Previously, we talked about how America’s middle-class is becoming “extinct” due to debt, unemployment, and the financial crisis. Well, the Obama administration doesn’t want to go down without fighting. Several initiatives have been launched to bring peace of mind back to the middle and even lower-income segment.
These programs won’t actually do much for the unemployed and its contribution to the economy may be negligible. Whatever the case, it may be a beacon of hope for struggling American families who just about had it. Among the programs introduced during the State of the Union address include:
Cap on Student Debt
It is no secret that even professionals in a cushy job are struggling with student loan repayments. Student debt is a big problem because college graduates are burdened with thousands of dollars to be repaid as soon as they step out from school. Statistics suggest that two-thirds of American graduates carry an average student debt of $23,000. Obama’s plan seeks Congress’s approval to limit their monthly payment to 10% of their discretionary income.
Child Care Tax Credit
This type of tax credit is nothing new to the American public. But President Obama is encouraging Congress not only to expand the number of households covered but also to almost double the tax credit of individuals eligible for it. Under the proposal, households with an income of $85,000 or less annually can get 35% credit for their expenses (up from the current 20%). It may be the push that stay-at-home parents have been hoping for. The child care tax credit will encourage them to join the labor market again.
Automatic IRA Deposit
Employers who don’t have a retirement program in place can start individual retirement account for each of their workers. Small businesses and their employees will be the main beneficiary of this initiative. Making it easier to contribute will be a bonus for people who currently don’t have money for retirement.
With millions of Americans traumatized by the dramatic decrease in value of their homes, most are now willing to strip their new abodes of popular features from the yesterdays. For example, home theaters used to be a must-have. But right now, it is discarded in favor of smaller homes that fit changing consumer lifestyle. According to Heather McCune from the Bassenian Lagoni Architects, “The future isn’t something we’re 100% sure about…The answer for most home buyers is authenticity.”
For most American home buyers, this will mean buying smaller homes. Carol Lavender from the Lavender Design Group thinks that large kitchens, old-fashioned bathrooms, and wine grottos will become popular today. “It’s all about family togetherness – casual living, entertainment, and flexible spaces.” In this regard, the must-haves for homes include the following:
With “green” being the byword right now, energy-efficient home is a must. This means that everything from the windows, insulation, and appliances will be scrutinized for the energy they save. The shift in attitude doesn’t mean that home buyers prefer synthetic or recycled materials though because there are good alternatives in the market.
Since most people spend a lot of time in the kitchen, it is almost a given that they would be willing to spend money on this. In fact, the tough times illustrates just how important the kitchen is. It is a place where home owners create, experiment, and have fun. Homes that contain large kitchens with an island can hold its value better than others.
A place where you can think, analyze, and strategize is important for working professionals. So it is no surprise that the office/study area is given preference when a homeowner is asked to choose between a home theater and this area. Some people even opt for a smaller dining room just to have an office/study space.
You might think you’ll do better when you move to a company that pays “higher” but you may be doing yourself no favor. Changing employers frequently makes it very difficult for you to save enough for retirement. Company pension plans today reward highly-paid, long-term employees significantly more than short-tenure workers. Aside from this, job hoppers also have a tendency to cash out 401(k) balances when they need money. They also move in and out of retirement coverage which leads to a smaller balance come retirement.
It should be noted that defined benefits pension take into account your average salary and the length of tenure. Employees will not receive maximum benefit from traditional retirement plan because of this formula. In fact, it is also possible for workers not to receive pension if they do not stay with their employers for at least 5 years.
Importance of 401(k) Plans
Workers who have 401(k) plans may also lose out if they don’t consistently increase their account balance. This is especially true if they don’t put assets in certain savings or investment vehicle. If they fail to tap into this source of supplemental income, they might be forced to work beyond retirement age just to sustain their living expenses.
It should be noted that certain 401(k) plans charge lower fees and provide better options for investors. Employees need to be aware that the formulas differ from one company to another. Short-term workers usually don’t get a match. According to Profit Sharing/40k Council of America, a mere 37 percent of 401(k) plans provides immediate vesting (as of 2008). Meanwhile, some plans require workers to remain with the same employer for a specified number of years before they can keep the match. It is disturbing to see that if you leave the employer before this match is vested completely, it is possible to forfeit all your employer’s contribution.
Citigroup was the hardest hit among the biggest US banks after it reported a loss of $7.6 billion in the fourth quarter of 2009. The losses can mainly be attributed to the cost of repaying $20 billion worth of government bailout as well as failed loans. Despite the significant losses, Citigroup plans to give its top executives large bonuses.
Citigroup’s Diminished Stature
The report released on Tuesday reveals what analysts’ suspected all along. It also highlights the banks’ struggles as well as its diminished stature in the banking sector. Along with other big lenders, the bank was also forced to set aside $8.18 billion as coverage for the loans their clients can’t repay. Unlike its major competitors though, Citigroup no longer has enough buffer against losses because it has shed its brokerage and investment banking unit during the crisis.
Right now, the company has no choice but to concentrate on loans which isn’t a large money-maker due to the uncertainty today. While worrying, John Gerspach, the bank’s chief financial officer, said that credit card loans and mortgage loans that are delinquent are starting to stabilize. This provides a lot of hope for the company. Gerspach added that “the US credit store is still very much developing.”
However, an analysis by Alois Pirker from Aite Group said that Citigroup is in a “higher risk position” because it is trying to compete with other big banks its size without its investment banking unit or trading operations.
JPMorgan Chase and Others Still Cautious
Citigroup’s report contrasts sharply with JPMorgan Chase & Co when it reported an earning of $3.28 billion during the same quarter. This growth can be attributed to its investment banking unit. JPMorgan also reported that it has set aside $7.28 billion as coverage for failed loans. Company executives added that it is unsure whether it will be able to stop adding to this reserve.