The President was right (though politically clumsy) to go after those luscious 529 college accounts

At the State of the Union, President Obama proposed limiting the tax advantages of 529 college savings accounts. If you’re an affluent college parent, you probably already know this. If you’re not a parent and/or you are not affluent, you probably said “Huh? What is a 529 account?” Which rather exemplifies the problem.

I have 529s for both of my daughters. I recommend these to all my friends with children. These accounts allow you to accumulate tax-free investment gains to help finance your kids’ college. These also provide a good mechanism for relatives to chip in on birthdays and holidays. Given time to accumulate interest, a few hundred dollars a year from Grandma can easily accumulate to cover a whole semester at a state college. 529s provide a convenient nudge to help you save more, too, though the net impact of such tax-advantaged savings vehicles appears to be quite limited.

The president’s proposal produced an entirely-predictable uproar among affluent families and within the industry of financial and college-savings advisors.  Leading Democrats such as Nancy Pelosi and Charles Schumer immediately ran from the proposal.  Political heat was so intense that President Obama was forced to beat a hasty retreat and to abandon the proposal….

Continue reading “The President was right (though politically clumsy) to go after those luscious 529 college accounts”

This car is worth 100 lattes every month…

If you’re trying to save 20% of your income-and you should-you’ve got to deal with your major expenses. That’s why I love my slightly dinged-up  2003 Elantra. Every month I hang onto it rather than buying a new model, I save about $400.

Yeah, your teenagers will complain. But you’re doing it for them.



Talking personal finance with Helaine Olen: Parts 4 and 5

Helaine and I continue our conversation on personal finance. Our topics include what your financial advisor has in common with Dionne Warwick.

Helaine and I continue our conversation on personal finance. Our topics include what your financial advisor has in common with Dionne Warwick.

Helaine then expresses skepticism about “nudges,” and more interestingly, about the inherent limits of behavioral economics. We discuss the pitfalls of a professional consensus in which retirement experts come to regard misguided individual behavior and impatience as the fundamental challenge in retirement saving policy. I myself am ambivalent about this issue. Our culture of consumption and pervasive innumeracy are genuinely serious problems. Yet one can narrowly focus on these issues and thus neglect the importance of stagnant wages and other macroeconomic problems.

In part 5, we ponder Occupy Wall Street and the Tea Party as reactions to financial dislocation. Helaine is much more impressed by Occupy than I am. We finally close things out with a schmooze about what it’s actually like to sell a book in the internet era.

Talking personal finance with Helaine Olen: Parts 3

We continued our conversation about personal finance.

Parts 1 and 2 can be found here.

Here we discussed the inherent shortcomings of 401(k) accounts, and why the New School’s Teresa Ghilarducci has been called the “Most Dangerous Woman in America.” I lament the public sector’s failure to properly finance its retirement obligations, which undercuts the political case for professionally-managed defined-benefit pensions.

We also discussed how the current system of tax-favored savings vehicles favors the affluent. I discuss my favorite subject: Me. We discussed how my own family righted our financial ship after a crisis using strategies that less-affluent Americans could not realistically emulate. . We tend to judge people as individuals when they respond to adversity. Yet the individuals and families most able to weather such crises are often those in the most advantageous situations.

Talking Personal Finance with Helaine Olen: Parts 1 and 2

Here are the first two segments of my interview with Helaine Olen regarding her book, Pound Foolish. You can see a more extensive interview with Olen, with arguably better production values, on Frontline’s the retirement gamble this week. RBC readers are familiar with my obsessions with personal finance, e.g. with this post.

In Part 1, we discuss how she got into this game, what it was like to do the Money Makeover feature for the Los Angeles Times. As I nod to project the wisdom of a sage and swig some diet soda, we discuss what I regard as the financial industry’s most basic dilemma: The best advice fits on a 3×5 index card and is available for free at the library.

We also discuss why divorce is bad for your financial health, and why trusting financial advisors is generally a bad idea, even if one assumes that this person is above ethical reproach. We note the false hopes placed in personal financial skills to offset stagnant wages for millions of Americans. Finally, we observe that Suze Orman isn’t one of the world’s greatest financial advisors, but she has found one of the world’s greatest sales gigs. At least Orman is less predatory than many of the other finance gurus.

In Part II, we start to get into the meat of things. We start by discussing the dinners for senior citizens, at which entrepreneurs sell rip-off variable annuities to seniors desperately (often fairly realistically) afraid that they will outlive their savings. As a warm-up, these salespeople predictably trash Social Security—the one solid source of annuitized wealth Americans can turn to in their retirement years.

I’m cross-posting this with the Incidental Economist. I’m doing so to compare the comment threads on the two sites.