October 31, 2010

Historical Look at Women's Participation Rates In the Labor force

I wouldn't think it is news to most people that there are a higher percentage of women in the workforce today than in previous decades.     I recently ran across someone on the 'net who seemed to think that that it was more common for mothers to work in the 'olden day's and that high % of women working is not  a new thing.

I found a few sources of data with bits of information for married, single and mothers spread across several decades.   The sources I used are : 
1. Historical Statistics of the United States Colonial Times to 1970 has a lot of census data covering the nations history.  The document was put out for the US Bicentennial so it only covers up to 1970.  
2. For more recent data the BLS.gov site has statistics on Labor Force participation of women and mothers from 1975 to 2008.
3. For some earlier 1800's data the study titled American Economic Growth and Standards of Living before
the Civil War
has information as well.   But that data is extrapolated rather than straight census information.
4. The Census statistical abstract has later data on married women's labor force participation.

From those sources I got the data and here is a chart showing the % of women in the workforce from 1900 to 2000 :

And here is a table of the data:

Women Mothers Married Single
1900 20.50%
5.6% 43.50%
1910 25.40%
10.7% 51.10%
1920 23.70%
9.0% 46.40%
1930 24.80%
11.7% 50.50%
1940 25.80%
15.5% 45.50%
1950 29.00% 11.90% 23.0% 46.30%
1960 34.50% 18.60% 31.7% 42.90%
1970 41.60% 30.30% 40.2% 50.90%
1980 51.5% 46.80% 49.8% 64.40%
1990 57.5% 58.20% 58.4% 66.70%
2000 59.9% 65.30% 61.1% 68.90%

From 1900 to 1950 there was gradual change.    Single women worked at rates around 40-50% in the first half of the 20th century.   The rates for women as a whole started at 20.5% in 1900 and had climbed to 29% by 1950.    The increase of married women who worked was the highest gain.  In 1900 only 5.6% of married women worked but by 1950 there were 23% working.

Post 1950 through 2000 the percent of women working increased very quickly.  The % of women working went from 29% to 59.9%.    Married women working was 23% in 1950 and hit 61.1% by 2000.    Single women working went from 46.3% to 68.9%.   The most drastic increase was among mothers which went from a mere 11.9% in 1950 to 65.3% in 2000.

I also drew out a graph showing some more data going back to 1800.   In this chart we've got the percent of women who work from 1800 to 2000.    The data for 1800 to 1860 is from the #3 source listed above.   There is a gap from 1870-1880 but the trend from 1800 to 1900 seems clear and we can assume the figures for 1870 to 1880 are in between at about 14% and 16% more or less.

For comparison sake I'll also show the percent of men who work in comparison to the percent of women:

As you can see the percent of men has been going down at the same time that the percent for women has increased.  As of 2008 there was only about a 5% difference between the single men and women and a 15.4% delta between married men and women.   It seems if the trend continues then eventually the numbers will converge so that roughly equal percentages of men and women participate in the labor force.

Note : You might notice some odd and apparently contradictory differences in the numbers.  For example more mothers work than married women.   Part of this is due to demographics such as more mothers being younger women who are more likely to work than older women.   I would also point out that there is a group of women that is counted separately in some of the data which is the widowers or married women whos husbands don't live with them.   That group works less than the other categories of married, mothers or single.

October 29, 2010

Best of blog posts for week of October 29th

FMF tells us How to Become Wealthy

My Money Blog gives an example of a small claims court victory with some do's and don'ts : Winning Our Case in Small Claims Court

Yahoo has an articles on the Best Cities to Move to in America

DoughRoller talks about how College Dropouts Hurt More Than Just Themselves

Cost Benefit Analysis of M.B.A. Degrees

A little while ago a reader asked if I could look at the value of an MBA or Masters of Business Administration degree.    They suggested a cost benefit analysis for getting an MBA considering the cost of the degree & lost wages versus expected salary.

Luckily Forbes has done the work already.    They have a list of the best business schools for 2009.   You an also find all the schools listed in table format ranked by 5 year gain.
If you go to that table you can see the list of business schools and how they stack up in terms of financial benefit to the students.   They look at the average post graduation salary, 5 year return on the degree and the break even point.

Lets look at the #1 school on their list which is Stanford as an example.   The details for their analysis of Stanford are here.

5 year gain

The basic idea of 5 year gain is how much you will be ahead overall financially with an MBA after 5 years.   They say that the 5 year gain at Stanford is $85,000.   This figure is " 5-Yr total compensation after graduation, minus the sum of tuition, fees and forgone compensation" and its " before taxes and adjusted for time value of money."   So they're comparing how much more money you'd be taking home if you do get an MBA minus the tuition and the lost wages versus what you'd take home if you didn't do the MBA and worked for 5 years.   For Stanford overall you'd be ahead $85,000 in the 5 year period.  The 5 year gain ranges from the $85,000 figure at the top for Stanford all the way down to a marginal $1,000 increase at the bottom  of the Forbes list.

Break even point

They also look at the break even point.   For Stanford this is 4.2 years.   The break even point is when the money in your pocket is more for the MBA path compared to not doing an MBA.   So if you start today in 2010 and then spend 2 years to get an MBA and then 2.2 more years you'd have as much money considering wages less tuition compared to if you just kept working for the same 4.2 year period.

The break even for MBA programs ranges from 3.9 to 5.0 years.   So theres only about 1 year variation there and the better MBA programs "pay off" within 4-5 years.    If you have much more than 5 years left in your working career then an MBA can pay off.

I think a better measure of the worth of an MBA is the net gain in salary or the average post graduation salaries.   Stanford is #1 in the list either way with the highest net 5 year gain of $85,000 and also the highest average post graduation salary of $225,000.

Average graduate salary

Higher ROI is good but I think that the better bottom line consideration should be the average salary post MBA.   I'd much rather have a $100,000 increase in my salary and a $100,000 tuition bill that takes 5 years to break even than a $50,000 increase in salary on a $40,000 tuition bill that only takes 4 years to break even.   The Forbes list gives the average post graduation salary for each program.

While the 5 year gain and break even points are useful metrics, the larger impact will be from higher post graduation salaries.   I would compare schools based on average post graduation salary first and then look at the 5 year gain and break even point as secondary measure.

Also look at Businessweek's ROI measure

Forbes isn't the only magazine to look at the value of an MBA.   Businessweek has done so as well with their ROI rankings for MBA's.   Businessweek uses different methodology and comes to different results.   They have Michigan State as the top US program for ROI and increase in salary.   However they don't use bonuses or stock compensation which I think is likely to be a big factor in pay for many MBA's.   Forbes also considers pay over a 5 year period rather than just the pay immediately after graduating with the MBA.  Also see their list of best US B-School for 2008.

Hot To Put it All Together

These are the basic steps I'd take if I were to compare MBA programs for financial return and cost benefit:

Narrow the list to schools you can get into.  
Look at salary gain post graduation and average graduate salaries first.
As a secondary metric compare the 5 year gain figures.

Benefits of MBA will vary

Of course all of this is looking at average figures for MBA graduates.   Everyone situation will be unique.   What kind of benefit you get out of an MBA will depend on your situation and your career goals.   I'm an engineer and a coworker of mine several years ago got an MBA with the assumption it would get him a raise and on the fast track to management.    He got neither.   Others I know have benefited in their jobs from their MBA training.   Before you jump into an MBA or start measuring your future salary, you should consider what your career plan is and if an MBA is beneficial for your situation.

Bottom Line:   Forbes site has a lot of useful data for comparing the cost benefit analysis of different MBA programs.  Personally I think that average salary and increase in salary among MBA graduates should be the primary measure of the return for an MBA program.   

More sources

Payscale.com has detail on salaries for MBA grads at various schools and different job titles
 Online MBA facts from Yahoo.

October 28, 2010

Common Misconceptions About Compact Flourescent Lamps (CFL)

I'm a big fan of CFL's.    They work great and save money and energy.   I think they are one of the easiest and best ROI energy savers you can get.   But there seem to be a vocal minority of people who hate CFL's or are at least very cynical of them.  Today I'm going to examine the common complaints that people have with CFL's and then counter each.

Sylvania 29490 23-Watt CFL Mini Twist 6 pack, Soft White

1.  The quality of the light

This in my opinion is usually people talking about CFL's from many years ago.  When CFL's first came out they only had one light color : ugly.   Old CFLs produced a light that was very high temperature and not as 'soft' as a typical incandescent bulb.   It was a typical fluorescent bright light.   The spectrum of light in CFL's has changed a lot.    Today you can get CFL's in a light temperature equivalent to a typical 'soft white' incandescent bulb.   The warmer temperature CFL's may cost a bit more and you need to specifically look at temperature of the light to get one similar to an incandescent.

2. They don't last as long as they're supposed to

Then you probably bought cheap quality CFLs. My house is full of CFL's and has been for over 10 years since I bought it.   Most of the CFL's have lasted the full 10 years and

3. They are full of evil poisonous mercury

Yes there is in fact mercury in CFL's.   But the worries about it are overblown.  A very small amount of mercury is used in CFLs and they contain about 4 milligrams within the tube.   I would recommend that you don't break open a CFL and lick the inside.   Of course you'd be stupid to do that right?   You'd never stick evil mercury inside your mouth like using a common household thermometer.  That old style mercury based thermometer has about 500 milligrams of mercury in it.  But you knew that right and you've thrown out your thermometer I'm sure.  You also don't eat any fish right?  Cause eating a can a week of common tuna will get you about 4 mg of mercury over a year.  Monthly servings of a larger fish like shark will get you the same amount of mercury.   Now of course I don't want to downplay the hazard of mercury.  Mercury should be avoided.   But the amount of mercury in CFL's is relatively small and can be safely avoided with proper handling.   By comparison, the amount of Mercury in fish is not safely avoided with proper eating.

4. They are too expensive and not worth buying

CFL's do have a high initial cost compared to an incandescent.  However spending $3-$5 today will get you a bulb that saves you many times that amount in lower electricity use and longer lasting bulb.

5.  I can't find the right shape CFL for my light fixture

Again I think this is an out dated impression people made a few years ago and have kept.  Look again or look harder.    There are many varieties of CFL out there on the market now and they come in all shapes and sizes.

6. They take too long to warm up and they flicker

Another out dated item that used to be true but isn't any longer.  I remember when I was a kid the fluorescent bulb in my parents garage could take literally minutes to warm up and turn on.   Modern CFL's are virtually instantly on.   I've also never seen a CFL flicker.    Generally fluorescent bulbs can flicker if they are dying out so this is not normal behavior but just a sign they're going bad and will need to be replaced.

7.   They don't work with dimmers or 3 way lamps

This is generally true of most CFL's.    But they now make dimmable CFLs as well as 3 way CFL's.   You do have to find the special design CFL's if you want to use them with a dimmer switch or in a 3 way lamp. 

There are a lot of reasons that people cite for not liking or using CFL's but most of them are outdated or simply wrong.    If you don't believe me then check out the light bulb aisle next time you're in Home Depot and check em out for yourself.

October 27, 2010

Average Number of Jobs in Careers and Length of Job

Its fairly common for people to have many jobs during their lifetime.  This is not a very new phenomenon either.   Part of this is due to having multiple jobs when you are younger and then settling into longer jobs in your later working years.    I decided to take a look at the data on how many jobs people have and how long jobs last  on average.

Personally I have had a total of 8 jobs so far and most of those were in my teenage and college years.      My jobs: Janitor, electrician helper, library assistant, computer lab monitor, electrician helper, computer lab monitor, UPS auditor, engineer.    All of those jobs were 2 years or less except my current job as an engineer.   So I've already had 8 jobs but most of them were when I was age 18-25.   I've been in my current job for over 13 years.  Some of the jobs I've had lasted 3 months or less.  I'm not sure if I'm supposed to count those.    

Number of jobs in Career

BLS.gov has a National Longitudinal Survey (NLS) In the NLS site FAQ they say:
 "These younger baby boomers held an average of 11 jobs from ages 18 to 44. (In this report, a job is defined as an uninterrupted period of work with a particular employer.) On average, men held 11.4 jobs and women held 10.7 jobs.
From ages 18 to 44, some of these younger baby boomers held more jobs than average and others held fewer jobs. Twenty-five percent held 15 jobs or more, while 12 percent held zero to four jobs. For additional statistics on the number of jobs held, see the tables at: www.bls.gov/nls/nlsy79r23jobsbyedu.pdf"

If you look at the table you see there is some variation between age, sex, education level and ethnicity.  However just about every demographic group has an mean in the range of 8-12 jobs.

More jobs in younger years
Little more discussion on the NLS has some more information.   They say:
"Individuals born from 1957 to 1964 held an average of 11 jobs from age 18 to age 44. These baby boomers held an average of 4.4 jobs while ages 18 to 22. The average number of jobs held fell to 3.2 while ages 23 to 27 and to 2.6 while ages 28 to 32. These individuals held an average of 2.4 jobs while ages 33 to 38 and 2.0 jobs while ages 39 to 44. Jobs that span more than one age group were counted once in each age group, so the over-all average number of jobs held from age 18 to age 44 is less than the sum of the number of jobs across the individual age groups...."

And about job lengths they say: "Although job duration tends to be longer the older a worker is when start- ing the job, these baby boomers continued to have large numbers of short- duration jobs even at middle age. Among jobs started by 39- to 44-year- olds, 33 percent ended in less than a year, and 68 percent ended in fewer than 5 years."

Length of Current Jobs Held by Population

Another look at job length is to look at now long the population has been on their current job right now. 

The time you are employed at a job is the 'tenure'.    The BLS tracks tenure of current employees.   Currently from the BLS report on tenure the median tenure for employees is about 4.4 years.   (full report in PDF)     There are variations in tenure across job, demographics, industry, etc.   30% of workers had 10 years or more and 19% were employed for a year or less.   Tenure has actually been increasing the past few years but this is generally because less senior people lose their jobs leaving more senior people still employed.     Older workers have longer tenure on average and median tenure figures increase with age groups.

Bottom Line:  Its typical for people to have around a dozen or more jobs in their life and its common for jobs to last around 4 years.   People have more jobs when they are younger and later in life people tend to stick to jobs longer. 

October 26, 2010

Are Rolex Watches an Investment?

On an episode of the Suze Orman show a caller had bought a Rolex watch and she commented how she'd been told that the Rolex would be a good investment.   My wife and I laughed at the idea that a luxury watch was an investment.   It was a little shocking to hear someone claim that.    But much to my surprise I'm more shocked to find out she wasn't too far off base.

New Explorer II Rolex watches are priced about $6,200 - $6,300 on Amazon.com.   Thats just one price sample but good enough for my purposes.   I checked out eBay and find Explorer II's selling for a range around $4,000 and up.   But it seems that older versions of the Explorer II style also sell for similar prices.   The resale value of a Rolex model doesn't seem to vary too much based on the age of the watch.   So a 10 year old Explorer II is going to fetch a similar price to a 20 year old or 2 year old watch.

In the 1970's you could have bought a new Explorer II for around $400.   If you can resell that same watch today for $4,000 then thats a 10 fold increase in value over 40 years.     That equates to 5.9% annual compound growth.  

The site Minus4Plus6 has a table showing the price evolution of Rolex models over time.    I took the prices for the 17 watches with the longest history of at least a couple decades and figured the annual growth rates.   The average annual growth increase of the Rolex watches I looked at was 7.7% and the median was 7.3%.   The low was at 4.9% and the high at 12%.   10 of the watches increases 7-8% range.    In general looking at the price appreciation of the Rolex models it seems that a 7% annual increase in value is fairly typical.    7% annual increase is pretty good really.  But there are various downsides to such a collectible investment to consider.

Success with Collectibles requires Knowledge

In order to do well with any collectible you have to know what the items you're collecting.   The same is true with a Rolex watch.  I personally know very little about Rolex watches so if I were to go buy one as a collectible theres a good bet that I would buy a watch that isn't as favorable and doesn't retain its value as well.   I might over pay for the watch when I buy it.   If buying used you also have to be aware of forgeries when dealing with an expensive luxury item like a Rolex.   To succeed financially with a collectible you have to know the items well.  

Maintenance and service costs

One big 'gotcha' about the investment value of a Rolex is the cost of servicing.   A Rolex may very well last a lifetime but the mechanism may need periodic servicing or repairs over the years.   That cost can be significant. Having your watch serviced or repaired by a qualified shop can cost several hundred dollars.   A couple service or repair bills over 20-30 years can turn the net present value of a Rolex from positive to negative.

Lack of Liquidity

I'd consider a Rolex to be semi liquid.    You can probably run down to a pawn shop and sell any Rolex within a day.   So in that regards its a pretty liquid item.   But while you may be able to sell a Rolex quickly but you won't necessarily be able to get a good price for it.  To get a good price you may have to take some time selling the watch.   As an individual it may be hard to sell a watch for top dollar and you may have to settle for a price a bit below the real market rates in order to sell it within a reasonable time frame.


Technically a Rolex that sells for more than you paid would be a collectible item that is taxable.   When you have a gain in value of a collectible it is taxed at regular income tax rates.  Most investment vehicles like stocks and bonds pay a more favorable capital gains tax rate.   I doubt most people will actually claim such a gain on their taxes either because they aren't aware its taxable or because they think they can get away with it.   But such a gain IS taxable so that should be a consideration.

Add It All Up

Overall a Rolex is not a 'horrible' investment.    The 7% typical growth in value is actually fairly good.   But if you add in the details like service and repair costs, expertise to succeed, lower liquidity and income tax implications the investment in a Rolex is not as good as what you should expect with stocks or bonds.

Bottom line :  Rolex' investment value should be considered a secondary benefit of buying the luxury watch brand and not a primary reason for a purchased.

Photo by char1iej

October 25, 2010

How Likely Are you to Lose a >$1M Lawsuit?

Some people seem to think that multi million dollar lawsuits are as common as the common cold.   This might be because of the disproportionately high amount of media coverage such lawsuits receive and/or the amount of crime dramas that we watch on TV.   I don't think large lawsuit awards are nearly as common as people make them out to be.  I don't personally know anyone who has been sued for anything over a few thousand dollars over a car accident.  When you start to talk to friends eventually you might hear of a friend of a friend who was involved in a big lawsuit.  Of course this is just my own anecdotal evidence.    I decided to go out to find some actual data to figure out how frequent lawsuits with large cash awards are.  

I found data from 2005 on civil cases.   The Bureau of Justice Statistics has data in their report
Civil Bench and Jury Trials in State Courts, 2005

In 2005 there were 26,948 total civil trials.   56.4% of them were won by the plaintiff.  

The median award was $27,998.   Overall about 4.4% of the winning plaintiff's got awards of $1 million or more.    This tells us a couple things.   MOST lawsuits result in damages under $30,000 level.  
 It also means that about 669 people lost lawsuits in 2005 of $1M or more.  

Some lawsuit categories aren't something most of us need to worry about.   2,449 of the lawsuits were for medical malpractice.   21% of the malpractice cases resulted in awards of $1 million which means thats about 123 cases that were about malpractice.  Product liability accounted for 99 cases for things like asbestos and 30 of those resulted in $1M awards.  Another 3 cases with $1M awards were from false imprisonment claims.  Most of these cases would be filed against government or business rather than individuals.

Lots of lawsuits are against businesses and other entities.  Only about 50.1% of defendants in civil cases were individuals.   The other half of the time the defendant was business, government or hospital entity.  The data doesn't break down the % of defendants and awards over $1M.   But I can guess that the % of defendants is the same across lower and higher judgment lawsuits.  If anything I bet that the higher awards are skewed to businesses, government and hospitals who generally have deeper pockets than most individuals.

But roughly speaking I can guess that of the total 669 cases awarding >$1M only about 335 of them were awarded against individuals who weren't doctors.

With a population of about 295 million in 2005 and around 335 lawsuits of $1M or more then we're looking at roughly  1 in a million individuals losing a lawsuit for $1M or more in 2005.

So to summarize the math:

Total cases = 26,948.   Cases won = 56.4%.    Cases with awards over $1M = 4.4%.   Cases against individuals = 50%
Cases won against individuals with awards over $1M in 2005 = 26948 * 0.564 * 0.044 * 0.50 = 335

Population of the USA in 2005  = 295 Million

Civil lawsuits against individuals with awards over $1M in 2005 :    1.14 per 1,000,000 people

Bottom Line :  
Roughly speaking your chances of losing a $1M lawsuit in 2005 was 1 in 1 million.
The chances of losing over $28k in a civil lawsuit was about 26 in 1 million.
I'm assuming that the frequency of lawsuits in 2005 is similar to the frequency in any given year.

October 24, 2010

How to Raise Rent

Your rent rates should be evaluated and adjusted on an annual basis.   

The Market Determines Fair Value for Rents

Your rents should primarily be based on what the market rates are in your area.   If market rates go up then your rent should go up.   If rentals are not going up in cost then you should not try to raise rents.  

You should not try to raise rents solely based on your own costs.  You may be tempted to raise your rent if your own expenses go up.  But your costs don't really dictate the rent you can charge.   Likewise just because your costs don't go up doesn't mean your rent should stay the same.  

Raise Rent During Vacancies

Raising rent during a vacancy is simple and has no impact to a current renter.   If you have more frequent turnover then it may be simplest to just wait to raise your rents in between renters.  For example if you frequently rent to college students who usually only stay for 9-12 months at a time, then theres no sense in trying to jack up rent for short term tenants.

Gradually Increase Rent Over Time

Rent gets more expensive gradually over time.   If you want to raise rents then you should raise them gradually.    Annual rate increases of 1-5% are much more acceptable to renters than larger less frequent jumps.  If your rent is $1000 then a $25 to $50 increase for a year is something that the renter will find easier to accept and adjust their budget for.   It also doesn't "feel" as bad to them.   If you make the $25 or $50 increases annually then over time the rent will steadily go up.  But from the renters perspective they see a gradual, smooth increase that they can adjust to every year.
Don't make Big Jumps

If you were a renter which would you like it if you rented a place for $600 a month and then your rent jumped by $200 a month?   I certainly wouldn't want to get a $200 or 25% increase in my rent.   What if your rent stayed fixed for $600 for 5 years and then jumped to $800?   Would you still be happy about that $200 increase?   I wouldn't.   On the other hand if your rent went up $50 a year every year to go from $600 to $850 over a 5 year period then that might not upset me as a renter.    Even if your rent has been flat with 0% increases for several years your renters are not going to be happy with a large % increase in one year.   Your renters would have gotten used to the $600 rent level and likely aren't aware of increases in market rates.   If you make a large jump in rent they will not be able to easily accommodate that change and are likely to leave.   Big jumps in rent are a shock to renters and should be avoided.

How Much Do You Like the Tenant?

Some tenants are better than others.   If you have a model tenant that is always on time with their rent, takes good care of the property, plants flowers in the garden, and never causes you any problems then you may want to raise rent slower in order to give them an incentive to stay longer.  Personally I'd take less rent if I could guarantee myself great tenants.   When you do find a great tenant then you should try to hang on to them.   Of course you aren't running a charity so I wouldn't take this idea too far.   Don't let your rent get too far under market.   A little bit under market to help retain a great tenant is OK in my opinion, but too far under market is just throwing money away.

If you have a poor tenant then raising the rent faster might be a better idea.   Look at it this way:   The reason to not raise rent fast is to retain your tenant, but if you don't really care about losing the tenant then you may as well maximize rent.   Of course anytime you lose a tenant you could have a vacancy that you can't fill.    If the tenant is really bad then you should probably just not renew the lease and find someone else anyway.   

Fixing a Big Gap

If for some reason your rent with a current tenant is considerably below market value it can be difficult to bridge that gap without running off your tenant.   Maybe you've neglected raising rents for some reason or maybe you've only lately realized you're under market.   Lets say that your rent is currently $600 and the market is now charging $850.   That $250 difference is a wide gap.   Raising the rent the full $250 up to $850 all at once would be a major shock to the tenant.   I would recommend honestly telling your tenant that the market value is considerably more than the rent so you are going to have to raise their rent substantially.  However I would still keep it a bit under market.   For example I might raise the rent by $165 the first year and then add another $85 increase over the 2nd and/or 3rd year.   That would make the rent would go from $600 to $765 in the first year which is still10% lower than the market.   The tenant won't be thrilled with the increase but they're still getting a good deal with 10% lower rent so they will have good incentive to stay.   Then you can increase the rent again the next year and further close the gap.  

In summary:

Watch the market rent values and keep your rents adjusted based on the market, not your own costs.
Ideally 1-5% annual increases are easier for renters to swallow
Use vacancies as an opportunity to adjust rents
Make gradual increases in smaller amount rather than making large jumps
Tune your rent increases to retain quality renters

October 22, 2010

Best of blog posts for week of October 22nd

Dough Roller explains What is Tax Form 1040 Schedule E?

FMF thinks Umbrella Insurance Is Always the Right Answer  and that you could Earn More Money by Being the Proper Weight

BadMoneyAdvice gives what he thinks is The Truth About the Shiller PE

Why do American Universities Cost More than Canadian Universities?

University Tuition in the US has gone up a lot.   Our neighbors to the North up in Canada may look at us and wonder why our rates are going up so fast or why our tuition costs so much compared to theirs.   Lets take a quick look at tuition rates in U.S. versus Canada and see why they might differ.

Note:   I'm ONLY looking at public universities in U.S. and Canada.  Private universities and their costs and funding are a different matter.

Universities versus Colleges in US & Canada
First of all a quick explanation the Universities and Colleges in the USA are basically equivalent in many ways.  The two names are often used mostly interchangeably to refer to an institution that grants 4 year degrees.   From Wikipedia in the USA "Stand-alone institutions that call themselves colleges are universities in the international sense of the term."    In Canada however there is more of a hard distinction From Wikipedia : "Generally speaking, universities grant degrees (e.g., bachelor's, master's or doctorate degrees) while colleges, which typically offer vocationally-oriented programs, grant diplomas and certificates."    What Canadians consider a college seems to be equivalent to what Americans would call a "community college".   A "community college" or "junior college" in the USA offers mostly vocational training and grants 2 year Associates degrees.   So one explanation if someone in the US says that "college is costing me $20,000" a year then that is not the same as what a "college" is in Canada.  This difference in nomenclature should be kept in mind so that you're making a clear apples to apples comparison between US and Canada as far as higher education and its costs.

 Canadian University Tuition Rates and % of Revenue 
The Statistics Canada site says that "On average, undergraduate students paid $5,138 in tuition fees".   If you look at the revenue and spending of Canadian Universities we can find out how much tuition is as a % of the total.  In 2009 total revenue was $37.4B and the tuition was $7.68B.  Thats about 20.5% of the total funding for Canadian higher education

University of B.C.
I wanted to take a closer look at a specific university just to get a little more detailed example.  I chose University of British Columbia mostly randomly.  Lets look at the 2009 / 2010 budget for the University of British Columbia.   On page 6 we see that 'student fees' totals $332M.  The total revenue is $1.897B.    Therefore 17.5% of the funding comes from students.   Tuition at UBC is $150 per credit hour or in the ballpark of $5,400 for a year.  However the rate will depend on the program you are in as they have differing course loads.   

U.S. Public University tuition rates and % of revenue

Now lets look at public US universities.    In my previous discussion of why college costs have increased I had found data on spending for public US universities.   In the US in 2009 the state spending was $75B and net tuition was $44.5B.   So tuition in US schools accounted for 37% of funding.   The average tuition rate was $7,020.

Comparing Canada to U.S.

U. B.C. =    Tuition is 17% of funding and costs $5,400
Canadian Universities = Tuition is 20% of funding and costs $5,138
U.S.A. public universities = Tuition is 37% of funding and costs $7,020

As you can see the tuition income represents a much higher % of the revenue for U.S. universities than in Canada.  If the tuition for Canadian  universities accounted for as high of a % of the revenue as it does in the U.S. then tuition would be much higher in Canada.

If tuition at U.B.C. was 37% of their revenue then it would be 2.2 times as high as it is and would cost about $11,880 per student.   If Canadian Universities on average had tuition paying 37% of the whole then the tuition bill would go up to $9,505.  

Bottom Line:  Tuition pays for a lower % of the total cost of education at Canadian Universities than in the U.S.   Because other funding pays more in Canada the tuition bills are lower than in the U.S.

October 20, 2010

Busy, Busy, Busy

I've been awfully busy in my personal life and haven't been keeping up with posts here.   So sorry for the lack of content but I'll continue with regular posts as soon as possible.

October 17, 2010

Foreclosure Problems - A Giant Mess

I just read this New York Times article from Yahoo From a Maine House, a National Foreclosure Freeze
It is the story of the foreclosure of one particular home in Maine which lead to uncovering of improper foreclosure processes by lenders and the recent foreclosure freeze.

The whole thing is a mess.

Here's some points from the article:

  • GMAC was bailed out with $17 billion in tax dollars and is now majority owned by the federal government.
  • The home is worth about $75,000 and the mortgage payments are just $474 a month.
  • The woman who owns the home has not paid her mortgage for two years and lives on welfare and food stamps.
  • The lawyer for the woman found out about Jeffrey Stephan who is the infamous 'robo-signer' for GMAC who signed over 400 mortgage foreclosures a day.    
  • The use of robo-signers isn't even new information to the courts: "GMAC had been admonished in a Florida court for using robo-signers four years ago but had persisted."
  • In this case GMAC filed a 2nd foreclosure but "did not bother to include the actual street address of the property it was trying to seize".

Everything about this is just messed up.  

I'm honestly amazed at how incompetent or arrogant the bank in this case seems to be.  They are either incompetent for filing such poorly documented mortgage foreclosures or arrogant for thinking that they shouldn't need to bother to do it right.   Maybe they are both.

October 15, 2010

Best of blog posts for week of October 15th

 Donna Freedman talks sense with Think you’re broke? You probably aren’t.

Pop Economics says   New job market survival skill: Turning a part-time job into a full-time job

Jim at Bargaineering wrote a series of posts on scams.Work At Home Scams,    Family & Friends Mugged Abroad Scam,  Overpayment Scams ,   Nigerian 419 Scams    Its unfortunate the number of people who fall for these scams.  Knowing about them can help you keep an eye out and not fall into their traps.

Dough Roller answers  What is Tax Form 1040 Schedule D?

My Money Blog has some good info to consider on refinancing  mortgages with Mortgage Refinance and Resetting the Clock

October 14, 2010

College Costs : What Part Do Professor Salaries Play?

By now most of us know that college costs have gone up considerably in the past couple decades.   Tuition has increased at a rate much higher than inflation.  Previously I pointed out that one big reason tuition is going up is that state tax dollars are paying a lower portion so more cost is shifting to tuition bills.   Actual spending per student has gone up about 4% while tuition goes up 7-8%.   Still a 4% annual increase is higher than the inflation rate.

Why is college spending going up faster than inflation?  One possible cause that I've seen people claim is that professor salaries are the reason college costs have gone up so much.    That seems like a plausible theory but we'd have to know exactly how much professor salaries have increased.    So how much have professor salaries gone up and have wages contributed significantly to tuition inflation?

Exact data showing salary increases for professors over history was not easy to find.  But I can approximately figure the general rate of increase by looking at salaries today versus 25 years ago.

Current Salaries for Professors

The BLS has wage data for postsecondary teachers which is the general term for college level instructors including professors.     They say: "According to a 2008–09 survey by the American Association of University Professors, salaries for full-time faculty averaged $79,439.  By rank, the average was $108,749 for professors, $76,147 for associate professors, $63,827 for assistant professors, $45,977 for instructors, and $52,436 for lecturers."

Professor Salaries  in 1984

The report FACULTY SALARY ANALYSES BY REGION, RANK,AND DISCIPLINE FROM 1977-1978 TO 1983-1984  shows salaries in 1983.   The average professor salary is in the Figure 3 on page 6.  The graph is not easy to read but they are showing the professor salary at above $36,000 level.   It looks like it could be around $38,000 to $40,000.

This old Preliminary Report on Faculty Salaries 1984 - 1985 for the University of California system cites some average salaries.  You can see in the Figure 1 on page 10 that they highlight the average professor salary at around $40,000 $45,000 levels for 1984.

Average Salary of Full-Time Instructional Faculty from 1984 to 2007.  Its from University of Massachusetts Amherst.   In 1984 the average salary for all ranks was $39,174.

Rate of Increase

Using the first report and taking a figure of $36,000 or $40,000 for 1983 and then going to a salary of $80,000 or $100,000 in 2009 that would result in a 2.8% to 4.2% annual rate of increase.

Starting with a salary of $40,000 in 1984 for the U.C. system and then going to a salary of $80,000 or $100,000 level for current professor wages that would give an annual increase of 2.8% or 3.7%.

Looking at just U. Mass. numbers they also give the 2007 the average salary at $87,963.  Over a 23 year period from '84 to '07 their salaries increased about 3.6% annually.  Inflation over that time period was about 3%.

Other sources

A report from the American Council on Education shows the salaries of college instructors over time from 1970 to 2007 in constant 2007 dollars.   So this is adjusted for inflation.  You can see the pay rates are mostly flat over time but they have been creeping upwards somewhat.

Of course every professor and every college is different.   I'm talking about average wages across a large industry.  There are undoubtedly individual professors or colleges who have seen small increases and large increases in wages.

Bottom Line:  Professor salaries have increased at a rate around 2.8% to 4.1% over the past 25 years.   This is mostly in line with inflation and not a cause for college costs to increase as much as they have.

October 13, 2010

Free copy of The Simple Dollar on Kindle

The Simple Dollar (Free Book for a Limited Time): How One Man Wiped Out His Debts and Achieved the Life of His DreamsFor a limited time you can get a free copy of the book The Simple Dollar for the Kindle
Trent Hamm is the author of the book and he writes the popular blog The Simple Dollar.  

The version is for Kindle but you don't need a Kindle device to read Kindle books.  You can read them on iphones, ipads, android phones as well as PC or Mac computers.

I'm not sure how long the free download offer will last so grab it now while you still can.

Comparing Hospital Quality

A relative of mine drives 250 miles to go to the hospitals in a larger city for non-emergency procedures.  He wants to take his family to the "best" hospitals that he can.   Unfortunately I think my relative has a biased view of the hospitals in his home town and has let one horror story he saw on the news unduly taint his opinion of his local hospitals.   If my relative had better data then he might not feel the need to take 5 your drives and spend extra money and hassle staying in hotels.

A while back I talked about shopping around for health care costs.   Its particularly important if you have a high deductible health insurance plan (like I do) to make sure that you are not overpaying for health care.   But it is also important to make sure that you go to a good medical facility and that you don't give up quality for the sake of cost savings.   So it is also very important to compare the quality of the medicine you receive.

Below are a few resources that you can use to measure hospital quality.   These could be used as pieces of data to help guide your decision but none of them should be taken as any sort of pass / fail judgment on a hospital.   A lower rating does not make an individual hospital "bad" nor does it mean you will get poor service there.  

The very best 
US News has a site with rankings of best hospitals.    The Top 100 Hospitals site from Thomson Reuters ranks top hospitals.  Either of these sites will help you find what they consider the "best" hospitals in the nation.   Of course such measures are not perfect and based on statistics and subjective opinions to some degree.   But if a hospital is on these lists then at minimum I think we can safely conclude its a pretty good hospital.

Survey results
The U.S. Dept. of Health and Human Services has a Hospital Comparison site.  If you put in your city or ZIP code you can then look up the hospitals in your area.   From there you can pick specific hospitals and get a comparison.  They give you the survey score results for a "Survey of Patients' Hospital Experiences".   The survey is described : "HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) is a national survey that asks patients about their experiences during a recent hospital stay."    When you compare a couple hospitals at the bottom of the first page on the results you see a score for two questions : "Patients who gave their hospital a rating of 9 or 10 on a scale from 0 (lowest) to 10 (highest)." and "Patients who reported YES, they would definitely recommend the hospital."  High scores on those two questions is a quick measure of general patient satisfaction with the hospital.   However that is a pretty subjective measure of quality and you should look a little deeper to make sure the other scores are also high.  

Health Grades Awards
You can use the site Health Grades to find hospitals in your area and see how they are rated for various procedures and if they are award winners in specific categories.  They give an award for the "America's 50 Best Hospitals Award"    They also give awards for things like ""Distinguished Hospital - Clinical Excellence Award", "Emergency Medicine Excellence Award" and "Patient Safety Excellence Award"

October 11, 2010

No COLA for Social Security in 2011

There is recent news that they are expecting that there will be no Cost of Living Adjustment (COLA) for Social Security in 2011.

The Social Security COLA is based on the Consumer Price Index for Urban Wage earners and Clerical workers or the CPI-W.   The COLA for 2010 was also zero because there was no increase in the CPI-W from Q3 of 2008 to Q3 of 2009.

The COLA is an inflation adjustment based on an inflation measure.    It goes up in order to compensate for increased prices and lower buying power of your social security dollars. 

October 10, 2010

Popular Contradiction : Taxes must go up & Social Security is doomed

It seems that there are two prevailing opinions that are pretty common among many people.   These two opinions are :

1. Taxes must go up in the future given the current low tax rates and large deficit.
2. Social security is doomed and you shouldn't expect to get a dime out of it.

There are many people out there who would quickly and enthusiastically agree to both of these statements.  

In order for tax rates to go up our politicians will have to approve tax increases.   For #1 to be true the congress must approve increased taxes.   For social security to fail entirely the social security administration will have to run out of all money.    Social security can easily be fixed with increased tax rates, so for social security to fail outright our politicians can't raise the tax rate.  For #2 to be true congress must not approve increased taxes.

To believe #1 is to assume politicians will increase taxes.   To believe #2 is to assume politicians will not increase taxes.

To believe both of the statements is a contradiction.    Either politicians will/can raise taxes or they can't/ won't. raise taxes.

October 8, 2010

Best of blog posts for week of October 8th

FMF asks Would You Marry Someone Deep in Debt?

DoughRoller gives us an explanation of What Is Tax Form 1040 Schedule C?

Generation X Finance discusses Renters Insurance Basics: What Every Renter Should Know

12-14% cash back on Costumes from Ebates

Right now on Ebates you can get 14% back on costumes at the Costume Supercenter.    

You can also get 12% cash back from Ebates. at Halloween Express.

Both the Costume Supercenter and Halloween Express have a wide variety of costumes for boys, girls, men and women.   The prices are pretty reasonable and they have a lot of options in the $20-$40 range.  

October 7, 2010

If You Buy Gold Coins : Shop Around

Bargaineering recently talked about plans for a company to introduce  ATMs Dispensing Gold Bars in USA
They already have the gold vending machines setup in Dubai and plan to expand.   With a little digging I found a news report that said the machines sell gold at 30% markup over the spot prices.   That is not a good deal.   But what is a good deal for markup on gold?   I realize there is going to be a transaction cost to buy bullion but I don't know if I should expect 1%, 5% or if 30% is even common.

First let me step back and say that I don't think investing in gold is a good ideaMy personal opinion is that gold prices are in a bubble that  gold prices could easily drop substantially within a year or two.   But I recognize this is just my opinion and many people like investing in gold.   I would at least caution anyone interested in gold investing against putting more than 10% of your assets into gold.    Any investment portfolio should be diversified and you don't ant too many of your eggs in one basket.   Having said all that, if you want to invest some of your money in gold either as an out right speculative investment, hedge or more for personal enjoyment reasons you should certainly make sure you aren't paying too much.

On the other hand I'm a coin collector so owning a gold bullion coin might be fun.  So lets say that I want to buy a 1 oz of gold.     Lets do some window shopping.

First I go to Goldline cause I see them advertised on TV...

I find on their site they're talking about the American Eagle gold coin sold in 1 oz. or $50 face value.  The face value is kinda meaningless as the metal is worth much more.  I guess you could use the $1300 worth of gold as $50 in cash but you'd never want to.      They have a 'buy online' button so I click on that which takes me to a different website that is actually a Yahoo Store.    They have the proof 1 oz. American Eagle there for $2,650.   Its a 'proof' version which means that it is a more appealing collectible coin.   $2,650 for 1 oz proof American Eagle.

non-proof American Eagle prices
I don't know if I want a 'proof' coin.   If I'm shopping for gold I would like to just buy gold and not pay extra for a collectible coin.  So I shopped around for just American Eagle coins that are not 'proof' or otherwise collectible.   I found a local dealer near my city.   They sell American Eagle gold coins but they don't have collectible versions, just plan coins.   They quoted a cost of $1,365 for 1 oz American Eagle.   An online site Blanchard also sells the plain non-proof or collectible quality 1 oz American Eagles for about $1,360

Costs for proof American Eagles at Other sites
I didn't know if the $2,650 for a proof coin was reasonable or not.   It depends on how much being a proof adds to the value.   I found another online store named Golden Eagle coins selling a proof 1994 1 oz. American Eagle for $2,350.   But thats a 1994 coin and I don't know what year the Goldline coin is.  I double check the goldline site and they do not say what year their proof coin is.   Next I found American Precious Metals Exchange who has 1 oz. proof "random years" for $1,725 or a 1986 proof 1 oz. PR-69 PCGS for $1,609.

So far we've got various sources with prices all over the place ranging from $1,360 all the way up to $2,650.   But we're not exactly comparing apples to apples either.  Some are proofs some are not and they are various years.

Proof, PCGS, PR-69, MS-70 ... Whats all this Mean?

When looking at the proof or otherwise collectible quality American Eagles I ran across all these acronyms.  PCGS, PR-69, MS-70 and others.    PCGS is the Professional Coin Grading Service.   They have professionals who will give you a certified appraisal of the quality of your coin by 'grading' it.    Grading a coin refers to the different quality levels like the 'proof' level coins we can buy.  

PCGS also has a price guide for the coins at different grades.   We can see there that the MS grade coins from 1986 to 2006 all have the same prices if the MS grades are 69 or lower.   All the MS-63 to MS-68 coins are valued at $1,365 or marginally above spot.   The MS-69 coins are valued at $1,550.   Only the MS-70 coins have higher values.   For the proof coins the PR-63 to PR-68 are worth $1,650 and the PR-69 are worth $1,925 to $1,975.  The PR-70's range from $2,650 to $7,500.   Now keep in mind that these values are not what you can sell them for, but just what a grading services says they think the value of the coins are.   Proof 1 oz. American Eagles range in "book" value from $1,650 for a PR-63 all the way up to $7,500 for a 1991 PR-70.

Spot gold = $1,309

1 oz. American Eagle costs

plain American Eagle = $1,365  (4.27% over spot)
proof American Eagle "book value" = $1,650 and up
unknown year or quality proof American Eagle at Goldline = $2,650
1994 proof American Eagle at Golden Eagle = $2,350
random year proof American Eagle at American Precious Metals = $1,725
proof 1986 PR-69 American Eagle at American Precious Metals = $1,609

Couple basic comments here:   If you aren't especially interested in coin collecting or investing in collectible gold coins then theres not reason for you to pay a large premium to get a proof coin.    Second, if you are looking to buy collectible quality gold then you should definitely shop around as the prices from various vendors vary significantly with  up to a $1000 premium over book values.

Best choice to buy direct from the Mint.
Here's the kicker.   You can just buy the current year gold proof or uncirculated coins from the U.S. Mint directly.   American Eagle proof coins will be on sale October 7th at Noon.   According to this pricing grid, the cost of an American Eagle proof coin would be $1,585 if gold spot prices are $1300 to $1350.   Gold is just about at the top of that range right now as I write this.

American Eagle image from the U.S. Mint.

October 6, 2010

Toilet Dual Mode Flush Converter

Lately in new buildings I've started to see dual flush toilets.  I think I saw some at an airport somewhere.   The dual mode allows you to flush a small amount of water for liquid waste and a normal amount of flush for solid wastes.   The result is that you use less water to flush only liquid wastes.   This can save a few bucks on your water bills.   It makes good sense for a public restroom that gets a lot of traffic like an airport.

In a private home the water savings really wouldn't justify buying a brand new toilet.   However for around $20 you can convert your normal existing toilet to a dual flush toilet.    You can do this via a converter product.   The product is called the MJSI HYR270 HydroRight Drop-in Dual Flush Converter.   They have it at Amazon for $20.59 right now.   The converter product has product has pretty good ratings on Amazon.  However it doesn't work on all models or styles of toilet so it is important to read the details on it to make sure it will work for your toilet.

Our water costs 0.33¢ per gallon.   So it would take about 6200 gallons to recoup the $20.59 cost.   If you save 1 gallon per flush then you're looking at about 6200 flushes.     I won't hazard a guess how often people flush their home toilets.  But I figure an individual is likely to use the toilet at least 1 time a day.   A family of four would save enough on their water bills to pay for the converter in a bit over 4 years or less.    This converter should pay for itself fairly easily within a few years for a family with multiple users.    It probably wouldn't be very good return on cost for a single person living alone.   Of course YMMV based on your water costs and usage.

I heard about this one on the FatWallet forums.

October 5, 2010

Living on a Cruise Ship : Is it Practical?

Wandering around the web I saw someone suggest the idea of living full time on a cruise ship during retirement.   Sounds like a neat idea.   Pay the cruise ship a flat amount and get your accommodations and meals all included.   They even have doctors on the ships.     OK so its a neat idea. But is it feasible?  Is it practical?   I decided to look into the idea a bit more.

Yes people have done it
Turns out that Snopes.com the urban myth debunk/verification site actually addressed the topic.   There has been an email floating around talking about people retiring to a cruise ship full time instead of a retirement home.      They verified it as true at least for one person.   A woman named Bea Muller who was 86 at the time had been living full time on the QE2.   Her costs were $5,000 a month at the time they say.   A later report said that the same woman was looking for a home when the QE2 was retired.

Is it practical?  

I found an article about a physician who said they looked at the cost comparison of living on a cruise ship versus assisted living and decided the costs were fairly equivalent.   But they don't go into real specifics on how they figured the costs for either.   Frankly that doesn't do much to convince me.  

An article on the Dallas News titled  Love to cruise? You can live on a ship discussed the topic and they did a pretty good job.   They cite 12 month costs of in the range of $75,000 to almost $180,00.
They say: "If you sailed on the Azamara Quest from Feb. 1, 2008, through Jan. 31, 2009, an inside cabin would start at $75,000; a verandah cabin at $105,000." and "A Celebrity cruise averages $125 per person, per day for an inside stateroom, or about $45,625 per person for someone who books a yearlong stay." and for Cunard liners "an outside Britannia cabin would start at $108,296 per person. For a Princess Grill Cabin: $179,884 per person"

So all the reports I'm finding talk about costs in the $60,000 to $180,000 range.   I wouldn't consider those prices 'practical'.

I did some shopping myself to see how easily you could book lower priced cruises back to back.  I just searched on Travelocity myself. 

Here is my example itinerary with costs:

Nov 4-19: I first found a Norwegian cruise on Nov. 4th departing Miami and going to Los Angeles for a 15 day trip.  The cruise was $1,298 for two people with a senior citizen and repeat customer discount.  Taxes and fees are $637 for a total of $1,935.

Nov 19 : I was not able to find a cruise leaving on the 19th.  However Norwegian had a 1 day cruise for the 19th going 'nowhere'.   So you could book that overnight stay on their ship.  Total cost for 2 with taxes / fees : $245

Nov 20- Dec 5th : On the 20th Norwegian cruises made a return trip from L.A. back to Miami for another 15 day journey.   This time the trip was $1,298 but the fees and taxes were $709 for a total of $2,007 for two seniors.

Dec 5 - 18 : Another trip from Miami back to L.A.  Cost $1,208 + taxes and fees $595 for total $1,804.

Dec 18-25 : Now the trips from Miami to L.A. and back seem to end.  The only trips I can find out of L.A. are trips down to Mexico and back to L.A.   A 7 day trip would be $1178 + tax/fee $158 = $1337.

Dec 25- Jan 1 : Another week trip down to Mexico and back to L.A. Cost $1592 + tax/fee $158 = $1751

I could go on like this finding trips back and forth.    But I think this is a good enough example.   The cheapest route I got was 15 days for $1,804.   So best case I would be paying $3,600 for a month of cruise ship travel.  

Adding up 2 months of my example:
Nov 4 to Jan 1 = $1,935 + $245 + $2,007 + $1,804 + $1,337 + $1,751 = $9,079 
That means that for 2 months I am paying about $9,000 for two people.   Or roughly $4,500 per month or $54,000 a year.

Sample of costs over various months
I did a quick search for cruises in various months to see what the cheapest cruises ($ / day) are for each month.   Again I just looked at Travelocity. The taxes and fees tend to run about 50% of the nightly cost.   So if I take the average of the cheaper nightly rates and multiply by 1.5 to add taxes/fees then multiply by 30 I can approximate the average monthly costs.

March : $38 to $47 = $3,825 / month
April : $43 to $54 = $4,365 / month
May : $46 to $52 = $4,410 / month
June : $62 to $68 = $5,850 / month
July : $86 to $90 = $7,920 / month
August : $59 to $60 = $5,355

6 month average $5,288/ month
12 month average total $63,450

Adding in the variations form month to month over 6 month period and assuming thats demonstrative of 12 months I can guesstimate the annual costs.   The total cost for two people to take cruises non stop works out to approximately $63,450 per year.    Thats just a ballpark estimate of course, actual rates will vary depending on the circumstances and theres nothing to lock in a price long term.   $63,450 is a pretty large sum of money and not something that is feasible for most people to pay.

Wait a second, we haven't  paid for everything

When you go on a cruise you get food and your room included.  But there are other costs you have to consider.    Each cruise line will vary on the details and some will charge for some things and other services may be free.   The exact charges will depend on the cruise line.   I'm going to just look at Norwegian as an example.   (not picking on them, just a random example)   Other cruise lines may be more or less for any given service.

You are also generally expected to tip the staff.   It is common for cruise companies to add the tips as a 'service charge'.  Norwegian says in their FAQ : "Onboard Service Charges are additional. A charge of $12 per person per day will automatically be added to your onboard account."

$12 a day is the kind of charge you might accept in stride for a 5 day cruise.   Its not fun having extra fees but another $120 on top of your $2,000 cruise doesn't cause most people to throw out the idea.  Its one of those additional 'extra' costs added in at the end like the $1-$5 extra fee many hotels like to charge for the pleasure of helping them pay for their electricity bill or the luxury of having a working phone.

But over a year $12 a day adds up to a LOT.   $12 a day for 2 people = $8,760 a year.

Laundry:  Oh, you want clean clothes?    That will be extra.  Norwegian apparently used to have self service laundry so you could do your own laundry but they apparently got rid of that.   Now you either have to pay them to wash your clothes if you want it done.    I found a discussion of the topic online in a message board.  One person said: 'I have found the laundry prices onboard to be comparable to what a hotel would charge for the same service' which is what I figured.   Hotel rates for laundry are expensive.   But another person mentioned that hey do have specials on the ships for $25 / bag full of laundry.   Thats cheaper than hotel prices but still quite expensive.    Ok say you do one bag a week at $25 / week.   That equals $100 / month or $1,200 a year for laundry.

Ship board doctor:   Yes there is a doctor on the ship.  But no they are not free.   Norwegians FAQ says:
"A physician and nurse are on each ship to provide medical care and services at customary charges."   No telling if "customary charges" means average rates or super duper expensive.   Do they take insurance?   Who knows.  The cost of shipboard medical care would be a very big question mark for anyone.    And furthermore the quality of the medical care could be questionable.   Apparently there is virtually no regulation of medical care on ships and no assurance that the doctor is a trained M.D. from a reputable school.

Internet:   They do have internet on  the ship for Norwegian, but it is not free.  In fact its really expensive.    The fees for internet are : Pay as you go for 75¢ per minute or 250 minutes for $100.   

Fuel supplements :   Right now Norwegian does not charge extra for a  fuel supplement.   But they might.
"The Company reserves the right to re-instate the fuel supplement for all guests should the price of light sweet crude oil according to the NYMEX (New York Mercantile Exchange Index) increase above $65 per barrel."

Other charges:   If you want beverages, entertainment, shore excursions or anything else then they'll all cost you extra and it won't be cheap.

Is it cheaper for a single person?

No.   Cruise prices are cited on a per person double occupancy basis.  If you travel alone then you are taking up a stateroom by just one person.   The price for a single person will be higher than the cost for two people sharing a room.

Bottom line:   You can feasibly live on a cruise ship by booking back to back cruises non stop.   However this is not a cheap way to live and you should expect costs to exceed $60,000 a year for two people.

October 4, 2010

Home Prices Have Bottomed

 The Standard and Poor's Case-Shiller Home price index is posted on the S&P website.  

Here is a look at the S&P / CS House price index for the 20 city composite index from Nov. 2000 to July 2010:

Looking at the trend in prices, it really appears to me that prices have about bottomed out.   Prices are not in a downward slope and they are not on an upward curve, but appear to be in a trough.   Of course this is just my own opinion based on the trend in prices.   I don't have a crystal ball and I can't say for certainty what the future holds.

Now of course this is a national average and each city is going to be a bit different.

Lets take a look at the prices for a selection of major cities for the past couple years:

You can see the trendlines are gradually moving upward overall.   Some cities are pretty flat like Detroit which is the bottom line. 

If we take a little closer look at just a few cities we can see some are trending upwards.   Generally California and D.C. seem to be moving up:

On the other hand the markets in Florida do not seem to have quite turned around.   Looking at Tampa and Miami it looks more like they are bouncing around or trending slightly down.

Now again, looking towards the future its impossible to know for sure where prices go from here either nationally or in any specific city.   It seems that prices are no longer plummeting and that at least is good news.  

October 3, 2010

When its OK and NOT OK to Borrow From a 401k

Taking a loan from a 401k is an option that many of us have.   Suze Orman has vilified them on her show as a horrible idea.    Contrary to what Suze says, there is no double taxation on 401k loansPersonally I think 401k loans can have their place and be an OK idea in certain circumstances.    Usually however I think a 401k loan is not the best option.
First of all, what are they?   

401k loan basics

If you have a 401k at your employer then it is likely that they allow you to take a loan against the balance in your account.   Not all 401k programs offer a loan but most do.   Loans are limited to 50% of the balance up to $50,000 maximum.   The terms of the loans will vary from one company to another but generally the interest is fairly competitive in the 4-8% range and mid term length repayment timeframe.    A 401k loan is not the same as cashing out a 401k or taking a withdrawal.  You do not have to pay taxes on the loan money nor pay any penalty for early withdrawal.  You aren't cashing out your retirement, instead you're borrowing against your 401k balance technically.

Lets look at the pros and cons of 401k loans : 

Con - Pay back required if employment ends
Many if not most employers require you to repay the loan if you cease employment due to quitting, being fired or layed off.   I consider this the major drawback of 401k loans.   Generally I wouldn't want to take a loan that could be "called" by the lender without notice.   This is a major reason 401k loans are something to be wary of taking.  Worst case scenario here is that you lose your job and the same day they demand you repay a large 401k loan, so not only are you out a job you also have a large bill due.

Pro - Decent interest
The exact interest rate on a 401k loan is set by the plan.  So I can't tell you how much the interest will be.   But from what I've heard generally the interest rates charged are lower than credit cards or personal loans.   Interest rates closer to the rate on a 30 year mortgage seems typical.    Right now my own 401k is allowing loans at a 4.25% rate.  Thats a cheap way to borrow money.

Con - Undercuts retirement savings
If you leave your money in your 401k in investments then you are expecting (hoping) that they will grow over time.   If you take your money out as a loan then you are getting interest which you pay yourself, but you don't get the benefit of any booms in the stock market.   Your money can't grow in the retirement account any faster than the interest you're paying yourself.   Right now my 401k system has a 4.25% interest rate which is not a very great interest rate to be getting on my retirement.   If you have a 401k loan it may substantially reduce the growth potential of your retirement savings.

Pro - Easy access, no Credit requirements
Getting a 401k loan is relatively easy.   Theres usually no fees or very low fees, no bank approval required and you don't have to have good credit. 

Con - If you can't repay it then you owe taxes and penalties

If for some reason you are unable to repay the loan then you may be hit with taxes and the 10% early withdrawal penalty.   That could easily increase the amount you have to repay by 25-45%.

Con - Interest is not tax deductible

Unlike a home equity loan or student loan the interest payments on 401k loans provide no tax deductions.  

When it may be OK to take a 401k loan

I feel it is reasonable to take a loan from a 401k when you are not "strapped for cash" and/or if the loan is a short term loan you can pay off easily.   If you have a cash balance that is enough to repay the loan then I do not see significant risk in taking a 401k loan.  

Here are some general situations when a 401k loan is more appealing option:

Very high Interest Alternative - If your only alternatives to a 401k loan are very high interest loans then a 401k is more appealing.
Short term loans - These loans are more appealing for a 401k loan since you have less risk of worrying about having to repay the 401k loan if you lose employment.  
Stable jobs - If your job is very stable and has low risk of losing your job then 401k loans are more appealing since again you don't have to worry about repayment.
More conservative 401k investments - If the money in your 401k is in safer, lower risk investments that generally get lower interest or growth then a 401k loan is a little more appealing since you don't lose out as much in lost growth of your retirement.
Some Cash on hand - If you have an emergency fund or other cash investments that you could use to repay the 401k loan if or when necessary then you've got less risk with a 401k loan.

If most or all of these are true for you then a 401k loan could be a good option for you. 

Example:  You are 58 years old and have a secure senior position as a registered nurse at a local hospital.   You have a 9 month emergency fund and most of your 401k money is in bonds since you are a conservative investor.  Your home is underwater and your credit is not very great due to some problems after a divorce a few years ago.  Your house needs a completely new roof which will cost you $10,000.   You could pay for it out of your emergency fund but that will leave you cash poor.   You've got a lump sum of money coming sometime next year that would cover most of it but you need the roof fixed now.   The best interest rate you can find elsewhere is 9%.   The 401k loan is 4.5%.    In my opinion taking a 401k loan in this kind of situation is a reasonably good option for you.

When its NOT OK to use a 401k

Usually you shouldn't take a 401k loan.    You don't want to take the risk that you'll lose your job and then be faced with repaying a loan you don't have the cash to pay.   Plus you really should let your retirement money sit untouched and let it grow.

This is a list of situations where 401k loans are likely a poor choice:

Unsecure Job - Most of us have very little job security any more.
Other, better ways to borrow - Often we can find other ways to borrow money with reasonable rates.  Try your credit union or look for a promotional low interest rate from a credit card.  A home equity loan is often a better overall choice than a 401k loan.
Juggling debts while overspending - If your reason for a 401k loan is to pay off your credit cards and you don't have your spending under control then a 401k loan may not help you other than allow you to pile up more debt while draining your retirement.
You don't need the money - Can you get by without the loan?   If you don't need a loan then don't borrow money.

Bottom line:  I don't think 401k loans are evil.   They can have their uses in certain specific circumstances.   However I'd generally avoid them for most situations.

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