The subprime auto lending market has experienced dramatic growth over the last few years. In a low interest rate environment, investors have been looking for yield, and subprime auto loans have become a preferred vehicle. However, as the New York Times reported, Wells Fargo has put a cap on the amount of subprime auto loans that they are willing to originate. They have capped subprime at no more than 10% of their total originations, which was $29.9 billion last year. Wells Fargo made itself famous during the subprime mortgage crisis, because it managed to largely escape unharmed. They are famous for avoiding the “growth-at-all-cost” strategy that brought down much of the financial world. So, when they start capping certain loan types, we should all pay attention.
The subprime auto lending market has been demonstrating signs of excess for quite a while. Auto dealers sit at the center of this market, and they control access to the customer. Their lending desks (the place where you sit, after you selected your car, and try to get financing) want to deal with lenders who approve the biggest loans, with the highest dealer discount (commission paid to the dealership) and the fewest requirements. The auto dealerships make most of their money from the commission paid by the lenders, and so they are intensely focused on maximizing that fee.
As you can see from this arrangement, there is a huge conflict of interest in this setup. The auto dealer is not looking for the best deal for the consumer.
And, as yield hungry investors and lenders look for more business, they have to compete to win the dealer’s business, not the borrower. So, competition does not drive prices down. Rather, it drives up the commission paid to the dealer. It also removes, to a bare minimum, the compliance and control checks placed upon the dealer. If you owned an auto dealership, would you want to give your business to a lender that is constantly auditing your work, or would you rather deal with a lender that gives you complete control?
Inevitably, lower controls and higher commissions leads to the increased risk of falsification of income information. In addition, lenders will start approving unprofitable business, because that “marginal tranche” of business gives them access to the whole dealership business flow. This helps the auto dealer get more loans approved, but it also results in an increasing number of people signing up for loans they can not afford to repay. And that is why we are seeing delinquencies increase.
Even worse, we see the same misalignment of risk from the mortgage crisis. For most of the major subprime auto lenders, they do not retain the risk on their balance sheet. Rather, they slice and dice the business and sell it to investors. And the sale does not happen before credit rating agencies give the paper AAA ratings. How can subprime (below 640) customers end up with AAA or AA ratings? Well, the same rating agencies are using the same logic from the mortgage crisis. An individual with a 640 score is high risk. But, a portfolio of loan is low risk because of diversification.
There is also a belief that these loans are secured, and that people will pay their auto before their house. However, people are using data from 2008, which shows underwater homeowners prioritizing their car over their home. These days are over. Not to mention that dealers have an incentive to inflate the value of the used cars, making the level of security questionable.
We all know that automobiles are depreciating assets. In that, everyone agrees. So, it ultimately comes down to making sure people can pay back their loans. The increasing delinquency, and the worries of Wells Fargo, says that for many people, they can not afford the loans. We fear this problem will only get worse before it gets better.
No one needs to tell a new parent that raising a child in America is a pricey endeavor.
New parents can expect to spend about $233,610 on a child’s basic needs through age 17, excluding savings for higher education, according to the U.S. Department of Agriculture.
One of the first purchases you’re likely to make as a new parent is a stroller. When it came time for Brooklyn resident JiaYao Liu, 23, and her baby’s father to buy a stroller for their baby boy, now 3, they walked into Babies R Us expecting to spend about $80-$100. They were sorely mistaken.
“I didn’t expect it to be that expensive until I went and I looked,” Liu says.“You just want to carry your child from Point A to Point B, and there are some strollers with a whole bunch of toys on them, and I don’t think it’s necessary.”
The couple ultimately purchased the most-affordable stroller they could find. Liu says it was a store brand and the practical choice, based on her needs. Still, at around $130, it was a little outside their price range.
New Orleans resident Demetra Pinckney, 29, had a similar experience when she and her husband picked out a stroller for their baby registry.
“They have some strollers that are $500, $600,” Pinckney says. “I’m thinking: ‘Oh my goodness. No, I have to live. They have good strollers that don’t have to cost you a whole paycheck.’”
The stroller she picked out and ultimately received as a gift cost about $400.
Over the past few decades the baby stroller has gone from a practical parenting necessity to a luxury item for some, says Paul Hope, senior home editor at Consumer Reports. While you can still find a budget-friendly stroller, an increasing number of new premium models are priced north of $1,000.
“What I think has happened is that we have really seen the emergence of a lot of premium brands and they have become sort of a status symbol,” says Hope.
Why are baby strollers so expensive?
Marketers and manufacturers have capitalized on a ripe market, says David Katzner, president of The National Parenting Center, a parent advocacy organization, explaining why more high-priced strollers have entered the market. The organization has reviewed parenting products since 1990 and this year reviewed its first $1,300 stroller.
“For parents, our testers, the sticker shock is remarkable,” Katzner tells MagnifyMoney. He says the high prices prompt some parents to jokingly ask if the stroller is magical — for the money, can it educate the children, or even change a diaper?
Some parents are willing to spend top dollar even for products that will only be used until their little ones are able to walk on their own.
Miami mom Stephanie Viney, 28, says an expensive stroller is worth it if you have the money to spend.
When she and her husband were getting ready to have their first child, Finn, now 23 months old, they picked out an upscale traditional stroller: the UPPAbaby Cruz stroller, car seat and accessories totalling $1,100 for their baby registry.
“It is definitely expensive once you get everything you need; what sold me on it was the big, easy-access basket underneath,” says Viney. The stay-at-home mother and hairdresser says the stroller has held up well and is practical for her on-the-go lifestyle. “The UPPAs are sturdy strong strollers. You get what you pay for.”
A year after they received their first stroller, the couple shelled out $1,200 to upgrade to an UPPAbaby Vista stroller, large enough to hold both Finn and his four-month-old baby brother.
What you’re getting for the money
The most expensive strollers may be made with premium materials like leather upholstery, have some extra padding in the seat area, larger wheels that absorb shock, cupholders or extra basket space underneath. Viney’s UPPAbaby Vista even incorporates a “piggyback” attachment, which will allow one child to stand and ride along when they’re big enough. She and her husband are both tall, so she says it helps they can adjust the handlebar up and down, too.
“With very premium priced strollers, you might get premium materials and construction [or] the brand name, but there are very few categories of anything we test where paying more gets you more in the way of reliability or performance or even longevity,” says Hope.
How to make an informed stroller purchase
Even for Katzner, who has been reviewing parenting products for over a decade, navigating the stroller industry is at times “very, very confusing.”
“Worst of all is walking a trade show floor when they are all just filled with all the same product,” says Katzner, whose position requires he often attend trade shows where manufacturers display new strollers, car seats, feeding and nursing systems and other baby products.
“In many cases the person in the booth is struggling to show how their stroller is different from the guy next to them,” he says. “You might find as a parent you are in the exact same place. You might say, ‘what’s the difference?’”
Compare and test drive
A stroller is not an insignificant purchase. You’ll need to purchase one just like you would need to purchase a car seat or any other baby items and you will likely use it for a number of years. With many options to consider, your decision may depend on myriad factors.
Whatever you do, don’t let peer pressure be one of them, says Katzner. He advises parents not to simply choose what’s popular or has the best ratings online.
He recommends parents to some online research, take notes, then go test out strollers in person before they settle on a pick.
If you feel pressured to keep up with your peers, keep in mind, Consumer Reports has not found any reason to buy a stroller that costs more than $1,000, says Hope.
While you’re at the store, try any of these shopping tips to help make your decision.
Consider your lifestyle
Stroller options can be categorized into three main families: traditional, jogger, and umbrella. (Though you can find strollers with mixed features.)
What you ultimately choose will depend on how you plan you use the stroller.
If you are very active and plan to exercise with the stroller or take it along with you on tough terrains, you may want to consider a jogger. On the other hand, if you will need to lift the stroller often, you may choose, instead, an umbrella stroller.
“Umbrella strollers are really fabulous for collapsing on the subway or in transit going to the airport,” Hope says.
After her son turned 2, Liu supplemented her first stroller purchase with a $20 umbrella stroller from Target.
“It was difficult because of the subway stations,” she says of her first stroller. “Every time I had to fold the stroller and carry my bags, my son and his bags up the stairs.”
However, many jogging and umbrella strollers can’t be used with children less than 6 months old, because they don’t always accept car seats. That’s why Liu bought the big, chunky stroller, first. Hope says most people opt for the traditional stroller, as it suits most needs.
“Traditional strollers that accept an infant car seat or are compatible are typically the best value,” says Hope. “You’re guaranteed that the stroller will be safe to use with a baby that is under six months.”
Test for ease of use
Put the stroller through a comprehensive test when you’re shopping to test how easy it is for you to use. After all, you’re the one who will be spending the most time with the stroller. Katzner recommends you choose something that makes your life easier.
Everyone will have different determining factors. In general, Hope suggests shoppers check for how it feels to do things like lift the stroller, strap in the child, adjust the backrest or lock the wheel brakes.
In addition, he advises shoppers to take the stroller for a ride to test how easy it is to navigate. Hope suggests going with a small child if you already have one — or ask a friend or family member if you can take their youngster for a test drive — to simulate real-life situations like making tight turns and encountering curbs.
Liu says her first stroller weighed about 10 to 15 pounds, and she could fold and carry it with one hand when traveling in the city. She says a basket underneath also came in handy when she went out grocery shopping or had her son with her and had to bring along a bunch of his things.
On the other hand, the Pinckneys have a pickup truck, which makes it easy to load and unload a bulkier stroller. They also live in a suburban area, where they are less likely to need to lift or fold the stroller.
Look for the JPMA logo
“There is not a whole lot you can look for as a consumer in the way of safety,” says Hope. But, organizations like the Juvenile Product Manufacturers Association (JPMA) regulate strollers and they test for a whole host of safety factors, so you don’t have to. Look for the JPMA logo on the stroller box to feel confident the stroller you put your baby in meets today’s safety standards.
Some strollers and online retailers like Amazon.com may display the National Parenting Center’s seal of approval, too. The organization has real parents test and review children’s products on many features, so you can get a sense of what it’s like to actually use the stroller. Although the strollers the NPC reviews are generally already JCMA-approved, the organization notes that its seal of approval does not imply or guarantee product safety.
Question the salesperson
The salesperson’s job is to make sales, but your job is to be a responsible consumer. If you get to the store with one stroller in mind, but the salesperson pushes you toward a different pick, ask why, says Katzner.
“Of course the salesman is going to try to sell you the $600 stroller,” says Katzner. “Put them to the test and ask why. What does it do? What’s the difference?”
In the end, you’ll walk out more confident in your choice having asked all your questions, instead of feeling as if you were coerced into choosing a stroller with features you weren’t interested in, or may not ever use.
Hope says most traditional strollers that carry an infant car seat can be used from when the baby is born until they are about four or five years old; traditional strollers commonly adjust to accept a child that weighs up to about 50 to 60 pounds.
If you plan to have more children, you’ll need to do some forward thinking when choosing your first baby stroller. A durable stroller can go a long way. And, as long as safety standards don’t drastically change, it could serve you for more than one child.
When they had their second child, Viney ran into an issue. She now needed a double stroller, but her UPPAbaby Cruz couldn’t be converted into one.
“Once I realized I got the wrong UPPAbaby I was very upset,” Viney says. Because they already had $500 worth of seats and accessories, they decided to stay with the same brand and get a UPPAbaby Vista — the new stroller and a second seat cost about $1,200.
“The sales guy should have definitely asked if we were going to plan for more kids because when spending this kind of money you want to have it for long,” says Viney.
The bottom line: Don’t follow the crowd
Asked if she would have chosen a more expensive stroller, were money no object, Liu says no.
“If at the time I had more money or wasn’t strapped for cash I would have gone with the same thing. It was practical. It was fine. I have no complaints about it,” says Liu.
Pinckney, on the other hand, says she would choose a more expensive stroller if it had features her current stroller is missing like a tray up top, for parents, or cupholders.
It all comes down to personal preference. Choose the stroller that best fits your lifestyle at the best price point for your budget. Most importantly, pick a stroller that will make your life as a parent that much easier.
“Do not go beyond your means,” says Katzner. “Do not get something that is going to be unwieldy and make your life more difficult.”
Update: The Senate passed a revised, 479-page version of the Tax Cuts and Jobs Act in an early morning vote Dec. 2. Senators voted 51-49, to pass the $1.5 trillion Senate GOP tax bill at 1:51am, according to The Hill. The vote was mostly along party lines. Only one Republican senator, Bob Corker (Tenn.), voted against the bill, citing concerns about adding to the federal deficit. No Democrats backed the bill.
Analysis of the Senate tax bill as it was passed is still pending. However, the Joint Committee on Taxation posted its most-recent analysis of the Tax Cuts and Jobs Act to its Twitter account just after the bill’s passing Saturday.
The House version of the tax bill passed by a 227-205 vote chamber vote, just before the chamber’s Thanksgiving holiday. No Democrats backed the House tax bill, either.
The two chambers will now need to hash out many differences between the proposed tax plans before sending legislation to the president’s desk by year’s end.
From the looks of it, the Senate isn’t exactly on the same page with their colleagues in the House of Representatives. The plan bears the same name as the House’s bill, but the Senate’s version of the Tax Cut and Jobs Act diverges from the House’s plan on a number of individual and business tax reforms.
Most notably, the proposed Senate Republican plan would delay cutting the corporate tax rate by one year, include more tax brackets than the House plan and retain the mortgage interest deduction, among a few other popular tax breaks.
The bills do share some things in common. For example, neither version calls for any changes in workers’ 401(k) tax contribution limits. And both tax plans would repeal the alternative minimum tax and maintain the charitable contribution deduction. Both plans also repeal personal exemptions, but double the standard income tax deduction for individuals, married couples and single parents.
Complying with a Senate rule known as the Byrd rule is an issue. Under that rule, during the legislative reconciliation process, senators can move to block legislation if, among other reasons, it would possibly mean a significant increase in the federal deficit beyond a 10-year term.
If the Senate is able to pass its tax bill, the differences between the two plans may lead to clashes over tax policy as a pressured Congress tries to get a single tax reform bill to President Donald Trump’s desk by Christmas.
Here is a quick breakdown of the major differences between the two plans. Read beyond the table for further detail.
Under the Senate plan, classroom
teachers can still deduct expenses
up to $250.
The House plan would cut the deduction.
Neither the Senate nor the House
plan would reduce contribution
limits for most 401(k) savers.
However, the senate plan would
not allow employees earning
over $500,000 to make
Income tax brackets
The Senate’s plan maintains the tax system’s seven tax brackets—10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5% — as opposed to the House’s four. The senate plan notably maintains the lowest tax rate at 10 percent and modifies all but one other. The proposal also adjusts qualifying income levels.
The Senate plan would reduce the income tax on the nation’s highest earners to 38.5% from the current 39.6%. Individuals and heads of households earning more than $500,000, and married couples earning more than $1 million would pay the highest rate. The proposed income thresholds for the Senate’s plan are pictured below.
Alternatively, the House bill proposes four income brackets of 12%, 25%, 35%, and 39.6%.
The state and local tax deduction
The Senate plan fully eliminates the State and Local Tax, or SALT, deduction. Nearly one third of Americans took the deduction in 2015, according to the Tax Policy Center, so the repeal is likely to ruffle some feathers. While the House tax plan reduced deductions for state and local taxes, it still allowed Americans to deduct up to $10,000 in property taxes. The senate plan would completely get rid of the SALT deduction, including the deduction for property taxes.
Some critics fear eliminating the SALT deduction would disproportionately affect earners in states with high taxes, like New York and California. Across the nation, just six states— California, New York, New Jersey, Illinois, Texas, and Pennsylvania— comprised more than half of the value of all state and local tax deduction claims in 2014.
The mortgage interest deduction
Nothing would change under the Senate’s plan. Americans would still be able to deduct the amount of interest paid on up to the first $1 million of mortgage debt under the Senate tax plan. The House tax plan, on the other hand, had proposed to lower the threshold for the mortgage interest deduction to $500,000.
Only about six percent of new homes are valued at more than $500,000, according to an August 2017 report by the United for Homes campaign. The group argues lowering the cap would have “virtually no effect on homeownership rates.”
Corporate tax rate
The Senate plan still reduces the corporate tax rate from 35% to 20%, but corporations won’t get a break until 2019, when the Senate plan phases in the reduction. On the other hand, the House Plan would have initiated the reduced rate in 2018.
The decision to phase in the cut was likely made because a delayed corporate tax cut would make it easier for the Senate to reach its goal of passing a tax bill that does not increase the deficit by more than $1.5 trillion over the next decade.
The estate tax
The estate tax exemption is doubled from $5.49 million in assets ($10.98 million for married couples) onto heirs under both the Senate and House bills.
The House plan doesn’t get rid of the estate tax immediately. The House’s proposal also doubles the exclusion amount to $10 million, but eliminates the estate tax after 2023. The estate tax affects only the estates of the wealthiest 0.2 percent of Americans, according to the Center of Budget and Policy Priorities.
Adoption and child tax credits
Unlike the initial House tax plan, the Senate plan proposes keep some popular tax breaks. The plan proposes to retain the Adoption Tax Credit, which allows families to receive a tax credit for all qualifying adoption expenses up to $13,570. The Senate plan also slightly bumps up a proposed child tax credit compared to the House plan. While the House plan increased the credit from $1000 to $1600, the Senate plan proposes raising the credit slightly more, to $1650.
Student loan interest and medical expenses deduction
Under Senate plan, students will still be able to deduct interest paid on student loans up to $2500. Furthermore, taxpayers would still be able to claim medical expenses as a deduction if they account for over 7.5 or 10% of their income. This is a departure from the House plan, which would have eliminated both.
Pass through business
The Senate tax plan establishes a 17.4 percent deduction for pass through businesses like sole proprietorships, S corporations, and partnerships.The HIll reports the deduction would lower the effective tax rate on the highest earning small businesses to just over 30 percent, according to a Senate Finance aide. The deduction would only apply to service businesses based in the U.S
The House plan establishes a 25 percent tax rate for pass-through companies. But only 30 percent of the business’s revenue is subject to that rate. The remaining 70 percent would be taxed at the individual tax rate. The House amended the bill Thursday to create a new 9 percent tax rate for the first $75,000 of income of a married active owner with less than $150,000 of pass-through income.
What’s next for GOP tax reform?
The future is unclear for either proposed tax plan. The two chambers will likely need to compromise over differences in the coming weeks to get a bill passed and to the President’s desk by year’s end.
Thursday’s news came just as the House Ways and Means Committee finalized its own bill after announcing two amendments, with a vote expected next week.
Congress is working around the clock to get a new tax bill to President Trump’s desk before the year is out. In addition to a host of tax cuts, both the Senate and House GOP tax plans include several proposals that could make saving and paying for higher education more costly for families. Considering Americans hold a collective $1.36 trillion in student loan debt and 11.2 percent of that balance is either delinquent or in default that’s not-so-good news for millions of Americans.
Both plans include proposed ideas that could impact how students and families finance higher education. The House plan, for instance, includes proposed provisions that would affect the benefits parents, students and school employees like graduate students receive, which could ultimately impact the price students pay.
In a Nov. 6 letter to the House Ways and Means Committee opposing the provisions, the American Council on Education and 50 other higher education associations states that “the committee’s summary of the bill showed that its provisions would increase the cost to students attending college by more than $65 billion between 2018 and 2027.” They reaffirmed their opposition in a Nov. 15 letter.
The council and other higher education associations weren’t satisfied with the Senate’s version of the Tax Cuts and Jobs Act, either. In a Nov. 14 letter, the council says it’s pleased the Senate bill retains some student benefits eliminated in the House version, but remains concerned about other positions that it says would ultimately make attaining a college education more expensive and “erode the financial stability of public and private, two-year and four-year colleges and universities.”
Where are the bills now?
Updated: U.S. senators voted 51-49, to pass a revised, 479-page version of the Tax Cuts and Jobs Act in an early morning vote Dec. 2. The vote was almost entirely along party lines. Only one Republican senator, Bob Corker (Tenn.), voted against the tax bill, citing concerns about adding to the federal deficit. No Democrats backed the bill. Analysis of the bill as-passed is ongoing. However, the Joint Committee on Taxation posted its most-recent analysis of the Tax Cuts and Jobs Act to its Twitter account just after the bill’s passing Saturday.
The House version of the Tax Cuts and Jobs Act passed by a 227-205 vote on Nov. 16, just before the chamber’s Thanksgiving holiday. No Democrats backed the bill. The two chambers will now need to hash out many differences between the proposed tax plans before sending legislation to the president’s desk by year’s end.
In its plan, the Senate committee says the goal of tax reform in relation to education is to simplify education tax benefits. MagnifyMoney took a look at a few of the major proposed changes to the tax code that would impact college affordability most.
Streamline tax credits
The House tax bill proposes to repeal the Hope Scholarship Credit and Lifetime Learning Credit while slightly expanding the American Opportunity Tax Credit. The new American Opportunity Tax Credit (AOTC) would credit the first $2,000 of higher education expenses (like tuition, fees and course materials) and offer a 25 percent tax credit for the next $2,000 of higher education expenses. That’s the same as it is now, with one addition: The new AOTC also offers a maximum $500 credit for fifth-year students.
The bigger change is the elimination of the other credits. Currently, if students don’t elect the American Opportunity Tax Credit, they can instead claim the Hope Scholarship Credit for expenses up to $1,500 credit applied to tuition and fees during the first two years of education; or, they may choose the Lifetime Learning Credit that awards up to 20 percent of the first $10,000 of qualified education expenses for an unlimited number of years.
Basically, in creating the new American Opportunity Tax Credit, the House bill eliminates the tax benefit for nontraditional, part-time, or graduate students who may spend longer than five years in the pursuit of a higher-ed degree. According to the Joint Committee on Taxation, consolidating the AOTC would increase tax revenue by $17.5 billion from 2018 to 2027, and increase spending by $0.2 billion over the same period.
The Senate bill does not change any of these credits.
Make tuition reductions taxable
The House bill proposes eliminating a tax exclusion for qualified tuition reductions, which allows college and university employees who receive discounted tuition to omit the reduction from their taxable income.
A repeal would generally increase the taxable income for many campus employees. Most notably, eliminating the exclusion would negatively impact graduate students students who, under the House’s proposed tax bill, would have any waived tuition added to their taxable income.
Many graduate students receive a stipend in exchange for work done for the university, like teaching courses or working on research projects. The stipend offsets student’s overall cost of attendance and may be worth tens of thousands of dollars. As part of the package, many students see all or part of their tuition waived.
Students already pay taxes on the stipend. Under the House tax plan, students would have to report the waived tuition as income, too, although they never actually see the funds. Since a year’s worth of a graduate education can cost tens of thousands of dollars, the addition could move the student up into higher tax brackets and significantly increase the amount of income tax they have to pay.
The Senate bill doesn’t alter the exclusion.
Eliminate the student loan interest deduction
Under the House tax bill, students who made payments on their federal or private student loans during the tax year would no longer be able to deduct interest they paid on the loans.
Current tax code allows those repaying student loans to deduct up to $2,500 of student loan interest paid each year. To claim the deduction, a taxpayer cannot earn more than $80,000 ($160,00 for married couples filing jointly). The deduction is reduced based on income for earners above $65,000, up to an $80,000 limit. (The phaseout is between $130,000 and $160,000 who are married and filing joint returns.)
Nearly 12 million Americans were spared paying an average $1,068 when they were credited with the deduction in 2014, according to the Center for American Progress, an independent nonpartisan policy institute. If a student turns to student loans or other expensive borrowing options to make up for the deduction, he or she could experience more financial strain after graduation.
The Senate tax bill retains the student loan interest deduction.
Repeal the tax exclusion for employer-provided educational assistance
Some employers provide workers educational assistance to help deflect the cost of earning a degree or completing continuing education courses at the undergraduate or graduate level. Currently, Americans receiving such assistance are able to exclude up to $5,250 of it from their taxable income.
Under the House tax plan, the education-related funds employees receive would be taxed as income, increasing the amount some would pay in taxes if they enroll in such a program.
A spokesperson for American Student Assistance says if the final tax bill includes the repeal, it may point to a bleak future for the spread of student loan repayment assistance benefits, currently offered by only 4 percent of American companies.
Take care not to confuse education assistance with another, growing employer benefit: student loan repayment assistance. The student loan repayment benefit is new and structured differently from company to company, but generally, it grants some employees money to help repay their student loans.
The Senate plan does not repeal the employer-provided educational assistance exclusion.
When Rhonda Jourdonnais turned 62, she began feeling she was ready for retirement. She had worked as a veterinary technician and assistant for 25 years, and wanted to try living off Social Security. But on a fixed income, there was no way she could afford her monthly mortgage and homeowners association fees at the townhouse she owned in Grass Valley, California.
She thought of different ways she could make her vision a reality, and then a drastic idea sprung to mind: She’d live in a tiny home.
Jourdonnais, 64, had followed the tiny-home movement since it began gaining popularity in the early 2000s. “Tiny House, Big Living” premiered on HGTV several years ago, and the TV show rekindled her interest in the movement. She was living in California at the time — where she’d been for five years — but says she wasn’t happy. She envisioned moving back here she used to live, on Whidbey Island in Washington State.
“In California, the housing is too expensive,” Jourdonnais tells MagnifyMoney. “I wouldn’t have been able to retire and still keep up my townhouse without working.”
The monthly HOA fee for her townhouse was close to $400, which would not have been sustainable.
She decided to take the leap in 2015. She sold her townhouse at a profit and put that money into her IRA. In October 2015, she flew to Colorado Springs, Colo., to order her tiny home. She found a company there that had been in business since 1999, and she considered them the most reputable. In December of that year, she retired from her job and in February 2016, she moved into her 8-by-24-foot home on a friend’s six-acre property on Whidbey Island. She pays her friend $200 per month to stay on her property.
“The tiny homemade retirement possible,” she says.
Toward early retirement
Jourdonnais says that since moving into her tiny home, she lives on roughly half of the money she did before retirement. Before, she would have had to work until she was 70 to save enough for retirement, and she didn’t feel physically or emotionally prepared for that.
Jourdonnais and many others are turning to tiny-home living as a way to make early retirement possible.
According to Senior Planet, 40 percent of tiny-home owners are over age 50. And there are other advantages that seem tailor-made for older Americans. According to figures cited in a CBS Moneywatch report from 2016, 89 percent of tiny house owners have less credit card debt than the average American, and 65 percent have none at all. Additionally, tiny home owners have about 55 percent more savings in the bank.
Long thought to be a lifestyle primarily for those interested in achieving more peace of mind through fewer objects, it has also become a way for many people to retire earlier with fewer utility costs, lower property taxes and little or no mortgage. (The average home in the U.S. costs $272,000, compared with $23,000 for a tiny home, according to The Tiny Life.)
Though pop culture has made the concept of tiny-home living popular, it’s still quite rare. Only 1 percent of homes purchased in the U.S. are below 1,000 square feet, and the average tiny home clocks in at somewhere between 100 and 400 square feet, according to data compiled by the blog Restoring Simple.
Weathering the challenges
Tiny-home living is rife with challenges, including complicated permit and zoning codes. But Jourdonnais says the biggest ongoing hurdle for her is simply adjusting to the space, especially on cold, rainy days.
“If I get up to go into my kitchen it’s like two steps,” she says. “If I go into my bathroom, it’s two steps. If somebody was claustrophobic, they probably wouldn’t like the lifestyle.”
Her advice to people interested in retiring early by moving into a tiny home is to try it out before buying a property. The U.S. has numerous tiny-home rental communities, which Jourdonnais recommends. “The thing I miss the most is the space,” she says. “It is a really big adjustment. It’s definitely worth it for people to try it out in some of the rental communities.”
But overall, Jourdonnais has loved her new lifestyle. She regularly takes a small pop-up travel trailer to campsites with her dog. (Some people actually travel with their tiny houses, but she does not — she says she doesn’t have a truck big enough to pull it.) And she has already traveled much more in retirement than she ever anticipated.
Jourdonnais has planned her finances so that she can sustain tiny-home living for many years to come, assuming her Social Security remains the same. “I imagine it could be the way I live the rest of my life,” she says, “as long as I stay healthy.”
The drama over who will lead the Consumer Financial Protection Bureau continued this week as two people battle over who will be the official acting director: one tapped by the agency’s former head, and the other appointed by President Donald Trump.
Richard Cordray, the former director of the CFPB, named Leandra English as his successor hours before he resigned on Nov. 24. On the same day, President Trump appointed Mick Mulvaney, currently the head of the Office of Management and Budget, as the agency’s interim director.
Two days after her appointment by Cordray, English filed a lawsuit against President Trump and Mulvaney seeking to block Mulvaney’s appointment.
Despite the controversy, Mulvaney reportedly showed up for work at the CFPB on Monday, carrying a bag of doughnuts. A former South Carolina representative, Mulvaney had said in a 2014 interview with the Credit Union Times that the CFPB was “a joke…in a sick, sad kind of way.” In 2015, he co-sponsored a legislation to eliminate the agency.
Meanwhile, Reuters reported that Mulvaney had instructed CFPB employees to disregard instructions from English “in her presumed capacity as Acting Director.”
Bloomberg reports that Washington U.S. District Court Judge Timothy Kelly, a Trump nominee who has been on the bench since September, was assigned to rule on the case. A hearing was scheduled for 4:30 p.m. on Monday.Update: Kelly ruled against English on Tuesday evening. While the ruling cannot be challenged, Politico reported that English’s lawyer, Deepak Gupta, said they would be discussing next steps, saying, “This judge does not have the final word on what happens in this controversy, and I think he understands that.”
In their complaint, English’s attorneys claim that under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the 2010 financial reform legislation that created the CFPB, the CFPB’s existing deputy director will take over the acting director role in the absence of the director.
The lawyers argued that Dodd-Frank’s provision on succession supersedes the Federal Vacancies Reform Act of 1988, which allows the president to name an acting official if the existing official resigns.
“The President’s attempt to appoint a still-serving White House staffer to displace the acting head of an independent agency is contrary to the overall statutory design and independence of the Bureau,” the complaint reads. “The President’s purported or intended appointment is also unlawful as a violation of the foundational principles of agency independence that Congress codified by the Dodd-Frank Act.”
The CFPB is a U.S. government agency responsible for consumer protection in the financial sector, established in the wake of the 2008 financial crisis.
The agency has aggressively targeted bad actors in the financial industry since its creation, reclaiming $11.9 billion for more than 29 million consumers. Its latest high profile actions included the Wells Fargo unauthorized accounts scandal and creating new rules around payday lending.
The Trump administration and Republicans have long sought to curtail the CFPB’s power as part of a broader effort to weaken federal regulation over financial institutions.
In late October, Senate Republicans killed an arbitration rule that the consumer watchdog wrote and would have made it easier for Americans to file class action lawsuits against big financial institutions.
Cordray was the agency’s first director, holding the office from 2013 until he announced he was cutting his tenure eight months short on Friday. He had been criticized by Washington conservatives and well-received by consumer advocates.
Before taking on the role of the bureau’s acting director, English served as the agency’s chief of staff. She has held positions at the CFPB, the Office of Management and Budget and the Office of Personnel Management, according to the CFPB statement.
“In considering how to ensure an orderly succession for this independent agency, I have also come to recognize that appointing the current chief of staff to the deputy director position would minimize operational disruption and provide for a smooth transition given her operational expertise,” Cordray said in a statement.
White House Press Secretary Sarah Sanders told reporters at a Monday press briefing that the administration has nothing against English, that she is still CFPB’s deputy director and has a legal standing in that capacity, “but not as the director.”
“We believe that Director Mulvaney is the right person at this time to lead [the CFPB] and that’s why he’s over there,” Sanders said.
Sen. Tom Cotton (R-Ark.) on Monday deemed the CFPB “a rogue, unconstitutional agency,” and that English “doesn’t have a legal leg to stand on” in her lawsuit.
“Leandra English’s lawsuit to install herself as acting director against the president’s explicit direction is just the latest lawless action by the CFPB,” Cotton said in a statement. “The president should fire her immediately and anyone who disobeys Director Mulvaney’s orders should also be fired summarily. The Constitution and the law must prevail against the supposed resistance.”
The National Consumer Law Center, a nonprofit organization dedicated to helping low-income and other disadvantaged people, said on Monday that Trump’s appointment of Mulvaney is “illegal.”
“In an attempt to install a wrecking ball at the helm of the consumer watchdog, President Trump has ignored the law that dictates that the consumer bureau’s deputy director takes over until Congress can confirm a new director,” the National Consumer Law Center statement reads.
“We should not forget that just 10 years ago, a focus on bank profits over consumer protection rules resulted in the worst financial collapse since the Great Depression, and many families have not yet recovered,” it continues. “It’s illegal and reckless to put someone who thinks that consumer protection is a joke in charge of our key financial watchdog.”
A newly released New York Federal Reserve analysis sheds some insight on factors that may determine if student loan borrowers are more or less likely to default on their loans.
According to Fed data, 28% of students who left college between 2010 and 2011 defaulted on their student loans within five years. That’s significantly higher than the students who left school five years earlier, between 2005 and 2006, of which only 19% defaulted within five years.
Defaulting on a student loan is big deal. Not only will someone who defaults on a student loan need to deal with collections calls, but a default can seriously harm a borrower’s credit rating, making it difficult to qualify for a personal loan or other large credit purchases like a new home.
The New York Fed’s analysis highlights factors that could determine default rates years after students leave school. They range from things a student can’t necessarily control — family background and how selective the college they attended was — to things students may have a little more control over, like the degree and major they pursue.
The data show students in these categories are more likely to default on their student loans between ages 20-33:
Dropped out before earning a degree.
Enrolled in an associate’s degree program.
Majored in arts and humanities.
Attended a for-profit institution, community college or nonselective college.
Came from a low-income family.
A few of the factors relate to things a student has some control over, like the kind of school chosen and the degree pursued. Another big factor, family background, depends more heavily on chance.
Here’s what the Fed found about how the factors influence default rates.
For-profit, public, or nonprofit?
If a student attended a private for-profit two-year institution, their chances of default were highest of all — just above 3% were in default at age 22, shooting up to 42% by age 33. Students at private four-year for-profits weren’t far behind, with a default rate of
38.8% by age 33.
On the other hand, students were much less likely to struggle to repay their student loans at nonprofit institutions, both public and private. Private nonprofit four-year student had the lowest default rate at 17.2%. They were followed by students who attended public nonprofit four-year institutions.
Selective vs. nonselective
The Fed’s analysis found students who attended colleges that were more selective or competitive defaulted at lower rates that those who attended less-selective colleges. The analysis used Barron’s Profile of American Colleges to classify colleges into selective and nonselective based on competitiveness.
Graduate versus dropout
Whether or not a borrower graduated was the second-strongest predictor of default among borrowers, according to the Fed analysis. Overall, students who dropped out had higher rates of default versus borrowers who graduated no matter what kind of degree they attempted. The analysis notes that may be attributed to the fact graduates are more likely to find more gainful employment that would give them the ability to pay off their loans after earning a degree.
Associate versus bachelor’s degree
No matter what kind of college a graduate attended, students in a two-year degree programs had higher default rates than their peers who enrolled in a four-year college, according to the New York Fed analysis.
But the gap between default rates of two-year and four-year students was widest among students who attended public schools — 21.4% to 36.5%, respectively— a difference of more than 15 percentage points
STEM versus arts and humanities
Students who majored in arts and humanities defaulted on their loans at the highest rates — 26.3% at nonselective schools, 14.6% at selective schools— while STEM majors at selective schools (12%) and business students at selective schools (11.5%) defaulted at the lowest rates. Overall, default rates among students who majored in business or a vocational programs were closer to STEM students than to arts and humanities majors.
Arts and humanities majors defaulted at higher rates regardless of the college’s selectivity, but if students majored in STEM, business or a vocational program, selectivity may have factored in more. By age 33, the default gap between students who chose a best-performing major and a worst-performing major was three percentage points at selective colleges, while at nonselective schools the gap was eight percentage points.
Advantaged vs nonadvantaged
The Fed’s analysis took a look into defaulters’ income and family background, too. The analysis looked at the average income for the ZIP code area at a borrower’s youngest available age based on available loan data. The analysis defined students who came from households earning below the mean income based on ZIP code as nonadvantaged, and students from households earning above the mean income.
The analysis found borrowers who came from less-advantaged backgrounds based on income had higher default rates no matter what type of college they attended.
Taking both a borrower’s background and college into consideration, the widest gap in default rates observed in the analysis were among advantaged students who attended private nonprofit colleges (13% of whom defaulted by age 33) and nonadvantaged students who attended private for profit colleges (42.1% of whom defaulted by age 33).
Some 57 million Uber users’ personal information was exposed in October 2016 when the car-hailing company experienced a cyber attack, the company announced Tuesday — more than a year after the occurrence of the incident.
Bloomberg reported the company paid $100,000 to the hackers responsible for the attack to keep the breach private.
Dara Khosrowshahi, Uber’s new CEO who was appointed by the board in August, said in a statement that two people outside the company “inappropriately accessed user data stored on a third-party cloud-based service that we use.”
The attackers stole data of the 57 million people across the globe, including their names, email addresses and mobile phone numbers. About 600,000 U.S.-based drivers were among 7 million Uber drivers whose license numbers and names were exposed in the breach.
The data breach was the latest in a string of high profile cyber attacks that weren’t revealed until months or years later. Fortunately, it doesn’t appear that Uber users have to worry about any of their financial information being exposed. Khosrowshahi said no evidence indicated that trip location history, credit card numbers, bank account numbers, or dates of birth were stolen.
What was done?
After the attack happened, Uber “took immediate steps” to safeguard the data and blocked further unauthorized access to the information, according to Khosrowshahi. The company identified the hackers and made sure the exposed data had been destroyed. Security measures were also taken to enhance control on the company’s cloud storage.
“None of this should have happened, and I will not make excuses for it,” Khosrowshahi said. “While I can’t erase the past, I can commit on behalf of every Uber employee that we will learn from our mistakes. We are changing the way we do business, putting integrity at the core of every decision we make and working hard to earn the trust of our customers.”
The company let go two employees who led the response to the incident on Tuesday, according to the statement. Uber is also reporting the attack to regulatory authorities.
What can you do?
Uber said no evidence shows fraud or misuse connected to the data breach.
Check out our guide on credit freezes and other steps you can take to protect your identity if personal information is compromised in a data breach.
If you are an Uber rider…
The company said you don’t need to take any action. Uber is monitoring the affected accounts and have marked them for additional fraud protection, Khosrowshahi said. But you are encouraged to regularly monitor your credit and Uber accounts for any unexpected or unusual activities.
If anything happens, notify Uber via the Help Center immediately. You can do this by tapping “Help” in your app, then “Account and Payment Options” > “I have an unknown charge” > “I think my account has been hacked.”
If you are an Uber driver…
If you are affected, you will be notified by Uber via email or mail and the company is offering free credit monitoring and identity theft protection.
You can check whether your Uber account is at risk here.
Parents spent an average of $422 per child on holiday presents in 2016, according to a survey by T. Rowe Price. An estimated 56 percent of parents with children ages 8 to 14 use credit to purchase gifts, which are bound to include gadgets that’ll be old news by New Year’s but not paid off until months after that.
Indeed, the holiday season — the most wonderful time of the year, as it’s known to some — may be far from wonderful for budgets as some parents try to fulfill every child’s every wish.
56 percent of people said they spend too much money during the holidays.
55 percent admitted that they feel stressed about their finances during the holidays.
43 percent said the extra expense makes the holidays hard to enjoy.
Some parents overload their children with “stuff” that will quite possibly be obsolete or bested in popularity by the next big thing just in time for the next holiday season. No great mystery that the U.S. has 3.1 percent of the world’s children, but consumes 40 percent of the world’s toys.
“We are a materialistic society, and often our rituals and celebrations reflect this,” says Dr. Mary Gresham, an Atlanta-based psychologist who specializes in financial and clinical psychology. “Many parents get caught up in this and start to believe that the right toy will bring happiness to their child.”
Here are five gifts to give your little ones besides presents this year. Your overflowing closets and pockets may thank you for considering other gift options.
Brendan Mullooly, an investment adviser for an asset management firm in Wall Township, N.J., suggests that novice investors interested in making a financial gift to a young person should use a service like Stockpile, an online company that simplifies the process of gifting stocks to minors. Check out our review here.
“You can purchase gift cards of individual stocks and some index ETFs to give as a gift,” says Mullooly.
And Stockpile allows you to buy fractional shares, so the gift cards can be for small amounts. Mullooly recommends setting up view-only access to these custodial accounts so your young investor can check on how the investments are doing.
“This offers a great way to give a gift that’s interesting, has monetary value, and also offers an educational aspect,” he says.
The gift of giving
For children, the holiday season can be a “gimme”time of year. But it’s also the time when we often hear that it’s better to give than receive.
Jayne Pearl, a family business and financial parenting expert and co-author of “Kids, Wealth and Consequences: Ensuring a Responsible Financial Future for the Next Generation,”says it’s not hard to nurture a child’s giving spirit. She suggests combating the “gimmes” with the “givvies.”
Put part of your holiday budget toward giving to the less fortunate, perhaps through a charitable organization. For example, you could give a gift in your child’s name to an organization such as Unicef or the American Red Cross, or to an area animal shelter or humane society.
“Giving kids the tools and the consciousness to try to help people is extremely empowering,” Pearl says.
Her recommendation is to sit down with your children and find out what bothers them about the world, help them figure out how they can help, and make this part of your holiday celebration. Use the holidays as a time to teach your kids that “we have values and our values are not just ‘stuff,’ ” Pearl says.
The gift of membership
You can’t go wrong with season passes to a favorite destination like a local museum, an amusement park or the zoo. You can use them over and over throughout the year, which could ultimately help your family spend less on entertainment.
Also, check out memberships to national organizations, like the Baseball Hall of Fame for the sports enthusiast.
Or get a pass that’s fun for the whole family, like the $80 America the Beautiful Annual Pass, which pays for itself in as few as fivevisits to national parks. The pass covers entry to over 2,000 parks for a full year, and nearly 100 percentof sale proceeds goes toward improving and enhancing federal recreation sites.
The gift of travel
Pool the money you would spend on toys and trinkets and knock a destination off your family bucket list. You could time the trip to coincide with the holiday season or breaks during the school year.
Erica Steed, 37, allowed her children to choose something they wanted to experience together in Christmas 2016.
Ellison, who was 10, wanted to see the Statue of Liberty. Elian, 7, wanted to see snow, which doesn’t often happen in Georgia. They took a family trip to New York for the holidays, and although it didn’t snow, “we had such a great time that it made up for it,” says Steed, who lives in Roswell, Ga.
When you factor in the cost of airline tickets and lodging in New York City for a family of four during the holidays, this gift option didn’t save the Steeds the money they would’ve spent on presents.
But by planning, creating a budget and sticking to it, the family spent the holidays doing something they could all enjoy and remember for a lifetime. And this, Steed says, amounted to money well spent.
The gift of learning
You know your children better than anyone. And every one of them is unique, with his/her own set of interests, so give a gift that helps a child develop existing or new skills.
Sign them up for classes that help them take their passion or hobby to the next level.
Consider coding camp for your computer whiz or cooking classes for your foodie. You can find classes offered by educational institutions, community organizations, companies or individuals.
You could also take a look at online classes like these from MasterClass, which can help your child hone a craft with a celebrity idol without leaving home.
“When people feel really good about things, they tend to spend more,” Dvorkin says.
Bruce McClary, vice president of communications at the National Foundation for Credit Counseling, says people have a tendency to overspend during the holidays, relying heavily on credit cards and not paying off the debt until later, sometimes even years later.
McClary has also noticed that credit card delinquencies have been increasing slightly over the last two quarters. The Federal Reserve Bank notes in its report that “credit card balances increased and flows into delinquency have increased over the past year.”
While most Americans are aware and ready to spend a little extra during the holiday season, you can make it a little more merry by avoiding these common debt traps.
Keeping up with the Joneses
Holiday purchasing pressure ranges from buying the hottest toys to giving (or buying for yourself) the latest tech gadget or the biggest TV on the block. People are tempted to get the latest and greatest, Dvorkin says.
It all adds up, especially if you’re out to outdo a neighbor: The tree and all the trimmings; hostess gifts for parties; food for your own holiday meals and entertaining; your Clark Griswold-style light shows. Randy Williams, president of A Debt Coach, a counseling service in Kentucky, says the desire for personal reward can contribute to holiday debt.
“You feel good when you do something for somebody,” he says.
But then consumers may have the motto “One for you, one for me,” and purchase an item for themselves, which continues the spending cycle.
Hot holiday toy crazes
Unfurling your child’s Christmas wish list can be at once fun and terrifying. Parents planned to spend, on average, $495 per child, according to 2016 holiday shopping data from the Rubicon Project.
Lists could include hot holiday toys for 2017 like the $30-$45 Fingerlings (the little plastic monkeys that attach to fingers and move in response to sounds and touch) a $300 Nintendo Switch gaming console or even the $799 Lego Ultimate Collectors Series Millennium Falcon, the company’s biggest set with 7,541 pieces.
When the toys start to run out, the prices can escalate. The Fingerlings, for example, typically retail at $14.99, but some were listed in November fortwice as much on eBay. Since it can be harder for parents to say “no” to the frenzy when it’s a gift that’s going to bring a smile to a little one’s face, Williams says there’s extra incentive to plan well.
Store credit card pitches
McClary warns not to get into store credit card offers. The instant savings of 10 percent off on the day of your purchase could come with a high cost, such as 29.99 percent APR later.
“People should resist the temptation,” he says.
Williams says there’s a reason for the incentives, such as a discount on your purchase, because the company will make back whatever you initially saved.
“Most people do not pay off their cards within the intro offer time,” he says.
Instead, set aside cash for holiday spending and use it, instead of credit. If you’re sure you can “affordably borrow,” Williams suggests using an existing line of credit instead of falling for the attractive offers from retailers.
Deals seem to abound when shopping online or in stores, but if you aren’t careful, some can land you in more trouble than no deal at all.
McClary advises to avoid promotions like deferred interest cards and convenience checks. Discounts during the holidays are usually found during other times of the year, too, when the budget is less tight.
“It’s to the advantage of the consumer to be looking at sales during the year and look for opportunities to get the most out of their money,” he says.
Trying to keep family traditions alive
Wanting to continue your grandparents’ or parents’ traditions may be sentimental but also pricey in today’s economy. Maybe they held extravagant dinner parties, paid for holiday trips and gave their children a certain number of gifts every year. You want to follow suit, but can’t afford it.
“(I’m a) firm believer that what gets us in trouble in the holidays is wanting to do what Mom and Dad did,” Williams says. “Things are more expensive now.”
Shopping with family members post-Thanksgiving, on Black Friday, although a tradition, also may be a temptation because of impulse buys or if family members don’t hold you accountable to sticking to a budget.
“It’s tradition but it’s also a day people can’t afford,” Williams says.
Hosting hordes of holiday visitors
While milk and cookies are left out for Santa, entertaining guests, from neighbors and co-workers to out-of-town family and friends, can increase your food and utilities spending in December.
“You spend money in all sorts of ways,” Dvorkin says.
“Where the problem is, we don’t plan for Christmas, we just do Christmas,” says Williams. He says that means sometimes consumers plan, mentally, to go into debt.
He advises to plan ahead for the next season, adding that he knows people who start checking items off their list in February during sales, or in June or July when fewer people are buying and prices are lower.