Debt Trends Among Younger Households for 1989 to 2010

I remembered reading somewhere that Millennials didn't own cars as much as older generations.   Theres been a few stories on that topic such as The young and the carless which says : "Nationally, the average annual number of vehicle-miles traveled by people ages 16 to 34 dropped 23 percent, to 7,900 from 10,300, between 2001 and 2009".    Then the article Young Americans ditch the car says that "The share of new cars purchased by those aged 18-34 dropped 30% in the last five years"

Given that trend away from cars for young people, I wondered to myself if Millennial were trading auto debt for student loan debt.

The 2010 Survey of Consumer Finances  (SCF)  I pulled the version that is adjusted for 2010 dollars so these numbers are all inflation adjusted.   I only looked at families with a head of household that was under 35 years old.   Thats the youngest family group that the SCF splits up. 

First, the % of families that have each type of debt in question  :

I looked at 4 types of debt.   'ed' is educational or student loans.   'auto' is automobile loans.   'other' would be other types of installment debt. I'm not sure what all falls in that 'other' category but I bet things like medical debt or boat loans.    Then 'cc%' is the credit card debt.

You can see there that the % of families with car loans did drop steeply from 2007 to 2010 and it went from 44% to 32%.    At the same time the % of families with student loans went up from 34% to 40%.      There was an almost equal % of families that dropped auto loans but gained student loans.

Now lets look at the amount of debt for families who owe the different kinds debt:

Again we see the trend that auto debt was down some from 2007 to 2010 while student loan increased.   Auto debt dropped $2000 from $14,600 to $12,600 and student loans were up $1,100 from $24800 to $25900.    Even among families with each debt we see student loans going up and auto loans going down.  However we also see credit cards go down and other loans go up. 

Finally I figured the total average debt for all families with head under age 35.   This combines the % of families with the debt and the amount of debt to find the average debt for all families whether each  family does or doesn't have debt.

Again we can see the trend from 2007 to 2010 is an increase in student loans and a decrease in auto loans.  Student debt went up by $2,004 and auto loans dropped by $2,411.    Credit card debt also dropped going down $955 but other loans were up 482.   The total average debt did drop from 2007 to 2010.  

Before we read too much into this I should point out that the debt balances were down among households in general from 2007 to 2010 regardless of the age of household head.   So the fact that auto loans dropped for young families is not unique and more a reflection of the poor economy and tight credit.  Auto buying plunged pretty drastically around 2008 and 2009 as the economy plunged into recession.  

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Best of Blogs for week of June 28th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

MyMoneyBlog has info on the 5% Cash Back Credit Cards: Rotating Categories Update 2013

Maps On the Web has The Corporate States of America
   ... ok so its not related to personal finance and you can find faults with the companies chosen but I think the map looks pretty neat.

 The Big Picture looks back at how well public survey on investing from 2011 results did since then Polling the Public About Investing Is Loads of Fun!

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A Marginally Useless Long Term Automotive Reliability Study

A friend and I were talking about cars.  His car recently died on him.  It needs a new transmission but that would cost more than the car is worth.   The car lasted him around 14 years and he got maybe 130,000 miles out of it.   My previous car had a fairly similar track record with about 12 years and about 130,000 miles before it needed a major repair.   I think getting 130,000 miles out of a car isn't so bad.  Its not great and I hope that todays cars will be good for 150,000 miles, but mid 90's cars lasting 130,000 miles wasn't so bad.

In the same topic JD Power recently released their latest 2013 survey results.    I saw someone say that their results are 'useless' because they only go back 3 years.   OK that kinda makes sense, as a better measure of how reliable a car is would be what % of cars can make it 150,000 or 200,000 miles.    The 3 year JD Power study isn't long enough to tell you that.   I think it is still nice to know which cars have more problems within the first 3 years since thats pretty meaningful.   A very well made car will have low failure rate in the first three years and a poorly built car is more likely to fail within three years.   Still it would be useful to know how often a particular car might last for 200,000 miles without being a total loss.   

I then went hunting for information on the % of cars that last over 10 years.   I found one article on that kind of topic.  I got it from a CBC news article written in 2007 so its a bit old and from Canada.   I figure Canadian data is probably just about the same as American.  I know its a little different since Canadian auto market is a little different than the US but I'm thinking that most of the cars sold in North America are basically the same exact cars with different numbers on the speedometer. 

Now this information is from 2007 and its talking about cars on the road 11-15 years later.  That means we're dealing with the reliability of cars bought 11-15 years before 2007 or back in 1992 to 1996.   Thats now 17-21 years ago.   A lot can change in a market in 17-21 years.   SO unless you're in the market for a mid 1990's car then this information isn't really too practical.   For example, look at how Hyundai is WAY down on the bottom of that list.   Today Hyundai has made great strides in reliability and today they are above average in the 2013 JD Power Initial Quality Survey.    What I think is better is to watch the longer term trends.   You'll notice that Porsche is at the top of the list below and Porsche also happens to be #1 in the latest 2013 JD Power IQS.   Toyota and Cadillac are both  well above average in both lists.  Dodge and Subaru are both below average. 



Anyway here is the list for whatever its worth:

Percent of cars on the road in Canada 11-15 years later by make as of 2007:

Porsche	98.7%
Volvo	87.2%
Lexus	83.7%
BMW	83.6%
Mercedes-Benz	82.6%
Toyota	78.2%
Audi	76.5%
Honda	76.5%
Acura	75.9%
Cadillac	74.6%
Lincoln	72.8%
Saab	72.2%
Saturn	69.2%
Buick	68.8%
Chrysler	68.8%
Mazda	64.8%
VW	63.1%
Nissan	61.0%
Subaru	59.1%
Mercury	54.9%
Dodge	54.6%
Pontiac	53.6%
Ford	53.6%
Plymouth	52.5%
Chevrolet	48.6%
Hyundai	32.8%
Suzuki	30.8%
Lada	5.1%

Source : DesRosiers Automotive/R.L. Polk

p.s. I don't know what a Lada is either but I'm glad I didn't go to Canada and buy one.

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Summer Camp Bubble

I read at Moneybox that Summer Camp Cost Growth Will Bankrupt America.   That is  of course a tongue in cheek comment.   However he points out that from 2005 to 2012 the cost of summer camp went from $397 to $690.   Thats about +75% increase or around 8% annual growth.

They commented :

The serious point here, though, is that the sleepaway camp industry has some broad structural similarities to the higher education industry but isn't subject to the kind of subsidies and regulations we associate with education. Nevertheless, among the structural similarities is a similar cost trajectory. And broadly speaking, I'd say the reason is that middle-class people want to spend lots of money on their kids.

 Now I'm not sure that summer camp and college are really all that comparable.   One is a fun luxury diversion for a week or two and the other is a multi year endeavor that can have significant impact on your lifelong career and earnings.   Its almost like saying that tricycles are similar to Toyota Camrys.

However I do think they both have a few things in common.   They are optional.  More or less educational.   You send your kid away there.    And the cost growth rates are similar.    Is the key reason both are going up at the same rate simply that middle class people want to spend lots of money on their kids?    Maybe I'd rephrase it that : people want the best for their kids often regardless of the costs.

I think one of the key reasons that college costs have gone up so much is that the market will bear it.   If nobody would ever pay $40,000 a year for college tuition then colleges couldn't ever charge that much.   This isn't to say that the costs are going up because there are people willing to pay that much.  But there are some things people will pay more for and somethings that people won't pay more for.  


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Zillow Rent Zestimate versus Rentometer

I've talked about using Rentometer in the past.   Its an easy website to look up rents in your neighborhood.   I think its a great tool for landlords to get data to know how to set your own rents.  

Zillow has also started publishing their own rent estimates.  Or as they call it a Rent Zestimate.   They explain What is a Rent Zestimate on their site.    I decided to compare the Rentometer numbers with the Zillow Rent Zestimates.

To do a comparison I just pulled up the numbers on Rentometer and Zillow for three of our rental properties.  I'll label the properties A, B and C.   The three properties are all single family homes.  A and C are in our local area but about 25 miles apart in different cities while property B is in another state.

Here is the data on our three properties:

	A	B	C
actual	$1,100	$1,000	$1,080
Rentometer
med	$1,095	$875	$903
mean	$1,097	$932	$930
20th	$963	$775	$850
80th	$1,238	$1,073	$1,100
Zillow
zestimate	$1,323	$1,124	$1,174
	$1,200	$989	$892
	$1,500	$1,300	$1,300

The Rentometer numbers give median rent, mean rents and also the figures for the bottom 20% threshold and the top 80% threshold.  So for example with property A the cheapest 20% of the market is at $963 or less, the middle is at $1,095 and the most expensive are over $1,238.   The Zillow numbers give the Zestimate and then their estimated range of rents.

Difference from Actual

If I just look at the Rentometer median rent and the Zillow Zestimate figures and then compare those to the actual rents we can see how far off the basic estimates are from my rents.

	A	B	C	avg
rento	0.5%	13%	16%	9.8%
zillow	20%	12%	9%	13.8%

The Rentometer numbers are closer.   For property A its only off by 0.5% or $5.   The worst for Rentometer is off by 16%.    Zillow is off by at least 9% and as high as 20%.

For property A the Rentometer number is almost spot on but Zillow is way off.   I got about equal but opposite results with property B with Zillow high by 12% and Rentometer low by 13%.  Then on property C again Rentometer is low but off by a bit more and Zillow is high by a bit.   Looking at it property by property its basically a tie between Zillow and Rentometer.   Rentometer wins one, Zillow wins one, and they're tied on the other.   However for the one pproperty A the Zillow estimate is far off while Rentometer was almost exact.

Overall comparing the actual rents to the basic estimates of median rent on Rentometer and the Zestimate from Zillow, I'd give Rentometer a slight edge.  But my sample size of 3 houses is far too low to draw any meaningful conclusions.

Accuracy and Data sources

Zillow lists the accuracy of their Rent Zestimates for the major metropolitan areas.     Generally speaking they are within 20% of the rent price around 80% of the time.  And in most markets they are within 10% of the actual around 50-60% of the time. Their median errors are in the 7-10% ranges typically.   Zillow uses a 'secret formula' to devise their rent Zestimate numbers.   That means they look at rent values but then run it through an algorithm to come up with an estimated rent value for your property based on the nature of your property.  I assume they use basic stats like square footage of the house, size of the lot and number of bedrooms and bathrooms.   They may use other info like crime statistics or demographics, but I have no idea... their formula is a 'secret'.  Zillow should be more useful then assuming that their figures are accurate.   But they're still off by 10% or more around half the time so it doesn't seem particularly precise.

Rentometer polls rents in the neighborhood.   They start with actual rents from nearby rentals.   I can't find any data on Rentometers accuracy but they're really just reporting actual numbers so I assume their actual numbers should be correct.    They only look at your address and the number of bedrooms.   This is kind of crude really.   They would give the same results for a 5000 sq ft. penthouse condo with 3 bedrooms and 3 baths as they would for a 1200 sq ft 3 bedroom apartment in the basement of the building next door. 

Which one is Better?

I wouldn't say that one or the other is necessarily 'better'.   They are different.    It depends on the situation.   In general I'd look at both and use them each as data points but keep in mind their limitations. 

I wrote about how to set your rent in the past.   One of the best resources is manual searching of comparable listings on Craigslist.   Don't just stop with the quick and rough estimates from Zillow or Rentometer.   They are really only ballpark figures.   I think that spending the extra time to research rent rates is important.   

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Best of Blogs for Week of June 21st

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week


Planet Money brings us some potential good news This One Page Could End The Copyright War Over 'Happy Birthday'

MyMoneyBlog discusses Fixed Annuities: Maximize State Guaranty Coverage Limits

DoughRoller talks about The Required Minimum Distribution

The Big Picture shows a nice chart about long term stock market performance and says Time, Time, Time Is On Your Side (Yes it is)

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Another Big Drop in Gold

I just noticed that gold prices have dropped about 5% on June 20th to down under $1,300 level.  As I write this Kitco shows spot at $1,277.  

Its been a few months since I last talked about gold with my article Is Golds Run Finally Coming to an End?


The yearly graph so far for 2013 does not look at all like a bubble or a bear market.   In fact for the year to date the prices have dropped about 25% at this point.  

Whats more while gold has been going down the stock market has been going up.  Here's how the SPY and GLD ETFs compared for 2013 so far :

(source Yahoo, click image for full size)

Ouch.


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Beware the High Markup Memory Upgrade Prices When Buying a PC

I'm shopping around for a new computer.  We're WAY past due for a new computer.   I'll likely build my own again but I figured I'd check Dells offerings to see what they have as far as prices.  When shopping around on Dells site I saw one system that had 8GB and offered an upgrade to 12GB for an additional $100.   Screen clip capture :

The system comes with  8GB originally with 2 DIMMS or 2 x 4GB parts.   To get to 12GB you'd add 2 more DIMMs of 2GB each.

Then Dell is charging you $100 to install 2 x 2GB DIMMs. 

If you're buying a higher end PC for $800 or $1000 or so then it may seem reasonable to spend another $100 to get a lot of extra memory.   But thats assuming $100 is a reasonable price for such an upgrade.  It isn't.

2 x 2GB DIMMS do not cost $100.  

Newegg has 2 x 2GB DDR 1600 memory parts for $35 to $50.   So even if we assume Dell is using the very best top grade memory that retails for $50 then they're still adding $50 above the memory cost.  I would assume that Dell is getting memory cheaper than retail.   I would also assume they are not using the very best blazing fast memory.    I bet Dell gets the memory they use for closer to $25-30 rather than $35-50.   Of course thats just educated guessing on my part, but one would hope Dell isn't paying more than retail for commodity computer parts and Dell makes no mention of their memory being super fast or having the best specs..

It certainly costs Dell some labor to install the extra 2 DIMMs.      I'm guessing it might be a whole 10-20¢ in labor..     Or if the thing is built in China then its more likely 3¢ of labor.  I'm serious about those labor costs.  It probably takes less than 30 seconds for the assembler to pop in 2 more DIMMs.

Between the actual cost of the memory and the marginal labor costs I'd assume Dell is paying no more than $30 for the memory and charging you $100 for it.  

Upgrade the memory yourself - Its actually quite easy

If you buy the very fast memory at $50 retail prices then do the upgrade yourself then you'll save $50.

To upgrade your memory on your own you first need to find and buy the right kind of memory.    Websites that sell memory tools and guides to help you do that.   Newegg has a Memory Finder.
Crucial has a memory advisor tool as well.   I don't have a direct link for Crucials tool but if you go to their front page they advertise it right there.   It took me less than a minute to go to Crucial.com, use their search tool and find a 2 x 2GB upgrade product for $42 with free shipping. 



Side Note :  I recommend Crucial.com and Newegg.com.    I've personally used both to buy computer products over many years and I'm happy with both companies.   Crucial is a brand of Micron memory company and they make quality memory at competitive prices.    Newegg has a wide selection of computer parts at good prices.   Neither company is compensating me in any way and I don't have any commission or affiliate links in this article.   [edited to cross off that last statement since I found the 5% link below which is through an affiliate deal ]

If you use Ebates to make a purchase with either merchant then you can save a bit more.  Crucial has a 6% rebate and Newegg is at 1%.  (I do get a referral bonus if you sign up with Ebates using my links)   Using Ebates would then save you 6% on that $45 or about $2.50   Or if you follow this link to Crucial you can get a discount : Get 5% off at Crucial

Its not hard to upgrade memory on a computer.   Crucial has a Youtube video How to Install Memory on a PC Desktop Computer  or How to Install Memory (RAM) in a Laptop / Notebook   I can usually do it in 5 minutes or less.   On a desktop  the steps are : 1. power down the computer and remove the electric cord.  2. open the case.  3. insert the memory DIMMs into the open sockets.  4. close case. 5. plug it in and power it up.     That may be more intimidating for some people but let me assure you it really isn't that hard or mystical.   You can't even plug the DIMMS in wrong, they're keyed to insert only one direction.   The computer probably has user documentation that walks you through the process.   If its still really not something you want to do then you probably have a family memory or friend who is the 'designated computer expert' that can help you out.

I would not recommend paying a company to do it for you.   3rd parties that do computer upgrades would likely charge you just as much as Dell.  $50 is what one site claims that Geek Squad charges for hardware updates.   I don't see Geek Squad prices online so it may vary and that $50 rate may be dated.  

Desktop versus Laptop

I've been talking about a desktop computer here, but most people tend to buy laptop computers now.   The basic idea here applies to laptops as well as desktops.  Upgrading memory on a laptop can be easier than a desktop since there is typically a user accessible opening.   One area where laptops may run into more trouble is the open number of memory slots.   Usually desktop computers are built with 2-4 memory slots where as laptops usually only have 1-2 slots.   If your laptop only has 1 slot then you'll have to remove the original memory and replace it with a new part.   So for example if your laptop came with 2GB and only has 1 slot then you'll have to set aside that 2GB part and buy a 4GB part to get to 4GB.  


-- This article may contain referral links which pay this site a commission for purchases made at the sites.

Do Home Office Deductions Lead to IRS Audits?

I've seen a lot of people claim that taking a deduction for a home office on your taxes is a red flag for the IRS and leads to a higher audit risk.    I've been cynical of that for some reason.    I'm not too sure why I'm cynical about the claim, but I am.    It seems to make sense that the IRS might target deductions that are commonly ... how shall we say it? ... "exaggerated"?   or "embellished"?   But then its hard to see any cause - effect relationship between any given deduction and an audit.   The IRS does not publish any kind of statistics on what percentage of people audited claim specific deductions.   There is no real solid data to support or refute the idea.   It may be impossible then to prove or disprove the idea that any given deduction causes higher audit rates.

I went out to Google and searched for 'home office audit risk' and found several articles discussing the topic.  However there was no consensus with some articles saying theres no evidence of any audit risk and others claiming it as a fact.  


Opinion #1 :   No Evidence



In : Skip home-office deduction to avoid audit?
Mark S. Gleason who is an Adjunct Professor of Accounting at the University of St. Thomas Opus College of Business.

says: "Having worked with many taxpayers who have claimed home-office-expense deductions, I have seen no evidence that taking a home-office deduction creates additional audit risk. I could not prove this statistically."


Opinion #2 : Assumes an audit risk


in First Person: Assessing My Income Tax Audit Risk a 'Yahoo Contributor'
says: "Most tax professionals encourage work from home taxpayers to deduct this expense, as long as it is under, say 10%. IRS does as well, as long as the requirements are met. However, unless I can provide definitive proof, the income tax audit risk appears to outweigh my income tax savings."

But I have no idea where they get that 10% figure from and I"m not sure exactly what its 10% of.

Opinion #3 - States IRS audits people

in Tax tips: How to avoid an IRS audit
 written by Jeff Reeves who's bio on Amazon says he's a journalist

"These deductions were abused for years by people who did a little work in the den in exchange for a lot of tax benefits they might not have deserved. The IRS frequently audits those claiming home office deductions, making them prove "exclusive use" for business purposes."


Opinion #4 - Says there is 'no evidence'

Theres two references from  Barbara Weltman who is a 'tax and business attorney since 1977' and author of multiple tax books :

in Three Myths About the Home Office Deduction
"There is no evidence that this deduction exposes a taxpayer to greater audit risk.
If you are entitled to a home office deduction because you meet all tax law requirements (e.g., you are a home-based freelancer who uses a space bedroom solely as an office), then take it."

and in How to Claim a Home Office Deduction and Sleep at Night
"It's generally assumed that if you work from home and claim a home office deduction, you're sending a red flag to the IRS and inviting an audit. While the IRS doesn't give statistics on audit triggers, it's important to know how to protect yourself if you claim a home office deduction"

Opinion #5 - Says its a 'red flag'

How Your Home Business Can Avoid a Tax Audit
by Karen E Klein who is a columnist / journalist 
says: "The home office deduction acts as something of a red flag to the Internal Revenue Service because it can easily be abused by small business owners who claim a larger home office than they actually have, or who deduct expenses for an office that is not truly dedicated to business use. "

Varying opinions 

There are five different opinions cited above from five different sources.    We've got two opinions #1 and #4 who say there is 'no evidence' of any audit risk.    Then we've got two opinions (#5 and #3) that say there is risk.   One opinion #3 goes as far as stating outright that the IRS "frequently" audits people who claim the home office.   Opinion #2 refers to the risk and just assumes it as if its somehow common knowledge.

I Trust the Experts

If we split up the opinions by experts in the field of taxes versus people who are journalists then we see that the two experts say there is 'no evidence' and the two journalists claim it is a risk.   However theres no evidence presented by the journalists nor do they cite a source or provide any data at all to back that claim.   Given that we've got conflicting claims here I'm inclined to trust the opinion of the tax experts.   The experts say there is no evidence of higher audit risks.

My Theory

This bit is just my own personal opinion and guesswork.    I'm thinking what happened is that some people took home office deductions and then got audited.   This lead to someone making statements claiming that the home office deduction causes IRS audits.   It may have either been isolated anecdotal reports that got picked up and repeated by the media.   It may have also been a more wide spread correlation between high audit rates and high home office deduction claims.   But as we know correlation does not imply causation.   Maybe there were a LOT of people who claimed home office deductions and who got audited... and maybe that was because they were improperly claiming the home office deduction.   One might assume that the real story is that "improperly claiming home office deductions leads to audits"  which isn't any kind of revelation.   If you improperly claim any kind of deduction then that will result in higher audit rates.   The IRS does obviously look for people who improperly claim deductions and will audit those more often.    I honestly do think that there are probably a lot of people who improperly claim the home office deduction.  Its actually not an easy deduction to take and the rules are strict.  


Bottom Line : There isn't a clear consensus on whether or not home office deductions lead to increased risk of IRS audits, however the tax experts say there is no evidence to support that idea.  

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How Many DIscouraged Workers are There?

The labor force participation rate has dropped in recent years.    One theory to explain that is that "everybody just gave up trying to find a job" and became what the government labels a 'discouraged worker'.  

The BLS defines a discouraged worker is someone who : 

Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.

So they are NOT in the labor force and they gave up hunting for work after being unemployed.

I looked up the discouraged workers in the BLS Table A-16 and I got general labor force size and civilian noninstitutional population size from the query tool.

FIrst the % of the population that is discouraged workers:

FIrst we can clearly see that the % of the population that was in the 'discouraged' category clearly peaked after the recession.    It more than doubled.    However the net increase was till only about 0.3% of the population and thats not any kind of  giant shift in the labor situation.   Even if you took all those discouraged people and added them to the unemployment ranks then it would have only added 0.5% to the unemployment figures.

Second I'll point out that the number of discouraged workers bottomed out around 0.15% even during relatively low unemployment periods.   Theres always some discouraged workers.   I suspect that is due to evolving labor market and some occupations becoming obsolete or irrelevant.   Certain industries or fields may see higher rates of discouraged workers even while the rest of the population enjoys a good employment picture.

Now lets compare the % of the population that is currently discouraged versus the percent that is part of the labor force. 

I put those two axis in the same scale so you can see how the numbers compare.    As you can see the amount of discouraged workers does not vary as much as the percent of the population thats in the labor force.   From 2009 to 2012 we saw a drop of about 2% in the labor force participation rate.   During that same time the % of the population that was discouraged rose around 0.2%.  

Finally I'll show the labor force versus the sum of the labor force and the discouraged workers.  

So that red line is how the labor force would be if we had no discouraged workers.



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Best of Blogs for Week of June 14th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

FreeMoneyFinance has created a new blog called Wealth Lion.    

RetireBy40 vents about overspending with I can’t believe this guy is paying $440/month for cable

The Big Picture gave a pointer to a expose from the Tampa Bay Times on Americas Worst Charities
Servers as a good reminder to research charities in advance and make sure a large % of their money actually goes to those who need it.

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Student Loan Availability Impact on College Costs

Lately I've heard people stating the belief that the easy availability of student loans is a reason that college costs too much.   Some people will even claim that student loans are the 'primary' reason that college costs have gone up.   The logic is that if there wasn't such easy access to money from student loans then colleges wouldn't be able to charge as much.  I've seen someone claim that if student loans went away that tuition would "plummet".

I don't buy this argument.

Nobody at Harvard is saying : "Hey the Stafford loan limit is $9,500 a year for undergrads Freshmen so we ought to charge $38.480 for a years worth of tuition". 

Nobody at University of California concludes : "we ought to raise tuition 9% to gouge those students because they can get loans"

Student loans are just one way to pay for college.   Loans are usually paying a fraction of the total cost.   The average debt for undergrads in 2010 was around $25,250.    But thats only among the borrowers and about 40% of students graduate without any loans.   $25,250 is a lot of money but its not even close to maxing out the limits.   For government Stafford loans the limits for 4 years are $19,000 for subsidized and another $28,000 for unsubsidized.   The government is willing to loan out $47,000 in Stafford loans and the average debt in 2010 was $25,250.  If the evil universities are just maximizing their budgets based on loan availability then wouldn't they jack up tuition even further to tap that unused loan limit?


Student loan limits haven't changed much.   Finaid.org has a history of the limits for student loans.   The limit on subsidized Stafford loans hasn't changed since 2007 and the limits for unsubsidized loans haven't changed since 2008.   I don't see loan availability changing at all really.   People have always been able to get loans and very few people take out the maximum of loans.  If universities increased tuition because of student loans in some sort of exploitative money driven agenda then wouldn't the universities increase tuition to the point that students hit the limits of their loans?    And wouldn't student loan borrowing account for a larger portion of the money used to pay for college?


People argue that if students couldn't borrow money they couldn't pay the tuition.   Thats true for some students, though not all.  But lets say student loans didn't exist, then fewer students would go to college.   I'm sure some students would find funding elsewhere via private loans or working and saving more.   But in the end if student loans disappeared over night I'm sure college enrollment would drop some.   What happens to a large institution like a University with large overhead fixed costs when they get fewer customers?    Prices don't naturally go down.  Sure they would cut many professors to adjust to lower enrollment but all the other costs would be spread over fewer students.  You think its half as cheap to maintain the University of Texas campus with half as many students?  Nope. 

Loan availability doesn't increase costs for other goods or services

DO you hear anyone declaring how car loans are causing the cost of cars to skyrocket?   Nope.   Thats because car costs aren't going up drastically.   Yet car loans are quite common and quite easy to get.   If easy availability of loans caused prices to go up then shouldn't cars costs be going up as fast as student loans?   I don't see why not.   

Credit cards are a loan.   I can buy virtually anything I want with a credit card.     Credit cards are quite easy to get.  If loan availability results in higher prices then shouldn't the high availability of credit card debt lead to increased prices in virtually anything?    Again I don't see why not.

Credit availability is common for goods via car loans and any consumer item via credit cards.   Yet neither of those forms of debt seems to have any noticeable impact on the cost of goods.     If the idea that loan availability increased costs was true then it should hold for any kind of good or service, but clearly it does not.

If it has an impact its not that much

I don't believe that the student loan availability is a key driver in the costs of college in general.   But lets for a minute just assume the theory is right and public school deans are raising rates in relation to student loans.    Lets say its true.    How much impact could it have?    If you look at a public university generally something around 50-80% of their funding comes from government money between the state and federal level.   Tuition typically ends up around 20-40% of the university revenue.   If you look at the total undergraduate student aid then only about 38% of the aid students get is in the form of loans.    Student loans then only cover about 8-16% of the total cost of university funding.   Student loan dollars really play a minor role in the overall college funding picture.

For profit schools are the exception

Is someone at a for-profit university saying : "Hey students can get themselves almost $50,000 in government loans to go to college so lets charge about $15,000 a year and take advantage of that borrowing"?    Yes, actually,  I absolutely do think that for profit universities setup their cost structure to take advantage of government aid.   In fact when you look at for-profit universities in general often the vast majority of their revenue comes to them via student aid that the students obtain.    The  Bill Moyers site  says that "85 to 90 percent" of for-profit university revenue comes from student loans.  These universities typically charge tuition rates of around $14,000 to $15,000 on average according to the CollegeBoard.   Yet according to a Senate report they spend " an average of 22.4 percent of revenue went to marketing and recruiting, 19.4 percent to profits and 17.7 percent to instruction"   I definitely believe that for-profit universities exploit the availability of financial aid.   They very likely do set their tuition rates based on loan and federal grant availability.

Finaid has data about student loan borrowing from 2007-2008 and they compare public, non-profit and for-profit institutions.   96% of students in bachelors programs at for-profit universities borrow and the average debt for them was $32,909.   Thats significantly higher percent of students borrowing and borrowing larger amounts than either public or non-profit schools.


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Percentage of College Students that Work Full Time by State

Yesterday I talked about what Percentage of College Students work.   Shortly after writing that
I ran across this report from the Census School Enrollment and Work Status: 2011   They talk about the topic as well. 

In that Census report I found figure 2 which is below :

(click image for full size)

Not a whole lot to say about it other than whats shown in the map.   I thought it was interesting how much variation there is among the states.


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What Percent of College Students Work?

When I wrote the article College Enrollment versus Labor Force Participation for Age 18 to 24 I found some overlap between the percent of the population that is enrolled in college and the percent that is in the labor force.   It seemed obvious that was due to some people doing both.   But how many college students actually do work?

A commenter, Middle Molly, pointed me to the answer at the BLS table : 
Employment Status of 16-24 year olds by school enrollment and educational attainment.

It shows the break down of students versus labor force status.   Its only a snapshot for April 2013 and I don't see historical info.  

Here is how the full time student population looks :

I'm actually a bit surprised that more students don't work.  But I guess I shouldn't be surprised.  If I think back to my college days there were quite a few students that did not work at all.  Part time jobs were pretty common but it was just as common to not work at all.    Very few people work full time will enrolled in college full time and I'm not surprised by that.

This is for April and I'd expect that if you took the snapshot in July that you'd see higher percent working.   Though I'm not sure if they count students on summer break as enrolled or not, I'd assume so. 

About 85% of students are full time and 15% are just part time.   I'd be surprised if the part timers didn't work more and I wasn't let down.   Here's how it looks for part time students :

Very few part time students aren't in the labor force.  



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Impact of Prison and Jail Population on the Labor Force Data

I've been talking about the labor force lately and changes in the labor force participation for men and women.  The labor force participation dropped a couple percent in the past few years.  Where did the labor force go?     I've been examining a few theories to see where some of the people might have gone.

Recently  I looked at how the military population might impact the labor force figures.   Active military personnel are not included in the government labor force data.   The BLS only looks at the 'civilian noninstitutionalized population'.   Another group that the government doesn't consider is the people in prison.   So changes in the prison population might impact the labor force data.   Are we putting more people in prison?    Could that decrease the labor force?   What if we threw another couple million people in prison and jails in the past 5 years, that would surely move the labor force statistics. 


I got data on the prison and jail population from the Bureau of Justice Statistics.  I got recent data for prisoners as of 2009 and persons incarcerated for 1993 and 1988.   I added up the numbers for prison and jail inmates for both state and federal.

Here is the total number if people in state and federal prisons and jails :

	ALL	Men	Women
2009	1,617,478	1,502,499	114,979
2000	1,391,261	1,298,027	93,234
1993	1,391,878	1,293,198	98,221
1988	947,301	886,745	60,556

As you might have guessed the prison and jail population is dominated by men.

To see how this compares to the labor force data I got the labor 'civilian noninstitutionalized population' figures from the BLS.   I used the data for 16 years and older.   I don't know the age range data for the prison population, but I'm sure its close enough.  

Here is how the inmate population is proportional to the 'civilian noninstitutionalized population' :

There hasn't been much change.    The % of the male population jumped a bit between '88 and '93 but has not varied more than 0.1% since.    The population of women inmates is virtually flat.

From 2000 to 2009 the % of inmates for men rose just 0.04% and women was up 0.01%.     Those are pretty marginal differences.

My conclusion is that changes in the inmate population have not been large enough lately to have much of a noticeable impact on the labor force statistics.
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Best of Blogs for Week of June 7th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

DoughRoller lists 20 Questions That are Illegal for Interviewers to Ask

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Impact of Military Size on The Labor Force Participation Rate

Did you know that the BLS excludes active military personnel when figuring the numbers for the labor force, employment and unemployment?   Well its true.   The BLS looks at the 'civilian noninstitutional population which is defined in the BLS glossary as : 

"Civilian noninstitutional population (Current Population Survey)
    Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces."

The unemployment rate and labor force participation rate are then figured as % of the civilian noninstitutional population.   Therefore the military isn't part of the picture at all.

I'd have to wonder how changes in the size of the military would impact the labor force participation rate.   We've had a couple wars going on so I would think we'd have a larger military lately.   Would an increased military reduce the labor force?   I would think so.   That might then actually reduce the labor force participation rate. 

In a hypothetical situation a large change in the military force might have big impacts on the labor force participation and unemployment rates.   Lets say we have a fictional island country with just 20 residents.   Of the 20  people we have : 15 people working jobs, 3 people who do not work for varying reasons and 2 people are unemployed.   Thats a labor force participation rate of 75% and an unemployment rate of 10%.   Now lets say that the island goes to war with the neighboring island over a dispute over fishing rights and 5 men are drafted.   Well now theres only 15 people in the 'civilian noninstitutional population'.   The 2 unemployed people get jobs and the 3 people who don't work still don't work and the other 10 stay in their jobs.  That means we'd have 0% unemployment and 80% labor force participation.    Of course thats just hypothetical to illustrate how military numbers might change things.    We could see this going on during WWII to some extent I'm sure. 

OK but what if we didn't exclude the military personnel from our labor force figures?    In my example above it would be a large swing between 80% labor force participation and 85% participation.  

Enough talk... lets look at the numbers.    First I get the number of military personnel from the Census.   And then we'll need to look at BLS labor figures.     I had to do a little math and take the labor figures for the population over 16 years old and then subtract the 16-17 group to get figures for the 18 and older group.

First of all I quickly realize that I was wrong about my assumption about the size of the military increasing.   In fact our military hasn't grown all that much in the past 10 years.    We had a significantly larger military back in 1990.   In 1990 we had 2.0 million personnel, 2000 it was 1.38M and 2010 it was 1.43M.     The percent of the population in the military has actually shrunk.

The percent of the population in the military :

1990	2000	2010
1.1%	0.7%	0.6%

This could shift the labor force.    Lets look at the labor force participation with and without the military included.   Normally the BLS does not include the military.   But what if the figures did include the military?

In the last couple decades the impact of the military would have only had 0.2% to 0.3% change in the labor force.   Thats not a big difference and it hasn't varied too much.    From 1990 to 2010 the labor force participation rate is down 1.1%.   If we had included the military then the rate would be down 1.2%.

Now lets look at how the unemployment rate would differ if we included the military in the labor pool.  

In the graphic they look almost identical.   But there is a small difference.   Lets look at the actual figures in table form :

	1990	2000	2010
without	5.30%	3.73%	9.38%
with mil	5.22%	3.69%	9.29%

If we included the military personnel in our labor force then unemployment would differ just 0.09%.  Thats almost a 1/10th of a percent so its not insignificant but its certainly not a big difference.  

The fact of the matter is that the total military personnel is not a huge portion of our population and it hasn't varied all that much.   It hasn't had a significant impact on the labor force rate or the unemployment rate.    Of course if the military grew drastically then it would have a larger impact.

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Women Will Pass Men in The Work Force in 10 Years

Over on DQYDJ in a recent article The Great Recession’s Effect on the Number of Men and Women in the Workforce, PK said : "At this pace, (I recognize the dangers of extrapolation, but follow me here) we’re going to see parity reached in a generation… with both sexes sending less than 60% of their populations into the workforce."

I agreed with the idea that at this pace we'll hit equal rates between men and women before too long.   However I assumed it would be over 60% per gender.    To test the extrapolation I thought I'd just project the rates for men & women into the next couple decades.   Thats not hard to do really.

I got the data on the employment ratio from the BLS per gender going from 1949 to 2013.    For simplicity I just plotted the Q1 figures.   I then projected those trends forward until the year 2027 to see how the plot line would extrapolate into the future.   If the current trends continued then we'd see the % of women employment ratio exceed the men in the year 2021.

Here's the graphic:

Keep in mind that the figures after 2013 are just projections.   Of course the trends could change in the future and something like another recession could throw things out of whack as well.

At this rate we'll see higher % of women working than men by 2021.   Thats less than 10 years in the future. 

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Hindenburg Omen is still NONSENSE

The Big Picture recently wrote  Why Do People Fear the Hindenburg Omen? and they have a nice graphic showing all the previous 'Hindenburg Omen moments mostly while the market grew but occasionally dropped.     Their mention of the Hindenburg Omen was the first I'd heard of it lately.   But apparently we hit another Hindenburg Omen on Friday.

I found the WSJ articles on it : Morning MoneyBeat: Hindenburg Omen Rears Ugly Head
 Hindenburg Omen Creator: ‘I’m Hunkering Down for Possible Rough Ride’
CNBC also says Why 'Hindenburg Omen' Is Just a Superstition


Please see my previous article on the topic: "Hindenburg Omen" is Nonsense

Its nonsense.   ... Nonsense.     Just ignore this stupidity.   The track record is a horrible 25% correct. 

You could do a better job predicting if the market will go up or down by flipping a coin.   Heads = bull, Tails = bear.  

I honestly think the only reason it gets any press mention is that it has a ominous sounding name that looks good in headlines.  Oh no!!!   The scary Hindenburg Omen is coming!!    Don't bother looking at the fact that its hardly ever right...   Hindenburg!!!

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Older College Students and the Labor Force Participation Rate

Last time on the topic, I took a look at the impact of higher college enrollment rates for people age 18-24 versus the labor force participation rate.    It seemed to me that higher college enrollment had  a pretty direct and obvious impact on labor force participation.    But what about people over 25 years old?    Are there also more older people going to college and is that impacting the labor force too?

Again I got the data from the census and the BLS.

I decided to lump all ages over 25 years together.  The Census data has data for ages 25 to 34 and for 35 and over.

Here is the % of the population for ages over 25 who were enrolled in college:

As you can see there is a small increase over the past 30 years.  The change for women is more visible.  In 1980 there was 3.1% of the women population over age 25 in college and by 2009 it had grown to 4.4%.  For men the differences are petty minimal and enrollments have fluctuated a little ranging from 2.7% to 3.1%.

Here is the comparison of the % of the population in college versus the % in the labor force for men:

And for women:

 For men the college enrollment is almost flat so its hard to see that there would be any impact to the labor force.   For women both rates are up over the decades. 

Looking at those two charts above I don't see a significant relationship between the % college attendance and the labor force participation rate.

 However the total population over age 25 has a lot of people even including those over age 65.   Its a pretty broad group.  

Lets look a little closer at the group age 25 to 34.   That age range is a lot more likely to be in college in general either in graduate or professional programs, returning to school or first starting college at a later age.

First lets compare the % of population in college versus in the labor force for men age 25 to 34:

And next the women age 25 to 34:

Just looking at those graphics and focusing on the change from year 2000 to 2009 it does seem to me that there was a notable increase in college enrollment.  Men were up 2% and women up almost 3%.    These are more notable increases.   At the same time mens labor force was down 3% and womens down 1%. 

For the age group of 25 to 34 year olds we could assume then that increased college attendance was a significant reason for reduced labor force participation.

Lastly lets look at the age group over 35 years old.   Much smaller % of that group goes to college.

First the men over 35 :

And then women over 35 :

Here I see little differences in the college attendance % rates.  The % of the population over age 35 in college has been almost flat for the past 30 years for both men and women.  

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Money CAN Buy Happiness

I've always been mildly irritated by the expression 'Money Can't Buy Happiness'.    I'm not entirely sure what the point of that statement is meant to be.     Are they saying that I can't go to the Happy Store and buy 2 kilograms of raw Happy?    I guess not.    Are they saying that poor people are just as happy as rich people?   Seems silly to me.    Are they saying that even rich people can't buy their way out of all their worries?   I'm not sure.   In any case, the expression bothers me.

When I hear that phrase 'Money can't buy happiness', my reaction is to think to myself 'of course it can'.  My smartass reply is that if you aren't sure how it works, you can give me your money and I'll demonstrate it to you.   Any takers?    Probably not.    Apparently that non happy making stuff we call money is just something people cling to for no happy related reason.  

Lets look at it another way.  Lets take away all your money.   Are you more or less happy?   Now lets take away all the stuff you ever bought or ever will buy with all your money.   You now have no home, no car, no food, no stuff, no experiences, no wedding ring, no clothing, no hot showers.... You're now a money free dirty starving homeless person.   Are you happy now?   I doubt it.  

For me it just seems obvious how much of a direct relationship there is between money and happiness.   I am happy to have food, clothing and shelter and unhappy without those things.    I can't get food, shelter and clothing without money.   Money buys me things I need to be happy.    Of course I can't go to the Happy Mart and buy a quart of raw happiness.    But indirectly at least you do need money to be happy.     I suppose I could be happy if I lived the life of a hippy farmer, but to get that life I'd need some money to buy some farm land and a some tie dyed t-shirts.   Or maybe I'm supposed to knit my own t-shirts in order to be a proper non-money having happy person??

There isn't a proportional relationship between money and total happiness level.    I don't think that the average billionaire is a billion times as happy as someone with just $1 to their name.    I don't think that spending a billion dollars will get you a billion times as happy as someone who spends $1.   There is diminishing returns.   But that doesn't mean that you can't buy happiness.      I mean eating a piece of good fried chicken makes me satisfied, but eating 1 million fried chickens will probably kill me.  Thats not to say that eating food doesn't satisfy you... clearly you don't expect unlimited return on your food eating.   I don't think a billion dollars would kill me but it certainly wont' make me 10^9 times as happy as $1 would.

Are there unhappy rich people?   Of course.    Theres also happy poor people.    Theres also happy middle class people and unhappy poor people and happy rich people.   The existence of any level of happiness in the presence of a certain amount of wealth really doesn't mean anything as far as I'm concerned.     Money is only one variable.    There are far too many other variables that relate to happiness.

I'm certainly not saying that money is required to be happy or that lack of money directly results in unhappiness.   At least not entirely.    I do think that dirty, hungry homeless people without clothing or smartphones are not going to be happy in general.  So I would argue that you do need a certain amount of money to be happy.  But past providing the basics for yourself, you can always find people who are happy and unhappy.   Peoples personalities and emotions vary and what makes people happy varies.   One person may be 100% happy simply sitting in a park listening to the birds while another person may achieve their 100% happy level when spending $11 to watch a 3D movie in the theater.   Whatever floats your boat.


Let me ask this:    If money can't buy happiness then does money buy you unhappiness?   Puzzle that one a little.   I'm not sure of the answer.   I think you can probably go buy a lot of unhappiness with your money, but I haven't done any peer reviewed studies to confirm the hypothesis.

If you believe that money can't buy happiness then go give all your money to a dirty, homeless starving person and trade places with them and then see if the exchange of wealth makes the both of you more or less happy.


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