Best of blog posts for week of April 27th

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.

The Forbes 2012 Fictional 15 places the dragon Smaug from The Hobbit at the top of the heap.   But I distrust the analysis of the list since Smaug was only 7th last year at $8.9 billion and now they say it "jumped 16% from last year to $62 billion".   But I think the real story here is that some writer got paid actual money to figure out how much pretend money Smaug, Jed Clampett, Batman and Scrooge McDuck might have.

RetireBy40 discusses a list of the The Best and Worst Jobs 2012
I think its the same source as a best/worst job list I mentioned a couple weeks ago but RetireBy40 has linkage to the complete data with 200 jobs ranked.

FMF has a good take on some Financial Rules that Work and Don't Work


ICantPayMyBill.com  has some useful consumer advice if you're in a situation where you are unable to pay a bill.   They go into specifics on different kinds of bills and discuss tactics with specific debtors.

MyMoneyBlog gives us a List of Cheap, Basic Prepaid Cell Phone Plans – Under $10 a Month!


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Soapbox time : Say NO to Debtors Prisons

The other day I read this article : Jailed for $280 : The Return of Debtors Prisons.   I encourage you to read the article yourself.   

The short version of the story is that while its illegal to put someone in jail for failing to pay a debt there are however a lot of cases now where people are put in jail because they failed to pay a debt.    Of course that makes no sense at all, but its basically what happens.   The article shares a story of a woman who got a $280 medical bill in error and was told she didn't have to pay it.   Then fast forward and a debt collector has gotten the local sheriffs office to haul the woman off to jail.   Of course that makes no sense because debtors prisons are illegal in the U.S.

What is really happening is that courts are fining and imprisoning people for legal actions related to the debt rather than the debt itself.  So you aren't going to jail because you failed to pay the $280 bill but you do go to jail because you failed to appear in court for a court hearing related to the $280 bill.    In effect the debt collectors can use the power of the courts and threat of jail to get people to pay the bills.    The article says that in Illinois it can be common for debt collectors to use the threat of the courts and jails to pressure people who owe even small debts.

Part of me says this is fair and that if you don't show up for a court date or ignore a judge order then there should be criminal consequences for that.    But really we're talking about a totally civil issue here, not a criminal issue.   I don't think we should be using our jails to punish people for ignoring a past due $150 cable bill.  

 The article also discusses people in jail because they can't pay fines related to criminal charges.   Thats  a different matter than simply failing to pay a debt, but it can also be a big problem.   One study on the matter relays this example :

"We also profile Gregory White, a homeless man who was arrested for stealing $39 worth of food from a local grocery store. He was assessed $339 in fines and fees, which were later converted into a community service sentence after he was jailed because he could not pay his fines. Mr. White spent a total of 198 days in jail because he was unable to pay his LFOs and could not afford the bus fare to complete his community service. In all, his incarceration cost the City over $3,500."

The city spent $3500 to put someone in jail for 198 days because they stole $39 in food and then couldn't pay a $339 fine.   Of course theft is wrong and homeless or poor people should not steal.    But if a  homeless person steals food then fining them isn't a very logical punishment.  If he could afford food in the first place, presumably he wouldn't be stealing it and clearly he wouldn't have the money for such a fine.   I don't think they should just ignore such crimes but there has to be a better solution.

Whether its a unpaid bill or a criminal fine, I don't think it makes much sense to throw people in jail for unpaid bills.   Debtors prisons are illegal in the US and so people really shouldn't be jailed for debts.   Thats my opinion.

What do you think?   Should courts jail people for debts?   

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Don't Play Russian Roulette With Your Retirement

I've talked about fixed annuities on and off in the past.   Generally I think that an immediate fixed annuity can be a pretty good way to provide some guaranteed income during retirement.

A lot of people are generally wary of annuities.   Sometimes people are legitimately worried about high fees or just confused about how annuities work.    Most people have an understandable cautious concern about handing over large amounts of their money to an insurance company and thus feel they are losing control of their finances.   However I also think a lot of people feel they can simply do better by managing their own money and investing in stocks and/or bonds.

Investing Your Lump Sum at Retirement, David F. Babbel and Craig B. Merrill,  August 2007

They made this analogy between investing your money for retirement and playing Russian Roulette :

"Financial planners sometimes say that a particular favored system may give you a good chance of significantly higher investment returns if your savings are placed in equities or some other favored investment. That may be true. But such homemade systems also carry a risk of running out of income long before one runs out of life. Their sponsors may counter that the risk of such an eventuality, if everything goes according to assumptions and the plan is followed tightly, may be only 15%. That is roughly equivalent to the 16.7% odds of losing in a game of Russian roulette, and few people are prone to participate in such games! Why, then, are people so prone to bet their own income security when it comes to retirement?"

What if I told you that you have an 85% chance of outliving your retirement funds if you self managed the money in stock/bond investments.   Doesn't seem too bad if you put it that way.   The vast majority of time people will do fine.

But the opposite of that is the 15% failure rate.   Which is quite close to the 1 in 6 chance (16.7%) rate of losing  a game of Russian Roulette.    Would you take those odds?

Of course I'm not saying that buying stocks is analogous to putting a gun to your own head.   But its an interesting way to think about the numbers.   When the negative consequences of failure are very high then it gives us much more compelling reason to take lower risks and seek a much higher success rate.    The consequences of running out of money in your old age are pretty bad if you ask me.

Note: The cynical side of me forces me to point out that the study in question is partially funded by an insurance company which makes profit off of selling annuities.   Which I think is bad cause peoples natural cynicism in distrusting studies funded by profit seeking companies can can undercut what is a very good retirement strategy.  

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Energy Costs versus House Age

Modern homes are built in more energy efficient ways.   New homes usually have better insulation, more energy efficient double pain windows, more efficient furnaces or air conditioners and other energy efficient improvements over older houses.   It then only stands to reason that newer homes should be cheaper to heat and cool. 

Of course newer homes are often larger than older homes so some of that efficiency gets masked by the higher energy costs of a larger home.   Therefore the best way to compare the energy efficiency based on age and improved building practices is by the average cost per square foot.

I found information on average energy spending per homes from the US Energy Information Administration and they broke it down into the decade the home was built.   The numbers are from 2005 which is the most recent covering this information.

Here's the data :

Year of Construction	$ / sq ft
Before 1940	0.88
1940 to 1949	0.88
1950 to 1959	0.86
1960 to 1969	0.90
1970 to 1979	0.89
1980 to 1989	0.85
1990 to 1999	0.76
2000 to 2005	0.68

Interestingly there aren't t major differences in the amount spent on the homes from 1940 to 1979.   It seems that the biggest efficiency improvements kicked in after the 1980's. 

If you were looking at a home built in the 1960's versus one built after 2000 then you could expect to see about a 24% decrease in average energy expenditures.

I should point out that this analysis is not perfect since this is just the amount people spent and not necessarily an indication of the different quality of home building per decade.   In other words its feasible that people who own older homes are more likely to waste energy or something like that.   I haven't proven a cause - effect here.   Also the data doesn't take into account other variables such as who owns the homes, where they are built, etc.  Its also possible that more of the new homes are built in states with lower energy costs.   However I think its pretty reasonable to take national spending averages and then assume that the differences are related to building practices based on building age.  

It should also be noted that these are just national averages and individual spending will vary greatly in different climates and other factors.    

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