What my parents taught me about money, #7

Editor's note: In the coming days, members of the Consumer Reports Money staff will be sharing family lessons about money, both positive and negative. You're welcome to share your experiences, as well. Here, the seventh in the series:

My parents’ marriage ended with an angry divorce that led to foreclosure of our home and left me scrounging for pennies. I remember going to the bank with all the change I could find – expecting the teller to convert the coins to bills that I could use to buy gas. (I walked out yelling when she refused because I didn’t have an account, the customers staring at me.) For a brief time, my mother had us on welfare, and I eventually was taken in by my friend’s parents. 

As you might expect, this all had a dramatic effect on my life, especially on my financial view of the world.

For me now, happiness comes from stability itself, from a bank account fat enough that, even if I lose my job, I can go years without having to once again experience that dread, the kind that goes with driving a car so rusted that rain water splashes through the floorboards as you go through puddles.

From the time I got out of college (paid for mostly with financial aid), I’ve been on a budget. I recall decades ago entering my spending and income into a vinyl-bound ledger and using a calculator to tally the results. I’m still budget-fixated; although now it’s all neatly done in computer spreadsheets, with bright, colorful, happy pie and bar charts. I feel satisfaction watching them update as I enter my income, which always exceeds my spending.

What my parents taught me about money, #6

Editor's note: In the coming days, members of the Consumer Reports Money staff will be sharing family lessons about money, both positive and negative. You're welcome to share your experiences, as well. Here, the sixth in the series:

Photo courtesy of orin optiglot

My folks came from a long line of top-notch savers, although they were by no means miserly. My mother’s father was a coin collector. He gave my mom a set of blue leather books, each page nearly filled with pennies, nickels, dimes, or quarters from the late 1800s to the early 1900s. She told my sister, brother, and I that when were older we might want to finish the collection for him.

When I was five and my brother was ten he started sneaking coins out of the books. Soon it would have been apparent to anyone who had seen the collection that there were a lot more empty holes on each page. Knowing he was on the eve of apprehension and shared punishment was easier to bear, he split many of the remaining coins with me. We went on an afternoon bender of Sugar Daddies, Chocolate Neccos, Atomic Fireballs, SweeTarts, Clark Bars, Good N’ Plenty, Chuckles, and a few pairs of Wax Lips. Then we got impressively sick. In our moment of weakness we confessed to our parents. 

We were punished, of course, although my mom was more sad than angry. But that soon faded. The hardest bit to comprehend was that we couldn’t replace what we’d taken–the coins, the time my grandfather spent collecting them, what they meant to my mom.

Eventually we understood that it’s easy for greed and impatience to undo carefully assembled savings. To forgive (yourself included), let go, and move on when losses happen. And not to mix Sugar Daddies, Chocolate Neccos, Atomic Fireballs, SweeTarts, Clark Bars, Good N’ Plenty, and Chuckles with Wax Lips.–Amanda Walker, senior project editor

Are credit fraud alert services dinosaurs?

The days of paying companies $10 a month to place fraud alerts on your credit report every three months may be numbered, thanks to a recent U.S. District Court ruling. Two identity theft protection companies have already stopped placing the paid alerts.

In late May, Judge Andrew Guilford, of the U.S. District Court for the Central District of California, ruled that the federal Fair Credit Reporting Act (FCRA) prohibits commercial enterprises from placing fraud alerts on paying consumers’ credit reports. The partial summary judgment  was in favor of Experian, one of the big three credit bureaus, which had sued LifeLock, one of the first fraud alert placement companies.

As the Consumer Reports Money Adviser first reported in December, 2007, LifeLock made a big business out of charging consumers $10 a month to place fraud alerts on their credit reports, which are supposed to stop ID thieves. When a crook tries to open a new credit account in your name, the prospective lender is supposed to see the alert when he pulls your credit report, and to call you to check whether the person who says he’s you really is you.

Problem was, we pointed out, the FCRA gives consumers the right to place fraud alerts themselves for free. What’s more, fraud alerts are no guarantee against ID theft, since some lenders don’t see them and let crooks open accounts in other people’s names anyway. "We know this isn’t 100 percent bulletproof," LifeLock CEO Todd Davis told us. "You can still be a victim. If that happens, we’re there to clean up the mess" with a $1 million guarantee.

Buzzword: Yield spread premium

What does it mean? A yield spread premium (YSP) is a payment mortgage brokers receive from lenders when they sell a consumer a mortgage carrying an interest rate higher than the lowest rate that a borrower actually qualifies for. 

Technically, the yield spread premium is the present dollar value of the difference between the lowest interest rate a wholesale lender would have accepted for a given mortgage transaction and the higher rate a mortgage broker persuades the borrower to accept. Some or all of this dollar amount is typically paid to the broker by the lender in a lump sum. The greater the spread between the two rates, the higher the payment to the broker. 

Why the buzz? Consumer advocates, some state regulators and other critics have charged that yield spread premiums amount to kickbacks that give brokers and other loan originators financial incentives to steer consumers–especially those with weak credit histories–to high-cost, riskier loans, and helped fuel the subprime mortgage crisis. According to the Center for Responsible Lending, yield spread premiums were included in at least 85 percent of all subprime mortgages, with the amount of a YSP averaging about $1,850 per loan.

Snookered by Cablevision

Next time you get a pitch from a silver-tongued telemarketer urging you to switch phone companies or Internet providers, my advice to you: hang up. 

I pride myself on being pretty savvy when dealing with retailers, doctors, auto mechanics, even my utility company. Buy my skills proved puny when dealing with Cablevision, the communications giant that provides my broadband Internet access and television service.

Until a couple of weeks ago, I managed to resist the constant phone calls and direct mail from Cablevision to provide my home phone service through Optimum Voice. I was perfectly content with Verizon, my longtime carrier, though I was prompted to at least listen to Cablevision’s offer because I tired of paying around $35 a month for a landline I hardly used.

When the Cablevision saleswoman said I could bundle all three communications services – phone, Internet, and cable TV – for a one-year Triple Play promotional rate of $100 a month, I took the bait. After all, I was looking at projected savings of approximately $600 over the course of the year. And even after the promotional period ended, the saleswoman said I’d be entitled to an ongoing discount, which would net me $130 or so in savings a year vs. sticking with Verizon.

During our recorded phone conversation (they recorded me, not vice versa), the saleswoman assured me nothing in my service agreement with Cablevision was subject to change. My TV and broadband package would remain intact, she said.

But when the service technician arrived at my house to install the new modem this week, I quickly learned that I’d been misled at best, deceived at worst.

As the technician left, my daughter noticed that we no longer received our dozen or so premium Starz channels that we’d been getting for years as part of our enhanced Family TV package, which I was told was no longer available. To my astonishment, the technician explained that the Starz channels weren’t included in the Triple Play promotion.

So I called customer service to complain. Three times, in fact. I got plenty of sympathy and there was no shortage of apologies, though they didn’t offer to restore my channels -- unless I was willing to pay $10.95 a month for them.

“Do you think I would have switched phone companies if I knew you were taking away my channels?” I bellowed, losing patience each time I went over the same ground again and again. "You deceived me.”

“Go back and listen to the recorded conversation between me and the salesperson,” I said. “You won’t hear the saleswoman say anything about losing channels.”

Eventually, I was shuttled over to the “Disconnect” department.

“Do you want us to make an appointment to discontinue your service?” a representative asked.

“No,” I responded. “I just want my channels back. You’ve put me in an awful position. and  now you’re suggesting I crawl back to the provider I just walked away from.”

After repeatedly telling the rep that I was not going to let the matter rest, she put me on hold to talk to a manager.

She returned with a deal: They would charge me for the Starz package, but would waive the monthly cable box fee for a year, and extend me a “new customer” bonus discount on the Triple Play.

At the end of the day, I’ll still come out ahead, I suppose, but the aggravation wasn’t worth the switch. And come next August, I’ll have to decide whether to give Optimum Voice the boot. 

I know one thing’s for sure. It’ll be a cold day in Hades before I fork over another $10.95 a month for Starz or any other premium channel.

Click here to read what my colleagues in the Electronics Franchise had to say about bundling services. 

You’ve heard my story, now I’d like to hear yours. Have you ever had a similar experience switching carriers that turned out particularly good or bad?

After 20+ years of lax consumer protection, should we trust the Fed?

Photo courtesy of plate of the day 

Federal Reserve Chairman Ben Bernanke has been arguing hard for the Fed's continued control over consumer financial protection. Should the Fed still have such control?

No way, says Travis Plunkett, legislative director of the Consumer Federation of America, whose member organizations include Consumers Union, publisher of Consumer Reports. In testimony presented earlier this month before a Congressional committee, Plunkett outlines numerous ways the Fed has failed in its duty to protect consumers in the financial arena over the last two decades. Millions of consumers are in an ever-deepening hole as a result, Plunkett says. And the only way to solve it is with a new regulatory sytem including a consumer financial protection agency whose only focus is on consumers.

From Plunkett's testimony and from Gail Hillebrand, a senior attorney in charge of Consumers Union's Financial Services campaign, here are a few examples of how the Fed, our central bank, has dropped the ball:

•Put off oversight of predatory loans. The Fed was granted sweeping anti-predatory mortgage regulatory authority by the 1994 Home Ownership and Equity Protection Act. Consumer groups sought to strengthen the regulations under the Act for years, but changes addressing some of the problems in nontraditional mortgages were only issued on July 30, 2008, as the economy was collapsing from the effects of predatory lending in the U.S.

•Kept silent as credit-card debt ballooned. The Fed and the Office of the Comptroller of the Currency, the federal agency responsible for overseeing the nationally chartered banks that issue most credit cards, were "largely silent" while credit-card issuers dramatically expanded their reach, the CFA reports. This credit-card expansion had disproportionately negative effects on the least-sophisticated, highest-risk, and lowest-income households.

Back-to-school economy II: The cost of a quiet place to study

In a recent post, I noted the trend of more college kids living at home because of the recession. Note to stay-at-home-students: Don't expect too many perks besides the break on living expenses and Mom’s cooking. Like, say, a quiet room where you can study. In a recent survey, our experts found that the average cost to remodel a 12-foot by 12-foot room into a home office, including custom cabinets and wiring for phones and electronics, is $27,193. That doesn’t include the computer.–Jean Pietrobono

The Fed's improved truth-in-lending proposals: Too little, too late?

The Federal Reserve's proposed changes today to Regulation Z, which focuses on truth in lending, include needed improvements to the disclosures consumers slog through when shopping for mortgages and home-equity lines of credit (HELOCs). The Fed says its proposals involving closed-end mortgages would:

• Improve the disclosure of the annual percentage rate (APR) so it captures most fees and settlement costs;
• Require lenders to show how the consumer's APR compares to the average rate offered to borrowers with excellent credit;
• Require lenders to provide final Truth in Lending Act disclosures at least three business days before loan closing; and
• Require lenders to show consumers how much their monthly payments might increase, for adjustable-rate mortgages.

There's lots more to the Fed's offering, including rules making it harder for mortgage brokers to steer consumers to bad loans, and simpler and more timely disclosure of HELOC terms.

All of that is a good start toward preventing the outrages that led millions of homeowners over the precipice in recent years. But one has to ask: Why were these better disclosures proposed now? Why not years ago? More to the point, is disclosure, the theme of many of these proposed changes, really the best type of consumer protection?–Tobie Stanger 

 

What my parents taught me about money, #5

Editor's note: In the coming days, members of the Consumer Reports Money staff will be sharing family lessons about money, both positive and negative. You're welcome to share your experiences, as well. Here, the fifth in the series:

When my college-age son asked me a very basic question the other day about how to write a check, I recalled learning to how to handle my own bill-paying when I was living in my first apartment after graduating from college.  And once again I was struck by the fact that so little attention seems to be focused in U.S. schools on teaching kids the basics of managing personal finances by the time they leave high school. 

What I learned about managing money came primarily from my mother, a high school teacher who was supporting three children on her own after a divorce. She also taught night-school bookkeeping classes for adults a couple of nights a week to supplement her income, and in her practically non-existent spare time also managed to earn a master’s degree to further boost her salary and career prospects.

Obviously the value of hard work and budgeting were messages that came through loud and clear to us as children, but so did her belief that the only proper place for savings was a government-insured certificate of deposit. While that conservative saving and investment approach may seem wise today to anyone whose stock or mutual fund shares have been pummeled in the market over the past year,  my own observations from reporting about personal finance for more than 20 years have taught me that keeping at least some portion of savings in well-chosen equities offers the best shot at returns that can beat inflation over the long run.

Should retirees pay off the mortgage?

It's a question many new retirees face: Pay off the mortgage and be done with it, or keep it and invest the money instead?

In fact, even more people seem to be in that situation these days, either because they're retiring earlier, moved around, or refinanced fairly recently. 

I've looked at the question a bunch of times in the past and come to the conclusion that it's often close to a toss-up in purely financial terms. However, the peace of mind many retirees get from not having that big debt hanging over their heads can be a powerful argument for paying it off. Today's scary thrill ride of a stock market might be another one.

More support for that point of view appears in a new paper, "Should You Carry a Mortgage into Retirement?" by Anthony Webb, a research economist at the Center for Retirement Research at Boston College. He concludes that virtually all retirees who have the money to pay off their mortgage would be better off if they just sat down and wrote a check.

If you're facing that decision now or will be soon, Webb's very readable, five-page paper would be worth a look. --Greg Daugherty

Greg writes the “Retirement Guy” column each month in the Consumer Reports Money Adviser newsletter.