Bucks: Investment Plans and Forecasts Don’t Mix

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Bucks Blog: What You Don’t Know About Your Portfolio May Help You

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at The BAM Alliance. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

Back in 2008, a friend of mine left for a two-week trek in Nepal. While he was gone, the entire financial world exploded.

Merrill Lynch was sold to Bank of America. Lehman Brothers filed for bankruptcy protection. A.I.G. received an $85 billion loan from the Federal Reserve to avoid bankruptcy.

But here’s the interesting part: he didn’t know anything happened because he didn’t have any connection to the outside world. Although recently retired from the investment industry, my friend would have been glued to his computer. But he had no idea what was going on.

Think about that for a minute. I remember those days. I remember waiting up to see how markets opened in Japan. I remember being so worried that I didn’t sleep for days. And I remember another friend who called me from a cruise ship to ask if things were O.K. He said that many other passengers got off at the first port and flew home to deal with what was happening in the market.

My friend in Nepal missed it all, and it didn’t make one bit of difference. He was actually better off.  All my worrying didn’t change one thing.

In fact, my friend said that when he got back and eventually heard the news, something became crystal clear. He knew exactly what was going to happen for the rest of his life: the markets were either going to move up and then down, and then up and down again — and then he would die. Or, they would go down and up and down and up — and then he would die.

In either scenario, he was still dead. And no amount of obsessing over the stock market would change that.

This idea of being unconnected for a few weeks reminded me of Warren Buffett’s statement: “Benign neglect, bordering on sloth, remains the hallmark of our investment process.”

But it’s still so hard to ignore the market because we’re so connected. We seem to be obsessed with economic news. I’m not sure when exactly it happened, but sometime in the 1990s investing became America’s favorite spectator sport. I knew there was a problem while sitting in my dentist’s office and seeing CNBC on the TV in the lobby. It’s only become more difficult to avoid, now that everyone has a smartphone.

But knowing doesn’t help. And much of the time, it actually hurts. Aside from the tendency to trade too much when we’re following every market move, there’s also the issue of our happiness. It doesn’t feel good when our investments go down, even if it’s just for one day.

We have an aversion to loss. In other words, you’re likely to feel the pain of loss far more acutely than the joy of an investment gain. We feel twice as bad losing money as we do making money. And yet, knowing this, we continue to do things that will cause us pain.

Since many of us use the Standard & Poor’s 500-stock index as a proxy for the market, let’s take a look at the period from 1950 to 2012 to see how often we’re likely to feel positive, based on how often we check our investments:

If you checked daily, it would be positive 52.8 percent of the time.If you checked monthly, it would be positive 63.1 percent of the time.If you checked quarterly, it would be positive 68.7 percent of the time.If you checked annually, it would be positive 77.8 percent of the time.

So here’s the thing to ask yourself. Other than upsetting yourself half of the time, what good is it doing you to look anyway? Maybe we should all invest as if we’re going on a 12-month trek in Nepal!

So along with your do-nothing streak, let’s see how long you can go without looking at your investments (assuming you’re in a low-cost, diversified portfolio, of course). I think you’ll discover that it makes you happier, keeps you from doing something stupid and helps you become a more successful investor.

Bucks Blog: Banks Rake In Overdraft Fees, Report Finds

Overdraft penalties represent well over half of banks’ fees from consumer checking accounts, a new report from the Consumer Financial Protection Bureau finds.

The report, based in part on confidential data provided by some of the nation’s larger banks, estimated that 61 percent of bank fees from consumer accounts were for overdrafts and insufficient funds, penalties charged when customers spent more than their accounts had available. Based on that finding, the bureau said it estimated conservatively that the banking industry earned $12.6 billion in such fees from consumers in 2011.

The report represents preliminary findings of a bureau inquiry into bank overdraft practices announced early last year. The bureau is not making any policy recommendations yet, but says it will conduct further reviews of account-level data.

The report found that overdraft protection can be very expensive for consumers and varies widely from bank to bank. Overdraft protection is a service in which the bank pays the amount in question, even though the account lacks the necessary funds, but then charges the customer a fee for doing so. The average customer overdrawing an account paid $225 in charges per year, the study found. And more than a quarter (27 percent) of checking accounts paid at least one overdraft charge in 2011.

The bureau did not identify the banks included in the report or even specify how many were included in the analysis, which also incorporated comments submitted by the public, consumer advocates and industry groups. The bureau said, however, that the banks in the study represented more than half of all deposit accounts. The bureau has supervisory authority over banks with more than $10 billion in assets, or more than 100 institutions.

Since the middle of 2010, the Federal Reserve has barred banks from charging overdraft fees for A.T.M. withdrawals or most debit card transactions unless a customer actively  chooses the service. The report found that customers who accept the coverage were more likely to end up paying higher fees and were more likely to end up having their account involuntarily closed than those who did not.

“What is marketed as overdraft protection can, in some instances, put consumers at greater risk of harm,” said Richard Cordray, the bureau’s director, in prepared remarks.

Opt-in rates vary widely among banks, suggesting that bank marketing of the service plays a role. At some banks in 2011, more than 40 percent of new customers opted in, while fewer than 10 percent did so at other banks.

Mr. Cordray said the findings did not indicate that banks should not charge overdraft fees. “Nonetheless,” he said, “our findings raise concerns about the number of consumers who are incurring heavy overdraft fees or account closures, and the wide variations across institutions indicate that certain practices and procedures merit further analysis.”

Have you paid overdraft fees? Do you think new rules are necessary to regulate banks’ use of them?

Bucks Blog: Incentives to Start a 529 College Savings Plan

EPA Students at Morehouse College’s commencement ceremonies.

College graduation season is in full swing, marking an annual rite of passage — and serving as a reminder that higher education isn’t getting any cheaper. One option available to help families put away money for college, and avoid borrowing too much, is a 529 college savings plan.

In general, 529 plans are college savings and investment accounts sponsored by state governments. Money deposited in the accounts grows tax free, as long as the funds are used for educational purposes when withdrawn. You don’t have to be a resident of a particular state to use its plan, although some states offer additional tax benefits to in-state plan participants.

Most 529s are designed as traditional savings-and-investment vehicles, but some states offer prepaid 529 plans, which allow savers to pay tuition at certain schools in advance at current rates.

To raise awareness of the savings plans, the College Savings Plans Network, a nonprofit group that represents the plans, is promoting Wednesday (that is, 5/29), as National 529 College Savings Day. More than 30 states are organizing events to promote their 529 plans, and some are offering incentives for families to create accounts.

Florida, for instance, is waiving the $50 enrollment fee for plans opened from May 20 through June 30.

Washington State is also waiving a $50 enrollment fee, for plans meeting certain conditions; the account must be established by midnight Wednesday.

And Utah is offering matching contributions of $25, for accounts opened on Wednesday with contributions of at least $25.

The College Savings Plans Network itself is offering a chance to win $529 toward a new or existing savings plan. To enter, you must “like” the network on Facebook.

The network has created an interactive map showing what various states are doing. To see what your state’s plan is offering, click on your state.

Do you take part in a 529 savings plan? If not, will your state’s promotional event entice you to start?

Bucks: The Only Investing Pattern That Matters Is Behavioral

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at The BAM Alliance. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

A few weeks ago, I stumbled on some research by David J. Leinweber at Caltech. Apparently,  he’s figured out how to predict the stock market using just three variables:

1) Butter production in the United States and Bangladesh
2) Sheep populations in the United States and Bangladesh
3) Cheese production in the United States

Statistically speaking, those three variables predicted 99 percent of the stock market’s movement. Imagine what you’ll be able to do with that information.

There’s only one problem. The joke is on us.

In our very human pursuit of looking for patterns, we start seeing things that aren’t really there. And as Dr. Leinweber highlighted in his study, we will mine the data until we see what we think is a pattern. We think if something happened a certain way in the past, then surely it will continue into the future. We start to believe, we want to believe, that this pattern will have predictive value.

Consider what’s going on in the stock market. The bubble watchers are convinced that they’ve identified a pattern from the past that tells us something about the future. And they even have charts and numbers to back up their pattern.

One of my current favorites compares the Nasdaq in 1999 and 2000 to the Standard & Poor’s 500 Index in 2013. When you overlay the charts, they match perfectly. Imagine that. So, of course, we must be headed to an 80 percent decline. If you look a little closer, however, you’ll see the scales aren’t quite right. But it makes a fantastic visual if you’re looking for a pattern.

Then there’s the S.&P. 500 itself.  It is up 16.9 percent year-to-date. That’s the fastest start for the S.&P. 500 since 1987, when it rose 18.7 percent during the same time period. But later that year, we had Black Monday, when the Dow dropped more than 22 percent in one day. So we should be looking for the same thing to happen in 2013, right?

In fact the S.&P. 500 is full of patterns if you’re looking for them. Pick your poison: sheep, the S.&P. 500, gross domestic product, or the latest unemployment numbers. If you look for some sort of theme to emerge, it’s highly likely you will see something. But the past is not prologue.

While some of these silly data mining tricks might be interesting to talk about, they won’t help you. Every time someone approaches me with research — and it’s always called research — that shows a pattern in the data, the pattern eventually goes away. These things always work perfectly, until they don’t.

Oddly enough, the only pattern that will influence your investing success is your behavior. Can you break the pattern of buying high and selling low? Can you break the pattern of chasing after the next “big” investment? And perhaps most importantly, can you buy low-cost investments in a diversified portfolio, and then ignore it?

Now that’s a pattern I can endorse.

Bucks Blog: Nuances of Credit Scoring Still Elude Consumers

Consumers still have many misunderstandings about the details of credit scoring, like the impact of having several inquiries on their report around the same time, according to the Consumer Federation of America.

The federation and VantageScore Solutions, creator of a score that competes with the heavily used FICO score, commissioned a survey to gauge the public’s understanding of credit scoring and the factors that affect a credit report.

A credit score is a three-digit number, based on information in your credit report, that lenders use to help gauge the risk of lending you money. Both FICO, the most widely used scoring model, as well as the newest version of the competing Vantage score, use a range from 300 to 850 — the higher the score, the lower the risk. (Earlier versions of the Vantage score use a range of 501 to 990.)

Just 7 percent of those surveyed knew that making several inquiries about a consumer loan, like a car loan or mortgage, in a short period of time won’t lower a borrower’s credit score. In fact, consumers should check multiple lenders to be sure they are getting the best rate, Stephen Brobeck, the federation’s executive director, said in a telephone briefing about the findings. This misunderstanding may hamper comparison shopping for interest rates, and end up costing consumers extra on their loans, he said.

Generally, multiple similar inquiries within a one- to two-week period are recognized as comparison shopping, so they count as one inquiry and don’t greatly affect your score, he said. Even if the inquiries span more than two weeks, it’s generally worth the effort because the potential savings outweigh a minor impact on your score, he said. “Consumers should not worry that comparison shopping for a loan in a week or two will lower their scores,” he said.

It’s a different situation, however, if you apply for multiple store credit cards in a short period of time. Such inquiries are clearly separate applications for credit, and may be detrimental to your score, said Barrett Burns, president and chief executive of VantageScore Solutions.

Consumers were also uninformed about the impact of co-signing for a student loan for a child.  About a third didn’t know that even one late payment could harm the credit score of the loan’s co-signer.

Consumers were also not aware of the relative cost of having a low credit score. About 80 percent underestimated, for example, the increase in interest costs due to a low credit score when taking out a $20,000, 60-month auto loan. (The correct answer, according to a quiz offered by the federation, is that a person with a low score will pay around $5,000 more than a person with a high score.)

To see how much you know about credit scores, and how to improve them, answer the questions at creditscorequiz.org. The updated quiz covers many of the questions asked in the survey.

The telephone survey of 1,022 adults, including both land lines and cellphones, was conducted by ORC International on April 25 through 28. The margin of sampling error is plus or minus 3 percentage points. (The survey results can’t be compared with prior years’ surveys because of a change in methodology, including the addition of cellphones to the survey sample.)

The federation offers these tips for maintaining a healthy credit score: pay your bills on time each month; don’t put the maximum amount on your credit cards; pay down debt, rather than just moving it around to new cards; check your credit reports for potential errors. You can check them free at annualcreditreport.com.

Were you aware that comparison shopping for rates won’t harm your credit score?

Bucks Blog: The Cost to Consumers of a Data Breach

A new analysis of a huge data breach last year in Utah estimates that more than 120,000 cases of fraud will occur as a result of information stolen.

Javelin Strategy & Research’s analysis also estimates that each incident will result in more than $3,300 in losses, on average, and each consumer who is ultimately victimized as a result of the breach will spend about 20 hours and $770 on lawyers and time lost from work to resolve the case.

Ripple effects from the incident in the spring of 2012 will also prove costly to banks and businesses that may also suffer fraud as a result of the stolen information, said Al Pascual, a security, risk and fraud analyst at Javelin.

“We all need to be aware that breaches are occurring,” he said. “Breaches lead to fraud, and fraud affects all of us.”

Using the specifics of the Utah breach, Javelin applied what it has learned from its prior research about the impact of such breaches — namely, that having your personal information compromised makes you more likely to become a victim of fraud. Javelin estimates that roughly one in four recipients of a data-breach letter ultimately become fraud victims. (The estimate is based on information provided by consumers themselves, rather than law enforcement.)

“These breaches are driving fraud,” Mr. Pascual said. Criminals, he said, are generally not digging through trash or stealing mail to obtain personal data. “They’re stealing it digitally,” he said.

In the Utah case, about 280,000 Social Security numbers belonging to participants in the state Medicaid and Child Health Insurance Program were stolen from a database maintained by the Utah Department of Health. In addition, less sensitive pieces of information on another 500,000 participants were stolen.

Social Security numbers are particularly dangerous in the hands of criminals, because they can be used in combination with other information about you to create or access bank accounts and obtain credit.

The Social Security numbers were used by the department to verify eligibility for the insurance programs. But a contractor did not safeguard the server where the data was stored. The information was not encrypted and was protected only by a weak password that was easily hacked, the Javelin report said.

There may be little that individual consumers can do to prevent such a breach. But there are steps they can, and should, take to protect themselves, if they are notified that their Social Security number has been compromised in a data breach, Mr. Pascual said.

First, you should contact your bank and explain what has happened because many banks still use Social Security numbers to verify customer identity. You can ask for an alternative means of verification, like a specially assigned PIN, or a series of questions known as “dynamic” authentication. For instance, the bank may ask you about the size of recent transactions, or other details that only you would be likely to know, before allowing access to your account online or over the phone.

If the bank isn’t willing or able to provide an alternate method of verification, “It may be worth looking at institutions that offer better protection,” Mr. Pascual said.

Even if you haven’t had your information compromised, you should make use of your bank’s automatic account alerts. Such systems send you an e-mail or text message if unauthorized changes are made to your account, like the addition of a new authorized user or a new bill payment account, or a change of address. They can also notify you of significant transactions, like large withdrawals or transfers. “The consumer is going to know first whether a transaction is valid or not,” he said.

If you’re the victim of a breach and are offered free credit monitoring, you should take advantage of the service, he said. In the Utah case, victims were offered two years of credit monitoring and identity theft insurance.

Ultimately, banks should stop using Social Security numbers as identifiers, he said.

Have you had your personal information stolen? Did fraud occur as a result?

Bucks Blog: The States With the Highest Car Insurance Rates

Associated Press Traffic headed out of New Orleans ahead of Hurricane Isaac last August.

If you want cheap car insurance rates, it’s best not to live in Louisiana. Or Michigan.

That’s according to a new analysis from Insure.com, an insurance rate comparison site.
The average annual premium in Louisiana is $2,700. Michigan is next with $2,500, followed by Georgia at $2,200. In the New York metropolitan region, Connecticut has the nation’s 11th highest average annual premium at $1,723, New Jersey is 12th at $1,697 and New York is 33rd at $1,369.

The report is based on additional analysis of data provided for Insure.com by Quadrant Information Services, which this year obtained rates for more than 750 models from six big insurers (Allstate, Farmers, Geico, Nationwide, Progressive and State Farm) in 10 ZIP codes per state. That analysis allowed Insure.com to report on the most and least expensive cars to insure, which Bucks reported on this year. Insure.com then averaged the rates for all vehicles in each state to create the state rankings. (The cars were all 2013 models.)

Rates are for a single, 40-year-old man with a clean driving record and good credit who commutes 12 miles to work daily. Policy limits were $100,000 for injury liability for one person, $300,000 for all injuries and $50,000 for property damage in an accident, and a $500 deductible on both collision and comprehensive coverage. The rate includes uninsured motorist coverage.

Ultimately, your own rates will vary based on your driving record, the type of car you drive and other factors, including those that have little to do with your driving history. But the comparative state rankings give an idea of how policies at the state level can affect rates over all, said Amy Danise, Insure.com’s editorial director.

In Louisiana, several factors help to drive up rates, she said. For instance, drivers injured in accidents there tend to file more bodily injury claims than do those in other states. Medical costs have been increasing, so insurers have to pay more for those claims. The state also has significant claims filed under “comprehensive” coverage, which covers damage from natural disasters, like hurricanes.

Michigan, meanwhile, is an “oddball” state when it comes to car insurance, she said, in that auto policies are required to offer unlimited medical coverage for injuries sustained in an accident. Insurers pay the first $500,000 in medical claims, and the Michigan Catastrophic Claims Association pays the rest. All policyholders pay a fee for the association. The fee is $175 per car.

“All of these costs get passed on, in one way or another,” Ms. Danise said.

Meanwhile, less urban states may benefit from overall lower rates because of less traffic congestion and lower accident rates. Maine ranks as the cheapest state, with an average premium of just over $900, followed closely by Iowa at about $1,000. “You don’t have all these cars next to each other crashing into each other,” she said.

So what if you don’t live in a state with lower premiums? You can strive to keep your own driving record as clean as possible, avoiding tickets and accidents that can raise your rates. And you can shop around. Quotes for the same driver can differ by company, she said. You can also choose a car that’s less expensive to insure. In Louisiana, for instance, the cheapest choice would be a Jeep Patriot Sport , while the most expensive would be a Mercedes-Benz S65 AMG sedan.

Do you live in a high-premium state? Do you take any special steps to help keep your premium affordable?

Bucks Blog: What I Learned the Hard Way About Leasing a Car

The Infiniti that the writer leased.

The Internet is undoubtedly the great leveler between buyers and sellers. With a few clicks of a mouse or a swipe of your finger, you can comparison shop for items like consumer electronics and patio furniture. Even buying a car, a bastion of obfuscation, disinformation and dealer sleight-of-hand, has succumbed to the radical transparency of the Web. But what about leasing a car? That, as I so rudely discovered, is a whole other story.

Sure, there are many resources online and in print devoted to the finer points of auto leasing. Leasing is a popular way to finance a new car because of the promise of lower monthly payments than on a car loan for an outright purchase. But few sites or apps can prepare you for the emotional turmoil and financial uncertainty of negotiating a lease with a dealer.

Still, I thought, how hard could it be? I am, after all, no rube (I’m the chief information officer of The New York Times and a former business journalist). While I had typically bought cars and held on to them for a decade, leasing appealed this time for several reasons. Not only would the monthly payments be lower than buying, but I could simply turn in the car at the end of the lease and avoid the hassle of trade-ins or private sales. And cars, with their blizzard of digital gadgetry, have become more like computers and less like relatively simple machines that change little over time. Cars now seem more like gadgets you can upgrade every couple of years.

Then, there was the matter of the particularly aggressive lease deals last June on the 2012 Infiniti G37x sedans — $399 a month for 39 months, with no money down, for a car that listed at around $38,000. And the Infiniti was fast, sexy and loaded with the latest in fancy, voice-activated, touch-screen electronics. It was like having an iPhone on wheels.

The challenge was finding a dealer who had the car I wanted at a reasonable price.

So I followed my standard research protocol and went online. I visited auto sites like Edmunds.com, caranddriver.com and cars.com. I checked message boards and customer reviews on Google about dealers. (“SHADY PLACE – HIDDEN FEES,” said one reviewer. “Extremely satisfied,” said another — both about the same dealership. This was not helpful.)

Next, I called some dealers in the area to see what they were offering. While some would discuss price over the phone, all wanted me to stop by to complete the transaction. Why did I need to see them? Why did I need to interact with humans, especially human car dealers? Why couldn’t I do the whole thing over the phone, or even online?

Nowhere on the Web could I find a sample lease agreement so that I could understand all the numbers I would need to know in advance. (That’s why I’m publishing mine here.)

Eventually, I used the consumerreports.org “Build and Buy a New Car” service, which gives you an estimate of your savings off the manufacturer’s suggested retail price, then matches you with three local dealerships. I figured I could use that as a proxy for what type of lease deal I would get. The savings seemed impressive — some as much as 15 percent, or roughly $6,600, off the suggested price. Unfortunately, the dealerships recommended were either in New Jersey or Coney Island in Brooklyn, quite a hike from Midtown Manhattan for someone without a car. None could approach the convenience of Infiniti of Manhattan, which is just under a mile from my office.

I was met at the entrance by Khaled Sari, a salesman. I knew exactly what I wanted — a G37x, premium package, navigation system, interior accents.

The first price he quoted me — $459 a month — seemed absurdly high. After he disappeared to talk to his manager, he came back with a price of $420 a month. This still seemed too high. I wanted $399. But he said $420 was as low as he could go. When I appeared to hesitate, he threw in floor mats and free oil changes for life.

I should have gotten up to leave — that’s usually good for another round of negotiations — but he kept offering his hand for me to shake, saying, “Can I have your business?” The human hand extended in friendship is a powerful gesture, even when the motivation is purely mercenary. Watching his hand float in the air between us made me simultaneously feel sorry for him (he was trying so hard to be a good salesman) and furious that he thought I would fall for such a brazen attempt to manipulate me.

Of course, he was right. I wanted the car. I also didn’t want this process to drag on. I shook his hand. I also put down a $500 deposit, which, of course, was completely unnecessary, because a quick check of the dealership’s Web site revealed that they had dozens of similarly equipped cars available.

My major misstep, however, was to focus on the monthly payment. This, as it turns out, is precisely what car dealers want you to do, because that is only one number among many — and it is all too easy to get distracted by the monthly payment and underestimate or ignore all the other fees and expenses that you either need to pay up front or that determine the price you’d pay for your vehicle if you decide to buy at the end of the lease.

Focusing on the monthly payment, I learned too late, is the equivalent of only knowing your monthly mortgage payment without knowing the interest rate or how much you were even borrowing.

The most important number — whether you buy or lease — is the purchase price. Unfortunately, this number is seldom, if ever, discussed and is buried in the leasing documents, which you will probably only get to see minutes before you sign. That’s probably one reason I ended up with a purchase price close to the suggested retail price when Consumer Reports was telling me I could get a discount of 10 to 15 percent.

But wait, it gets worse. Auto leasing agreements are festooned with arcane but essential terms like residual value and net capitalized cost that can be difficult to understand, especially if you are first becoming familiar with them the day you are supposed to drive your leased car off the lot. And then there are all the closing costs, like destination and acquisition fees, purchase option fees and disposition fees, which eat into your pocketbook and (if you are proud of your negotiating skills) erode your self-esteem.

Unfortunately, you can’t negotiate effectively if you don’t fully understand what you are negotiating. So, armed with the benefit of bitter experience, here’s a financial and psychological road map to what you need to know before signing anything or putting money down.

First, decide exactly what vehicle you want, including color, interior, options, etc., and make sure the dealer has one in stock or can get one before discussing any numbers. Then, make the dealer give you all the numbers up front, not just the monthly payment, but everything on the contract you will eventually sign. Get a copy of that agreement if you can, or barring that, get everything in writing.

Keep in mind that whether you are buying or leasing, the most important number to focus on is the actual negotiated price of the vehicle. This, plus the acquisition fee (not to be confused with the destination charge), equals your capitalized cost. The capitalized cost and the rental payment, as the fine print in the “New York Motor Vehicle Leasing Disclosure Box” helpfully tells you, “may be negotiable.”

Now, here is where it gets tricky. Directly under the line for capitalized cost is the capitalized cost reduction, which the leasing agreement describes as cash down and the value of any trade-in vehicle. In a no-money-down lease like mine, that line should read $0.

So why was mine $1,993? This was a number we had never negotiated or even discussed. When I asked Khaled’s brother Amir, who was handling the paperwork, he said that included the destination charge and “other fees.” Of course, I should have stopped everything right there, but I had already been at the dealership for more than an hour, and he sounded so reasonable and matter-of-fact about it that I just let it slide. Another big mistake.

When I mentioned to Khaled in a telephone interview recently that the capitalized cost reduction was the one number that had taken me by surprise, he said that “everybody’s entitled to their own opinion about the process.” Khaled insisted that the monthly payment was still the best number for consumers to focus on. “I’m very straightforward and honest,” he said. “That’s how I sell cars.”

Yet even if you successfully negotiate the capitalized cost reduction to zero, there is still the matter of the vehicle’s residual value — the purchase price at the end of the lease if you decide to buy the car. Generally, this number is determined by a percentage of depreciation of the original purchase price, which is why in the end, leasing is not that different from buying: You still need to focus on the purchase price as though you were buying the car right then, because at the end of the lease you may decide to buy.

That will most likely not be an option in my case because the residual value of my vehicle is $25,020.15, which will probably be at or above market value for an Infiniti G37x with around 30,000 miles.

To add insult to that injury, there were other fees on the leasing agreement that are almost comically arrayed against the consumer. If I decide to turn in the car at the end of the lease without leasing another from the dealership, I must pay a $395 disposition fee. Yet if I decide to buy, I must pay a $300 purchase option fee. Add to that a host of smaller fees (a tire fee of $12.50, a doc fee of $75), which, I’m convinced, exist partly to distract consumers from the larger fees.

So how did I end up with such a bad deal? It turns out that the day you’re going to pick up your new car is the absolute worst time to negotiate, unless of course, you are willing to walk out. And while I told myself I was willing to walk, I also wanted my car.

This is where car dealers, with their years of experience in sales psychology, have you at a disadvantage. How could someone who knew all the pitfalls still fall into the pit? Perhaps I was out of practice negotiating with actual humans. After so many years of shopping for bargains online, I made the mistake of believing that searching on Google was haggling.

I don’t blame anyone at Infiniti of Manhattan for the fact that I didn’t get nearly as good a deal as I might have had I known then what I know now. They were only doing their jobs, which I define as extracting as much money from their customers as possible while making them feel good about it. At this, they excelled. And to Khaled’s credit, he did do a great job of taking me through my new car’s many cool electronic features.

I have no regrets. The G37x is a terrific car. And I learned something valuable about my susceptibility to certain well-worn but effective sales tactics when the seller has something I want to buy. Even now I’m anxious that the dealership may give me a hard time when I show up for one of my lifetime free oil changes they promised me. It would really be a drag if I had to haggle about it.

Bucks Blog: My Resolution: Online Accounts for Allowances

Ingo Fast

My colleague Ron Lieber recently wrote about new ways to track your child’s allowance online. He did have some reservations: he prefers children’s early experiences with money to be more tangible so they can see the piggy bank or jar filling up with coins.

He’s got a good point. But after a couple of years of watching my children mishandle their cash in various odd ways, I’ve decided that actual bank accounts are in order. One child kept a roll of bills wadded up with an elastic in her sock drawer, and it eventually went through the washing machine. Her sister kept hers in a blue plastic bucket labeled “Money,” which she and her friends doled out to one another during play dates. We did try actual piggy banks, but the stoppers kept falling out.

So one of my New Year’s resolutions is to create online bank accounts for them. It was so simple that I’ve already done it — and wondered why I didn’t do it a lot sooner.

I opted against taking them to a local bank, as my mother did with me, and opening a passbook account. For starters, some banks don’t offer passbooks anymore. And even if they did, it wouldn’t be convenient for me, and that’s crucial if this is going to work in practice. I do nearly all of my banking online, and I didn’t foresee any extra time in my schedule for driving them to the bank each week to make deposits. Some parents transfer allowances onto reloadable debit cards for their children, but mine aren’t old enough to keep track of plastic.

I already had an online savings account through ING Direct (soon to become Capital One 360.) The direct bank makes it easy to open “sub accounts” for a designated purpose, so I created one for each of my daughters. (You can, if you want, open entirely separate “kids savings accounts,” but that’s more time consuming and isn’t necessary to do what I wanted to do.)

To open the “sub accounts,” you log onto your account. Don’t look for any heading that says “sub account,” though because there isn’t one. Instead, click “open account” and choose “savings account,” rather than “kids account.” You give your new “sub account” a nickname. (I chose “allowance.” Very creative)

With another click or two,  you can set up an automatic savings plan, which will transfer whatever amount you want from your main savings account — it can be an ING account, or an external account that you’re already using to cover your ING account — into the allowance account. (I chose $5 a week, to start.) You click that you’ve read the proper disclosures, and you’re done. Now, when I go to “My Accounts,” I see my savings account and the new ones, with their nicknames and balances.

My plan is to sit down with my daughters each week and show them the money transferred into their accounts, so they can watch the balance grow. Any extra funds they get for birthday or holiday gifts can be deposited as well. We can discuss goals they want to save for, whether for a personal item or a charitable donation. And before any cash withdrawals are made, we can discuss what it’s going to be used for, and whether it’s a good use of their funds.

It’s not perfect, I know. But I think it beats the sock drawer.

How do you handle your children’s allowance?

Bucks: Let Diversification Do Its Job

Carl Richards

Investors typically set up a diversified investment portfolio to reduce their risk. Just hold a good mix of different kinds of stocks, along with some bonds and cash, and your problems are over.

Right?

Not exactly. Diversification comes with its own risk. But before we get to the risk, let’s talk about how we define this term in the first place.

When people say diversification, they’re often talking about two separate things. First, there’s equity diversification where you split up the portion of your money invested in stocks among big ones, small ones, undervalued ones, international ones and so on.

The idea behind this strategy is that you can reduce your risk, since different types of stocks often behave differently depending on market conditions.

Sometimes, it works. Dimensional Fund Advisors reported that in 1998, the large company stocks that make up the S.&P. 500 gained 28.6 percent while small-cap value stocks lost 10 percent. Then in 2001, the S.&P. 500 was down 11.9 percent, while those same small-cap value stocks gained 40.6 percent.

Since it does help sometimes, equity diversification is a useful strategy. Do it. But you have to understand that equity diversification sometimes fails to deliver exactly what you expect it to and often fails when you need it most.

We saw this in 2008-2009, when almost every type of investment fell. Granted, diversification would have saved you from making a mistake like putting everything in Lehman Brothers stock, but you still saw equity holdings plummet.

If you think back to that time, you will most likely remember hearing people say that diversification was broken, that it no longer worked. I remember thinking that myself.

But remember, when that happens and people start running around again saying diversification doesn’t work, they’re talking about equity diversification. There’s another, more important type of diversification: the way you split your money between stocks, bonds, cash and other investments.

This portfolio-level diversification is the primary lever to help you manage the risk and return in your portfolio. Each type of investment plays a different role:

Stocks provide the growth.Short and intermediate bonds provide more safety and a little income.Cash is there for liquidity and to protect your money.

The idea is to balance these investments in a way that gives up some higher returns in exchange for lower overall risk. Essentially, you’ve given up the opportunity to hit home runs for the benefit of never striking out.

With that out of the way, let’s talk about the risk of diversification.

Whenever you diversify, if you’ve done it correctly, there will always be something in your portfolio that you’re in love with and something that you want to dump (or will at least be the source of concern, as bonds are now in some circles). Some investment or asset class will be doing fantastic compared to the rest of your portfolio, and something will be doing much worse than everything else.

The trouble is, you never know when all of this will change. The thing you want to buy more of now will someday become the thing you want to sell.

Think back to the example from 1998. Having lived through it, I can tell you it was awfully tempting to move all your money out of small-cap value stocks and into large-cap stocks. But that would have been a terrible decision given how well small-cap value stocks did just two years later.

The same is true when you diversify among stocks, bonds and cash. When the stock market is tumbling like it did in 2008, you want to move everything to cash, and it’s really hard to keep money in bonds or cash when the stock market is having one of those great years.

But here is the point. The risk of diversification is that you will bail on it as a strategy at exactly the wrong time.

That feeling you get — the one that says, I wish I could dump this lame investment so I could buy a whole bunch more of this incredibly hot one — can get you into trouble fast. The temptation is greatest when it would be the most catastrophic for you to succumb.

But that feeling is actually telling you that you’ve done the right thing: You’re diversified. So remember that when the current fad ends and today’s rejects come back into style, you’ll be okay. And you’ll be awfully glad you didn’t give in to the temptation to give up on being diversified.

The next time diversification appears to not be working, remind yourself that it is a long-term strategy that can’t be judged on your short-term experience. In other words, just because something isn’t working right this minute — or even right this year — doesn’t mean it’s broken. So instead of thinking, “I am a rocket scientist and I can come up with something better,” just let diversification do its job.

Then go for a hike in the mountains instead of sitting hunched over the sell button on your broker’s Web site.

Bucks Blog: You're Probably One of Two Kinds of Shoppers

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at the BAM Alliance. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

It’s official: I’m not a shopper! It has been a long and lonely road to this point, but it feels good to finally discover the truth about myself.

Last summer I needed a new sport coat. My current one was 10 years old and looked it. I kept putting off buying a new one, because every time I go shopping it’s no fun. No fun for me and no fun for anyone who goes with me. My wife vows never to go with me again after just about every shopping trip. Luckily, she forgets the pain just enough since I need her help if I have any hope of looking presentable.

Based on anecdotal evidence, I’m guessing that some people find shopping fun, even (or especially) on Black Friday. I have even heard that people actually like to go out with friends for the specific purpose of shopping. Some people even plan vacations around the activity.

This has long been a puzzle for me. It’s not that I want to become a recreational shopper. I just want to make it a bit less painful for people to be around me when a situation requires a trip to the store.

After years of working on my problem, I think I have it figured out.

In an effort to simplify the issue, I’ve divided the world into two kinds of people: those who think shopping is fun and those that don’t. There’s only a problem when you don’t know which camp you belong to.

Shoppers enjoy options. I guess it’s fun for them to think about which shirt goes well with the sport coat they’re there to get. To nonshoppers, options just get in the way of getting stuff done. For them, shopping is not about entertainment, mixing and matching or assembling an evening ensemble (whatever that is).

It’s about the fastest way in and out of the store with the exact item you already know you need or want. This activity isn’t even the same thing as shopping. It deserves its own name, maybe purpose-driven-shopping, or even better “getting stuff.”

When you’re getting stuff, you know what you want. It was determined before you walked in the door. No need to even think about accessories. Now here’s what my clothes shopping looks like! Need a tie with that? Hmm, let me look at that list. Nope, it’s not there. A belt? No, it’s not on the list. Extended warranty? Not on the list.

Getting stuff requires research. You need to know what you want. If you’re a nonshopper, don’t go to the store to do that research, or if you do, don’t take a shopper with you. They will think they’re going on a fun activity, like a fourth-grade field trip. Since you’re at cross purposes, it can lead to conflict when you put on your game face in the parking lot. For you, this is not fun and games; it’s getting stuff done.

The Internet is a great place for research, and I suggest you call it that. When you’re approached by a shopper and they ask what you’re doing on the Gap Web site, tell them, “Research.” This will make it clear that this is not fun, and if they decide to help, there should be no expectation of fun.

Looking back on the arguments I’ve had over money with my wife, many of them involve silent drives home after shopping. So if my theory holds true, acknowledging that I’m a getting stuff person and my wife is a shopping person can end these arguments. The same could hold true for you.

How does this compare to your shopping experience? Do you fall into the category of “getting stuff” or “shopping?”

Bucks: Six Tips for Setting Your Financial Goals

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at BAM Advisor Services. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

If you managed to get unstuck and created your personal balance sheet recently, then you should have a really clear idea of where you are today. The next questions you need to be address are these: Where do you want to go? What are your financial goals?

This can be a frustrating process, since it involves making some really important decisions under extreme uncertainty. None of us know what next week will look like, let alone where we will be in 30 years. On top of that, making financial goals involves a whole bunch of assumptions — guesses, really.

We have to guess what our 60- or 80-year-old self will want to do. We have to guess what the markets will do, where interest rates will be and how much we can save. Those reasons and many more often lead us to forget that this is a process. We get stuck, unsure what to do next.

Well, despite all the uncertainty and assumptions, we need to have goals. It reminds me of the conversation between Alice and the Cheshire Cat:

“Would you tell me, please, which way I ought to go from here?”

“That depends a good deal on where you want to get to,” said the Cat.

“I don’t much care where,” said Alice.

“Then it doesn’t matter which way you go,” said the Cat.

“— so long as I get somewhere,” Alice added as an explanation.

“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”

But the problem is that we do care where we end up, and part of deciding where to go depends on setting goals.

So there are a few really important things to keep in mind here. Before you get too excited or frustrated, here are a few things to consider.

1. These are guesses. 

While it is important to admit these are guesses, you should still make them the best guesses you can. Be specific. Just saying, “I want to save for college for my kids,” isn’t enough. How about, “I’ll find $100 to add to a specific 529 account on the 15th of each month”?

Even though you need to be specific, give yourself permission to be flexible. An attitude of flexibility goes a long way toward dealing with uncertainty. There is something very powerful about having specific goals but not obsessing about them.

2. These goals will change.

It’s a continuing process, and it will change because life changes. But don’t let this knowledge stop you from doing it. You need to start somewhere.

3. Think of these goals as the destination on a trip.

You would never spend a bunch of time and energy worrying about whether you should take a car, train or plane without first deciding where you are going. Yet we spend countless hours researching the merits of one investment over another before we even decide on our goals. Why are you stressing about what stocks to pick if you don’t have goals in mind?

4. Prioritize these goals.

Once you have them all written down, rank each goal in terms of importance and urgency. Sometimes you will have to deal with something that is urgent, like paying off a credit card bill, so you can move on to something really important, like saving for retirement.

5. This is a process.

If you set goals and then forget about them forever, that is a worthless event. This is a process. Since we’ve given ourselves permission to change our assumptions about the future as more information becomes available, we need to do it. Part of the process of planning involves revisiting your goals periodically to see how you are doing and making course corrections when needed.

6. Let go!

As important as it is to regularly review your progress, it’s also very important to let go of the need to obsess over your goals. Define where you want to go, review your goals at set times, and in between, let go of them! Goals for the future are important, but so is living today. Find that balance.

This list may not seem like a big deal, but you would be surprised at the number of people who cannot tell you their goals, let alone break them down into categories or rank their priority. Once you have your goals, you will be able to move on to the next step: making a plan.

Bucks Blog: Morningstar's Latest Ratings of College Saving Plans

Morningstar Inc. has updated its rankings of the country’s largest 529 college savings plans, giving its top rating to plans offered by four states: Alaska, Maryland, Nevada and Utah.

Morningstar, a provider of investment research, is best known for its rating of mutual funds. But it also tracks 529 plans, which are state-sponsored plans named for the tax code that created them. Money in the plans grows tax free, and  stays that way as long as it’s used for educational expenses when you withdraw it. Many states also give tax breaks for money saved in the plans. (Families aren’t restricted to investing in the plan in the state where they live.)

Morningstar rated 64 plans representing 95 percent of assets held in the plans. Factors that it said it used in the rankings included the plan’s strategy and investment process; the plan’s risk-adjusted performance; the skill of the plan’s manager; the practices of the plans administrator and parent firm; and the fees involved in managing the plans.

Over the last year, many plans have showed a trend toward better-quality investments and lower fees, said Laura Pavlenko Lutton, who oversees Morningstar’s 529 Ratings.

Twenty-seven of the plans were given medal rankings (gold, silver and bronze) and are “likely to outperform their peers, based on Morningstar’s analysis. But just four plans were given a “gold” rating, meaning they were “highly regarded” by Morningstar analysts. “Over all, these plans stand out as best of breed for their ability to help college savers meet their goals,” the company explained in a statement.

The gold star plans went to these plans:
• Alaska’s T. Rowe Price College Savings Plan, managed by T. Rowe Price;
• Maryland College Investment Plan, managed by T. Rowe Price;
• Nevada’s The Vanguard 529 Savings Plan, managed by Upromise Investments; and
• Utah Educational Savings Plan, managed by the agency of the same name.

Four more plans were rated silver, and 19 were rated bronze.

A “neutral” rating means the analysts don’t think the plans are likely to deliver “standout” returns, but also that they’re unlikely to significantly under-perform. Most plans — 33 of them — fell into this category.

And these four plans were rated negative because of poor-quality investments or high fees:

• Kansas’ Schwab 529 College Savings Plan, managed by American Century Investment Management;
• Minnesota’s College Savings Plan, managed by TIAA Tuition Financing;
• Rhode Island’s CollegeBoundfund (Advisor-sold), managed by AllianceBernstein; and
• Rhode Island’s CollegeBoundfund (Direct-sold), managed by AllianceBernstein.

More details on the plans and their rankings are available on Morningstar.com’s 529 plan Web site, but a subscription is required.

Are you surprised by your 529 plan’s Morningstar rating? What has been your experience with your 529 plan?

Bucks: A Simple Place to Start: Your Net Worth

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at BAM Advisor Services. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

The world is a crazy place. We hear reports that say the economy is getting better. Next month, we hear that things don’t look so good. It feels like a tug-of-war, and we’re caught in the middle. Looking around, you may feel like the only thing you have any hope of controlling is your financial situation. So you want to make some changes and put a framework around your financial future.

But there’s so much information! Credit card statements, mortgage payments, insurance renewals, student loan bills and every other piece of financial data about your life can be overwhelming. It’s incredibly easy to throw up your hands and say, “I don’t know where to start.”

The best place to start is with your current reality. Seems obvious, right? But if it’s so obvious, then why haven’t we done it?

It can be painful. The reason you’re looking to change things is because something isn’t working. That something may be incredibly personal, like how you talk about money with your spouse. So we avoid our current reality and tell ourselves things will get better tomorrow.There are a million other things to do. We’re all busy. Thinking about what’s right and wrong with your current reality probably doesn’t make anyone’s Top Ten list.

But if you find yourself in a situation where you’re ready to make a change, the best place to start is at the beginning by creating a personal balance sheet. Your goal is to discover where you stand financially right now.

You don’t need a fancy spreadsheet or even a computer for this exercise. Just grab a blank piece of paper and a pen. Then draw a line down the middle.

On the left side, list all your assets in detail. Bank accounts, the fair market value of your home, investment portfolio. For every asset, list it and its value.

On the right side, list all your liabilities. Credit card debt, mortgage, school loans. Again, get specific and list the actual amounts of each liability.

If you don’t know, call your bank, credit card company or your adviser. In this exercise, guessing isn’t allowed, so ask the questions and get the real numbers on paper.

Then, add up all your assets and subtract all your liabilities. You now have your net worth.

What does it look like? If you’re not happy with the number you see, you have two choices that will probably involve some hard work:

Increase your assetsDecrease your liabilities

If you’re wondering why I suggest starting with something so simple, it’s because I keep crossing paths with people who don’t know how their assets compare to their liabilities. And the reality is that if you don’t know where you stand today, then how will you ever figure out where you want to be tomorrow?

So the next time you think you don’t know where to start, ask the question, “What does my current reality look like?” Once you know where you stand, then you can make an honest assessment of your options and what comes next.

This post has been revised to reflect the following correction:

Correction: October 1, 2012

It is the fair market value of your home that should be listed on the asset side of the ledger. This post originally suggested putting "home equity" there, but with "mortgage" already listed on the liability side, that would lead to an incorrect result.

Bucks Blog: When Non-Driving Factors Affect Auto Insurance Premiums

Automobile insurers may use factors unrelated to driving, like education and occupation, in determining rates.

Now, a consumer group is urging state insurance commissioners to restrict insurers’ ability to use those factors, arguing that the result has been unfairly high rates for lower-income drivers. Stephen Brobeck, executive director of the Consumer Federation of America, said in a call this week with reporters that premiums should mainly reflect factors like accidents, speeding tickets and miles driven.

The federation analyzed auto insurance premiums quoted on the Web sites of the five largest insurers (State Farm, Allstate, Geico, Progressive and Farmer’s) to price minimum liability coverage in five cities. Using an example of coverage for a 35-year-old woman with a good driving record, the study obtained quotes while varying characteristics like marital status, education level, occupation, home ownership and gaps in insurance coverage. Her driving record was the same in all instances.

The group found that in most cases, annual premiums were much lower if the woman was a married homeowner with a college degree, a professional job and continuous insurance coverage. In four of the examples, the premiums fell by at least 68 percent.

Premiums tended to be high if the woman was single, rented in a moderate-income area, had a high school degree, worked as a bank teller or clerical worker and had a gap in insurance coverage.

The analysis first obtained quotes for the “standard” example — a 35-year-old single bank teller with a high school degree and good credit record who rents a house in a moderate-income Zip code. The hypothetical woman had driven 15 years with no accidents or moving violations, and sought the minimum required liability coverage on a 2002 Honda Civic. Then, the researchers changed the criteria to see what the impact was on the quoted premium.

For instance, the “standard” quote of $2,696 from Progressive, for coverage in Baltimore, fell to $2,212 when the woman’s status was changed from single to married. And when all the criteria were changed to more a “favorable” status, the quote dropped to $718.

J. Robert Hunter, insurance director at the consumer federation, said a difference of nearly $2,000 based on non-driving factors is “patently unfair” and “actuarially unsound.”

Jeff Sibel, a spokesman for Progressive, said the insurer “works to price each driver’s policy as accurately as possible, so that every driver pays the appropriate amount based on his or her risk of having an accident.” He added: “To do this, we use many different rating factors, which sometimes include non-driving factors, that have been proven to be predictive of a person’s likelihood of being involved in a crash. Because different insurers use different information, which can cause rates to vary widely, we encourage consumers to shop around to find the combination of price and service that’s best for them.”

Alex Hageli, director of personal lines for the Property Casualty Insurers Association of America, disputed the federation’s position in an e-mail, saying that data have shown “consumers’ age, marital status, place of residence and occupation to be among the best predictors of future loss.” When such factors are “blended together” with criteria like driving experience, previous claims and vehicle age, he said, “these factors help to ensure that low-risk consumers can be better identified and pay less for insurance. In the final analysis, consumers benefit when insurance underwriting and rating decisions are based on a wide variety of fair and objective factors.”

Loretta Worters, spokeswoman for the Insurance Information Institute, an industry group,  said in an e-mail, “What’s missing from the C.F.A.’s analysis is that every one of these factors that they attack is correlated, and highly correlated, with loss.”

Mr. Hunter of the consumer federation said his concern with using factors like occupation and education is that such factors are “surrogates” for criteria that states aren’t allowed to use in setting premiums, like income. At the very least, insurers should give less weight to non-driving factors in setting premiums, he said.

Los Angeles had the lowest quotes, he said, because California limits the use of non-driving factors in setting insurance rates. It is up to state insurance commissioners and legislatures to take action, he said, because auto insurance is regulated at the state level.

“We’re not trying to say get rid of these entirely,” he said. “We’re saying, you have to look at the combined effect and study these factors more carefully.”

Using non-driving factors drives up premiums, and forces many working families to drive without insurance, even though they risk paying fines or criminal charges for doing so. “Many low- and moderate-income citizens can’t afford required insurance because insurers use unfair rating factors,” he said.

Do you think non-driving factors should be used to help determine insurance premiums?

Bucks Blog: How Many Government Programs Have You Benefited From?

Mitt Romney stirred up a hornet’s nest with his comments about the 47 percent of Americans who he thinks are dependent on the government.

It turns out, according to 2008 data from the Cornell Survey Research Institute reported Monday in a Times opinion piece, that 96 percent of Americans have taken part in government benefit programs in one form or another.

Listed below are 21 programs referenced by the researchers. Numbers 1 through 13 are “direct,” meaning that the aid comes directly from the government; the remainder are considered “submerged,” in that they come indirectly, through government tax policies. (For instance, the money you put in your workplace 401(k) plan grows tax-deferred).

Head StartSocial Security DisabilitySocial Security Retirement and Survivors BenefitsSupplemental Security Income (SSI)MedicaidMedicareWelfare (Temporary Assistance for Needy Families, or T.A.N.F.)G.I. BillVeterans’ benefitsPell GrantsUnemployment InsuranceFood StampsGovernment Subsidized HousingHome Mortgage Interest DeductionHope and Lifetime Learning Tax CreditsChild and Dependent Care Tax Credit529 accounts (qualified tuition programs) or Coverdell education savings account (Education I.R.A.’s)Earned-income tax creditEmployer subsidized health insuranceEmployer subsidized retirement benefitsFederal student loans

In an e-mail, Suzanne Mettler, a professor of government at Cornell, explained a bit more about the two forms of employer benefits (Numbers 19 and 20), saying they “are even more submerged than the other policies in that group, because unlike with the others, people take no actual steps to claim the government benefit. As long as one is acquiring those employer-provided benefits, one simply gets the tax benefit — if the employer put the same money in people’s paychecks, they would have to owe taxes on it.”

I personally have benefited from student loans, the home mortgage deduction and employer health and retirement benefits, and my children have 529 education savings plans. My dad went to college (proudly) on the G.I. Bill. My upbringing was middle class.

Take a look at the list and let us know: How many of these have you received or relied on? Are you poor, working class, middle class, upper middle class, or part of the 1 percent?