regularly—but the pitches are worth sharing, if only to serve warning to the trusting among you.  From one, the heading is in bold and colorful font: “A better way to cut your debt – You’re pre-approved – Low fixed monthly payments.”  A bit lower on the page comes the offer: “Best of all, rates start at 5.99% APR*, and your rate will never increase.”

I hope you noticed the asterisk, for that’s where the gimmickry begins.  The explanatory verbiage is found buried unobtrusively on another page and couched in legalese.  APRs range from 5.99% (if your credit is A1) to 32.99%.  They acknowledge the average APR on recent 36-month loans to be 15.18%.  I could relate the rest of the boilerplate, but I think you’ve already gotten the message.  It’s designed to fleece the unwary.

The other generous offer is from a firm which will make your expenses “. . . feel a little less expensive.”  It’s a credit card on which you’ll earn unlimited 2% cash back on every purchase, with a special bonus of $500 if you spend $4,500 in the first three months . . . and “Once approved, you’ll enjoy 16.9% variable APR on purchases.”  That last line is an exact quotation.  I must ask, as funds in your savings account earn annual interest at five-one-hundredths of one percent at Bank of America, and one-tenth of one percent at US Bank, could anyone not certifiably insane enjoy paying 16.9% to borrow money?  I can’t help wondering who writes this stuff and whether they have any connection to reality.

Let me pass on to you a comment made to me over forty years ago by a wealthy old gentleman, which I’ve never forgotten.  During our discussion on family financial planning and taxation, I raised an issue relating to the deductibility of interest paid.  Without hesitation, he cut me short as he literally blurted out: “Interest is not something you pay . . . it’s something you collect!”  I took that to heart and the concept has served me well.  You’d be wise to incorporate it into your affairs as well.

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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity

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AND THE DEBT GROWS EVER LARGER

Traditions run deeply in America.  On every Feb 2nd, since 1887, the groundhog Punxsutawney Phil emerges, to great fanfare, from his home on Gobbler’s Knob to view his shadow.  If it’s visible, there’ll be six more weeks of winter.

We’re in the process of developing another tradition.  The U.S. national debt which amidst a display of anguish reached $17 trillion on Oct 25, 2013, increased to $18 trillion on Dec 2, 2014—403 days later.  Thereafter, it surged to $19 trillion on Jan 29, 2016—423 days this time.  Once again an illusion of vituperation echoed throughout the nation.  You may be certain that in the not too distant future we’ll hit the $20 trillion mark, on the way to forever.

Those who bemoan the ever-increasing national debt point out that it represents more than $58,000 for each man, woman and child in America.  We’re regularly reminded that this obligation must ultimately be assumed by our children and grandchildren.  As to its cause, many persons place the blame on a do-nothing Congress and an unresponsive presidency.  Although some analysts recommend a permanent debt limit, others call for a debt limit suspension or full repeal of the debt ceiling statute.  And while the bickering goes on, we’re constantly warned that our inability to control the debt will bring our nation to the brink of default.

Let me now offer another slant on this controversy.  What’s the actual significance of the national debt?  It seems to pace itself against inflation; as the debt rises in dollars, the dollars fall in value.  And there’s a fundamental difference between personal liability and collective liability.  In the absence of joint and several liability, no one person will ever be held individually responsible.  Very simply, although each citizen may theoretically be on the hook for $58,000 of the nation’s unpaid obligations, no single individual will be found legally liable to ante up any portion of the debt.  It’s for this reason most persons ignore it.

The reality is, the debt will never fall due.  To paraphrase the late USSR tyrant Josef Stalin: When your personal bank account is overdrawn by $150, it’s a problem.  When the national budget is out of balance by umpteen trillion dollars, it’s a statistic.

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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity

Click onto http://www.onthemoneytrail.net/

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AN END TO ADDICTION

Though it’s taken many months, the California legislature finally sent to the governor a proposed law which raises the smoking age to 21.  If approved,18 to 20-year-old users of tobacco and e-cigarettes will, on Jan 1, 2017, be prohibited from purchasing them.  Amy Buch, a Health Care Agency official, who notes that 90% of smokers start before age 18, claims that “moving the legal age to 21 allows more time for brains to mature, resulting in less neurological susceptibility to addiction.”

I have a question: If 90% of all smokers begin their habit before the age of 18, thereby ignoring current law, how will increasing that age to 21 modify their behavior?  And more to the point, how likely is it that a 19-year old habitual smoker can be made to kick the habit because a new law goes onto the books?  Ms. Buch acknowledges that because “they’re addicted to the nicotine . . . we would want to do a special outreach.”

Sadly, most anti-smoking zealots have not a clue why smokers puff the weed.  Nicotine is not the problem; the chemical craving ends within a couple of weeks.  It’s the psychological and sociological addictions that persist.  As a 2-pack-a-day teen-aged smoker, the habit reinforcements are still vivid in my memory.  The combination of romantic images, reinforced with seductive Kool billboards, delusions of grandeur and visions of an unfiltered John Wayne, plus the constant reminder of personal inadequacy assuaged only by a sense of oneness with the Marlboro Man, reinforced my habit.  No special outreach program by an inept bureaucrat would have made a difference.

Be aware that shortly after my nineteenth birthday I kicked the habit cold turkey.  It’s hard to say what’s required for a smoker to set tobacco aside; different people respond to different stimuli.  It’s a personal matter, and as with all addictions¾yes, all addictions¾until the individual decides to quit, it won’t happen.  Only when the basic psyche finds itself at cross-purposes with a habit, will the practice end.  That’s why treatment efforts for all sorts of substance-abuse are normally ineffective. 

The government may enact any laws it wishes, just as the regulators may tighten the enforcement procedures, but despite their efforts, persons of all ages will continue to inhale tobacco smoke into their lungs.  Simply stated: Virtue cannot be legislated.

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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity

Click onto http://www.onthemoneytrail.net/

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THE DEMISE OF THE MILLIONAIRE

Those of you old enough to remember the 1950s TV show The Millionaire, will recall Michael Anthony delivering cashier’s checks for one million dollars each week to various persons, chosen in ways never disclosed.  The benefactor, fabulously wealthy and anonymous John Beresford Tipton, considered the gift—at that time a king’s ransom—to be a social experiment as he viewed the effects it had on each recipient.  The results were often traumatic.

That dramatic old series came to mind when a headline attracted my attention: “$1 million needed to retire nicely in Orange County.”  The article which followed delved into the details of retirement, emphasizing such factors as diminished incomes, Social Security limitations, a shortage of personal savings and a rising cost of living.  The claim: “To retire comfortably in Orange County—or anywhere else in coastal Southern California—you’ll need a cool million dollars stashed away in your bank account.”

The message of the article is well-intended, but I’m sorry to report the number is far out of date.  Thanks to sixty years of inflation, a million bucks doesn’t cut it anymore.  In point of fact, a cool million dollars stashed in your bank account, at today’s bank rate of no more than ½% per annum, pays $416.67 per month—try to live on that.

But even if you can somehow generate an attractive return, of say 8%, you’re still behind the 8-Ball.  Here in California you may expect the state and federal governments to suck up about $15,000 in taxes.  Monthly rent you’ll pay in this county, if you’re to “retire comfortably,” will be at least $2,500.  After you’ve added in utilities, food, health costs, transportation, entertainment, and all the incidentals that go into living an active retirement life, your $80,000 annual income will have been spent—and then some.

I’ll leave you with a couple of suggestions.  If you manage to accumulate $1 million by retirement, plan to live in a less expense locale.  Select a state with no income tax and a community which offers a pleasantly modest standard of living on a low cost budget.  However, if your aspirations run higher, then follow my second recommendation:  Plan to have accumulated, by retirement, a nest egg in today’s values of three million dollars.  Count on an annual return of no more than 2½% and prepare to be heavily taxed.  Welcome to what the future holds—a brave new world.

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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity

Click onto http://www.onthemoneytrail.net/

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