5 mistakes Americans are making with their money

5 mistakes Americans are making with their money

Americans have a long way to go when it comes to understanding and managing money.  Americans across the country are struggling to stick with basic and healthy financial habits, such as saving, reducing debt or paying their bills on time. John Pelletier, director of the financial literacy center at Champlain College, said that even the highest rated states likely have some room for improvement. Here are some of the key areas in which Americans may be making some costly mistakes when it comes to money:   The best approach to keeping your credit card debt in check is to pay the card off in full each month in order to avoid interest charges. If you can’t afford to do that, keeping the balance to below 30 percent of the total available credit can still give lenders the impression that you’re a responsible borrower.     It doesn’t help that many workers are not saving enough as it is. Some 54 percent of workers have less than $25,000 saved for retirement, according to the Employee Benefit Research Institute. About a quarter of workers have less than $1,000 saved. Once those savings run out, retirees will probably be left to rely on Social Security benefits, which may not bring in enough income for many households, Pelletier said.

Michelle Singletary: Financial decisions can have long-lasting effects

When it comes to your money, what you decide today can affect your finances for years to come. And yet many people don’t decide anything. In a survey that looked at household savings, only about half of Americans admitted they had good savings habits, according to America Saves, managed by the Consumer Federation of America, and the American Savings Education Council, managed by Employee Benefit Research Institute. In another study conducted by the National Foundation for Credit Counseling, 64 percent of Americans said they didn’t have enough savings to cover a $1,000 unplanned expense. To raise the money, 17 percent of respondents said they would have to borrow it from friends or family. Another 17 percent said they would skip paying another bill to cover the expense. Recently, Washington Post Live brought together a panel of experts to discuss “Kitchen Table Economics.” The advice was useful: Save for emergencies, cut your debt, invest for retirement, shop smarter. But one expert hit on something I’ve been concerned about for years. “There is a vein of research that suggests, well, people don’t make very good decisions,” said Nick Bourke, director of the Safe Small-Dollar Loans Research Project for the Pew Charitable Trusts. “They’re not optimal financial decision-makers.” In making big and even small financial decisions, they fail to weigh all the choices and consequences. Many people would rather have $100 today than $150 a year from now, Bourke said. “Everybody makes mistakes,” he said. “Everybody is a non-optimal financial decision-maker at one point or another, predictably, systematically.” Using himself as an example, Bourke said he recently spent too much eating out on his credit card. But he could recover from that mistake because he has savings. Many people don’t have the money to withstand the consequences and shocks of a bad decision, he said. I regularly work with people who are trying to recover from financial disasters brought on by poor decision-making. I once had a person tell me she decided to buy a car on her lunch break. She was tired of her clunker. She hadn’t done any planning or research. The purchase was not optimal. She couldn’t afford the payments. One young woman quit her job and decided to withdraw her 401(k) money. She didn’t fully understand the penalties of the early withdrawal. She was shocked when the IRS sent her a tax bill for several thousand dollars. One of the keys to a better financial life and security is to become better at making decisions. But how does that happen? One step at a time. So let’s go through eight steps to smart money decisions I use for the people I counsel. 1 **Define the decision.** What are you trying to accomplish? State it clearly. 2 **What’s the need or want behind the decision?** Why do you think you have to make this decision now? 3 **What’s non-negotiable?** What things are you not willing to compromise on if you decide to take action on this decision? If you are buying a car and you have a large family, the vehicle has to accommodate at least seven passengers. Or, your commute to work is far and you need a car that gets good gas mileage. 4 **Identify alternatives.** Have you carefully considered all the options? Yes, your older car is increasingly in need of repairs. But if you can plan the repairs so you aren’t stranded, it’s still probably cheaper than buying another car. Is public transportation an option? Do you absolutely need a car? 5 **Assess the various alternatives.** Once you’ve identified them, examine each one carefully. Don’t rule anything out. Often bad decisions are made because you settle on a particular solution before considering your options. 6 **What’s the cost and can you afford it?** Calculate what each alternative would cost. If it’s buying a used or new car, consider everything, including gas mileage, insurance premiums and reliability/repair records for the vehicle you’re thinking about buying. 7 **Take a step back.** Give yourself time to think about the decision. Be patient! If it’s the right decision today, it will be right tomorrow. If the car you wanted has been sold, there will always be another one. 8 **Make a decision.** If you can say with certainty that you have followed the first seven steps, then proceed with confidence knowing you did all you could. Don’t look back with regret. If you apply a systematic way of looking at financial decisions, you can avoid a lot of the bad ones that come back to haunt you. Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@   washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

Three big mistakes Americans keep making with their money

Americans are having a much better time managing their money than they did a few years ago, but it turns out some bad habits are hard to break.     Another bad habit that many people still maintain is making only the minimum payment on their credit cards. Thirty-two percent of respondents said that they did this last year, potentially increasing the amount of interest they would pay on their debt over time. “When you think about behaviors that are better for your finances, you want to reduce the amount of interest you’re paying on revolving credit,” Walsh said. “And you want to lower the overall cost of borrowing by reducing exposure to costly fees.”   As Americans recovered from the recession, many landed jobs with stable income. But despite the added financial security, Americans are still making one common error when it comes to their money — they spend all of it. “They’re either spending every penny that they make or they’re spending more than they make,” Walsh said. Some 18 percent of consumers said they spent more than what they earned in 2015, down only slightly from 20 percent in 2009. The percentage of people who spent less than what they earned, meaning they had cash left over to save, declined slightly to 40 percent in 2015 from 42 percent in 2009. That shows that even though consumers are overall more likely to have jobs and are less worried about falling behind on bills, they don’t feel much more of an urgency to set their extra money aside, Walsh said. But overall, people are having a better time making ends meet. The share of people who faced unexpected drops in income fell to 22 percent in 2015 from 40 percent in 2009. And the portion of consumers who said they had no trouble paying their bills rose to 48 percent from 36 percent.  Only 39 percent of people surveyed said they had done the math on how much money they will need in retirement, basically unchanged from the 37 percent who said so in 2009. The share of people who have a retirement account also hadn’t changed much since 2009, although it did rebound from a dip in 2012 — potentially a sign that some people who lost their jobs during the recession regained access to accounts after landing new positions, Walsh said. The lack of progress on the retirement front shows that many people are still struggling to save for long-term goals, she said. Instead, they are focusing on more immediate needs such as saving for emergencies, vacations or their children’s college education. Indeed, the share of people with an emergency fund that could cover at least three months’ worth of expenses grew to 46 percent in 2015 from 35 percent in 2009. And the share of people who said they were saving for college grew to 41 percent in 2015 from 31 percent in 2009. The report, which highlighted various shifts in the ways consumers manage their money, can offer people a sense of where they stand financially when compared to others around the country. And for those looking for financial goals after feeling better about their jobs, the findings might offer some ideas for habits they may finally want to kick.

Why investors need to change their behavior

I often hear people say they can’t stomach investing anymore. And I understand. They’re scared about losing their money. But in my experience, contributing to the poor returns some investors receive are the bad decisions they made because they panicked, because they were greedy or because they didn’t investigate their investment choice. “I am more convinced than ever that all investment mistakes are really investor mistakes,” writes Carl Richards, a certified financial planner and founder of Prasada Capital Management, a portfolio design firm. Before you jump on Richards for blaming investors, especially given the many transgressions of financial professionals and the industry as a whole, hear him out. I did, and it’s why I’ve picked Richards’ newly released book, “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money” (Portfolio, $24.95), for my first Color of Money Book Club selection for 2012. “When you invest, you’re making a choice,” Richards writes. “That’s the part we often forget. At some point, we said yes to the investment. We had control over everything leading up to that point. We decided which (if any) questions to ask about the investment. We decided whom to ask. We decided how much to invest and when to invest.” But when the investment doesn’t do well, people want someone else to blame. “We blame the guy who sold it to us, the rogue investment bankers who wrecked the economy, out-of-control government spending, lies in the media, bad weather in Brazil . . . just about any scapegoat will do,” Richards says. Richards argues that investors should embrace two words: personal responsibility. “We can’t blame the investment for our decisions,” he says. “At some point, we must accept responsibility. Otherwise we’ll keep making the same mistake. And in that case, we might as well give up trying to invest, put all our savings in fixed-rate bank CDs, and go enjoy our lives.” Richards, who blogs for the New York Times, often uses a cocktail napkin to illustrate investors’ irrational behavior. He uses the napkins to explain how emotions play a huge part in the financial decisions we make. As an example, one napkin included in the book shows two circles. On one circle, he wrote, “Investing based on past performance.” On the second: “Driving while looking in the rearview mirror.” And under both, he said: “Causes a lot of accidents.” Richards is trying to help investors become better decision-makers so they won’t panic when with the markets do. He says: • Stop chasing fantasies. It’s highly unlikely that you’ll find the next great stock that will make you a multimillionaire. “We are not going to get what we want by beating the market or picking the perfect investment or designing the perfect bulletproof financial plan,” Richards writes. “In fact, when we try to do those things we get into big trouble.” • Accept that risk is part of investing. “Our assumptions about the future are almost always wrong,” he says. “We can never think of everything, but we can take sensible steps to protect ourselves from life’s inevitable surprises.” • Rely on your life plan and not on a financial plan. “The notion that plans are worthless probably sounds funny coming from a guy who makes a living as a financial planner,” Richards says. “But it feels really good to say it in public. A plan assumes you know what’s going to happen — even though you don’t.” However, the process of financial planning is vital, he contends. It requires you to chart a course headed in the direction you want to go. • Know what you really want. I love this point. “When someone asks you what you really want out of life, you’re probably not going to say you want an investment that delivers good returns. Your financial decisions should align with what you know about yourself and the world.” “I’ve seen firsthand the damage investors inflict on themselves by chasing hot investments,” Richards writes. “Slow and steady capital knows that the goal of investing is to accumulate the capital you need to fund your most important goals. Slow and steady capital is short-term boring. But it’s long-term exciting.” What Richards offers is common-sense investment advice that has become far too uncommon. I’ll be hosting a live online discussion about “The Behavior Gap” at noon Eastern on Feb. 2 at washingtonpost.com/conversations. Richards will be joining me to answer your questions. Every month, I randomly select readers to receive a copy of the featured book, which is donated by the publisher. For a chance to win a copy of Richards’ book, send an e-mail to _colorofmoney@washpost.com_ with your name and address. Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Or e-mail singletarym@washpost.com. Personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.

The 2015 mea culpa list

I am sometimes wrong; on occasion, spectacularly so. One of my biggest complaints about the finance industry and the media that cover it is the lack of accountability for errors. Since I spend so much time debunking the foolishness of others, it’s only fair that I hold myself to the same standards of eloquence and accuracy. Hence, the annual mea culpa list. While some folks find it hard to admit error, I expect to make mistakes. In fact, I even look forward to them. We learn far more from losing than we do from winning. It helps when mistakes are kept small, manageable and repairable. An error severe enough to send you into bankruptcy may have lessons others may benefit from, while the person who is wiped out may learn too little too late. Various companies — think Turing Pharmaceuticals, Valeant or Theranos — seem to have missed the lesson on not becoming a textbook case study in mistakes or erroneous decision-making. An error related to investing, economic analysis or financial matters should be viewed as an opportunity to gain or improve skills, increase understanding and develop hard-won experience. It may be an old quip, but it’s true: “Good decisions come from experience, and experience comes from bad decisions.” New mistakes show you are expanding your skill set, experimenting — dare I say innovating? — and taking what are, hopefully, prudent risks. Anytime someone tries to assess (or even describe) a complex system such as finance or economics, mistakes and misjudgments will happen. Rather than ignoring them, learn from them — if only to avoid repeating the same costly mistake. Here is my list of 2015’s mistakes: **Refi soon!** Last year about this time, with the economy recovering from a terrible run of weather, and employment and gross domestic product ticking higher, I made the following statement: “Low rates are not going to be here forever. If you have any long-term variable debt, most especially a mortgage, now is the time to think about locking in a long-term fixed 15- or 30-year.” “Don’t think of rates as ‘going higher,’ ” I said; think of them as “getting back to normal.” And I repeated it a few times over the year. At the time, rates on the 10-year bond were between 2 and 2.5 percent. Rates stayed range-bound until this year. They broke below 2 percent, briefly touched 1.65 percent, and now are just under 1.8 percent. Rates have followed, from about 4 percent on a 30-year, fixed-rate mortgage to 3.87 percent today — now at 10-month lows. That’s not a huge drop, but it is still lower than where it was when I suggested refinancing your mortgages. If you have a variable-rate mortgage, you might want to think about locking in rates here. Sure, rates can be squeezed even lower, but the risks remain to the upside. (If I am wrong, look here next year for another rate-based mea culpa). **Falling oil prices.** About a year ago, I said about low oil prices, “Look for it to lead to an increase in consumer sentiment and spending, greater corporate hiring and bigger capital expenditures later this year.” So far, about half of that has not come true. Yes, corporate hiring has increased — since then, about 2 million new jobs have been created, nearly all in the private sector. However, we have not seen any increase of note in corporate capital expenditure — meaning investing in research and development or in big capital-intensive projects. Consumer sentiment remains pretty good, but the expected spending that usually goes with buoyant sentiment has been soft. The holiday season was a disappointment. There is evidence that consumers are using the energy windfall to pay down debt and save more — both positives — but those were pleasant and unanticipated surprises. Overall, lower energy prices work to put more cash in the hands of consumers. We have seen that happen since the price of energy began sliding in fall 2014. Historically, more cash in consumers’ pockets has been a good thing. However, it has not translated into significantly increased retail sales. Whether this represents a permanent shift in the consumer-spending dynamic or something else entirely is unknown. **Blood Dimons.** Last September, I made what was easily my most significant “journalistic” error of the year: I threw JPMorgan Chase chief executive Jamie Dimon under the bus for a speech he made. Speaking at an event in Detroit, it appeared that Dimon was shrugging off the effect of income inequality, noting that years ago, “People didn’t have iPhones.” Sounds pretty awful, and I unloaded on him for being so tone deaf. I wrote “Jamie Dimon Reduces Income Inequality” based on published reports of the speech, but I had not read or heard the speech in full. This, as it turned out, was a big mistake. The speech actually discussed a “range of measures to reduce income inequality including skills training, strengthening inner-city schools, structuring a just immigration policy and growing economic markets.” Had I read or heard the entire thing, I would have known that. Instead, I relied on an erroneous third party report. This was a big mistake. And I wrote a correction to match. It was Yom Kippur when Dimon called me, furious at the misquotes, but before he could unload, I apologized to him, told him of the correction, and made it clear this was a one-off. We chatted for 15 minutes or so before he politely moved on. I am hoping this is a new holiday tradition of getting a phone call from JPMorgan’s chief executive, wishing me a Happy Jewish New Year. **Don’t feed the trolls! Twitter battles! Comment wars! Email exchanges!** If you publish on any sort of a regular basis, you will get feedback, good and bad. However, it’s on you to decide how you respond to the haters. I like mixing it up, but occasionally I allow the exchanges to go too far. Not every Tweet deserves a full broadside fusillade; nor does every emailer deserve a 500-word response. There are an infinite number of people who will not agree with you; accept that and move on. Even illogical, biased and rhetorically challenged criticisms do not require a missive in return. I try to follow @taylorswift13’s good advice to “shake it off.” The good news is that I have dramatically stopped my Twitter battles and no longer comment on blogs. Indeed, I hardly ever engage in random Twitter battles. I do occasionally still tweak Chris Christie (@GovChristie) or Kanye West (@kanyewest), but that’s only because they totally deserve it. **Gold at a one-year high.** Speaking of feeding the trolls, last year, I said: “Wrong on gold. Just kidding! Every negative thing I wrote about gold last year was totally right. Every. Single. Word.” Gold was in a defined downtrend. It traded, over the course of 2015, roughly between $1,300 and $1,050. From Jan. 1 to early this month, it exploded upward, from $1,060 to $1,240, an almost 17 percent gain. That is a huge month-and-a-half rally for any asset class. If you were a trader, and you followed my advice, you missed a fantastic rally. (Of course, you missed it from hundreds of dollars lower than where I first started dissing gold, but that’s a different discussion). Those were my major mistakes from 2015. Tune in next year for the 2016 version. Ritholtz is chief executive of Ritholtz Wealth Management. He is the author of “Bailout Nation” and runs a finance blog, The Big Picture. On Twitter: @Ritholtz.

Marco Rubio, like a lot of Americans, is terrible with money

Are his mistakes really that different from that of other people who are struggling to pay off student loans, raise their families and pay their mortgages? Here’s what some of the numbers say.    This is a mistake that financial pros warn about constantly. When Rubio cashed out nearly $70,000 in retirement savings from an IRA last year to buy a new refrigerator and help pay for his children’s private school tuition costs, he likely faced a steep tax bill and set back his retirement readiness. (He has other retirement savings, but he also had other cash on hand, according to reports.) Early retirement withdrawals usually come with a 10 percent penalty and the requirement to pay taxes on the cash that’s taken out. They also puts a dent in retirement income by cutting down on the amount of savings invested that can grow over time. Still, plenty of people dip into retirement savings before they should to pay for more immediate needs like college tuition or to cover the bills after a job loss. About 8 percent of people in their 40s and 10 percent of people in their 50s took early withdrawals from their IRAs in 2013, according to the Employee Benefit Research Institute. Those rates increased as people got closer to retirement age.

Quiz: Test your financial IQ

The latest progress report on how well Americans are handling their money is in. And as it turns out, many consumers are struggling to understand the basics.  The questions “were meant to really not test deep specific knowledge, but to cover a series of questions that people would encounter day to day,” Gerri Walsh, president of the FINRA Investor Education Foundation, said about the financial literacy questions asked in the survey. Overall, consumers understood some of the money topics at hand. Only 14 percent of respondents answered all five questions correctly. Thirty-seven percent answered at least four of the questions correctly, down slightly from 42 percent in 2009. When you look at the topics people were polled on, which include interest rates, inflation, bond prices, mortgages and investment risk, the share of people who answered each question correctly has barely changed over the years. That suggests that even as more people returned to work after the recession and found financial stability, they remained vulnerable to making costly financial mistakes. For consumers using credit cards or taking out other high-interest loans, misunderstanding how interest charges are added to their debt can lead them to end up with a bigger debt load than expected, or extend the amount of time it takes to pay off their balance. Who aced this quiz? Higher earners, or those making more than $75,000 a year, answered more questions correctly on average than people earning less than $75,000 a year. Consumers 55 and older and those with an undergraduate degree or more also had higher scores.

Rich people, surrounded by other rich people, think the U.S. is richer than it really is

These living patterns, though, also have harder-to-see political consequences. They mean, as new psychology research confirms, that the rich and poor have skewed views about each other — and that, as a result, the rich may be less likely to support programs for the poor.  The wealthy, surrounded by other wealthy people, generally believed the U.S. population was wealthier than it actually is. It's easy to imagine why they might make this mistake: If you look around you and see few poor people — on the street, in your child's classroom, at the grocery store — you may think poverty is pretty rare. The communities we see immediately around us, the authors argue, shape our sense of how rich America is. And those perceptions, in turn, can influence how we feel about government policies for the poor. In this study, wealthier people who overestimated the extent of wealth in the U.S. were also more likely to perceive the economy as fair and more likely to oppose redistribution policies.

5 Misconceptions about the financial crisis and its aftermath

It’s hard to believe but it’s been five years since the U.S. financial system’s problems surfaced, and we’re still not even remotely close to being able to feel good about the economy. My admittedly arbitrary start date is June 12, 2007, the day the Wall Street Journal reported that two Bear Stearns hedge funds that owned mortgage securities were in big trouble. At the time, things didn’t seem all that grim — in fact, U.S. stocks hit an all-time high four months later. But in retrospect the travails of the funds, which collapsed within weeks, were a tip-off that a crisis was afoot. Problems kept erupting, efforts to restore calm failed, and we trembled on the brink of a financial abyss in 2008-09. Things have gotten better since then, but still aren’t close to being right. There’s a long way to go before the economy, and people, recover from wounds inflicted by the financial meltdown. The value of homeowners’ equity — most Americans’ biggest single financial asset — is down $4.7 trillion, about 41 percent, since June 2007, according to the Federal Reserve. The U.S. stock market has lost $1.9 trillion of value, by Wilshire Associates’ count. Even worse, we’ve got fewer people working now — 142.3 million — than then (146.1 million), even though the working-age population has grown. So while plenty of folks are doing well and entire industries have recovered, people on average are worse off than they were. Bad stuff. How should you think about the past five years? What can we learn from them? And what can we as a society do to minimize the chances of a recurrence? I’ve been writing about the financial meltdown and its aftermath almost continually since I joined Fortune the month after the symptoms surfaced. Now, five years into the problem, I find myself getting increasingly angry and frustrated watching myth supplant reality about what happened, and seeing fantasy displace common sense when it comes to fixing the problems that got us in this mess. So let’s set the record straight about a few misconceptions. Ready? Here we go. ** 1 The government should have done nothing. ** There’s an idea gaining currency that everything the government did, from the Troubled Assets Relief Program (the now infamous TARP) to the Federal Reserve’s innovative lending programs and rate cutting, just made the problem worse. And that we should have simply let markets do their thing. Wrong! Wrong! Wrong! During the dark days of 2008-09, when giant institutions like Washington Mutual and Wachovia and Lehman Brothers failed and the likes of Citigroup, Bank of America, AIG, GE Capital, Merrill Lynch, Morgan Stanley, Goldman Sachs and huge European banks were near collapse, letting them all go under would have brought on the financial apocalypse. We could well have ended up with a downturn worse than the Great Depression, which was the previous time that failures in the financial system (rather than the Federal Reserve raising rates) begat a U.S. economic slowdown. You want to let big institutions fail? Okay, look at what happened when Lehman was allowed to go under in September 2008. (The Treasury and Fed insist there was no way to save the firm, though I wonder whether they would have devised one had they not gotten tons of grief six months earlier for not letting Bear Stearns collapse.) Lehman’s collapse froze short-term money markets, making normal finance impossible. A run on money-market funds began when the Reserve Primary Fund, an industry pioneer, said it was “breaking the buck” because of losses on Lehman paper. Goldman Sachs and Morgan Stanley were about to fail because hedge funds and other “prime brokerage” customers began yanking their cash in response to prime brokerage assets at Lehman’s London branch being frozen. The federal government (including the Fed) had to front trillions of dollars and guarantee trillions of obligations — a total I calculated last year at more than $14 trillion — to stop the panic. Lehman was a beta test for letting markets take care of problems themselves — and it failed miserably. **2 The government bailed out** **shareholders.** The real beneficiaries of the government bailout of financial institutions weren’t their stockholders — it was their lenders. Shareholders of troubled giant financial institutions that got TARP money and other goodies have suffered severe pain since June 11, 2007, the day before the problem surfaced. Losses exceed 99 percent at Fannie Mae and Freddie Mac and are 97 percent at AIG and 85 percent or more for other stricken institutions taxpayers bailed out. The S&P 500, by contrast, is down only 13 percent. Yes, a 100 percent loss would be appropriate for Citi, Bank of America and AIG, which essentially failed. But their shareholders sure haven’t emerged as winners. It’s patently unfair that lenders to these companies escaped unscathed, as did counterparties to AIG, which were paid with taxpayer money. Why did the government do the right thing at GM and Chrysler, where it forced creditors to take haircuts before financing the companies’ reorganizations, and the wrong thing by bailing out creditors at financial companies? The Treasury contends that whacking financial company creditors would have created more problems than it solved. “In a severe financial crisis,” said a very senior Treasury official whom I agreed not to name, “the primary obligation is to prevent panics and the severe economic damage they cause to the innocent. In those crises, if you hair-cut the creditors of a systemically important institution, it’s like adding accelerant to a burning fire.” One of the prominent dissenters from that approach is Sheila Bair, former chair of the FDIC. Bair says that “there was not a market disruption” when bondholders of Washington Mutual Savings Bank suffered serious losses as the Federal Deposit Insurance Corp. seized WaMu in the biggest bank failure in history. My heart is with Bair. But I can totally understand why the Treasury and Fed acted as they did. The bailing-out-creditors problem has supposedly been solved for future failures, as we’ll see in a bit. But I have my doubts. **3 The Volcker Rule will save us. ** Let’s get one thing straight. Washington is unwilling to change the financial system drastically, the way it was changed in the Great Depression’s aftermath. Rather than shrinking giant financial companies so that they’re no longer too big to fail — a process that Dick Fisher, head of the Dallas Fed, wonderfully likens to stomach-shrinking bariatric surgery — we’re trying to legislate the problems away. Hence a whole raft of new, tough-seeming — but almost incomprehensible — regulations. The major one: the Volcker Rule, which is supposed to let insured banks do securities transactions on behalf of their customers but not speculate for their own accounts. That sounds great. But it won’t work. As I predicted, differentiating between market making and speculating is proving impossible to define in a simple, enforceable way. The first version of the proposed rule ran almost 300 pages. Good luck. Instead of the overhyped Volcker Rule, we need the severely underhyped Hoenig Rule. I’ve named it for Tom Hoenig, former head of the Kansas City Fed and current acting vice chairman of the FDIC. In a marvelous paper presented in May of last year — to my regret, I didn’t read it until this May — Hoenig (pronounced ha-nig) proposes breaking up banks by function, not size. It’s so simple, it’s brilliant. He would eliminate all trading and hedging by banks. If a bank wants to hedge its loan portfolio, it would have to buy a hedge, not make one. “You have to take those high-risk activities out of insured banks, not try to regulate them more,” he told me. He would allow banks to engage in investment-banking activities such as underwriting bonds and stocks — so we’re not talking about a return to the Depression-era Glass-Steagall rules that Congress repealed in 1999. It’s a smart separation of high-risk from low-risk activities. He would also alter rules governing money-market funds and change the way “repurchase” transactions are treated in bankruptcies. Money funds would have to mark their assets to market rather than guarantee holders $1 a share. That requirement, combined with the end of the implied federal support of money fund accounts (which the government guaranteed at the crisis’ peak), would enforce serious discipline on fund managers. The idea is to improve financial transparency and severely limit the “shadow banking system” that allowed the likes of Lehman, Bear Stearns and Citi’s “structured investment vehicle” subsidiaries to pile up money-fund and repo obligations that didn’t show up on their parents’ financial statements. Hoenig is simple. And workable. And would infuriate Wall Street and its fellow travelers. It’s too bad that Tom Hoenig’s imprimatur is nowhere near as valuable in Washington as Volcker’s is. Hoenig would probably fix “too big to fail.” With Volcker, there’s no hope. **4 Taxpayers are off the hook for future failures. ** Dodd-Frank reform legislation passed in 2010 is being touted in Washington as a way to deal with future meltdowns of big financial institutions without risking taxpayer dollars or giving creditors a free pass. It would work like this: The FDIC, using its new powers, would seize so-called systemically important financial institutions — SIFIs — and wipe out their shareholders. It would then convert the SIFIs’ parent company debt to stock in a new SIFI at a severe discount. The new SIFI could then raise short-term cash to fund its operations by borrowing from the Treasury or via Treasury-backed loans. The Treasury would have first claim on everything the new SIFI owns. The Fed would be out of the game. “We want to hold both shareholders and bondholders accountable,” Martin Gruenberg, acting head of the FDIC, told me. “We’ve got the authority we need. Can we maintain stability and hold the company accountable to the marketplace? We’ve tried to develop the capability to do that as an alternative to a bailout.” They’ve tried — but have they succeeded? I have my doubts. The FDIC’s detailed proposals sound great. But like the Volcker Rule, it will turn into a game of financial Whac-A-Mole as SIFIs end-run the rules once they are made final. For instance, it took me about three seconds to realize SIFIs could borrow at the operating-company level rather than at the parent company. (“It may be worthwhile to consider requiring a certain level of debt at the holding company,” Gruenberg said.) There will doubtless be dozens of other ways around the rules. I’m rooting for the FDIC. But my brain tells me that in this game, the financial moles won’t stay whacked. **5 It’s the government’s fault. ** Yes, there were plenty of reckless and immoral borrowers taking out mortgages they knew (or should have known) they couldn’t afford. And yes, you can make a case that the federal government’s zeal to increase homeownership levels was partly responsible for lowering lending standards. But the idea that the government is primarily to blame for this whole mess is delusional. It was the private market — not government programs — that made, packaged, and sold most of these wretched loans without regard to their quality. The packaging, combined with credit default swaps and other esoteric derivatives, spread the contagion throughout the world. That’s why what initially seemed to be a large but containable U.S. mortgage problem touched off a worldwide financial crisis. We’ve had more than enough shrieking and demonizing since this mess erupted in 2007. It’s time that we stopped trying to blame “the other”—be it poor people or rich people or Wall Street or community organizers — for the problems that almost sank the world financial system. It’s time — after five years, it’s well past time — for us to stop pointing fingers at one another, and to fix the excesses that almost sank us. The market sure didn’t work very well. The government regulation solutions, like the Volcker Rule and Dodd-Frank “resolution rules,” aren’t going to work very well. We need common sense, like the Hoenig Rule, and markets (as opposed to a zillion regulators) that can enforce discipline on institutions that will not be too big to be allowed to fail. Those, my friends, are the lessons of the past five years. Let’s hope that at some point we’ll finally learn them. Sloan is Fortune magazine’s senior editor at large. Additional reporting by Doris Burke.

Five responsible things Republicans should say

Nobody should be surprised that President-elect Donald Trump is threatening to throw up tariff barriers, refusing to promise divestment of his business holdings, showing virtually no foreign-policy acumen, putting billionaire cronies in his Cabinet and lashing out against “Saturday Night Live.” If you watched his campaign, you saw that he threatened tariffs, did not set up a blind trust (or release his tax returns), sought out billionaire advisers and attacked late-night comics and the media. Only those who imagined that a 70-year-old megalomaniac would change his stripes after winning the presidency could be stunned to see that the New Trump is the same as the Old Trump.

Five myths about the 47 percent

**1. Forty-seven percent of Americans don’t pay taxes.** The most pernicious misconception about people who don’t pay federal income taxes is that they don’t pay any taxes. That oft-heard claim ignores all the other taxes Americans encounter in their daily lives. Almost two-thirds of the 47 percent work, for example, and their payroll taxes help finance Social Security and Medicare. Accounting for this, the share of households paying no net federal taxes falls to 28 percent. And those aren’t the only other taxes they bear. According to economic research, the corporate income tax discourages domestic investment; that depresses wages, so workers are effectively paying some of the corporate tax. More directly, many households pay federal taxes on gasoline, beer and cigarettes. And then there are state and local sales, property and income taxes — all of which are often less progressive than the federal income tax. Putting all these together, a family of three with an income of $30,000 would owe no federal income tax (in fact, they would get money back). But they could easily pay more than $4,500, or 15 percent of their income, in taxes. **2. Members of the 47 percent will never pay federal income taxes.** Politicians and commentators often talk about those who don’t pay income taxes as though they’re in a special club with lifetime membership. In fact, it’s a highly diverse group, some of whom move in and out from year to year. When they first join the workforce, for example, young people may not earn enough to pay federal income taxes. The same is true for many of the temporarily unemployed, working parents and entrepreneurs whose businesses experience a loss. But most of these people look forward to the day, perhaps in just a year or two, when their incomes will rise and they will join or rejoin the 53 percent of Americans who do pay federal income taxes. The reverse is true for many senior citizens: They may pay no federal income tax in retirement, but most did during their working years. **3. Many high-income people game the system to pay no income tax.** Our jerry-rigged tax code leaves many Americans with a nagging sense that other people are exploiting loopholes to avoid taxes — and the rest of us have to make up the difference. Sadly, there’s an element of truth to that. But gimmickry by high-income taxpayers has essentially nothing to do with who does and doesn’t pay income taxes. Our colleagues at the Tax Policy Center estimate, for example, that households with cash incomes of $200,000 or more account for less than 0.1 percent of the 47 percent. The vast majority of people who pay no federal income tax have low earnings, are elderly or have children at home. They are exempt from the income tax because of features Congress added to the tax code, thanks to bipartisan efforts, to help these groups. For example, Presidents Ronald Reagan and Bill Clinton both favored the earned-income tax credit (EITC), which has helped millions of families stave off poverty. About half of these households don’t pay federal income tax simply because their incomes are low. More than one-fifth are retirees who benefit from tax breaks for seniors, including an exemption for most Social Security benefits. And another one-seventh are working families with children whose income tax liability is eliminated because of the child tax credit, the EITC, or the child and dependent care credit. Together, these three groups of taxpayers account for almost 90 percent of the households that pay no federal income tax. **4. The 47 percent vote Democratic.** In the leaked video that went viral this past week, Romney counts the 47 percent as people who will vote for President Obama “no matter what.” There is no direct way to match people’s tax records and voting habits, so we have only circumstantial evidence on how the 47 percent votes — but they certainly aren’t all shoo-ins for Obama. Let’s take low-income and elderly households, which are particularly likely to pay no federal income taxes. Low-income households do tend to vote Democratic — when they vote. But fewer than half of individuals in households with incomes below $30,000voted in 2008, according to the census, compared with about 60 percent of people with higher incomes. On the other hand, Romney appears to hold a lead over Obama among elderly voters, a group that votes enthusiastically. **5. Tax increases are the only way to bring more of these households onto the tax rolls.** Romney’s comments about the 47 percent raise the question: If too many Americans pay no federal income tax, how should we reduce that number? One strategy would be to cut back on tax benefits. The expansion of the child credit under President George W. Bush in 2001, for example, removed many households from the rolls. Allowing that expansion to expire at year’s end — one factor that could lead to falling off the “fiscal cliff” — would add many back. But few observers and almost no politicians endorse that idea or other changes, such as subjecting more Social Security benefits to taxation, that would have similar effects. But there is another way. The share of households paying no income tax is near record highs not only because of tax policy but also because of the struggling economy. Higher earnings, particularly for low- and moderate-income workers, would move more Americans into the income-tax-paying category. Indeed, projections show that the share of households paying no federal income tax will decline by more than one-fifth in the coming decade because of economic growth and inflation. That drop would be faster and steeper with a stronger, prolonged recovery, which would give more Americans the pleasure of paying federal income taxes. **outlook@washpost.com ** As Mitt Romney recently noted, about 47 percent of U.S. households do not pay federal income taxes. Some see this as evidence of a welfare state run amok. Others think that gimmicks and loopholes let both rich and poor Americans duck their taxes. Let’s correct some misconceptions about about this group, now colloquially called the 47 percent.

President Obama has done what he should have done months ago. On Wednesday, he appointed Richard Cordray as the director of the Consumer Financial Protection Bureau (CFPB). Without missing a beat, Republicans, who have been holding up Cordray’s nomination to head this important consumer agency, criticized the president’s move, reports The Washington Post’s David Nakamura and Felicia Sonmez. Senate Minority Leader Mitch McConnell (R-Ky.) said in a statement that Obama “has arrogantly circumvented the American people” by using his executive power to make a recess appointment. But allowing the Consumer Financial Protection Bureau to continue to operate without a leader was an arrogant political ploy by Republicans, who seem to be protecting financial companies rather than consumers. In appointing Cordray as America’s consumer watchdog, Obama said that the former Ohio attorney general, “is going to be in charge of one thing: looking out for the best interests of American consumers.” As Obama pointed out, the CFPB was created as part of his financial reform act to protect families from the abuses of the financial industry, to make sure that you’ve got all the information you need to make important financial decisions and to ensure that millions of Americans are treated fairly by mortgage brokers, payday lenders and debt collectors. So what do you think? This week’s Color of Money question: What are your thoughts on Obama sidestepping the Senate to appoint Cordray to the CFPB? Send your responses to colorofmoney@washpost.com. Be sure to include your full name, city and state. Put “Consumers Finally Get Their Watchdog” in the subject line. **A 2012 Money Makeover** You’ve decided to make over your financial life for 2012. I get that. I congratulate you. But you may be wondering where to start. The American Institute of Certified Public Accountants has listed the following ways to start getting your financial life in order: -- Plan. Savings don’t happen by accident. Figure out what you want or need for the year, and begin planning to save to get it. I know. The advice sounds super simple. And yet, so many people are in debt because they didn’t save and instead turned to credit to get what they wanted. --Track your spending. For 30 days, track every penny you spend. Write down everything. After the 30 days are up; then look back at your spending and start cutting. Once you know where you are wasting your money, you can develop a better budget. On the Web site for the American Institute of Certified Public Accountants you will find a number of online tools to help you get started, such as an emergency savings calculator. \-- Start small. You aren’t going to be able to get rid of all your debt or save three months of living expenses for your emergency fund in just a few months. Don’t try to do too much, or you will quickly get discouraged. Here’s one of my recent columns in which I give one couple advice on how to pay off their credit card debt. **Moving Financially Forward** And since we are on the topic of new financial beginnings, there is one question I consistently get asked by people seeking financial freedom: “How do I get a handle on all my bills?” The short answer is you’ve got to get organized, or better yet, go electronic. Terry Savage, a personal finance columnist for the Chicago Sun-Times, reviewed several free online Web sites that can help you organize your bill-paying. If you are looking for a system that helps you track your finances, go to Mint.com. Mint.com will notify you when regular bills should be paid, or when you are nearing the maximum that you have budgeted for your expense categories, Savage points out. Another free budgeting system is Manilla.com. To use this service, you will need to set up a Manilla.com account that allows companies to send your payment notices electronically to the secured account that is linked to your checking or savings account. You will be able to pay your bills online and still get all the information you would normally receive with a paper bill. I think it’s a great idea to use any one of the free sites to aid your mission to get your money straight. **Living for Free** Research by LPS Applied Analytics found that many homebuyers going through foreclosure are managing to remain in their homes for free long before they are forced out. Les Christie of CNNMoney reports that delinquent homeowners are prolonging their foreclosures by challenging the bank’s actions, waiting to file paperwork right up until the deadline or requesting that the lender dig up original paperwork. Nationwide, the average time it takes to process a foreclosure -- from the first missed payment to the final foreclosure auction -- has climbed to 674 days from 253 days just four years ago, according to the data. In Florida, it can take up to 1,027 days -- nearly three years. “Most people do everything in their power to maintain these homes,” said David Berenbaum of the National Community Reinvestment Coalition (NCRC), a community activism group, who refutes the claim that homeowners are taking advantage of the system. “They take in relatives, get second jobs and even rent out rooms,” Berenbaum said. “What really needs to be done is for lenders to work harder to find solutions that allow delinquent borrowers who can afford to make reasonable mortgage payments to keep their homes.” **Playing the Money Game** Join me Thursday, Jan. 12, at noon for my live text chat. My guest will Syble Solomon, creator of the card game Money Habitudes. Rather than pick a book for the December Color of Money Book Club, I wrote about Solomon’s cards. Be sure to send your questions early, or read the archives later. **Got Financial Issues?** Starting Jan. 16, I’ll be joining “The Revolution,” a new ABC daytime program premiering that day. I’m the show’s financial contributor, and we are looking for people who want to share their financial stories. This is your opportunity to meet me in person and let me help you with your financial issues. So, if you want help in resolving a money dilemma, send an e-mail to casting@the- revolution.com. The show is looking for couples who are always arguing about money. For example, do you fight about how much to spend on your child’s birthday party, if you can afford to take a vacation or whether you should buy a new car? If you and your honey are fighting over money, send your story to the casting e-mail address and put “Money Disputes” in the subject line. If you have any general financial questions about credit cards, your credit score, debt, savings, retirement planning, insurance or other financial issues that I may cover on the show, send an e-mail with your financial question to casting@the-revolution.com. _Tia Lewis contributed to this e-letter._ __ _You are welcome to e-mail comments and questions tosingletarym@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested. _

Getting into the savings habit

As we get further away from the horrors of the Great Recession, it becomes easier for Americans to fall back into bad financial habits. One of those bad habits was not putting enough into a rainy day fund. Even when money is tight and you are trying to pay off debts, you have to save. To help people understand the importance of savings, many organizations are planning events for America Saves Week, Monday through March 1. The Consumer Federation of America manages America Saves. The slogan for the nationwide effort, which includes Military Saves Week, is “Start Small. Think Big.” It’s appropriate. I know that for many Americans, finding money to save is tough. When experts recommend that you need to save at least six months of living expenses, I see people take a heavy breath. I see in their eyes the impossibility of saving enough to meet that goal. But don’t freak out about the big number. Start small. My grandmother Big Mama used to say, “You can’t have a dollar without a penny.” Small savings over time do add up. To start, aim to save one month’s worth of expenses. Then, as you get extra money, add it to your emergency pot. Bankrate.com takes the pulse of people’s financial health each month through its Financial Security Index. In the latest index, Bankrate.com found that more than a quarter of Americans have more credit card debt than savings. The lack of savings is “a reflection of the stagnant incomes, long-term unemployment and high household expenses,” said Greg McBride, Bankrate.com’s chief financial analyst. During America Saves Week, consumers can follow a daily plan to get started. Here’s how: ● Monday: Make the choice on this day to save and then figure out where you can cut expenses to find the funds to put away. Yes, this means doing a budget. You can’t save if you don’t know where the money is going to come from. So go to  _www.americasaves.org_ and search for “54 Ways to Save Money.” You’ll find tips to save in a number of areas, including on food, insurance, prescription drugs and your cable-TV bill. ● Tuesday: This is the day you decide to finally develop a plan to pay off your debt. I like a system I call the “Debt Dash.” List all your debts, starting with the one with the lowest balance. Target that debt first while making the minimum payments on all the others. I’ve found that if people can quickly pay off a debt — like running a 100-yard dash — it gives them a psychological boost that in turn motivates them to act faster to knock the rest off their list. If you don’t think you can do it yourself, go to _www.debtadvice.   org_ to search for a local nonprofit credit counseling agency to help you come up with a plan. ● Feb. 26: Now that you’ve spent two days figuring out where to cut, it’s time for action. Automatically deposit money from each paycheck into a savings account. Start with $5 if you have to, but try to challenge yourself. Try saving 2 percent to 5 percent of your net pay. ● Feb. 27: Review your retirement savings goals. If you have access to a workplace retirement plan such as a 401(k) but aren’t participating, start saving in it today. If you are already saving for retirement, increase the amount by one or two percentage points. If you can — because you’ve done your budget and made some big cuts — max out your contributions. This is the ultimate rainy day fund. ● Feb. 28: If you’re getting a tax refund, earmark some or all of it for savings. I recently had someone ask me if her $1,200 refund should go toward debt or savings. She said she didn’t have an emergency fund but really wanted to make a dent in her debt. I told her to do both, save and pay down the debt. If you don’t save something and an unplanned expense arises, what are you likely to do? Get further into debt, that’s what. So you need to have some savings. The IRS has made it easy for you to split your refund automatically if you want to put part of it into a savings account. Use IRS Form 8888. ● March 1: At the end of the week, assess your progress. You get Sunday off. But if you procrastinated, use the weekend to take some action. “Financial stability cannot exist without a healthy savings account,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. On the America Saves site, take the pledge to save. You can even get text-message reminders. And share your savings stories with me on Twitter @SingletaryM. Wealth happens when you save. Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.   com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

Robert Samuelson: Volcker, Reagan and history

It’s important to get history right — and economist and New York Times columnist Paul Krugman has gotten it maddeningly wrong. Krugman recently wrote a column arguing that the decline of double-digit inflation in the 1980s was the decade’s big economic event, not the cuts in tax rates usually touted by conservatives. Actually, I agree with Krugman on this. But then he asserted that Ronald Reagan had almost nothing to do with it. That’s historically incorrect. Reagan was crucial. In nearly four decades of column-writing, I can’t recall ever devoting an entire column to rebutting someone else’s. If there were instances, they’re long forgotten. But Krugman’s error is so glaring that it justifies an exception. It’s also a subject about which I know something, having written a book on it: “The Great Inflation and Its Aftermath: The Past and Future of American Affluence.” This column draws from that book. For those too young to remember, here’s background. From 1960 to 1980, inflation — the general rise of retail prices — marched relentlessly upward. It went from 1.4 percent in 1960 to 5.9 percent in 1969 to 13.3 percent in 1979. The higher it rose, the more unpopular it became. People feared that their pay and savings wouldn’t keep pace with prices. Worse, government seemed powerless to defeat it. Presidents deployed complex wage and price controls and guidelines. They didn’t work. The Federal Reserve — custodian of credit policies — veered between easy money and tight money, striving both to subdue inflation and to maintain “full employment” (taken as a 4 percent to 5 percent unemployment rate). It achieved neither. From the late 1960s to the early 1980s, there were four recessions. Inflation became a monster, destabilizing the economy and destroying trust in national leadership. The Gallup Poll routinely asks respondents to select “the most important problem facing the country.” From 1973 to 1981, the “high cost of living” ranked No. 1. People lost faith in the future, as they have now. Krugman’s story is simple. The Fed is “largely independent of the political process” and, under chairman Paul Volcker, “was determined to bring inflation down,” he wrote. “[I]t tightened policy, sending interest rates sky high, with mortgage rates going above 18 percent.” The result was “a severe recession that drove unemployment to double digits but also broke the wage-price spiral.” Indeed. By 1982, the gain in consumer prices had dropped to 3.8 percent. Volcker crushed inflation. Story over? Not really. What Reagan provided was political protection. The Fed’s previous failures to stifle inflation reflected its unwillingness to maintain tight-money policies long enough to purge inflationary psychology. Successive presidents preferred a different approach: the wage-price policies built on the pleasing (but unrealistic) premise that these could quell inflation without jeopardizing full employment. Reagan rejected this futile path. As the gruesome social costs of Volcker’s policies mounted — the monthly unemployment rate would ultimately rise to a post-World War II high of 10.8 percent — Reagan’s approval ratings plunged. In May 1981, they were at 68 percent; by January 1983, 35 percent. Still, he supported the Fed. “I have met with Chairman Volcker several times during the past year,” he said in early 1982. “I have confidence in the announced policies of the Federal Reserve.” This patience enabled Volcker to succeed, though it took about two years of tight money. It’s doubtful that any other plausible presidential candidate, Republican or Democrat, would have been so forbearing. During Volcker’s monetary onslaught, there were many congressional proposals, backed by members of both parties, to curb the Fed’s power, lower interest rates or fire Volcker. If Reagan had endorsed any of them, the Fed would have had to retreat. What Volcker and Reagan accomplished was an economic and political triumph. Economically, ending double-digit inflation set the stage for a quarter-century of near-automatic expansion (indeed, so automatic that it bred the complacency that led to the 2008-2009 financial crisis — but that’s another story). Politically, Reagan and Volcker showed that leaders can take actions that, though initially painful and unpopular, served the country’s long-term interests. But their achievement was a joint venture: If either hadn’t been there, the outcome would have been much different. There was no explicit bargain between them. They had what I’ve called a “compact of conviction.” Volcker later said of Reagan: “Unlike some of his predecessors, he had a strong visceral aversion to inflation.” So did Volcker. Both believed the country could not flourish with high inflation. Both acted on that faith. Volcker needed presidential support, because the Fed’s formal “independence” is highly qualified by political realities. The Fed, Volcker has said, “has got to operate . . . within the range of understanding of the public and the political system.” Reagan widened that range. To exclude him from this narrative is not history. It’s fiction. _Read more fromRobert Samuelson’s archive._ **Read more on this topic:** Bruce Bartlett: Why the GOP should stop invoking Reaganomics Robert J. Samuelson: The real Reagan legacy Michael Gerson: Republicans are stuck in a Reagan time warp

Wary Americans saving more, even as government encourages risk

Americans have poured record amounts of money into savings accounts even though interest rates are at historic lows, new federal data show, a sign that average people may be missing out on a booming stock market and recovering real estate sector. The total amount in those accounts climbed nearly 5 percent to $6.9 trillion in the spring, the highest level recorded since the Federal Reserve launched its regular reports on the flow of money in the economy in 1945. At the same time, other data show that Americans are fleeing the stock market and avoiding the purchase of new homes. The pattern suggests that Americans, wounded by the financial crisis and scared by an uncertain job market, do not want to take any risks with their money — even as the government is encouraging risk-taking. The Fed recently announced an unprecedented plan to pump hundreds of billions of dollars into the financial markets to reduce interest rates, which should have the effect of boosting stock prices and making it cheaper to buy homes. But if consumers remain on the sidelines, it means the policies may benefit only the most well off and secure — and fail to help average Americans or the broader economy. “People have lost their appetite for risk,” said Karen Dynan, co-director of the economic studies program at the Brookings Institution. “They’ve been burned by the stock market. They’ve suffered through capital losses on their homes. And so they’re hunkering down in what they view as the safest place to store money.” Fed Chairman Ben S. Bernanke said most families eventually will feel the effects of the central bank’s policies. “My colleagues and I know that people who rely on investments that pay a fixed interest rate, such as certificates of deposit, are receiving very low returns, a situation that has involved significant hardship for some,” he said in a speech Monday. “Only a strong economy can create . . . sustainably good returns for savers.” Households began squirreling away cash in the midst of the recession. The savings rate, which was at 1 percent in 2005, generally fluctuated between 5 percent and 6 percent during the recent recession. This year it has hovered around 4 percent, still above historical norms. “A lot of families have drained whatever savings they had because of hard times — job losses or low wage growth — and are trying to replenish their reserves,” Dynan said. Nearly half of Americans still do not have enough savings to cover three months of expenses, according to a recent Bankrate.com study. Even those on solid financial footing are wary about the stability of the economy and unwilling to subject themselves to market risks, said Greg McBride, senior financial analyst for Bankrate. They know they need to invest some portion of their income to create wealth but are not shoveling money into the stock market, despite the possibility of higher returns. Some say the wild market swings of the past few years have been too unnerving for average investors, and the recent spate of technical glitches certainly does not help. Others peg the outflow from stocks on shifting investment strategies as cautious Americans turn to bonds. But holding on only to safe bets could prove detrimental to investors in the long run, some analysts say. The rate on the 10-year Treasury bond has been well under 2 percent, and banks typically offer less than 1 percent in interest on savings accounts, not nearly enough to keep up with inflation, let alone build enough wealth for a child’s college education or retirement. “These so-called safe investments like bonds and cash aren’t nearly so safe when you view them through the lens of lost buying power due to inflation,” McBride said. “A lot of people are taking a lot more risk in conservative investments than they realize.” Charles M. Jones, professor of finance and economics at Columbia University, said people are extrapolating too much from the recent past as they make investment decisions. “We’re in a very-low-interest-rate environment, so you have to think every asset class is likely to have low returns for the next few years,” he said. “Stocks have historically outperformed, and they’re going to continue to outperform. Real estate has come to a level where it is similarly attractive.” But who could really blame Americans for their trepidation? Many watched what little wealth they created through homeownership or retirement plans evaporate. That kind of devastation is enough to sour most people on investing, or at least make them more conservative in their choices. A recent survey of investors by money manager BlackRock found that just 11 percent were willing to take on risk in the face of market uncertainty. Nearly half of investors were holding fast to their current portfolio allocations because they were unsure of where to deploy their money. Investors yanked some $5.1 billion alone in the week ending Sept. 19 while plowing around $8 billion into bond funds — days after the Fed announced its stimulus plan, according to the Investment Company Institute, a trade group for the mutual fund industry. Only about 20 percent of Americans invest in stocks, the group’s research shows. Even for those who have the money, investing presents tough choices. Steve Love, an individual investor in Los Angeles, said he prefers real estate over stocks even though banks can be reluctant to lend to small-time players. “With a house, it has a value in that someone has to live in it and I can rent it out for so much money or sell it for so much money,” said Love, 61. “What scares me about the stock market is that you have these little pieces of paper that say I own so many stock, and then you run into an Enron and it turns out to be worthless.” Contributing to 401(k) plans has become the most popular method for Americans to ensure they have sufficient money for retirement. Few Americans are as fortunate as Gene Dettmann, 62, to have both a pension and a 401(k). Still, he credits his investments outside those plans with allowing him to retire from his IT job in west-central Texas seven years ago. Dettmann has interests in 41 companies, including Pepsi and Verizon, that he manages on his own with the help of Web sites such as Motley Fool. He said his investment strategy has encountered hiccups — at one point in the 1980s, he saw a quarter of his stock value wiped out. That experience made him wary of the market for several years. Feathering the nest with individual stocks may not work for everyone — research shows the average American has trouble just managing a 401(k) plan. “Households are generally ill-equipped to make complicated [investment] decisions,” said Anthony Webb, a research economist at the Center for Retirement Research at Boston College. Still, they could be more conscientious by increasing their contributions and staying out of their accounts, he said. Americans leaked money out of their plans through cash-outs, loans and hardship withdrawals in the wake of the economic crisis, according to CRR. And while employees were tapping their accounts, employer contributions were slipping. As a result, the average household approaching retirement had only $120,000 in 401(k) or individual retirement account holdings in 2010, roughly the same as in 2007. That balance translates to about $575 in monthly income. The good news: Fidelity Investments says the average 401(k) balance has grown a cumulative 58 percent since 2009 to $72,800 at the end of June. Workers are funneling more money into their plans, which received a boost from the performance of the stock market. “If you save more and invest wisely early on, there’s every reason to think in the long run things will work out,” Webb said.

Suddenly wealthy, just as quickly broke: Be careful with that windfall

People often think if they just made a little more money — or a lot more money — their financial troubles would go away. It doesn’t happen that way for a lot of folks. “Instead of finding themselves in the lap of luxury, 70 percent of people who come into sudden money are broke within a few years,” writes Ilana Polyak of CNBC about a National Endowment for Financial Education finding. “Many even end up cursing their windfalls.” Why can’t people manage a sudden windfall, whether it’s from a lottery winning, inheritance, lump sum pension or insurance payout? Polyak asked Susan Bradley, founder of the Sudden Money Institute, which, as its name suggests, helps people and the professionals who work with them handle a windfall. According to Bradley, Polyak writes, “people get used to their own level of wealth. Suddenly they don’t have the same limitations they had before, but many don’t realize they still do have limitations.” If you are coming into big money, you have to slow your roll. “Most people want to start spending their money right away, and their list of desires is long,” writes Polyak. “Delaying major life-altering decisions, such as moving or quitting a job, can put the brakes on impulsive behaviors.” If you’ve got a big payday ahead, read the story. And deal with your issues. If you have deep-rooted problems, more money won’t solve them. **Don’t try this at home** I hear from a lot of broke adults. And often they say to me, “I wish my parents had taught me about money.” “Other people have the power to influence children greatly, but parents or primary caregivers are important teachers, and this is also true about money,” writes Sienna Beard for Personal Finance Cheat Sheet. Beard has a great list of the top five bad ways to teach kids about money. Here are two: — Money doesn’t grow on trees so don’t joke and say it does or repeat any of the other little white lies we think are cute. Just don’t lie about money, Beard says. “As kids get older, don’t lie and tell your kids that you don’t have money to buy cookies, or a movie ticket, and then turn around and purchase a new television.” — Stop envying what others have in front of your children. “If they hear you constantly coveting other [people’s] things, they will probably copy that same attitude. They also won’t learn to be content with what they have, even if you tell them that they should be,” Beard writes. **Color of Money question of the week** What money mistakes have you made with your children that you wish you could take back? Send your comments to colorofmoney@washpost.com. Put “Don’t Try this At Home” in the subject line. Please include your full name, city and state. **Your roof may be your top retirement expense** A Wells Fargo/Gallup survey of 1,011 investors who have $10,000 or more in savings and investments, found that nearly half of the investors (46 percent) are worried they will outlive their retirement savings, Nanci Hellmich of USA Today reported recently. So for last week’s Color of Money question I asked: Are you afraid you won’t have enough money saved for retirement? “I paid off my mortgage early in my retirement from federal employment,” wrote **Joan** from Sarasota, Fla. “I was one of the many for whom my standard tax deduction was greater than home loan interest deduction. I own a condo, and it gives me pleasure to not have the expense of the mortgage, to have saved years of interest payments, and, in case I need to move into alternative housing for health reasons, it is good to know I don’t need to worry if I have to sell condo for less than I paid for it.” One 65-year-old reader is worried she will outlive her money. She wrote: “I’m a single, retired high school teacher who had a great job in a private school — great in every respect except money. I have $500,000 in net worth, which includes $110,000 in a house that’s mortgage-free, a 10-year-old car, $5,000 in an emergency account, and the remainder invested. I get $1,200 a month in Social Security and withdraw another $1,500 monthly from my investment account. I also take a lump sum of $3,000 each January to pay my property taxes. I try to live simply, but it’s a constant struggle to know ‘when to hold, when to fold’ in terms of my wants vs. needs. I am taking more than the recommended 4 percent of my invested savings each year, and I worry about that. I also worry about the unexpected catastrophe or another long downturn in the economy. But overall, I live well and happily. My little house is paid off, and that decision and investment has brought great peace of mind to me. I also try to prioritize maintenance and repairs. If I get in a crunch down the road, perhaps in 15 or 20 years, my emergency plan is to take out a reverse mortgage on my house.” Speaking of reverse mortgages. I’ve written about them lately. — Reverse mortgages no fast ticket to retirement easy street — Reverse mortgages must be understood to avoid regrets In last week’s e-letter, I wrote about a Washington Post feature asking what you thought about Social Security, which of course plays a big part in many people’s retirement plans and whether they will outlive their money. “You really hit a nerve with me on the Social Security issue,” wrote **Steve Brodeur** of Boston. “I’m on track to retire in 10 years — wait, I mean 12 years. Well, hopefully in 13 years. I’m both disgusted and terrified about what’s going to happen when the Social Security Trust Fund runs dry. After the past few years of fighting and incompetence in Congress, we can’t expect any action on the Social Security front for years to come. Perhaps by the 2028 elections, there will be a great wailing and gnashing of teeth as the great reckoning draws near. My reaction now is to work as long as I can, because either way — cutting benefits or raising taxes (or both) — I see it coming out of my pocket for the rest of my life.” This comment should give you pause. “My wife and I have $2.5 million in savings (we’re 60), and I’m still worried about having enough,” wrote **Jim** from Indianapolis.. Finally, I like the perspective from **Lloyd Douglas** of Greensboro, N.C. He wrote: “I’m not afraid that I won’t have enough money saved for retirement. Life can throw you curves, so one never really knows. I think the best one can do is take prudent steps along the way and hope for the best.” **Live online chat canceled** My live discussion for today is canceled, but join me next week at noon ET for a chat about your personal finances. If you missed my chat last week here’s the transcript. My guest was Carrie Schwab-Pomerantz, author of “The Charles Schwab Guide to Finances After 50: Answers to Your Most Important Money Questions,” which was the Color of Money Book Club selection for last month. Here’s my review of the book. Stephanie Eldridge contributed to this report. Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C., 20071, or michelle.singletary@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to www.postbusiness.com.

China blames a different bogeyman each time the economy stumbles

I’ve given American politicians a hard time for using China as a scapegoat for all that ails the U.S. economy. But, hey, at least they’re consistent. Chinese officials, who have made a series of increasingly irresponsible economic policy decisions, seem to choose an increasingly improbable scapegoat every week. Now even financial journalists are in the crosshairs. China has experienced an enviable boom these past two decades, fueled by the mass-migration of workers from the countryside to higher-productivity jobs in cities. Per-capita incomes have more than doubled in the past decade alone. But the economic party couldn’t last forever, now that the lowest-hanging fruit has been pretty well picked over. The government has expressed a desire for a “soft landing” as growth slows. Its strategy for getting there, however, has mostly involved blowing new and ever-bigger bubbles. Then, each time one of these (inevitably) bursts, the government blames a different bogeyman. Needless to say, that bogeyman is never, ever poor governance. In April, for example, a huge run-up in stock markets, driven largely by unsophisticated retail investors throwing their life savings and lots of borrowed money into stocks, led to concerns of an equities bubble. Even the government officially acknowledged that the real economy was slowing; virtually nothing could justify an 80-percent run-up in stock market prices over the previous six months. A crash looked imminent. How did officials respond? By refilling the punch bowl. The People’s Daily, the mouthpiece of the Chinese Communist Party, mocked concerns about frothiness. Instead, the publication said that China had entered “just the start of the bull market.” This did not encourage cooler-headed behavior. In subsequent months, after panic set in, the government never took responsibility for pumping irrational-exuberance-with-Chinese-characteristics into the economy. As shares tumbled, state-owned media blamed mysterious “foreign forces,” rather than a long-delayed correction, for “manipulating markets” through “covert channels.” Never mind that capital controls prevent foreigners from having much influence on Chinese markets one way or the other; it was easier to point fingers at an evil foreign conspiracy. The Chinese government then made yet another round of rookie mistakes, by directing state-owned companies and financial institutions to buy up stocks to keep markets from falling further. (The Wall Street Journal even reported that in July, President Xi Jinping issued an executive order that Chinese stock markets must go back up.) This resulted in the government dumping $200 billion into equity markets over the past two months alone. Not surprisingly, that proved unsustainable, and stocks continued to slide. The government got more and more desperate. It let the renminbi depreciate, only to find that the markets wanted the currency to plunge much faster than the government could tolerate. The sharp devaluation caused, among other things, economically illiterate China-bashing from U.S. politicians, as well as fears of capital flight. The government had lost control of the narrative, so it decided to erase the narrative altogether. Chinese newspapers have been ordered not to cover market volatility at all, and to delete past coverage. On the day after the Shanghai Stock Exchange composite index plummeted 8.5 percent, the People’s Daily lacked even a single mention of stock markets within its 24 pages. Baidu, China’s top search engine, censored search results related to the crisis, according to South China Morning Post editor George Chen. Shutting off the spigot of official information did little to reduce panic, especially given the availability of social media. So, in recent days, the Chinese government has been rounding up online “rumor”-mongers, according to Xinhua, a state newswire. Those detained included Wang Xiaolu, a respected journalist from Caijing financial magazine. Wang “confessed” to causing “panic and disorder” by reporting back in July that China’s securities regulator was studying plans for government funds to exit the market (which, you know, it would need to do eventually). In a humiliating televised confession, Wang acknowledged that “I acquired the news from private conversations, which is an abnormal way, and added my personal judgment and subjective views to finish this story” (which, you know, is how journalism usually works). In the United States when someone accurately predicts a downturn or policy change, we practically throw him a ticker-tape parade; in China, they throw him in jail. So there you have it. It wasn’t the government, or foreigner conspirators, or even gravity that led to China’s inevitable equities crash. It was a journalist who made the foolish mistake of doing his job. **To read more on this topic:** The Post’s View: China is in deep economic trouble Robert J. Samuelson: China’s risky money game Fareed Zakaria: China’s growing clout

Barack Obama and the troubles of the American economy

The problem, however, is that Americans don’t compare themselves to the rest of the world. They think about how they are doing relative to: And here we run into Obama’s losing fight against the narrative. There is ample data suggesting that the Obama administration and the Fed did yeoman’s work in rescuing the American economy from the 2008 financial crisis. But there is equally ample data suggesting that the Obama administration has done very little to address the secular changes to the American economy that began way before the current president was ever inaugurated.    It should be stressed that very little of this is the current president’s fault. Just as he inherited the mess of the 2008 financial crisis, he also inherited these structural shifts to the U.S. economy that have been going on for decades. And Obama and his defenders are correct to point out that the system worked in reversing the worst financial crisis in a century. Compared to every other major economy in the world, the U.S. position looks pretty good. In talking about Obama’s legacy, however, it is impossible to ignore the structural forces at work that the financial crisis temporarily obscured. Ironically, the improving U.S. economy allows analysts and Americans to stop thinking about the crisis and start thinking about what remains wrong with the country — and what, if anything, can be done about it all.

The tricky political optics of resisting Donald Trump

Donald Trump is not even president yet and already it’s the end of America as we know it. At least, that is the conclusion one could draw from the reactions to Trump’s post-election hires and meetings and tweets. And to be fair, it’s been somewhat difficult to keep track of the various norms and ethical guidelines that President-elect Trump has violated while he’s busy planning how to make America great again. In no particular order, Trump has:  The combined effect of all of these actions has been to freak out a lot of experts.          The economic parallel to this problem is when someone claims that we are experiencing a financial bubble before it has popped. If the Federal Reserve listens, intervenes and successfully slows down the economy, it receives criticism for causing a downturn without any actual evidence that a bubble existed or would have popped. If the Federal Reserve does nothing and a bubble does pop, everyone recognizes that the warnings were correct — but it’s too late to do anything but clean up the mess. Warn Americans about Trump too early, and most Americans will believe that you are overreacting. Warn Americans about Trump too late, and it’s too late. The challenge to those worried about Trump’s threat to liberal democracy is to figure out the best moment to sound the alarm. I don’t think we can possibly be at that point until after Jan. 20. But what worries me is that I don’t know that for sure.

Investors’ 10 most common mistakes

Whenever there is turmoil in the markets, my phone lights up with calls from journalists, investors and potential clients. They are typically in a panic about the crisis of the moment and are calling for my take on the situation. ¶ In my decades as an investor and analyst on Wall Street, I have learned that panics come and go. They turn out not to be the main cause of investors’ financial setbacks. Rather, what hurts most investors most is a failure to understand the basics of investing. Not grasping the simple mathematical drivers of returns invariably leads to very costly errors. ¶  The best time to make an investment plan is before a crisis, not during it. When the sky turns cloudy, you should follow your plan, including all “exit strategies.” ¶ Consider these 10 points in the context of your own discretionary investments, 401(k)s and IRAs. Identify any errors you are making, and fix them now — before the next storm hits. 1 **High fees are a drag on returns:** Fees are an enormous drag on long-term performance, according to every study that has ever looked at this issue. Typical mutual fund or adviser fees of 2 to 3 percent may not sound like a lot, but compound that over 30 or 40 years, and it adds up to an enormous sum of money. The typical hedge fund fee structure of 2 percent plus 20 percent of the profit is an even bigger drag on returns. Other than a handful of superstar managers (whom you probably don’t have access to), the vast majority of hedge fund managers simply cannot justify their costs. The same is true for most of the retail stockbrokers and for many of the investment advisers on Wall Street. Across all of my managed-asset clients, my goal is to keep fees down to an average of about 1 percent. You should expect to pay a little more for small portfolios and somewhat less for much bigger ones. 2 **Reaching for yield:** There are few mistakes more costly than “chasing yield.” Don’t take my word for it — just ask the folks who loaded up on subprime-mortgage-backed securities for the extra yield how that worked out for them. There are three common ways to chase yield: 1) by buying longer-dated bonds; 2) by buying junkier, riskier paper; or 3) by using leverage, which amplifies your gains but also amplifies your losses. With the 10-year Treasury yielding just 1.6 percent, I see lots of folks trying to capture more income using some combination of the above. Anyone who engages in this sort of ill-advised, risky behavior should understand the risks and what they might mean if and when things go awry. 3 **You (and your behavior) are your own worst enemy:** Your emotional reactions to events are yet another detriment to your results. Do you get excited about hot new companies? Do you love chatting about stocks at cocktail parties? On the other hand, are there times when you cannot bear to even open your monthly statements? Do your investments keep you up at night? If so, you, like most people, are an emotional investor. This typically manifests itself in two ways: by the buying of stocks at the highest valuations as excitement builds near the top of the cycle, and by panicked selling near the lows. You can take steps to protect yourself from, well, yourself. Set up a mad-money account with less than 5 percent of your capital. This will allow you to indulge your inner Jim Cramer. If the investments work out, that’s great. If they turn out to be a debacle, it’s a terrific lesson that should remind you that trading in and out of stocks is not your forte. Be thankful you didn’t lose most of your retirement assets. Your emotions are often the enemy of your financial well-being. Keep them in check! 4 **Mutual funds vs exchange-traded funds:** The average mutual fund charges far more than the average ETF. Whenever possible, I recommend substituting a low-cost ETF over a more expensive mutual fund. The fund industry seems to have figured this out. Some companies have put out ultra-low-cost mutual funds that typically mimic broad indexes. Others have ETF-ified their existing mutual funds, converting some into ETFs. It would not surprise me if nearly half of the existing mutual fund offerings morph into ETFs over the next decade. Even within the ETF universe, there is a wide range of internal fees. These expenses come off the top of your investment performance, so it pays to watch them closely. Reducing your costs is a surefire way to improve long-term results. 5 **Asset allocation matters more than stock picking:** The decisions you make about the mix of your assets have a far greater impact on your success than your stock picking or market timing. This too has been proved repeatedly in academic studies and the real world. If your allocation mix contained too few equities over the past few years, you probably missed out on the 100 percent rally in stocks since March 2009. And if you a lack of bonds in 2008, you had nothing protecting you as markets fell. The world’s greatest stock pickers all got crushed during the 2008 crisis — and a monkey could have thrown a dart at a list of stocks in 2009 and made a ton of money. Stock picking is for fun. Asset allocation is for making money over the long haul. 6 **Passive vs. active management:** Speaking of which: Active fund management — when managers try to outperform their benchmarks through superior stock picking and/or market timing — is exceedingly difficult. It has been shown repeatedly that 80 percent of active managers underperform their benchmarks each year. What’s worse, most active managers typically run higher-fee funds. That combination — high fees plus weak performance — is not a winning long-term strategy. This is why passive index investing is a superior approach for most investors. Your portfolio might be better served by replacing some of the actively managed funds with passive indices. 7 **Not understanding the long cycle:** Societies, economies and markets all move in long — or secular — eras. Sometimes these periods are positive (1946 to 1966 and 1982 to 2000, for example) and are called secular bull markets. Sometimes they are negative (1966 to 1982; 2000 to ?) and are called secular bear markets. Let’s look at the 1982-to-2000 era. The rise of technology — including software, semiconductors, mobile, networking, storage and biotech — drove the broader economy. This led to record-low unemployment, strong wage gains and high corporate profits. As you would imagine, stocks did exceedingly well in this environment. Investors whose asset allocations were equity-heavy did much better than those whose held lots of bonds and cash during that period. Conversely, the cycle that began in 2000 has rewarded bond- and cash-heavy portfolios and has punished more equity-heavy ones. Not understanding this cyclical backdrop is a common error. You should be more equity-oriented during secular bull cycles and more tactical (that is, invested in bonds and cash) during secular bear cycles. Investors should understand the secular backdrop and adjust their allocations accordingly. 8 **Cognitive errors:** Beyond those emotional foibles, many investors suffer from cognitive foibles. These are the errors inherent in your wetware — namely, the way your brain has evolved over the millennia. Suffice it to say that capital-risk decision making was not a big issue on the Serengeti plains. Not getting eaten by lions was. Humans have a number of unfortunate tendencies that get in our way when it comes to investing: We see patterns where none exist. We have difficulty conceptualizing long arcs of time. We selectively perceive what agrees with our preexisting expectations and ignore things that disagree with our existing beliefs. We tend to forget our losers and overemphasize our winners. In short, we simply are not wired for investing. We cannot avoid these built-in shortfalls. But at least if we are aware of them, we might hope to avoid their most pernicious effects. 9 **Confusing past performance with future potential:** We’ve all seen the boilerplate disclaimer that comes with anything investment-related: “Past performance is no guarantee of future results.” Despite its ubiquity, this warning is routinely ignored by investors. Consider this. When Morningstar gives a mutual fund a five-star rating, the fund attracts lots of new investors and fresh dollars. The primary factor in the rating is (can you believe it?) past performance. This despite a Morningstar study that found that five-star funds mostly underperform — my assumption is that it’s a case of a simple reversion to the mean. As it turns out, a fund’s expense ratio is a much better predictor of performance. When making any investment, be sure you are not merely chasing a hot quarter or two. 10 **When paying fees, get what you pay for:** It always surprises me how much money some people are willing to throw at others to manage their financial affairs when it is not necessary. For many people, hiring a pro makes good sense. Let’s say you have a complex financial situation. You may have a complicated tax issue, or perhaps you have a generational wealth transfer coming up. Then sure, it makes lots of sense to employ a professional. Lots of clients are too busy running their own businesses and do not have the time to manage their investments. But many others might be better off simply dollar-cost-averaging into a group of broad indices. Consider what sort of financial planning help you need, and find someone competent to assist you. If your needs are straightforward and simple, you might be able to save the fees and do it yourself. Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture. You can follow him on Twitter: @Ritholtz. For previous Ritholz columns, go to washingtonpost.com/business.

It’s easier to buy an assault weapon than open a bank account. Really.

When our grandchildren read about America in the second decade of the 21st century, they will find much that surprises them. Here is something that astonishes me and will most certainly astonish them: It is far easier to buy an assault rifle than to open a small checking account in the United States.   Why this discrepancy? Yes, financial abuse can happen, but why should we check accounts, unlike assault rifles, when accounts do not kill? The right to be secure in holding one’s money seems as fundamental as the right to carry an assault rifle. I suspect the cost of requiring full background checks and registration for assault-rifle purchasers would be a pittance relative to the costs imposed on the financial system by Know Your Customer rules. Much of what is wrong with our democracy goes back to the role of money in politics. Not so with the assault rifle-bank account paradox.  Wealthy bankers complain with limited success about being overregulated. The vast majority of the members of the National Rifle Association are in the middle class. I cannot explain our society’s choices here. Just as the Salem witch trials are inexplicable to us, our support for assault rifles will be inexplicable to our descendants.

President Obama’s economic mission

Much of President Obama’s second inaugural address focused on money. And, as expected, there were a number of people opining about his economic goals. “In the rich oratory of an inaugural address, President Obama sketched out a vision Monday for addressing the problems that have been afflicting the American economy — not just since the financial crisis and recession but for long before,” wrote Zachary Goldfarb of The Washington Post. “And amid calls to impose discipline on the federal budget, he defended the value of a costly social safety net, describing it as a critical support for Americans willing to “to take the risks that make this country great.” Helaine Olen, contributor to Forbes’ online Web site, wrote that Obama spoke out for the many people whose financial world is turned upside down by no fault of their own. “I’m not sure Barack Obama intended to do that. But he did and I want to thank him for it.” “We recognize that no matter how responsibly we live our lives, any one of us at any time may face a job loss or a sudden illness or a home swept away in a terrible storm,” Obama said. “Don’t get me wrong. Of course, we should all strive to lead the most financially responsible lives we can. But no one – to the best I can determine – is arguing that we should lead lives of reckless monetary abandon, spending like the proverbial drunken sailor on shore leave,” Olen wrote. “However, bad things do happen to even the best savers and investors.” Olen is of author of “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry,” which is this month’s Color of Money Book Club selection. Read the review. **Live Chat Today** ****Join me today at noon ET for my live chat.Send your personal financial questions or tell me your debt-free stories. If you can’t join me live, send your questions in early. **Multitasking Costly Mistakes** In an interview with Julie Morgenstern, a productivity expert and bestselling author of “Time Management from the Inside Out,” Forbes.com contributor Jessica Kleiman asked, is multitasking productive in the workplace? Morgenstern doesn’t think so. “It has been scientifically demonstrated that the brain cannot effectively or efficiently switch between tasks, so you lose time,” Morgenstern said. “It takes four times longer to recognize new things, so you’re not saving time; multitasking actually costs time. You also lose time because you often make mistakes. If you’re multitasking and you send an email and accidentally ‘reply all’ and the person you were talking about is on the email, it’s a big mistake.” Morgenstern says our memory issues are among the symptoms of the multitasking epidemic. So, how can you get a break from having to do five things at once? Here’s what Morgenstern tells Forbes: -- Take a break from electronics. Spend only one to three hours at a time engaged by electronic means so “you can engage in a deeper and different way on problems, studying, writing, thinking, talking, etc.” -- Shut down your e-mail and all screens the first and last hour of the day. This week’s Color of Money Question: What was your most troubling or embarrassing multitasking mistake? Send your responses to colorofmoney@washpost.com. Be sure to include your full name, city and state. Put “Multitasking Costly Mistakes” in the subject line. **2013 Tax Tips** It’s that time of year again: tax season. So, from now until April 15, I will be highlighting tax stories and at times offering tax time tips. I would like to start with a story from Bloomberg that listed 10 tax code loopholes that are pretty peculiar, to say the least. Here are a few highlighted by Karen Fickes and Warren Joseph of Bloomberg: -- Golf cart deduction. In an effort to promote the development of electric cars, golf carts could get you a credit of up to $6,500 in 2009, which could offset more than half the typical cost of some models. Congress changed the law to limit the credit to 10 percent of the cost of the vehicle. -- Big cars. The tax code limits write-offs for expensive vehicles. However, the restriction doesn’t apply to an unloaded vehicle with a gross weight of 6,000 pounds or more. That means you could purchase a large SUV that offers a faster write-off than buying a smaller vehicle. -- A credit for children. To give a boost to the housing market, Congress changed the tax code to add a tax credit for first-time homebuyers. But you couldn’t get the credit if you already owned a home. So, “some taxpayers had their minor children buy homes in order to get the credit,” Bloomberg reported. The loophole was eventually closed. The article about the loopholes was very interesting and provides further proof that we need to simplify the tax code. **Family Financial Fights** If money has managed to divide your family, send me you story and I’ll try to offer some advice on how to mend the money dispute. Send your story to colorofmoney@washpost.com. Be sure to include your full name city and state. Put “Family Financial Fights” in the subject line. **“Lance Armstrong: Why confess now?”** For last week’s Color of Money Question, I asked: “Will you buy into Lance Armstrong’s career recovery by watching the Oprah Winfrey interview or shelling out money to see or read what he has to say?” “I will not bother with a cheat like him,” wrote **Daniel Davis** of Kuala Lumpur, Malaysia. “Really, it’s a waste of time. The man is clearly a calculative person and a person does not change over night. Why should people sympathize with him when evidence clearly shows he is at fault?” **David Lepelstat** of Merrick, N.Y., said he would probably watch highlights of the Armstrong interview. “As far as paying a dime to buy a book or read about him in any other format, that would be a big no,” he said. “Just don’t trust anything that comes out of his mouth.” **Edward Green** of Leesburg, Va., said: “This is yet another stain on American professional athletes that perform in the international arena. If he wants to earn back any credibility, he should have purchased commercial time, every quarter of the Superbowl game, paying for the time out of his own pockets (as a start). The tens of millions he gained in personal endorsement should go to the Live Strong Foundation, which I’m sure will never recover from his unethical actions.” _Tia Lewis contributed to this report._ You are welcome to e-mail comments and questions to colorofmoney@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.

Inequity in retirement saving

In “The retirement crisis that isn’t ” [op-ed, Dec.30], Andrew G. Biggs, by comparing years 1996 and 2015, used a misleading statistic to claim retirement saving by working-age Americans has increased. Most retirement savings are invested in the stock market. If Mr. Biggs had chosen 1999 instead of 1996 for comparison, he would have had an entirely different result because 1999 was near the end of the “dot-com bubble” and 1996 was near the beginning. Also, Mr. Biggs ignored the growing savings gap between income groups in the United States. According to the Federal Reserve, 9 percent of the lowest- income households have a retirement account, and half of middle-income households do, while more than 90 percent of the most well-off households have one. Retirement saving may be rising, but that is little comfort when the growth is going largely to the wealthy. ****Bob Silverstein** , Springfield**

Squirreling away your savings

**** There was a time when the American savings rate was pitifully low. Then the recession hit. People realized they needed a cushion, and they started saving again, pouring $6.9 trillion into savings accounts even though interest rates are at historic lows, according to recent Federal Reserve data. As The Washington Post’sDanielle Douglas reported this week: “The savings rate, which was at 1 percent in 2005, generally fluctuated between 5 percent and 6 percent during the recent recession. This year it has hovered around 4 percent, still above historical norms.” But squirreling your money into low-interest-paying savings accounts could hurt you in the long run. People who are stashing their cash that way are missing out on the highs of the stock market and a recovering real estate sector, experts say. “The rate on the 10-year Treasury bond has been well under 2 percent, and banks typically offer less than 1 percent in interest on savings accounts, not nearly enough to keep up with inflation, let alone build enough wealth for a child’s college education or retirement,” Douglas points out. But, understandably, people don’t have the stomach to take the risk involved in investing. “People have lost their appetite for risk,” says Karen Dynan, co-director of the economic studies program at the Brookings Institution. “They’ve been burned by the stock market. They’ve suffered through capital losses on their homes. And so they’re hunkering down in what they view as the safest place to store money.” Douglas asks a great question: “Who could really blame Americans for their trepidation?” “Many watched what little wealth they created through homeownership or retirement plans evaporate. That kind of devastation is enough to sour most people on investing, or at least make them more conservative in their choices,” she writes. What do you think? This week’s Color of Money question: Are you afraid of the risk in investing? Send your responses to colorofmoney@washpost.com. Be sure to include your full name, city and state. Put “Squirreling Away Your Savings” in the subject line. **Savers vs. Spenders** Although the savings rate is up, there are still plenty of people who are living above their means, How do we know? They are spending more money than they have in their bank accounts, according to a new study from bank research firm Moebs Services. The Moebs report found that in the past year bank account holders were hit with $31.5 billion in overdraft fees, up from $30.8 billion, with a 10 percent rise in the past nine months, reports Stephen Gandel of fortune.com. **Live Chat Today** Join me at noon ET for a live online discussion with Andrea Pomerantz Lustig, author of “How to Look Expensive: A Beauty Editor’s Secrets to Getting Gorgeous without Breaking the Bank.” Lustig’s book was the September Color of Money Book Club pick. Be sure to send your questions in early or read the transcript later. **Beware of Scammers** Distressed homeowners often have a lot to stress about. Not only are they fighting to save their homes from foreclosure but they also have to watch out for scammers who are looking to take what little money they have left. Homeowners around the country facing foreclosure have been the targets of con artists who are using the government’s $25 billion mortgage settlement as a way to scam people, reports Brady Dennis and Danielle Douglas of The Washington Post. In Alabama, struggling homeowners received calls promising them money from the government’s recent mortgage settlement with the big banks, but they had to provide the routing number to their bank accounts. In Illinois, in another scheme people were told they qualified for loan refinancing under the settlement, but only after they paid a hefty upfront fee, Dennis and Douglas report. “Every time there’s a new government program announced — in this case, it’s a very large settlement — scam artists use that as an opportunity to defraud people,” Illinois Attorney General Lisa Madigan said in the article. Madigan said her office has seen an “explosion” in such scams since the bottom fell out of the housing boom in 2006. “As the economy goes, so goes our consumer fraud complaints,” she said. Folks, please be careful out there. You should not pay upfront fees for foreclosure help. And know this: If you are entitled to part of the mortgage settlement, you would not be asked for money to get your money. **Communications Curfew** A recent survey by the Society for Human Resource Management found that one in four companies have created rules to limit after-hours e-mails. For last week’s Color of Money question, I asked: “What do you think of employers encouraging workers to stop sending e-mails after work hours?” Here are some comments. “I’m a working parent, so after-hours communication gives me the flexibility to be a parent during working hours, whether it’s for a parent conference, filed trip, doctor’s appointment, etc.” wrote **Tammy Carpowich** of San Diego. “My employer gets more than a 40-hour work week out of me, and I get the benefit of being able to be part of my child’s life in a way that I couldn’t with a strict 9 a.m. to 5 p.m. schedule. It’s very hectic and I go to bed exhausted every day. But it works better for me than a bright line between work and home. I’m sure my answer would be different if I were a young professional, an empty nester or someone with a different needs for work/life balance.” **Tom Wahl** of Monument, Colo., thinks it is a great idea. “Companies need to stop trying to get blood out of turnips and realize that an employee with a good out-of-office life will be more productive and energetic,” he said. “Also, some employees need to know that they aren’t compelled to take the office home with them.” **Cynthia Jones** of Temple Hills, Md., wrote: “I feel after-hour emails and phone calls should cease and [we should] bring ‘old time’ family values back to the family structure. Kids are pretty much watching out for themselves and not having the chance of communicating with parents, and spouses are neglecting each other, as well.” **Upcoming Events** --On Saturday, Oct. 13, from 10 a.m. – 12 p.m., I will be speaking at Meadows Baptist Church in Maryland. The free workshop, “Personal Finance: Getting Your Finances Back on Track,” is open to the public. The church is located at 6600 Croom Station Rd., Upper Marlboro, Md., 20772. For more information, call (301) 257-4857. \--On Saturday, Oct. 27, I’ll be speaking in Detroit at Triumph Church. My keynote is part of a day of free financial workshops open to the public. The theme for the event, scheduled from 8 a.m. to noon, is “If Money Is The Key, Why Am I Still Locked Out?”. The church is located at 2670 E. Grand Blvd., Detroit, Mich., 48211. The workshops will include information on budgeting, credit management, retirement, saving and investing. There will also be a special youth track for teens ages 14 to. For information and to register, visit the church’s Web site, or call (313) 871-0300 or (313) 874-3724. This is an annual event presented by the Financial Empowerment Ministry of Triumph. _Tia Lewis contributed to this report._ You are welcome to e-mail comments and questions to colorofmoney@washpost.com. Please include your name and hometown; your comments may be used in a future column or newsletter unless otherwise requested.

Surviving the data blame game

The health of our economy relies on people finding and keeping jobs. If there are electronic-record systems that are preventing qualified people from getting hired or staying employed, they need to be fixed. That’s why it’s important to take note of a report from the National Employment Law Project, which estimates that 1.8 million workers every year are subjected to FBI background checks that contain incorrect or incomplete information. “As millions of workers struggle to navigate a still-challenging job market, the FBI must avoid creating wrongful barriers that cause unnecessary job loss and financial harm,” the report’s authors wrote. “The FBI is more than a mere receptacle of information; the imprimatur of the FBI marks the records as authoritative and trustworthy.” Data collection is a fact of life. But when that data is wrong or out of date, it’s often up to the individual to get things straightened out. So when it comes to our electronic records, we can be found guilty until we prove ourselves innocent. In the time it takes to clear our names, it can cost us money, a loan or a job. When credit bureaus are criticized for errors in people’s credit files, they often shift the blame to the creditors for providing them with incomplete or inaccurate information. “No, not my fault,” they say. “We didn’t generate the incorrect information, we just collect it.” Yet they still get paid to pass it along, whether it’s right or wrong. The information in your credit reports is used to create credit scores, which can affect your ability to get a credit card, a home loan, an apartment or even a job. Just recently, a federal jury awarded an Oregon woman more than $18 million after she sued the credit bureau Equifax for failing to correct major errors in her file. A Federal Trade Commission study released earlier this year found that 26 percent of the 1,001 participants surveyed identified at least one potentially material error, such as a late or missed payment. When information was successfully disputed and modified, 13 percent of participants saw a change in their credit scores. The bureaus looked at the positive side of their error rate, that the vast majority of files don’t contain mistakes. However, even small percentages with errors can translate to hundreds of thousands of people affected. About 17 million FBI background checks were conducted for employment and licensing purposes last year, six times the number conducted a decade ago, according to the National Employment Law Project. In 2006, a report by the U.S. attorney general found that the FBI’s Interstate Identification Index system, from which background reports are created, fails to include final disposition information for about 50 percent of its records. Many employers are required by federal, state or local laws to obtain FBI background checks. Access to FBI-maintained criminal history information is governed by a patchwork of state and federal statutes, the AG report said. The checks are processed through state record repositories. The point is to screen out people or evaluate the risk of hiring folks who aren’t suitable to work in certain positions in the interest of protecting employees and the public. Yet, the interests of the job applicants or current employees subjected to background checks that turn out to be flawed need to be protected as well. “Individuals who do have a criminal record want reasonable assurance that the information is accurate and complete, that they have a meaningful opportunity to see the information and correct any inaccuracies, and that the information is used fairly in the screening process and does not unfairly exclude them from employment opportunities when they are otherwise qualified for a position,” the AG report said. The FBI said it works with states to pull the criminal information. But the agency says the states are primarily responsible for ensuring a record is accurate and complete. Enough of the bureaucracy, we are talking about people’s livelihoods here. I agree with the National Employment Law Project that both the states and the FBI should be held accountable for the accuracy of the information. If there is an update on a file, it should be included in whatever information is ultimately given to employers. It’s not enough to say an individual has a right to correct bad information. It’s often too late by then. With so many job applicants, employers will just move on to someone else. Companies and government agencies need to stop passing the buck on this issue. Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

Down go coffee pods

Today, however, things aren't looking quite so rosy for coffee in its most convenient form.  Machines weren't the only thing hurting Keurig's bottom line, though: Its K-cup coffee pods aren't selling like they used to, either. The company said unit sales of its pods fell for a second straight quarter, an ominous sign considering the little guys are responsible for roughly 80 percent of Keurig's sales.   The chart below speaks for itself. But the circumstances that allowed for such impressive growth are changing.  Americans, suddenly finding themselves with fatter wallets, are paying to buy coffee prepared by other people again. It's also possible people haven't taken kindly to the realization that Keurig's coffee pods aren't quite as environmentally friendly as one would hope.   Thus far, that has led to a more than 40 percent drop in Keurig's stock price since its peak in late 2014. But going forward, it could actually prove a blessing for the coffee industry. The rise of coffee pods has caused a financial headache for coffee bean roasters and growers, who help supply the largest market in the world with its fix.  Coffee pods, which are incredibly efficient by comparison, have pushed people to make only what they plan to drink.

Some hidden good news about wealth inequality

The Census Bureau released a report the other day on Americans’ wealth that seemed full of bad news. Middle-class wealth was down, and inequality — the gap between the top and everyone else — was up. Stereotypes seem confirmed. But wait. Buried in the bad news was some astonishing good news: The elderly defied trends and got wealthier. This is a big deal. People save for retirement; it’s the main savings motive for many (possibly most) households. If the elderly are getting wealthier, it suggests that, by their 60s, many Americans have changed their behavior to compensate for earlier undersaving or overspending. The so-called “retirement crisis” looks overblown. The Census report examined Americans’ net worth from 2000 to 2011. Net worth consists of people’s assets (homes, retirement accounts, stocks, bonds) minus their debts. The report’s main findings are undeniably discouraging. They describe a society in which wealth is becoming increasingly stratified along economic, racial and ethnic lines. Consider: From 2000 to 2011, the net worth of the median household — the one precisely in the middle — dropped $5,046, or 6.8 percent. Meanwhile, the median net worth of the richest fifth of Americans rose $61,379, or 10.8 percent. (All these figures are adjusted for inflation and expressed in 2011 “constant” dollars. Note also that report does not deal with annual income.) By the Census study, the wealth gap isn’t just between the top 1 percent and everyone else. Rather, the wealthiest two-fifths are pulling away from the rest: They enjoyed gains in net worth, while the poorest three-fifths did not. Many in the top two-fifths are comfortable but hardly super-rich. In 2011, the median net worth of people in the second fifth was $205,985; the median in the top fifth was $630,754. The growing gap has been attributed to many causes. The financial crisis, it’s said, hit the poor and lower middle class hardest, forcing them to stop saving or to sell assets to cover everyday expenses. Another theory is that the prices of stocks — with ownership concentrated in richer households — have recovered more rapidly than the prices of homes, which dominate middle-class wealth. Or people at the top may have managed their money better. Whatever the causes, the effects are widespread. Wealth gaps expanded between groups and within groups. Take African Americans. The richest 20 percent did exceptionally well. From 2000 to 2011, their net worth rose $88,353 or 63 percent — a gain exceeding the increase for the richest fifth of non-Hispanic whites. But the result was higher inequality: The gap between the wealthiest African Americans and middle-income and poor African Americans grew. At the same time, the gap also grew between blacks and non-Hispanic whites in the middle. Here’s why: From 2000 to 2011, the median net worth of whites stayed the same, while it dropped 40 percent for blacks. In 2000, the median net worth of whites was 10.6 times that of blacks; by 2011, whites’ advantage was 17.5 times greater. Not an uplifting picture. But it’s also incomplete. The elderly — those 65 and older — are the glaring exception to these trends. In contrast with other groups, their wealth rose significantly. The gain in median net worth was 17 percent, from $146,205 to $170,516. Although inequality worsened, the increase was modest. Among the richest fifth of the elderly, net worth increased to $899,608 from $741,210. Only the poorest fifth experienced no increase, and their net worth in 2000 was so low ($1,341) that even a doubling wouldn’t have made much difference. Just what caused this startling generational difference is unclear. As retirement approached, many people may have gotten religion about saving more and spending less. They may have paid down debt — a form of saving — faster than others. Or they may have much more equity in their homes. About four- fifths of the elderly own homes. What’s discouraging is that greater wealth inequality seems heavily age-related. Indeed, the largest drops in net worth occurred among households in their 20s, 30s and early 40s. But it’s also encouraging: They may have time to make up lost ground. _Read more fromRobert Samuelson’s archive._ ****

Why economists can’t forecast

You knew it all along: Economists can’t forecast the economy worth a hoot. And now we have a scholarly study that confirms it. Better yet, the corroboration comes from an impeccable source: the Federal Reserve. The study compared predictions of important economic indicators — unemployment, inflation, interest rates, gross domestic product — with the actual outcomes. There were widespread errors. The study concluded that “considerable uncertainty surrounds all macroeconomic projections.” Just how large were the mistakes? The report, though written mostly in technical jargon, gives a straightforward example: “Suppose . . . the unemployment rate was projected to remain near 5 percent over the next few years, accompanied by 2 percent inflation. Given the size of past errors, we should not be surprised to see the unemployment rate climb to 7 percent or fall to 3 percent. . . . Similarly, it would not be at all surprising to see inflation as high as 3 percent or as low as 1 percent.” These are huge margins of error. Clearly, much economic forecasting is guesswork. Worse, the gap between prediction and reality may be widening. The study — done by David Reifschneider of the Federal Reserve and Peter Tulip of the Reserve Bank of Australia — found that forecasting mistakes had worsened since the 2008-09 financial crisis. An interesting question (which the study did not ask) is whether economic forecasting has improved in the past century. In the 1920s, with no computers, forecasters relied on random statistics: freight car loadings; grain harvests and prices; bank deposits. Today, forecasters employ elaborate computer models that scan dozens of statistical series describing the economy. Yet the predictions seem no better. The implications are profound. If forecasts are inevitably flawed, there are bound to be recessions. Government officials — not only at the Federal Reserve but also in Congress and the White House — are condemned to make mistakes. Their vision of the future is blurred; therefore, their policies may blunder. The same is true of the private sector: Consumers and companies, misreading the future, may act to bring the economy down. They may borrow too much or spend too little. The study compared forecasts from 1996 to 2015 not only from the Fed but also from the Congressional Budget Office, the Blue Chip Economic Indicators and the Survey of Professional Forecasters — these last two representing mainly private economists. Crowd behavior dominated; forecasts bunched together. “Differences in accuracy across forecasters are small,” write Reifschneider and Tulip. Naturally, the further forecasts probed the future, the worse their reliability. The bedrock lesson here is as old as time: The future — not all of it, but much of it — is too complex to be predicted. There are too many moving parts; too much is unknown; people wrongly think the future will resemble the past; they don’t foresee political, economic and technological change. Recent upsets to the economy confirm this ignorance. The biggest was the financial crisis and the Great Recession. But there were others: the fall of long-term interest rates on bonds and mortgages; the unexpectedly slow growth of the economic recovery accompanied by an unexpectedly rapid (and inconsistent) decline in unemployment; and the collapse of productivity. Almost none of this was anticipated. It has been said that the past is a foreign country. So is the future. _Read more fromRobert Samuelson’s archive._ ****

E.J. Dionne Jr.: First, admit the problem

Here’s the mistake made by President Obama and the Democrats that nobody is talking about: They have been too fearful of confronting our country’s three-year obsession with the wrong problem. And here is the tea party’s greatest victory: It has made the wrong problem the center of policymaking. The wrong problem is the deficit. The right problem is sluggish growth and persistent unemployment. The paradox is that the deficit would be less challenging today if we had been less preoccupied with it since the 2010 elections. The deep cuts in government spending since then have slowed the very growth we need to make our way toward fiscal balance. But relief may be on the way. More from political exhaustion than any change of heart, we may be about to take halting steps toward dealing with the issues we should have been grappling with in the first place. The president’s defenders would assert that he has been careful all along to emphasize the need for short-term stimulus to get the economy moving and to insist that deficit reduction was his goal only for the longer run. That’s true enough. But there are the words, and then there is the music. Since a Republican Party driven by tea party thinking managed to make government spending and deficits Washington’s paramount concerns, the administration has backed off aggressive efforts to use government to pump much-needed energy into an economy whose tepid growth since the 2008 implosion has left 11.3 million Americans  out of work. By putting so much effort into negotiating a failed “grand bargain” with House Speaker John Boehner in 2011 and subsequently agreeing to the sharp, across- the-board cuts of the “sequester” to get out of a crisis, Obama contributed to the deficit chorus. Because of the fiscal tightening, our unemployment rate is probably a point higher than it would have been otherwise. We’ve done a heck of a job on the deficit, reducing it from about 10 percent of the economy in 2009 to 4 percent now. We’ve done badly by the jobless. The administration would argue that it did a lot to avoid even more damage. It had to play the political hand dealt it by the 2010 elections while facing the overwhelming consensus among political elites that deficit reduction was urgent. The commission that Obama appointed, led by Erskine Bowles and Alan Simpson, spread this gospel with passion and zeal — even if both acknowledged, usually in much softer tones, that the economy still needed a short-term boost. Of course, there should be no denying that we face fiscal challenges down the road. Over the next three decades or so, the retirement of baby boomers will be expensive. Most of the spending will be in health care expenditures under Medicare and Medicaid. In an environment free from crisis-mongering and hyper- partisanship, passage of the Affordable Care Act could have been seen as a first step toward what ought to be our goal: guaranteeing decent health-care coverage to all Americans, including the elderly, at a cost government can afford. And, by the way, no matter how successful we are at doing this, there is no way around the need for more government revenue as long as large numbers of baby boomers are around. But all this should be the focus of a measured discussion over the next several years, not an excuse for a frenzy of cuts — especially reductions right now that are only dampening the recovery. When the house is still smoldering , you don’t worry about how to cut your heating bill in the coming decades. Here’s the good news. Congress is so sick of political chaos and failed quests for big budget deals that it might actually address the problem right in front of our noses. Rep. Paul Ryan, the House Budget Committee chair, spoke last week of the futility of shooting for a “grand bargain.” This is a positive signal. And Obama now seems intent on pushing back against austerity. “This obsession with cutting for the sake of cutting hasn’t helped our economy grow,” he said on Friday. “It’s held it back.” The most helpful thing Congress can do immediately is to get rid of the sequester cuts. A Congressional Budget Office study conducted at the request of Rep. Chris Van Hollen, the Budget Committee’s ranking Democrat, found that if left in place, the automatic reductions could cost up to 1.6 million jobs next year. Allowing that to happen would be folly — and heartless, too. So let’s douse the flames of slow growth and joblessness first. Government does better when it deals with one crisis at a time. _Read more fromE.J. Dionne’s archive, follow him on Twitter or subscribe to his updates on Facebook._ **Read more about this issue:** Robert J. Samuelson: The shutdown heralds a new economic norm Robert J. Samuelson: The U.S. economy shows sign of strengthening The Post’s View: A welcome break for Congress — and the economy Fred Hiatt: The shutdown of good government E.J. Dionne: The urgency of growth

Income statistics that are discouraging

But consider that today many wives work when their 1960s counterparts did not, and the numbers don’t look as good. Pew omitted that the male median wage has declined slightly in the past 40 years. Moreover, the richest fifth’s median income today is $62,000 greater than the previous generation’s; that’s close to six times greater than the poorest, compared to 4.4 times a generation earlier. By this measure, inequality is 30 percent greater.  The writer was an assistant secretary of labor from 1977 to 1980.

Long-term understanding of the U.S. economic crisis

Four years after the onset of the financial crisis — in March 2008 Bear Stearns was rescued from failure — we still lack a clear understanding of the underlying causes. Hundreds of studies and books have given us an increasingly detailed picture of what happened without conclusively answering why. Conventional wisdom has advanced competing theories: Wall Street types took too many risks, encouraged by lax government regulation; or pro-homeownership policies eroded mortgage-lending standards and created the housing bubble. Actually, both theories are correct — and neither is. It’s true that Wall Street took too many risks while government regulators watched passively; it’s also true that the government’s aggressive promotion of homeownership contributed to real estate speculation. But the fact that these theories are not mutually exclusive suggests that both were consequences of some larger cause. Just so. What ultimately explains the financial crisis and Great Recession is an old-fashioned boom and bust, of which the housing collapse was merely a part. The boom started with the decisive defeat of double-digit inflation in the early 1980s. Consumer price increases dropped from 14 percent in 1980 to 3 percent in 1983. As inflation fell, interest rates gradually followed (from 1982 to 1989, rates on 10-year Treasury bonds fell from 13 percent to 8 percent) when investors realized the decline was lasting. With interest rates falling, stock prices rose (from 1982 to 1989, they nearly tripled), and with a lag, housing prices did too. Consumer spending surged, as Americans skimped on saving and borrowed against swelling home values and stock portfolios. All the good news (low inflation, high employment, rising stock and real estate prices) drove economic growth. Between 1982 and 2007, there were only two mild recessions. When prosperity was jeopardized — by the 1997 Asian financial crisis, the tech crash in 2000, the 9/11 attacks — the Federal Reserve seemed to defuse the threats. The economy seemed less risky. Economists announced the Great Moderation of business cycles. Booms become busts because justifiable confidence becomes foolish optimism. So it was. Believing the world less risky, people took more risks. Investment banks and households increased their debt. Lending standards eroded, because borrowers’ repayment prospects were thought to have improved. Regulators relaxed oversight, because markets seemed more stable and self-correcting. On the fringes, ethical standards frayed; criminality increased. The rest, as they say, is history. Confession: I have written all this before. It is a lonely view. The latest issue of the academic Journal of Economic Literature has two review articles; one summarizes 21 books on the crisis by economists and journalists, and the other analyzes 16 scholarly papers and studies. None — so far as I can tell — suggests this long boom-bust crisis explanation. The only “boom” that matters is the housing boom. There is no sense of history: a recognition that today’s events may ultimately result from events years or decades ago. Among the public, the press and politicians, the disdain for historical explanations is no mystery. The crash was a crime against society; the public wants culprits. The press pursues wrongdoing. It’s a good story. President Obama blames his predecessor’s policies. It’s good politics. A narrative rooted in mass and bipartisan delusion does not serve these purposes. Everyone wants blood. The case of economists is more curious. They presumably crave truth; most aren’t hankering for political appointments. But their blind spot is their self-identity. Modern economists portray their discipline as a “science” that can better manage the economy for growth and stability. In particular, this repudiates the fatalism of the 1920s that, as Sylvia Nasar describes in her book “Grand Pursuit: The Story of Economic Genius,” saw business cycles as unavoidable and, in part, desirable: “Judging by newspaper headlines of the early 1930s, popular wisdom viewed economics through a biblical lens: recessions were the wages of sin. When good times lasted too long, businesses and individuals threw caution to the wind and behaved badly. Recessions . . . occurred when private businesses and households unwound past excesses, wrote off bad investments, and behaved with restraint once again. . . . (Recessions) were regrettable but necessary correctives, like a detox program for a drunk.” The problem for economists is that the crisis has, to some extent, reaffirmed this dour and previously discredited view. Prolonged prosperity from 1983 to 2007 bred bad habits and overconfidence. This does not mean that we know nothing or that we have no tools to combat savage recessions; after all, we did avoid a second Great Depression. But it does mean that one promise of modern economics — to extend economic expansions and shorten slumps — can create the conditions for its own failure. Although the conclusion is obvious, economists ignore it. The most likely reason is that it undermines their self-appointed role as agents of social progress. **Read more from PostOpinions:** Robert J. Samuelson: Japan’s lost decades — and ours? Steve Case: Give entrepreneurs room and they will grow the economy The Post’s View: First rule of economics: Do no harm James Q. Wilson: Angry about inequality? Don’t blame the rich. Barry Ritholtz: What caused the financial crisis? The Big Lie goes viral.

The five money mistakes that are making you poor

How much did you stick to your financial goals this year? Did you manage to sock away any money like you said you would? Were you diligent about paying your bills on time? What are you going to be better about next year? If you’ve been slacking, you might want to get it together. People who follow certain tried and true rules when it comes to their money — who don’t carry debt, who spend less than they make and who pay their bills when they’re due — tend to be better off, according to a study by the Federal Reserve Bank of St. Louis.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Researchers pulled five questions from the Federal Reserve’s Survey of Consumer Finances related to key financial habits. People who did these five things — who saved, paid their bills on time, didn’t carry credit-card debt, had assets they could access easily and kept their debt low — tended to also have more wealth. “It would be too simplistic to say that if you do these five things you will be wealthy,” says William Emmons, an economist with the St. Louis Fed and co-author of the report. “But it increases your odds.” **Related: Consider this for a New Year’s resolution: A financial checkup**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Emmons and his co-author Bryan North, a policy analyst with the St. Louis Fed, analyzed responses for the 38,385 families that took the survey between 1992 and 2013. They scored people based on their financial habits, on a scale from zero to five, and compared those scores with other aspects about their lives, such as their net worth, education and age. The average score was 3. People who scored below that tended to have below-average levels of median net worth. Those who scored above that were likely to have above average wealth.  The findings are summed up in the chart below: People with high scores tended to have a few things in common. Generally, they were older. The trend held true across all groups of race and ethnicity, which may be a sign that people learn better financial habits over time, Emmons said. It could also point to the fact that younger families may have more competing demands on their money, between buying a home, paying for college and starting a family, he adds. **Read More: There’s a way to dramatically lower student debt payments, but hardly anyone uses it**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico The analysis also showed more evidence of a racial wealth gap: Non-Hispanic white and Asian families also had better financial health and wealth than Hispanic and African American families. Of course, it’s difficult to know which came first: Are people financially healthy because they have more wealth? Or are they wealthy because they’re financially healthy? Either way, chances are that sticking to some of these rules will leave you in a better place financially, Emmons said. So how does it look? Are you financially healthy? **Related: Get your finances in shape for the New Year**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico **Try your hand with this adaptation of the St. Louis Fed’s financial health scorecard:**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico

5 tips for millennials who want to buy a house — and keep their avocado toast

Australian millionaire Tim Gurner offered some controversial advice to millennials struggling to save for a home: Give up your avocado toast.  He also said young people should lower their expectations for travel and lifestyle in general. “The expectations of younger people are very, very high,” he said. “They want to eat out every day, they want travel to Europe every year.” The tips were not well received. Some people took to social media to ridicule the idea that they were blowing their down payments on lattes and brunch. Instead, they pointed to some of their bigger — and necessary — bills as their biggest obstacles: Rent. Student loan payments. Health insurance.  Financial experts say young people saving for a home need to think bigger if they really want to see their savings accumulate. Here are some tips experts offer for people trying to save a down payment for a house. (None of them require you to abandon your avocado toast completely, though of course it may be smart to enjoy it in moderation.)

And now, a case of really bad Republican timing

It's generally a bad idea to say something is a failure right after its biggest success.   Ryan's spokesman didn't respond to an email seeking comment.   It's as if Republicans are telling people to jump in a pool that Democrats are worried is shark-infested — and then saying that the real problem is there are too many lifeguards. Republicans say this is all about consumer choice. It's not the government's job, they say, to tell people which financial products they can and cannot buy. Why shouldn't I be able to take out a risky mortgage that I can probably pay back just because my neighbors might not be able to? Well, the answer is that if enough of them don't, as we found out in 2008, it's not just their problem — it's everybody's. And besides, is the freedom to take out a potentially dangerous loan or get bad financial advice really something we should be worrying about? What about the insiders who profit off their info, the bankers who move your money into accounts you didn't ask for, the advisers who steer you into high-fee investments, and the con artists who pump up their penny stocks and then dump them on unsuspecting investors? These people exist. Regulators have caught them. Why should we do less about it? Although they certainly don't intend it, Republicans have become the party that would make financial fraud easier to pull off. And they can't even blame Trump for that.

Managing your retirement nest egg and making it last as long as you do

You’ve scrimped and saved and maximized your retirement savings. Tuition bills are paid in full for the kids (and so far they haven’t come back home). You’re in the homestretch — planning to retire in the next five to 10 years. What could you have possibly forgotten? After saving their entire lives, many people forget to figure out how to turn that retirement nest egg into income that could last the rest of their lives. And trying to do that the wrong way could have huge implications. According to a survey last year by Bankrate.com, 23 percent of Americans said their biggest fear in retirement is running out of money. After 30 or 40 years of saving, it’s tough for people to shift their mind-sets to managing that nest egg and making it last. “People are struggling with the idea of making that mental shift from saving to spending,” says Patrick Meyer, director of wealth management at Unified Trust Co. in Lexington, Ky. You are no longer adding to your savings and investments. “You are subtracting, worrying about inflation, taxes and protecting your money from being overly aggressive when a bear market comes,” he says. “The mind-set is 180 degrees different. “ A key, he says, is to plan the change over a matter of years so that when you finally go into retirement, “it isn’t so much like a light switch — one day I’m saving, and the next I’m spending.” “Doing it right is really important,” says Ken Moraif, senior adviser at Money Matters and author of the book “Buy, Hold and Sell.” “If you do it wrong and retire, the likelihood that you will be able to go back to work and build up what you had is problematic. Seek help, because you have no experience.” Susan Jennings, senior counsel at National Life Group, says this is the first generation of do-it-yourself retirees. “Now you are in charge of your money,” she says. While our parents had pensions that provided them with lifetime monthly income, 401(k) plans have changed the way we invest. Jennings says many people of modest income think Social Security will cover a lot of their needs. “On average, Social Security only pays 40 percent of your income needs,” she says. Some people can go it alone, but financial advisers say you should get help to come up with an income plan. “People who have pension benefits, whether they are active or frozen, would have a different income strategy than others,” says Marina Edwards, senior retirement consultant with Willis Towers Watson in Chicago. “If I’m able to take my pension, it will pay me a lifetime annuity till I die. If you don’t, you have to figure out how to annuitize some of your account balance.” Scott Puritz, managing director of Rebalance IRA in Bethesda, says people lack not only a strategy on the income side but also an investment strategy to meet those income goals. “We recommend to our clients that they think about their minimum needs,” he says. “Clearly, people should do family budgeting. How much are we spending now and how do we envision budgeting our financial needs going forward, including all our anticipated revenue streams, Social Security, pensions and other retirement investment pots?” Then you must figure out what income you need. That’s when you can figure out your withdrawal rate — what percentage of your savings you can take out each year. Historically, planners have suggested 4 percent to make sure you don’t outlive your money. That means if you have saved $500,000, you can safely withdraw $20,000 a year. Keep in mind it’s not a hard-and-fast rule, and some financial advisers balk at setting any general rate. You must also make sure your portfolio is diversified. “Some money should be in conservative investments,” Jennings says. And a tax strategy must be a part of any income strategy. Withdrawals from your 401(k) and IRA will be taxable, so that $20,000 may end up being $16,000. Angela Coleman, an adviser at Unified Trust, says people should initially make withdrawals from retirement accounts in this order: after-tax accounts, tax-deferred accounts, tax-deferred annuities and finally Roth IRAs or tax-exempt accounts. “Following this distribution pattern allows retirees to leave their tax-exempt assets until the end, to encourage growth or simply to be available to cover significant, unexpected expenses (i.e. medical bills) without the added burden of paying tax,” she says. And that income plan should consider stock market risk, inflation risk and longevity risk (outliving your money). One way to help with longevity risk is some kind of guaranteed lifetime income stream, such as an annuity. “People need some level of guaranteed income to last the rest of their lives, no matter how long you live,” says Steve Vernon, adviser with the Institutional Retirement Council and research scholar at the Stanford Center on Longevity. “One of the biggest problems with retirement strategy is you don’t know how long you will live. Anybody can live another five years or 20. It will be nice to have some income that will be paid to you as long as you live. That can be Social Security or an annuity.” He says that does not mean you should put all of your money in an annuity — it should just be a part of the portfolio. “The question is, how much?” Edwards says. “If I have $500,000 in a 401(k), who will help me figure out how much I should annuitize? It’s a tricky science. What if you get it wrong? When you pull the trigger to buy an annuity, it is irrevocable. You can’t change your mind and say, ‘I screwed this up,’ and get out of this.” And finally, you will need to carefully watch how much you are spending — especially at the start, Meyer says: “In the first few years of retirement, for a lot of folks, there is a lot of pent-up demand. There are things they’ve been putting off — like travel or new hobbies. Spending too much in the early years can have an impact on the later years.”

Five lessons we can all learn from federal workers who may be facing a furlough

A lot of federal workers are in fear of a furlough. There have been signs that Congress and the president will end up compromising and keep funding the federal government, thereby avoiding a shutdown. Even still, there are lessons to learn from this latest budget skirmish. Ask yourself: How prepared am I for a furlough, layoff or reduction in work hours? I don’t want you to manage your finances out of fright, but you’d be smart to play the what-if game to ensure that if the “what if” happens, you’re as prepared as you can be. I remember well the last shutdown — 16 days in 2013. Many federal workers were sent scrambling because they didn’t have a savings cushion. As many as 850,000 people a day were furloughed. And it’s not just federal employees who may be affected. Work by contractors, essential to federal operations, may be stopped. In the 2013 shutdown, to avoid missing a paycheck, some contract workers had to take vacation days. And unlike federal workers, many of these employees didn’t get back pay. The shutdown “jeopardized both the income stability of hundreds of thousands of federal employees and their ability to focus on important agency missions that citizens rely upon each day,” according to a November 2013 report from the Office of Management and Budget. We can all learn from recent events. Here are five things you can do to position yourself for a disruption in income: **Cut expenses now.** Don’t wait until you’re in the middle of a financial crisis to start controlling your spending. Even if you stay employed or you’re not furloughed, what have you lost by budgeting better? Nothing. Take, for example, credit card debt. As the economy has improved, many people have gone right back to overusing credit. The National Foundation for Credit Counseling recently found an increase in the percentage of U.S. adults carrying monthly credit card debt. **Save something.** Thirty percent of adults have no emergency savings, according to a new survey by NeighborWorks America. Okay, you’ve got bills, and the recommendation of having three to six months of living expenses seems impossible. Then don’t set yourself up for failure. Start with just having enough saved to get you through missing just one paycheck. From there, build up to a larger cash cushion. **Don’t be afraid to talk to your creditors.** Don’t wait until you get behind before you call. Make preemptive contact to strike a deal if you think you might not be able to make a payment. Your creditor may not give you a break, but you’ll never know if you don’t call. **Don’t view your retirement account as an emergency fund.** Perhaps you save in your retirement plan because there’s a company match. And yet you still don’t have a rainy-day fund. You need both. During the 2013 shutdown, 14,000 federal employees took hardship withdrawals from their Thrift Savings Plan. If you have a choice between making your rent or mortgage payment and letting money sit in a retirement account you won’t access for many years, you’re probably going to go for the money. I get that. But before it comes to that — as incentive to save — look at the impact of a withdrawal. Smart401k.com has an “Early Withdrawal Impact Calculator” you should try out. It shows in real dollars the impact of not just a possible 10 percent penalty for early withdrawal but also lost investment returns. **Don’t be a bad borrower.** The NFCC survey asked participants where or how would they get the money if they needed $400 for a financial emergency. Twenty percent said they would have to borrow it from family or friends. I always caution people not to lend money they need back. Make it a gift, not a loan. But if you need the money and the only way to get it is by agreeing to a loan, be upfront and honest about when you can pay it back. If the time frame changes, call and explain the delay. Don’t be trifling and stop taking the person’s calls or get angry if he or she asks for the money back. Be honorable. You never know if you’ll need that person’s help again. You don’t have to be a government employee to prepare yourself for a furlough-like event. Get your financial affairs in order for a time when your paycheck might not come as you planned. Readers may write to Michelle Singletary at The Washington Post, 1301 K St. NW, Washington, D.C. 20071 or michelle.singletary@washpost.com. To read previous Color of Money columns, go to  wapo.st/michelle-singletary .

CEO of JPMorgan: ‘It’s almost embarrassing being an American citizen’

NEW YORK — Since President Trump’s election, Jamie Dimon has emerged as one of Wall Street’s most prominent voices in Washington. The chief executive of JPMorgan Chase serves on the White House business advisory council and is chairman of the powerful Business Roundtable. But in a series of calls on Friday to discuss the big bank’s quarterly profits, Dimon vented his frustration with gridlock in Washington. “It’s almost embarrassing being an American citizen … and listening to the stupid s— we have to deal with in this country,” Dimon said in one conference call. The inability to make headway on significant legislation is “holding us back and it is hurting the average American. It isn’t a Republican issue; it is not a Democratic issue.”  Since the Great Recession, the nation’s economy has been growing at a rate of 1.5 percent to 2 percent despite “stupidity and political gridlock because the American business sector is powerful and strong,” Dimon said. “What I am saying is it will be much stronger growth had we made intelligent decisions and we were not gridlocked.”  Dimon’s criticisms of the ways of Washington came as some of the largest banks in the country — JPMorgan Chase, Wells Fargo and Citigroup — reported larger-than-expected quarterly profits on Friday. The banks said they had received a boost from a slight increase in interest rates.  “Banks are taking advantage of the healthy economy and increasing their lending, and that will improve results in the future,” said Ken Leon, banking industry analyst for CFRA. But banking stocks declined slightly as investors appeared to be disappointed that JPMorgan and Citigroup reported declines in trading revenue. Volatility in U.S. stock and bond markets has been relatively low in recent months, making it more difficult to profit from market swings. JPMorgan also lowered how much it expects to bring in from net interest income, a key indicator of bank profitability, this year. Some investors may also be taking advantage of the jump in bank stock prices after Trump’s election and trying to secure a profit, industry analysts said. Despite a slight dip Friday, JPMorgan and Citigroup stocks are up 6 percent and 12 percent respectively so far this year. Wells Fargo, which is still struggling to repair its image from its fake accounts scandal, is flat in 2017 so far. Trump has promised to loosen regulations on the banking sector that he says became too strict after the 2008 financial crisis. That has raised hopes among big banks that they will have greater flexibility in how they use their money and gain relief from the yearly “stress tests” they must pass to prove they could survive another economic crisis. While the House has passed legislation encompassing many of the industry’s wishes, the Senate has yet to take up the issue, and many banking executives now don’t expect significant action until next year. But the issues facing the United States are bigger than the bank’s quarterly profit reports, Dimon said. “Who cares about fixed-income trading in the last two weeks in June? I mean, seriously?” Dimon noted that he had recently traveled to several countries, including France, Argentina and Israel, and met with the prime ministers of India and China. “It’s amazing to me that every single one of those countries understands that practical policies that promote business and growth is good for the average citizens of those countries for jobs and wages,” he said. “Business doing well is good for the citizens of the country.”  Read more:

The typical American family makes less than it did in 1989

The Census Bureau is out with the annual report on incomes and poverty. And while you might think that after years of stagnant incomes and elevated poverty rates, we would be inured to the depressing facts contained therein, it still somehow has the power to shock. For my money, the most depressing fact about the economy is not the fact that household incomes were basically flat in 2012 (the real median household income was down to $51,017 from $51,100 in 2011, a statistically insignificant change). It wasn't even the fact that 15 percent of the U.S. population was living in poverty, according to the official, flawed definition of the term.    *[WSU]: Wayne State University Nah, the most depressing result comes when you look at the longer view of household incomes in the United States. This chart shows real median household income over the past 25 years; that is, the money earned, in inflation-adjusted dollars, by the family at the exact middle of the income distribution. Headlines about these numbers tend to focus on how we have now experienced a lost decade for the middle-class American family, with incomes back to their late 1990s level. But as the chart shows it's really worse than that. In 1989, the median American household made $51,681 in current dollars (the 2012 number, again, was $51,017). That means that 24 years ago, a middle class American family was making more than the a middle class family was making one year ago. This isn't a lost decade for economic gains for Americans. It is a lost generation.

Why putting off retirement savings until you make more money is a big mistake

People in their 20s have a list of excuses for putting off saving for retirement: Their paychecks are too small. They don’t know how long they’ll stay with a company. Why worry now about something that feels a million years away? But a report from the Employee Benefit Research Institute drives home the point that waiting until you’re older and making more money to start saving for retirement could be a bad call.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico People who start early can get away with saving a tiny portion of their pay and still have a decent chance at having enough money in retirement (in other words, their money won’t run out before they die). But those who put it off need to save dramatically more to catch up. Take a 25-year-old man making $40,000 who hasn’t saved a dime. Putting away just 3 percent of his pay each year, including any employer contribution, until he turns 65 would give him a 50 percent chance of having enough savings in retirement, according to calculations the institute made for The Washington Post. Bump that up to 6.4 percent, and his chances rise to 75 percent. But if that man waits until he’s 40 to start saving for retirement, when he is earning $72,000, he needs to start off contributing 4.1 percent of his pay for that 50/50 chance of having enough money — or take a big step up to 14.5 percent of pay if he wants the 75 percent chance of success. If he puts it off until he’s 50 and making $130,000, he’ll need to start off saving 14.8 percent and more than 25 percent of his pay respectively to have those same chances. _[Retirement mistakes people make at every age]_    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Of course, the more you save, the better off you’ll be in retirement. A recent survey found that people who saved 10 percent of their pay and didn’t cash out early were on track for a comfortable retirement, according to Empower Institute, a research arm of the retirement services provider, Empower Retirement.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Plus, people who start saving early can leverage the power of compound interest over time: If that 25 year old started off saving 14 percent of his paycheck, his chances of having enough money would go up to 90 percent. Ebri projects the share of workers at risk of running out of money based on how much retirees spend on average for housing, food, health care and other costs. The group factored in savings and other forms of retirement income like Social Security benefits. It also assumed that workers saw an average of 4 percent wage growth and that they didn’t cash out their savings. This study looked only at projections for single people, by gender. Because women tend to live longer, they generally needed to save a higher portion of their pay. The idea that retirement savings should start early isn’t a new one. But these numbers show how much more valuable your dollars can be when you’re young and give them plenty of time to be invested and grow. Even if you don’t feel like you don’t have much cash at all, a little can go a long way. **Read More:**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico The five money mistakes that are making you poor    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Millennials aren’t job hopping as much as previous generations. Here’s why that’s bad.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Americans are having more trouble paying off their student debt than their houses    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico

Venezuela should be rich. Instead it’s becoming a failed state.

It's come to this: The country with the largest oil reserves in the world can't afford to brew its own beer, stay in its own time zone, or even have its own people show up to work more than two times a week.         It's a lot easier to come up with a list of things that aren't failing. That's nothing. Venezuela's economy is collapsing, its currency is too, its stores have nothing in them, and it can't keep the lights on or its people safe. The only things the Chavistas are good at is creating scapegoats, creating lines, and creating misery. Call it Maduro's law: Everything that can go wrong, will go wrong when your government makes it.

GAO: 401(k) companies often mislead account holders

Money management firms frequently offer workers misleading and self-serving information about how to handle their retirement savings when they change jobs, according to a Government Accountability Office report to be released Wednesday. Departing workers are often encouraged to roll their accounts into individual retirement accounts, or IRAs, run by the firms that already manage their retirement money, even when it would be best for employees to keep the money in a 401(k), the GAO investigation concluded. Having workers move their money into IRAs typically allows money management companies to harvest bigger fees for handling the retirement money, the report said. “The financial services industry spends substantial time and effort into marketing IRAs that may not be in the best interests of account holders,” said Rep. George Miller (D-Calif.). “This comes as no surprise, since IRAs often come with higher costs when compared to a 401(k).” The GAO had undercover investigators call 30 money management firms posing as workers about to change jobs in an effort to learn how money managers market their services. In seven cases, they were given incorrect information, including that moving their money into an IRA would be “free,” even though workers would incur ongoing fees by opening the accounts. The GAO also reviewed the Web sites of 10 large firms and found that five incorrectly said their IRAs were free. “Saving for retirement is tough enough, so it’s terrible when employees lose hard-earned money to misleading sales pitches, harmful products or just poor investment advice,” said Sen. Bill Nelson (D-Fla.), chairman of the Senate Special Committee on Aging. The GAO report comes amid concern among policymakers about the increasing number of Americans who are unprepared for retirement. Profound changes in the nation’s employee benefit structure and growing calls to trim Social Security and Medicare spending, the mainstays of retirement security, have left workers with a greater burden to prepare for their retirements. But many are not meeting the challenge. About half of employees have no retirement plan at work. And among the private-sector workers who do, only one in five is covered by a pension that guarantees a set amount of income throughout retirement. The others are covered by defined contribution plans such as 401(k)s. But, experts say, workers often do not save enough or they too frequently tap the money for non-retirement purposes. Industry analysts point out that 401(k)s can provide adequate retirement security, provided people save money in them consistently, while minimizing the amount lost to fees. Besides allowing workers to save for retirement, the $3.5 trillion they have in 401(k)s provides a lucrative stream of revenue for fund managers. Money that employees move out of 401(k)s when they change jobs accounts for 90 percent of all new funds flowing into IRAs, the GAO report said. When workers leave a company, they generally have four choices for handling their 401(k)s: leave the money in their former employer’s plan, move it to their new employer’s plan, put it in an IRA, or withdraw it and use it for current expenses. The latter option makes them liable for a tax penalty if the employee is younger than 591 / 2. The GAO said the options are often confusing, making workers vulnerable to any misinformation they receive from the companies handling their accounts. “When Americans call up their 401(k) plan provider looking for advice, they shouldn’t be inundated with marketing materials masquerading as objective, investor education, but that is exactly what is happening to many individuals,” said Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor and Pensions Committee. “Some unscrupulous firms are making a profit by keeping customers in the dark.” Miller, Nelson and Harkin have written a letter to the Labor and Treasury departments calling for uniform disclosure notices to make it easier for account holders to make better-educated decisions. They called for IRA fees to be more clearly stated and for new rules encouraging workers to keep their retirement savings in the 401(k) system rather than IRAs. Rachel McTague, director of media relations for the Investment Company Institute, which represents the mutual fund industry, said plan sponsors typically are forthcoming with account holders. The plans “provide full information about participants’ options when workers separate from the plan — including the option, when available, of maintaining their assets in the plan,” she said.

This 4×6 index card has all the financial advice you’ll ever need

Think managing your finances has to be complicated? Wonkblog contributor (and UC Chicago social scientist) Harold Pollack doesn't. After a talk with personal finance expert Helaine Olen, Pollack managed to write down pretty much everything you need to know on _a 4x6 index card_. And it would probably fit on a 3x5 index card if you really crammed (that last point, for instance, is probably not strictly necessary for managing your money). He explains:    *[WSU]: Wayne State University Pollack's right. Follow these principles and you'll be in much, much, much better shape than most Americans — or most anyone. And all it will cost you is $2.20 for a pack of index cards — and you'll have 99 of them left over.    *[WSU]: Wayne State University It's really hard to be poor (see Pollack's amazing interview on how being poor changes the way people think for more on that). But the lesson here is that once you have an income that you can live off of and save a little bit besides, managing your finances shouldn't be all that hard. The people making it complicated are often trying to make money off of you.    *[WSU]: Wayne State University

Consumer confidence surges — but it’s mostly Democrats who are upbeat

Here's a relatively cheery bit of economic data: Consumer confidence in the United States has risen sharply over the past month. The Conference Board's much-watched index rose to 70.3 in September, up markedly from 61.3 in August. Morgan Stanley offers up a historical chart:  Americans still aren't quite as sanguine as they were during the late 1990s — or even as they were in 2007, just before the financial crisis sent the economy careening. But there's a clear uptick of late. So what's driving this spike? One obvious possibility is that the economy is improving and consumers are feeling upbeat. Another theory is that consumer confidence is a largely useless economic statistic that simply tracks the stock market, which is the indicator that flashes on television most frequently. But a third possibility is that the confidence boom is mainly driven by the election and partisan politics. Check out this chart from Gallup:  Independents have grown slightly more confident about the economy, Republicans have soured a bit. But Democrats are getting downright ebullient. Perhaps they're taking cues from President Obama, who has been emphasizing the country's economic progress over the past four years, whereas Republicans tend to agree with Mitt Romney's assessment that the nation has been struggling. Or perhaps something else is going on. Either way, there's a clear partisan split in Americans' assessment of the overall economy.

Is America a good investment? Join the debate here.

Washington is a mess, with government shutdowns and debt ceiling shenanigans. The rest of the world can’t figure out why we’re doing this to ourselves. Five years after the financial crisis, the economy still hasn’t fully recovered. Median household income is back to 1989 levels, and some scholars argue that the era of rapid economic growth and rising living standards is a thing of the past.    *[WSU]: Wayne State University So should you bet on America? Are the things that ail the American economy passing problems that make it easier to buy into the nation’s future growth at a discount? Or are they more fundamental problems that aren’t going away anytime soon? As Ezra put it, is America a bubble?    *[WSU]: Wayne State University That's the topic of the latest Wonkblog CrowdSourced discussion. Click here, and give us your observations about whether the future for the United States and its financial markets is bright or gloomy. Upvote the comments you find most persuasive. We'll continue the discussion over the coming two weeks, and highlight some of the most interesting responses here on the blog.    *[WSU]: Wayne State University For investors, this is a practical question: How much of your portfolio should be invested in the shares of U.S. companies, and U.S. Treasury bonds, as opposed to overseas investment options. For all of us, it is the core question that will determine whether America’s best days lie ahead. Go to the CrowdSourced discussion here.    *[WSU]: Wayne State University

Yet another measure of American mediocrity: Financial literacy

A comprehensive study carried out by the OECD (pdf) has unearthed yet another lagging indicator for the American education system.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday The study, which examined the results of a financial literacy test that quizzed some 30,000 students in 18 countries around the globe, found that 15-year-olds in the U.S. aren't all that good with money. In fact, they're pretty mediocre with it. America's youth are, according to the results, "not statistically significantly different from the OECD average." The administered test was meant to assess which students could perform basic financial tasks, like, say, calculating the balance on a bank statement, which were capable of understanding more esoteric financial concepts, like, say, the implications of different income-tax brackets, and which were "unable to make even simple decisions about everyday spending.”    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday The bad news is that it's hardly the first measure by which the U.S. has proven unimpressive—Americans have actually performed far worse in other global proficiency studies. The good news is that it could be a lot worse—Colombia's youth, by comparison, are much more confused by money matters.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday

India’s currency is collapsing. Is it Ben Bernanke’s fault?

They have been, through these difficult economic times for the world's richest countries, some ports in the storm: emerging economies that have maintained their rapid growth rates through the global tumult, where the biggest problems have been not growth but inflation and the risks created by "hot money" flowing across the borders. Now the hot money has gone cold. Suddenly, the problem facing India, and other giant emerging economies like Indonesia and Brazil, isn't so much the question of how to deal with gushes of cash crossing their borders, but rather of capital moving out and leaving behind a less valuable currency, higher borrowing costs and higher inflation in its wake. In India, the rupee currency has fallen 15 percent against the dollar since the start of May, with a particularly sharp decline since the start of August. Investors have shed Indian government bonds, driving  the nation's 10-year interest rate up to around 9 percent, from just over 7 percent in May. In Indonesia, interest rates rose by more like half a percent on Monday, to 5.75 percent, and its currency, the rupiah, is off 7.5 percent against the dollar this summer. The question on the lips of economists and market mavens is this: Is it Ben Bernanke's fault? Here's how the story goes: As the Federal Reserve has deployed trillions of newly created dollars to buy bonds, that money has had to go somewhere. With banks not seeing much demand for loans in the United States, the money has instead found its way into the global financial system, and in particular to buy higher-yielding bonds in emerging nations. If you are tired of earning a piddling 2 percent on your U.S. Treasury bonds, a rate pushed low by the fact that the Fed has been buying them, then making 5 percent on your money in Indonesian bonds or 7 percent from Indian bonds looks pretty good, even with the greater risk attached. So a side effect of the Fed's efforts to stimulate the U.S. economy may well have been a gush of money into emerging economies with open capital accounts (which is the big thing that makes China different from the Indias and Indonesias of the world). Now, of course, the Fed is starting to eye an end to its QE policies. It may well begin tapering the pace of new bond purchases less than a month from now, at its September policy meeting. If the economy evolves the way the central bank leaders expect it will, the Fed won't be buying new bonds at all at this time next year. Suddenly, whatever artificial boost that emerging market bonds and currencies have received from Fed policy will fade. Traders appear to be trying to get ahead of that prediction, selling in droves in anticipation of the end of the Fed-spurred inflow of cash. This analysis is widespread in financial markets. On one level, it defies economic theory. The Fed has telegraphed the tapering and eventual end of its QE policies with increasing specificity for months now, so you would expect, in a perfectly rational world, for currency and bond markets to have long ago priced in the plans of Bernanke & Co. The wild thing about the most recent bout of market volatility in the last few weeks is there's been no earth-shattering news about the prospects for the Fed tapering and then ending its bond purchases. Both U.S. economic data and comments out of senior officials have been broadly consistent with where they were a month ago. That's a hint that, while the Fed withdrawal is part of the story, there's more to it than that. Rather, what is happening in emerging markets seems to be a classic tale of how markets can behave irrationally when there is panic in the air. The sell-off in the Indian rupee and Indian bonds leads interest rates up and sparks fear of what it will mean for the price of imported oil and other products in the world's second-most populous nation. That in turn sparks fears of political unrest and/or higher government budget deficits to contain the economic damage, which in turn make the rupee and Indian bonds even less attractive. It is a difficult situation, and no one should envy Raghuram Rajan, India's new central banker. While it's overly simplistic to say "it's the Fed's fault," the whole thing shows that half a decade of monetary interventionism out of Washington really has created some dangerous ripples through the rest of the world.    *[WSU]: Wayne State University

Why Democrats didn’t feel the Bern

Why did Bernie Sanders fail? Sanders continues his campaign after his Super Tuesday losses, but he has no real chance of wresting the Democratic presidential nomination from Hillary Clinton. The socialist insurgent went further than most thought possible, drawing huge crowds, amassing vast sums and forcing Clinton to adopt more populist positions. But the Sanders challenge was doomed by a fatal flaw: Democrats aren’t as unhappy as he needed them to be. It is an article of faith this year that voters are angry. But this shorthand misleads. Certainly, there is real economic anxiety in the United States, but Americans are, overall, quite content: 87 percent of Democrats and 87 percent of Republicans alike said in a Gallup poll in January that they are satisfied in their personal lives. The anger that’s out there is directed at the malfunctioning government in Washington — and this anger is mostly on the Republican side. Americans overall have a dim view of where the country is headed: 36 percent think we’re on the right track, and 60 percent say we’re headed in the wrong direction, in the January Washington Post-ABC News poll. But break that down further and you find that 89 percent of Republicans think we’re on the wrong track. With Democrats, it’s reversed: Only 34 percent say we’re heading the wrong way. Compare that with the same time in the 2008 election cycle, when a two-term Republican president was in office. Back then, Democrats were the most unhappy: only 6 percent said the country was heading in the right direction, while 47 percent of Republicans thought so. The difference is political, not economic. Republicans are more hostile when Democrats are in power, and vice versa. “Everybody says people are angry, but that’s not really the case,” said Frank Newport, the head of Gallup. Americans “are not going through their lives seething and kicking the cat.” The anger “is a very particular anger, and it varies depending on which party is in power,” Newport told me. “People filter a lot through who’s president.” On the Republican side this year, anger at the Obama administration makes Donald Trump’s insurgency possible — just as in 2008, anger at the Bush administration’s Iraq blunder made possible Barack Obama’s challenge to Clinton. Sanders would likely have fared better this year if there were an incumbent Republican administration. But as a protest candidate, he’s campaigning against the existing order — and much of that order is a two-term Democratic president who is very popular among the Democrats Sanders needed to win. If there were more restlessness among Democrats, the Sanders message of economic injustice might have overridden the traditional identity politics that define the Democratic Party — satisfying diverse factions based on gender, race, ethnicity, religion and sexual orientation. But the usual constituency politics, at which Clinton excels, prevailed because Democrats weren’t particularly restless, as demonstrated by their low turnout in primaries. In Gallup’s January survey, 56 percent of Democrats said they were satisfied with the power and size of the federal government vs. only 18 percent of Republicans. (At this same point in the George W. Bush administration, it was flipped: 48 percent of Republicans were satisfied vs. 38 percent of Democrats.) This left Sanders in the position of sparking a “revolution,” as he put it, among a group that isn’t nearly as negative about the government as the overall electorate. And to campaign against the status quo he inevitably had to be critical of Obama — who enjoys the support of more than 85 percent of Democrats and more than 90 percent of African Americans. Sanders called Obama “dead wrong” on trade and “not strong enough” on other issues. He said he would give the country a “course correction” from Obama’s leadership. A blurb he wrote appeared on the cover of a book called “Buyer’s Remorse: How Obama Let Progressives Down.” The Sanders campaign posted a piece by a Sanders adviser arguing that Clinton’s policies were “more of the same” Obama policies, part of a Democratic establishment “addicted to the political contributions from financial high rollers.” Another Sanders surrogate, Cornel West, had famously called Obama a “black puppet of corporate plutocrats.” “You know Hillary Clinton now is trying to embrace the president as closely as she possibly can,” a frustrated Sanders told BET in February. “Everything the president does is wonderful. . . . And we know what that’s about. That’s trying to win support from the African American community where the president is enormously popular.” But Obama isn’t just popular among black Democrats. He’s popular among all Democrats — and contentment with the guy in charge is a weak basis for a revolution. **_Twitter: @Milbank_ ** _Read more fromDana Milbank’s archive, follow him on Twitter or subscribe to his updates on Facebook._ **Read more on this topic:** The Post’s View: Bernie Sanders’s fiction-filled campaign Ruth Marcus: Bernie Sanders’s supporters ignore what we learned from Obama Dana Milbank: Democrats would be insane to nominate Bernie Sanders

Saving money is like cold weather: You can hate it, but you still need to do it

There are a lot of folks tired of the snow and arctic temperatures many areas of the country are experiencing these days. I know I am tired of the bone-chilling cold. And I bet there are also a lot of folks just as tired of financially focused people like myself telling them they aren’t saving enough. So by informing those folks that this week — Feb. 23 to 28 — is America Saves Week, I expect some rolled eyes or sighs. Few people like to be told the obvious, especially when they don’t think they can do anything about it. But with saving — come on, you knew a “but” was coming — just like with cold weather, you can hate it, yet you still have to protect yourself. Think of whatever money you can squirrel away as the mismatched gloves you had to grab during a cold spell just to make sure you had something on your hands. Your emergency fund is the hat that your mother nagged you to put on when it was cold. Your savings is the scarf you should be wrapping around your face to brace against the winds that make you feel as if you’re being slapped. It turns out that more of you are protecting yourself financially. Compared with last year, the annual America Saves Week survey bears this out, said Stephen Brobeck, executive director of the Consumer Federation of America. Survey participants who said they are spending less and saving the difference increased to 71 percent from 68 percent in the past year. People who said they are saving at least 5 percent of their income increased to 52 percent from 47 percent. Some of you may be wondering if you should be saving 5 percent of your income. Is that the standard? People are always asking me what percentage of their income they should save. My answer always is, it depends. Rather than focus on an arbitrary percentage, think about this conclusion from the survey: People who have a savings plan attached to a specific goal save more successfully. It makes sense. If you have identified specific things you need to save for — retirement, a college fund, a down payment on a home or a car — you are more likely to watch what you spend. And you are, I hope, less likely to take on debt. Setting specific goals definitely has worked for me. Every time my kids ask for something, I think about how much I need to save to send them to college debt-free so they can get a good education, so they can get a job, so they can get out of my house. This year, to help people follow the strategy of setting a savings goal, organizers of America Saves Week have come up with a contest. On the social media platform of your choice — Twitter, Facebook, Instagram, Vine or LinkedIn, for example — you submit a photo of yourself in which you use the hashtag #imsavingfor. The prize is $500. In addition to the photo, you have to fill out a short form at americasavesweek.org that asks, among other things, for your name, e-mail address and where you plan on sharing the photo. Find the form under the “For individuals” tab. You have until March 6 to enter. America Saves Week, in conjunction with Military Saves Week, is an annual effort organized by America Saves, which is managed by the Consumer Federation of America and the American Savings Education Council. The campaigns pull in employers, nonprofit groups, government agencies, the Defense Department and financial institutions to promote the importance of saving. It’s a great endeavor, especially as we see so much of the traditional safety nets being pulled out from under so many people. I will say this: Don’t let all the scolding about your emergency fund deficiency or debt load discourage you from saving what you can. No matter how repetitious it sounds to encourage people to save, it’s a message we can’t get tired of hearing or passing along. About one-quarter of consumers said they have more credit card debt than emergency savings, according to Bankrate.com’s monthly Financial Security Index. Maybe you aren’t feeling my analogy of the cold weather to having a stash of cash. Even so, my point is that savings are what you grab when things get uncomfortable financially. Whether you are making the minimum wage or a middle-income salary, you’ve got to have something — anything — set aside for a rainy or cold day. Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or michelle.singletary@washpost.com. To read previous Color of Money columns, go to  http://wapo.st/michelle-singletary.

5 small ways to boost your finances if you’re living paycheck to paycheck

If saving were easy, we would all be millionaires. But the reality is that for many households, the monthly paycheck is barely enough to cover the bills. Nearly 60 percent of consumers surveyed this month by Bankrate.com said they didn’t have enough cash to cover unexpected costs, such as a $500 auto repair bill.  Here are a few moves that might help:     And even if that goal seems too out of reach, start by saving what you think you can afford, Schneider said. For some people, that may mean saving only $1 a day. “Don’t get overly fixated on the benchmark, just do it,” she said. Some people may want to look into apps such as Digit or Acorns that can help automate the saving process. It can also help to set aside cash when a large windfall comes in, such as your tax refund to help with your savings goals, Morduch said.

Could an energy boom save Trump and the GOP in 2018?

The energy boom is real, and it is here to stay. (Disclosure: My firm represents oil and gas companies.) Energy production produces good jobs and low gasoline prices pump billions of dollars in cash into the economy, in real time. And with Trump directing large-scale deregulation, the anti-business climate in Washington is coming to an end — and the resulting energy boom is certain to make a difference in today’s economy. Remember, at the end of the day, it is the economy that affects elections. Despite the recent wave of seemingly endless distractions and showstopping unforced errors, Trump and the Republicans in Congress still do not have any problems that 4 percent gross domestic product growth would not go a long way toward solving.     For his part, Trump has tried to highlight what his administration is doing to usher in a new era of energy development that stands in stark contrast with the Democrats’ delusional taxpayer-subsidized fantasy of wind and solar, but those announcements have been mostly smothered by bizarre tweets and disinterested mainstream media outlets that have always been hostile to oil and gas development. Even so, Trump deserves some credit for trying. Speaking at an Energy Department event last week alongside the able, energy-friendly former governor of Texas — and now Secretary of Energy — Rick Perry, he announced six new initiatives that will help strengthen America’s energy sector and “propel this new era of American energy dominance.”

Why we’re pessimistic about retirement

The March 20 articles by Michelle Singletary [“Many future retirees fail to play the numbers game”] and Michael A. Fletcher [“Survey: More Americans unprepared for retirement”] overlooked the elephant in the room: Many people are discouraged about reaching their retirement goals because, no matter how much they save through a bank, the annual percentage yield on their money is ridiculously low. Even if you are good about avoiding debt, no matter how much you save in non-risk bank accounts such as money-market accounts and certificates of deposit, you will have earned next to nothing from these products since the housing bubble burst in 2008. We can look forward to the day when interest rates will go up, but by that time it will be too late for many people, who will have no choice but to keep working past retirement age, provided that they are able to do so. No wonder Americans are pessimistic about their chances of retiring comfortably, and it may have nothing to do with an unwillingness to set goals. ****Susanne Humphrey** , Wheaton**

The trick Washington is using to cut Social Security and Medicare

Let's get something straight: "Chained-CPI" cuts Social Security benefits and increases taxes. That's why it's part of the negotiations. Full stop. But you often wouldn't know it. The policy typically gets sold on extremely technocratic grounds. Here, for instance, is the case made by Erskine Bowles and Alan Simpson's Moment of Truth Project: Chained-CPI, in this telling, is simply an effort to correct a measurement error in the way we calculate inflation. It's a tweak, a fix, a policy designed to achieve a higher level of technical precision. And who could be against that? There's something to this line of argument. The way we measure inflation right now really does mismeasure inflation. Chained-CPI really is a bit more accurate. But that's not why we're considering moving to chained-CPI. If all we wanted to do was correct the technical problem, we could make the correction and then compensate the losers. But no one ever considers that. The only reason we're considering moving to chained-CPI because it saves money, and it saves money by cutting Social Security benefits and raising taxes, and it's a much more regressive approach to cutting Social Security benefits and raising taxes than some of the other options on the table. The question worth asking, then, is if we want to cut Social Security benefits, why are we talking about chained-CPI, rather than some other approach to cutting benefits that's perhaps more equitable? The answer is that chained-CPI's role in correcting inflation measurement error is helpful in distracting people from its role in cutting Social Security benefits. Politicians who are unwilling or unable to offer a persuasive political or policy rationale for cutting Social Security benefits are instead hiding behind a technocratic rationale. We're not "cutting benefits," we're "correcting our inflation measure." A similar dynamic is behind the popularity of raising the retirement age, or the Medicare eligibility age: Its advocates can pretend that it's not a cut, but a technical adjustment made to account for the fact that Americans are living longer. Compared to other approaches to cutting benefits, raising the retirement age is, again, a substantively unwise, regressive approach. But it can be justified as a mere technocratic tweak. This is bad policymaking. If we want to cut Social Security and/or Medicare, we should have a conversation about how to cut Social Security and/or Medicare, decide what our priorities are -- Progressivity? Making the health-care system more efficient? Total deficit-reduction? -- and find the policy that does the best job achieving those goals. The effort to mask cuts in technical adjustments just leads to worse cuts, as the top priority isn't protecting the poorest or improving the program, but finding a policy sufficiently confusing that you can pass it before most people realize what it is.

Coming clean on 2016

There are lots of ways to mark the end of the year. My way is to reread my year’s work, deal with mistakes that I haven’t already corrected, and update you on some of the things I’ve discussed. My most obvious 2016 mistake didn’t involve politics or Donald Trump, topics on which I spent a disproportionate amount of time this year. My mistake involved . . . postage stamps. I had written, year after year, that Forever stamps were the only thing you could buy that would never sell for less than you paid for them. It was a topic I could discuss in a lighthearted, pun-filled way. Oops. Because of political paralysis in our nation’s capital, the Postal Service had to cut the price of Forevers to 47 cents from 49 cents. That rate reduction is such a bad idea for such a financially challenged enterprise that I had assumed even in Washington, no one would let it happen. I was wrong. Moving along: My most foolish mistake was falling so deeply in love with an iconoclastic idea that I failed to check it out properly — and it turned out to be wrong. Here’s the deal. Conventional wisdom is that the high-profile law adopted during the Bill Clinton administration to limit tax deductibility of certain kinds of executive pay has been essentially useless. So I took great delight in parsing complex data that seemed to prove that the law had, in fact, been useful. Another oops. Thanks to an astute reader, I realized that I had misinterpreted the data, which I didn’t check rigorously enough because I loved my original conclusion so much. So I wrote a second article, in which I said that the first article had been wrong. The moral: Just because something is iconoclastic doesn’t mean it’s true. Now a follow-up. In September, I wrote about the bizarre situation in which Charles Biderman, founder of TrimTabs, was ousted by AdvisorShares as manager of the TrimTabs Float Shrink ETF (now Wilshire Buyback ETF) and was starting a rival ETF called — what else? — TrimTabs Float Shrink. I said I’d track the results of the ETFs, so here they are. From the Sept. 27 launch of Biderman’s fund through Friday, Wilshire had a total return of 11.2 percent, TrimTabs’ was 9.4 percent. Both substantially outperformed the S&P 500’s 5.4 percent. One thing I did get right, after years of being wrong, was that long-term Treasury bonds finally turned into a terrible investment. Another thing I got right was that it was time to start paying attention to yields on money market mutual funds. Spreads among different funds have widened since the Fed’s recent increase in short-term rates, and I think they will continue to widen. Now to Trump. I’m a business columnist, not a political pundit, and I generally try not to get caught up in political topics. But because of my experience in dealing with Trump during the 1980s and 1990s — and because my specialty is translating financial gobbledygook into a language approaching English — I devoted a lot of time this year dealing with politics. As they say on Wall Street: When the ducks quack, feed them. I know that I’ve upset some people by being very critical of Trump, the only person I’ve dealt with in my almost 50 years of writing about business who proudly told me he had lied to me. Yechhh. He presided over six Chapter 11 bankruptcies, which is why I call him “Donald 66 Trump” rather than Donald J. Trump; and he stiffed plenty of other creditors, as well. He somehow managed to get big tax benefits on some of his failed enterprises by avoiding “cancellation of debt” income that would have offset most of the losses that he took on his failed enterprises. That seems to have helped him pay little or nothing in federal income tax for years. I wrote that Trump had accomplished this — as if stiffing the country that allowed your grandparents to come here seeking a better life is an accomplishment — because of something called the Gitlitz decision. But according to Steven Rosenthal of the Tax Policy Center, an astute tax lawyer who’s reviewed documents that I didn’t realize existed, it’s because Trump managed to trade essentially worthless stakes in some of his businesses to creditors in return for canceling debts. I think Rosenthal is right, and I was wrong. If we ever see Trump’s tax returns, we’ll know for sure. I think. My plan for next year is to spend time — but not an excessive amount — dealing with the substance of what Donald 66 and his billionaire buddies and fellow travelers are actually doing with their new power, not with what they say they’re doing. And on that note: Whether you agree with me or not about Trump, I wish you and yours a happy, healthy and prosperous 2017.

This presidential candidate seems to want to turn the U.S. into Venezuela

Green Party presidential candidate Jill Stein has her own plan to make America great again. That's turning it into Venezuela. That, at least, is what her proposal to have the Federal Reserve pay for everybody's student loans and perhaps their healthcare too would do to our economy. Inflation would skyrocket, the dollar would collapse, and the inevitable price controls would create shortages of basic goods. In other words, the full Chavez.   Pretty neat trick. But it's one we can't use that often. That's because creating more money usually just creates more inflation. Now, that's actually what we've wanted the last 8 years—prices have almost been falling, which can make wages fall, and debts that don't fall harder to pay back—but even then, the Fed has been careful to say this was only temporary. It was only printing money as an emergency measure to help the economy, not as a permanent one to pay for the government.    She wants to do to America's economy what the worst economies in the world have done.

Romney shifts tone in USA Today op-ed

In a USA Today op-ed, Mitt Romney recasts his economic philosophy as one that would lift poorer Americans out of dependency. "My course for the American economy will encourage private investment and personal freedom," Romney writes. "Instead of creating a web of dependency, I will pursue policies that grow our economy and lift Americans out of poverty." While he doesn't mention the comments he made at a Florida fundraiser earlier this year, Romney is clearly trying to downplay his claim that he could "never convince" the 47 percent of Americans who don't pay federal income tax that "they should take personal responsibility and care for their lives." Numerous conservatives have pushed back on that argument, saying that they aim to help everyone succeed.

5 ways you can trick yourself into becoming a better saver

For many people, the biggest hurdle to saving is creating the habit. While many financial advisers often recommend that clients take the work out of the process by having savings automatically deducted from each paycheck, plenty of people still struggle to get started. “We’re not seeing progress on the savings front,” said Greg McBride, chief financial analyst for Bankrate.com, which found in a survey that 22 percent of consumers have more debt than emergency savings. “And it’s desperately needed.” Without savings, he adds, some consumers may pile on more debt when emergencies happen. Some people need a bigger incentive, say the pressure of knowing someone else is counting on you or the chance to win money, to finally kick-start the habit. It being America Saves Week, a campaign organized by nonprofit, government and private groups to encourage financial literacy, we rounded up some creative ways to boost your savings.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico **Play the lottery — with a twist.** A growing number of banks and credit unions are encouraging people to save more by using a tactic called prize- linked savings accounts, which offer people who make deposits the chance to win a cash prize. The largest prize-linked savings program in the United States, Save to Win, is available through credit unions in a select number of states. Participants are typically given one chance to win the jackpot — which can range from $25 to $5,000 — for every $25 they save for a maximum of 10 entries per month or 30 entries total.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico The approach is meant to appeal to people who struggle to save but might spend a few bucks on the lottery because it offers the opportunity to win big, said David John, senior adviser for the AARP Public Policy Institute. “Except one is much more likely to end up with a positive result,” he said. Unlike the traditional lottery, these players get to keep their cash even when they lose. The cash would be stored in a 12-month share certificate, which is similar to a certificate of deposit, where it would earn interest. Depending on the credit union and location, some consumers may face penalties if they withdraw cash before the 12 months are over, further encouraging them to stay focused on their saving goals. **Get your friends involved.** If you struggle to have the self-discipline to save on your own, it might help to have some friends hold you accountable. Through so-called lending clubs, a group of people gets together to pool their savings, giving the cash post to a different person each week. For example, say 10 people contribute $100 each for a total of $1,000. Over the course of 10 weeks, the cash pot goes to a different person each week until everyone has had a turn. For those early in the cycle, it can be like receiving a short- term loan, said Jonathan Morduch, economics professor at New York University’s Wagner school. For those who receive the cash toward the end of the cycle, it can feel like a forced savings program, he added.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico In some cases, the pressure of knowing that other people are counting on you can be more effective than setting aside $100 a week into a savings account, said Morduch, who studied the approach as lead researcher for the U.S. Financial Diaries, a project that followed the weekly cash flow of 235 families for a year. “It’s different from the way we usually think about savings, as slow and steady,” he said. “This is something that works for a lot of folks.” **Make it a competition.** Savings contests, such as the 52-week savings challenge, can make saving seem more approachable by breaking a larger goal down into small weekly sums. While it’s usually a system that’s talked about at the start of the year, the approach can work for any year-long period. Basically, consumers start small, saving $1 the first week, $2 the second week, and so on all the way to $52 for the last week. At the end of the challenge, the account should have $1,378. Starting the challenge with friends who remind one another to make contributions each week can help some people find the motivation to keep saving, even as the amounts grow, John says.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico **Save your change.** You can do this the old-fashioned way, where you throw the singles and coins left in your bag at the end of the day into a jar, McBride said. At the end of the week or month, you can take the cash and deposit it in a savings account, he said. But if you’re like the many people more prone to using plastic than cash these days, you might want to check whether your bank offers a way for you to do this digitally. Bank of America, for instance, offers a Keep the Change savings program that rounds each purchase up to the nearest dollar amount and transfers the difference, be it 50 cents or 75 cents, into a savings account.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico **Have an app do it for you.** New smartphone apps are making it easier for people to save by automating the process. One app, Acorns, makes it possible for people to set aside their spare change from everyday purchases. But instead of going into a low-interest savings account, the money is stored in a portfolio that invests in exchange-traded funds. Savers need to pay $1 a month in management fees for accounts smaller than $5,000 and a fee that adds up to 0.25 percent of assets for accounts $5,000 or larger. Another app, Digit, studies users’ cash flow and makes automatic transfers to a savings account two or three times a week. The program, which doesn’t charge fees, analyzes when a person is paid, what bills he has to pay and how he generally spends. Then it moves cash that could be extra, typically ranging from $5 to $50, into a separate account. “You don’t actually feel the money missing,” said Ethan Bloch, chief executive of Digit.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Do you have any other saving strategies that work well? Share your tips in the comments below. _You might also like:_    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Why putting off retirement savings until you make more money is a big mistake    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Need help with money? There’s an app for that.    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico The tiny change that can leave you much better off in retirement    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico How big your retirement fund should be at every age, according to one guide    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Six money milestones to hit while you’re in your 30s    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico

Surprise! Printing money is really profitable!

The most profitable bank in the land isn’t on Wall Street; it’s on Constitution Avenue. The Federal Reserve on Thursday announced record earnings of $91 billion, easily trouncing any private bank. Of that total, $89 billion was passed along to the U.S. treasury, improving the nation’s fiscal health. The profits came about overwhelmingly due to the Fed’s four-year effort to pump money into the U.S. economy by buying longer-term bonds. The $2.7 trillion and counting in Treasury and mortgage-related securities on the Fed’s books all pay a yield, and that interest income is the primary driver of the Federal Reserve system’s revenue—that alone accounted for $80.5 billion. The Fed also earned $6.1 billion from selling off assets acquired as part of the central bank’s financial crisis response, and $450 million in fees for services  provided by reserve banks, such as for clearing checks. The central bank then subtracts all its operating expenses, such as for buildings and employee salaries, and refunds the money left over to taxpayers. The $89 billion refunded to taxpayers is the highest ever, topping the $79.3 billion in 2010 and $75.4 billion in 2011. It is a nice reminder that the Fed’s unconventional efforts to ease monetary policy, which currently include buying $85 billion in securities each month, are not the same as spending taxpayer money; rather, the Fed is buying assets that can actually create a return. At the same time, taxpayers could still end up losing money on the transactions. If interest rates rise significantly in the future, and the Fed sells off the assets to try to stem inflation, the Fed could end up taking a loss. But for now, it turns out that printing money is a highly profitable business.

Robert Samuelson: The financial crisis still confounds

Unhappy birthday. Five years since the collapse of Lehman Brothers, we still lack a true understanding of what caused the financial crisis and Great Recession. Oh, there are standard stories from left and right. Liberals blame a naive faith in free markets, deregulation and Wall Street greed. Conservatives slam government: lax monetary policy and ruinous home-lending by Fannie and Freddie. These selective narratives are self-serving, intended to advance political agendas and not to illuminate the messier reality. We were victims of success. The crisis originated from 25 years of prosperity, from roughly the end of 1982 to the end of 2007. This conditioned people — bankers, regulators, economists, almost everyone — to take stable growth for granted. The longer the prosperity continued, the more it inspired the risky behaviors that ultimately wrecked the economy. These included over-borrowing by consumers and financial institutions, housing speculation and loose regulation. The “causes” cited by left and right were usually the consequences of a delusional mind-set: a belief that once-risky practices were prudent in a world of near-perpetual prosperity. Recall the crucible of this thinking. From 1982 to 2007, the United States suffered only two slight recessions. Gross domestic product adjusted for inflation — the economy’s output — was 125 percent higher in 2007 than in 1982. From 1990 to 2007, unemployment averaged 5.4 percent. Inflation was controlled. Despite the burst “tech bubble” in 2000, stock prices in 2007 were 15 times higher than in 1982. The Federal Reserve, mainly under Alan Greenspan, seemed capable of preventing financial crises from becoming deep recessions. It did so after the tech bubble and the 1997-98 Asian financial crisis. Economists touted “the Great Moderation.” I concede: I’ve told this story before. It doesn’t take, because it blames faulty ideas more than crooks and scoundrels — the tempting targets of most narratives. But the accumulating evidence suggests that false ideas, not evil people, were the main culprits. Take the popular notion that banks and investment banks (“Wall Street”) knowingly packaged bad home mortgages in securities that were then sold to unsuspecting investors. The bankers, the story goes, understood that there was a housing bubble — that prices would crash and defaults explode — but peddled bad loans because it made them rich. Although this happened, it was the exception, not the rule. That’s the conclusion of a study by economists at the University of Michigan and Princeton. They reasoned that if the investment bankers packaging mortgages expected a housing collapse, they would have been careful in their own home purchases. So the economists compared the bankers’ home-buying with that of lawyers and stock analysts who lacked specialized housing knowledge. The study, published by the National Bureau of Economic Research, found that the bankers showed little “awareness of a housing bubble and impending crash.” During the boom, they bought larger homes and second homes. Compared to the lawyers and stock analysts, their housing purchases fared “significantly worse.” What explains their lapse? Probably this: Before the real estate collapse, there was a widespread belief that housing prices would rise indefinitely, preventing (by definition) a bubble. We now know this belief was mistaken, stupid and suicidal. But for many, it was genuine. An earlier study by economists at the Boston Federal Reserve reached a similar conclusion. All this is more than ancient history. It matters for two reasons. One is to understand today’s economy. Because Americans over-borrowed, it’s suggested that when they’ve adequately repaid debt (“deleveraged”), the economy will improve. Well, they’ve deleveraged considerably. Debt payments as a share of disposable income are at their lowest levels since the early 1980s, according to the Federal Reserve Board. Still, the economy barely limps along. The problem transcends debt. The disillusion with the pre-crisis euphoria has led to an opposite post-crisis reaction. Yesterday’s foolish optimism has become today’s protective pessimism. A Pew survey finds 63 percent of Americans feel “no more secure” than five years ago. People once thought the future was more stable and more predictable; now they fear it’s less stable and less predictable. Their behavior becomes more precautionary. For consumers and companies, there’s a greater bias against spending, lending, hiring and taking economic risks of any kind. The economy, though not crippled, isn’t invigorated either. With changed behavior, economic models based on past patterns frequently over-predict growth. The second reason to reexamine the crisis involves policy. The “scoundrel” theory of causation suggests that, once defects in the economic system are identified, they can be rectified with “reforms.” The Dodd-Frank financial legislation reflects this philosophy. The true history of the crisis raises a larger problem. Success in stabilizing the economy in the short run fostered greater long-run instability. What are the limits to stabilization policy? Might more short-term upsets minimize long-term calamities? Economists should be wrestling with these and other hard questions. They aren’t. _Read more fromRobert Samuelson’s archive._ **Read more on this topic:** Robert J. Samuelson: Capitalists wait for the recovery, while labor loses out E.J. Dionne Jr.: The last Labor Day? Harold Meyerson: Workers face an economic power gap Steven Pearlstein: Can we save American capitalism?

Is America becoming Downton Abbey? And more from the Wonkblog Debates.

Wonkblog readers stuffed the DC Improv Tuesday night for our third Wonkblog Debate. This time we focused on the economy--and specifically whether Congress and the political process were leading us down a bad path. Here are some highlights. Heather Boushey of the Center for American Progress makes the case that yes, the culprit is Congress in not offering a better policy architecture that might get growth on track. Part of the challenge, argues Tony Fratto of Hamilton Place Strategies, is that "our founders screwed up a little bit." That is to say, government just doesn't work well when the two houses of Congress are controlled by opposite parties. Jared Bernstein of the Center on Budget and Policy explores whether we now have a political system that is "structurally dysfunctional" in economic policymaking. And James Pethokoukis of the American Enterprise Institute argued that inequality isn't the dominant problem facing the economy, but rather a lack of economic mobility. The risk is that America becomes a world like a certain television show set in early 20th century Britain, with a few ultra-wealthy and a lot of menial workers whose job is to serve the rich.      *[WSU]: Wayne State University You can watch more clips here, or listen to the whole event here. Thanks to our panelists and stay tuned for the announcement of the next Wonkblog Debate!    *[WSU]: Wayne State University

If Obama loses the election, here’s why

With 100 days left in the presidential campaign, perhaps the two most vexing questions in American politics are: How could President Obama possibly lose? And, how could he possibly win? Americans are scared, angry and struggling. They used to talk about job satisfaction; now they talk about just holding on to their jobs. No incumbent since FDR has ever won reelection with unemployment numbers remotely resembling today’s. What voters feel about their lives and dreams in the months leading up to an election tends to stick to the president when they enter the voting booth. And right now what’s sticking to Obama isn’t good. But it sure helps to face a candidate as uncomfortable in his own skin, as likely to say by accident what he really means and as wrong for the times as Mitt Romney. In an era when even conservatives are populists, enraged about the favors granted the rich and well-connected, Romney is running as a CEO who thinks his taxes are too high. Voters just aren’t warming up to a guy who enjoys firing people and attempts to woo the people of Michigan by referring to his wife’s “couple of Cadillacs.” If Obama offers what well-paid elites call a “jobless recovery,” Romney offers the only thing worse: a promise to restore the policies that led to the joblessness that made a recovery necessary. So, beyond the anemic economy, why do the latest polls show the former Massachusetts governor in a dead heat with the president? Because Obama’s administration made three crucial errors that enabled the Republican obstructionism that has tied his hands for the past two years, with GOP leaders shooting down any idea — even if it’s one of their own — that might have helped the president strengthen the economy. And those mistakes have made possible what was unimaginable in January 2009: that a private-equity baron lacking a sense of noblesse oblige, and preaching the gospel of deregulation and lower taxes for the rich, might actually win the presidency four years after those policies led to the collapse of the U.S. economy. Obama’s first mistake was inviting the Republicans to the table. The GOP had just decimated the economy and had been repudiated by voters to such an extent that few Americans wanted to admit that they were registered Republicans. Yet Obama, with his penchant for unilateral bipartisanship, refused to speak ill of what they had done. The American people wanted the perpetrators of the Great Recession held accountable, and they wanted the president and Congress to enact legislation to prevent Wall Street bankers from ever destroying the lives of so many again. Instead they saw renewed bonuses — and then they saw red. Republicans learned very quickly that they could attack Obama and his agenda with impunity. Only at election time, or when he’s up against the ropes, does this president ever tell a story with a villain. The second mistake was squandering the goodwill that Americans felt toward the new president and their anxiety about an economy hemorrhaging three-quarters of a million jobs a month. That combination gave Obama, at the beginning of his term, a power to shape public policy that no one since Franklin Roosevelt had held. But instead of designing a stimulus that reflected the thinking of the country’s best economic minds, he cut their recommended numbers by a third and turned another third into inert tax cuts designed to appease Republican legislators whose primary aim was to defeat him. He stimulated the economy — but just enough to leave the results open to interpretation, rendering questionable what should have been an uncontested success. Obama compounded the problem a year into his presidency, when corporate profits were on the rise while job creation wasn’t. The Senate was considering a jobs program much like one the House had passed. But Obama refused to throw his support behind it. To do so, he would have had to articulate a vision in which government sets the conditions for the private sector to create prosperity and jobs, and steps in when the private sector can’t — or when it works against the interests of ordinary Americans. It’s a vision in which leadership means knowing when to step up and when to step back, not simply passively riding the waves of market failures, business cycles and bubbles — the vision that unites Herbert Hoover, George W. Bush and Romney. But Obama chose neither to offer that vision nor to take action to put Americans back to work directly, rebuilding our broken roads, our bridges, our crumbling schools. The stimulus was a good start, but its flaws were already apparent. Instead, he began using Republican language about how the government, like ordinary families, needs to tighten its belt, as if that were a solution for people whose belts couldn’t get any tighter. “Government has to start living within its means, just like families do,” he said in a weekly Web and radio address. Words like these not only undercut the vision behind the stimulus — the whole point of which was to spark a sputtering economy with deficit spending — but they came as bankers were loosening their belts, making average Americans angrier. The third way the administration created opportunities for Republican obstructionism will someday become a business-school case study: It let a popular idea — a family doctor for every family — be recast as a losing ideological battle between intrusive government and freedom. In the 2008 election, the American people were convinced that families should never have to choose between putting food on the table and taking the kids to the doctor. They were adamant that neither they nor their aging parents should have to choose between their medicine and their mortgage. How did the administration manage to turn one of the most popular campaign issues of 2008 into one of the major causes of Democrats’ “shellacking” at the polls two years later? In keeping with the most baffling habit of one of our most rhetorically gifted presidents, Obama and his team just didn’t bother explaining what they were doing and why. To them, their actions were self-evident. But nothing is self- evident when your opponents are spending millions of dollars to defeat you. Instead, the White House blundered around with memorable phrases such as “bending the cost curve,” which didn’t speak to the values underlying the need for health-care reform. Republicans, in contrast, offered a coherent story: Democrats think the government knows what you need better than you do; you should be able to make your own choices, not have some bureaucrat stand between you and your doctor. The White House could have counterpunched, but instead it dropped its gloves. The president acknowledged as much this month in an interview with Charlie Rose for CBS. When asked about the biggest mistake of his first term, he replied it was his belief that “this job was just about getting the policy right. And that’s important. But the nature of this office is also to tell a story to the American people that gives them a sense of unity and purpose and optimism, especially during tough times.” To his credit, Obama has been telling a much better story over the past several months about the challenges ahead and why he deserves a second term. “We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by,” he declares in his new campaign message, “or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.” But the problems of health-care reform were not just about selling it — they were substantive as well. There was no way to tell the story of why the government couldn’t negotiate prices for drugs with the big drug companies, the way the Department of Veterans Affairs already does, without admitting either that the administration was buying off the pharmaceutical industry or that the industry was buying off the administration. There was no way to explain why Americans who saw how much their parents or grandparents liked Medicare couldn’t have at least one option not controlled by the insurance industry — without admitting that the administration had made a deal with the industry that guaranteed it 30 million new customers with no government competition. As Ron Suskind reported in his book “Confidence Men,” that decision ended any possibility of a “public option” a year before the president announced, without explanation, that the public option had died on the operating table. Whereas the House, under the leadership of Speaker Nancy Pelosi (D-Calif.), put forward a sensible health-care bill in the early days of the new administration, the White House and congressional Democrats ultimately crafted a bill whose greatest benefits would become apparent only years later, giving Republicans all the time in the world to galvanize public opinion against it. Democrats frequently point out that most of the elements of the law are extremely popular, even though the law as a whole remains unpopular. They’re absolutely right. But that’s like saying people pick a spouse based on the person’s nose, mouth, shoulders, hair, job, personality and earning potential, when in fact it’s the totality of the person that either does or doesn’t make our hearts flutter. One of the most popular elements of the health-care law, and the one that matters most to middle-class Americans, is the end to insurance companies’ ban on people with “preexisting conditions.” That part of the law came online in 2010 for children, an enormous achievement. But our bodies generally start falling apart in our 40s and 50s (trust me on that), and nothing could have been more important for the success of the legislation — and the party and president who made it the law of the land — than for Obama to have been able to pronounce as he signed the bill, “With this stroke of my pen, never again will any American ever see the words from an insurance company, ‘Rejected: preexisting condition.’ ” Try repealing that. By delaying that part of the law until 2014, along with provisions designed to cover 30 million more people (unless Republican governors refuse federal funding to extend Medicaid), the Democrats lost the message war. Nothing blunts the fierce urgency of now like the soft promise of later. Obama has every reason to feel underappreciated. Both the stimulus and health-care reform were kinda-sorta the right policies. The stimulus was not, as conservatives have convinced many of their fellow Americans, big government on steroids; it was Keynesian economics on birth control. It did not restore the 8 million jobs lost to the crash of 2008 or provide the 200,000 jobs a month needed for new entrants into the labor market, but it did prevent a second Great Depression. The health-care law was no more a prelude to a long march to European-style socialism than the similar bill Richard Nixon proposed 40 years ago — or the law Romney enacted as his greatest legacy to the people of Massachusetts. So how did the White House make mistakes of this magnitude, which have breathed new life into Republicanism and made a Romney administration a possibility? One factor is the tyranny of money in our nation’s politics. That two administrations — one Republican, one Democratic — bailed out the banks instead of the people on whom they were foreclosing is an outrage that reflects the legalized bribery we call campaign financing. The bottom line for corporate executives is “return on investment,” and the return on Wall Street’s bundling and lobbying has more than made up for the failures of its bundling of toxic assets. But just as important is the tyranny of timidity. If self-interest and self-righteousness are at the heart of the Republican Party today, cowardice lies too close to the spine of the Democrats. While Republicans show extraordinary hubris by harnessing minority rule on virtually every issue with just the threat of a filibuster, Senate Democrats show extraordinary fearfulness in enabling them. In the past, Democrats spoke openly of poverty, a word seldom heard today even though Americans of every race and color are sharing a rapid descent down the economic ladder. While the president has begun to speak effectively in the past several months about the economic distress of working- and middle-class families, on the major issues he too often uses the bully pulpit to bully the truth. That was most apparent in the first three years of his administration, but you don’t have to look further than the past three weeks. The nation has experienced climate change firsthand, with Americans witnessing extreme weather, drought, wildfires, floods and harvests destroyed by the scorched-earth policies of the oil and coal industries. But Obama, like his challenger, has simply turned up his air conditioner, refusing to connect the dots between the devastation people can see and the causes they are finally ready to accept. And a week ago, the nation was in shock after yet another mass shooting, allegedly carried out by yet another troubled young man who had purchased weapons that should not be legal. The first day, Obama and Romney issued the usual comforting platitudes about how our prayers are with the victims’ families. But in its public statements, the White House seemed more concerned with reassuring the National Rifle Association than with giving voice to the desire of a bullet-ridden nation to protect the rights of law-abiding citizens — those who want guns to hunt or protect their families and homes, as well as those who want to go to the movies, church, school or a shopping mall without fear. To his credit, Obama gave a speech Wednesday before the Urban League calling for “common sense” steps to prevent gun violence, although it was long on hope and short on change. Obama may be reelected by a public that has nowhere else to turn. Perhaps freed of the constraints imposed by having to raise a billion dollars to finance his campaign, he will reveal a true self of which we’ve seen glimmers. One who will speak forthrightly to the American public and be unafraid to take on the perpetrators of economic crimes that have devastated American families; the perpetrators of myths about “clean coal,” which the president instead repeats even as the industry rains fire on America’s breadbasket; or the perpetrators of the record foreclosures on longtime homeowners who have become collateral damage in the war on the middle class. We can only hope that in his heart, Obama can truly feel the pain, sadness and fear of ordinary Americans, because it’s not hard to imagine that inside the chest of his opponent is a cavity waiting to be filled. **Drew Westen** is a professor of psychology and psychiatry at Emory University and the author of “The Political Brain: The Role of Emotion in Deciding the Fate of the Nation.” He is the founder of Westen Strategies, a consulting firm.

The House decides not to set its last shred of public confidence on fire

The last time more than a third of Americans had a lot or a great deal of confidence in Congress, Ronald Reagan had just won reelection as president. The last time two-thirds of the country had at least some confidence in the institution was 2005 — right before a rash of ethics problems reshaped the House of Representatives.  Put another way: America’s general confidence in newspapers (20 percent) is twice as high as its confidence in Congress.  Last month, Gallup also asked Americans to evaluate the honesty and ethics of people in various professions. Journalists ranked just below bankers, which is sort of depressing, but we beat lawyers. At the very bottom of the list, under car salespeople, were “members of Congress.” Put that way, the fact that the House eventually reversed its decision is somewhat remarkable. Like a car salesman leaning across the desk from you and actually admitting that he was overcharging you by 5 percent (although he was really overcharging you by 20 percent). Will it be enough to tick strong confidence in Congress back up to 10 percent? No, the end.

Robert Samuelson: How JFK’s mistake led to the sequester mess

Blame it on JFK. Fifty years ago, President Kennedy made a decision that, with hindsight, ranks as the biggest mistake of domestic policy since World War II. In many ways, it led directly to today’s “sequester” debacle. What Kennedy did was this: In early 1963, he proposed a $13.6 billion tax cut (today: about $320 billion) even though the economy was not in recession and the tax cut would enlarge the budget deficit. Kennedy adopted the theory that government could, by manipulating its budgets, increase economic growth, reach “full employment” (then a 4 percent unemployment rate) and reduce — or eliminate — recessions. It was a disaster. High inflation was the first shock. An initial boom (by 1969, unemployment was 3.5 percent) spawned a wage-price spiral. With government seeming to guarantee 4 percent unemployment, workers and businesses had little reason to restrain wages and prices. In 1960, inflation was 1 percent; by 1980, it was 13 percent. The economy became less stable. From 1969 to 1982, there were four recessions, as the Federal Reserve alternated between trying to push unemployment down and prevent inflation from going up. Only in the early 1980s did the Fed, under Paul Volcker and with Ronald Reagan’s support, crush inflationary psychology. We are now suffering from — and have for decades — the second defect of JFK’s decision: the loss of budgetary discipline. Since Kennedy’s tax cut passed in 1964 — after his assassination — there have been 43 budget deficits and only five surpluses (1969, 1998, 1999, 2000 and 2001). Even the surpluses reflected luck more than policy. The last four resulted mostly from the 1990s economic boom, boosting tax revenue, and the end of the Cold War, lowering military spending. Balancing a budget compels choice. Pleasurable spending must be weighed against painful taxes. Before Kennedy’s tax cut, it was assumed that, in ordinary times, Americans would strive to balance the federal budget. They might not have always succeeded, but they often came close. Wars and economic slumps were exceptions when borrowing became a practical necessity. The government consistently ran deficits in the Great Depression of the 1930s. But debt was generally bad. In the Civil War, the federal debt rose 42 times to a then-astounding $2.8 billion. Repaying it became a “national obsession,” writes political scientist James Savage in his “Balanced Budgets & American Politics.” One English diplomat observed that most Americans “appear disposed to endure any amount of sacrifice rather than bequeath a portion of their debt to future generations.” Kennedy himself initially accepted the virtue of balanced budgets and had to be converted to Keynesian economic doctrines (after John Maynard Keynes, 1883-1946). In 1962, his advisers urged a big tax cut; Kennedy rejected it. Led by Walter Heller, the economists peppered Kennedy with more than 300 memos in his thousand-day presidency. By 1963, he’d come around. Debt became benign. The promise of Kennedy’s tax cuts was that, by promoting faster and more stable economic growth, government could afford more because the economy would perform better. When Republicans proposed “supply side” tax cuts in the 1980s, they made similar arguments and referred admiringly to Kennedy. Over time, what was politically convenient — higher spending, lower taxes — became habit-forming. It pleased the public, which deplored deficits in the abstract but rejected specific (unpopular) measures to control them. Without pressure to balance the budget, choices were delayed or denied. Discipline diminished. When politicians needed to “do something” about deficits, they resorted to obtuse, often ineffective formulas that fudged choices by making across-the-board changes to both good and bad programs. Think: “budget caps,” “spending recessions” and “continuing resolutions.” The sequester is the latest and most grotesque example of this approach. To be sure, deficits are sometimes desirable. In a recession, the “automatic stabilizers” (the tendency of taxes to fall and spending to rise) help revive the economy. A deep downturn, such as the Great Recession, may justify extra borrowing, spending or tax cuts. The irony is that the careless use of deficits, by piling up unnecessary debt, has compromised this legitimate role. It’s one unnoticed consequence of downgrading the budget as an instrument to force decisions about government’s size and role. (A constitutional balanced-budget amendment is not a solution. Even if ratified — doubtful — it could ruinously turn every budget dispute into a legal crisis.) Kennedy and his advisers, overconfident of their ability to control the economy, damaged long-standing national norms and customs. They didn’t know what they were doing. It is hard to think of another policy decision in recent decades that has caused so much havoc for so long. Deficits became routine events rather than emergency reactions. Keynes said “in the long run we are all dead”; but others are alive and suffer from distant blunders. _Read more from Robert Samuelson ’s archive._ **Read more from Opinions:** The Post’s View: Washington fails to govern, as the sequester arrives Charles Krauthammer: Hail Armageddon E.J. Dionne: Ending the permanent crisis Bob Woodward: Obama’s sequester deal-changer

What we’ve done to deserve Mr. Trump

Colbert I. King posed a great question in his Jan. 14 op-ed, “Stumbling block or stepping stone?”: “What have we done that is so unwholesome, so egregious, as to deserve punishment in the form of Trump?” As a society, we see money as the measure of success. The economy is a success if gross domestic product is growing. Individuals who own homes and retirement accounts are doing well if their assets are gaining value. The health-care system has to be cheap to be good. Candidates are strong if they have a lot of money. Improving or even protecting the quality of life for people elsewhere on the planet must never adversely affect the bottom line for U.S. citizens. It is no surprise that the winning presidential candidate’s apparent wealth trumped his lack of knowledge, insight, honesty, vision and compassion. Would he have been able to impress crowds without arriving in a private jet, wearing a fancy suit? Would his business empire have been built in the first place had thousands of people not been tempted by the prospect of getting rich quick in his casinos? The Rev. Martin Luther King Jr. said, “Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness.” The darkness now descending resulted from our collective, mistaken belief that shiny coins can illuminate the path to well-being and success. Our hearts know better, and our politics must remember. ****Roger Schlegel** , Takoma Park **

Harriet Tubman on the $20 reminds us that access to cash is a civil rights issue

Cash is going to become more representative of the Americans who are more likely to depend on it, now that the faces of several black icons are set to appear on U.S. paper currency.    While individual preferences determine Americans' choices about how to pay for things to some extent, the Federal Reserve data shows that people usually don't use cash unless they have to. Carrying cash is risky -- you could get mugged, or drop your wallet in a puddle. It can also be expensive. Automatic teller machines charge fees, while many credit cards offer consumers cash back on purchases or other valuable compensation. Yet paying with a check or a debit card means having a bank account, which is also costly for those who don't have enough money from month to month to maintain minimum balances. Getting a credit card involves having a history of financial stability. For these reasons, wealthier and better educated Americans prefer other methods of payment to cash. Those with less than $25,000 in annual household income execute 44 percent of their transactions in cash, more than twice the share for those with more than $100,000 in income. People without a high-school diploma use cash for 50 percent of their transactions. The figure for those with advanced degrees is just 20 percent. Likewise, the older you are, the less likely you are to use cash. Older people earn more and are more experienced and better educated, and they tend to be more financially secure as a result.   He might say something similar if he were alive today: It doesn't do anyone much good to be able to buy a cup of coffee with a $5 bill that has King's face on the back. "Genuine equality" means being able to pay with a credit card.

The government now assumes all pension promises will come true. That’s scary.

Americans aren't suddenly saving a lot more of their incomes. But it looks that way, thanks to a change in how the federal government accounts for pension plans -- a change that, if you're not careful, could lead you to think the nation is better set for retirement than it actually is. Until Wednesday morning, the Commerce Department pegged America's personal savings rate at 4.1 percent for 2012. An every-five-years revision to how the department measures the components of Gross Domestic Product pushed that savings rate up; now it's 5.6 percent for 2012. The same change makes savings look much stronger before the Great Recession, too: The rate for 2002 was revised up from 3.5 percent to 5 percent. For 2005, it rose from 1.5 percent to 2.6 percent. That money isn't necessarily real. The Bureau of Economic Analysis didn't find hundreds of billions of dollars stuffed in Americans' mattresses. It decided to start counting all pension promises as savings in the bank. That change is called accrual accounting, and as officials at the BEA point out, it's a well-accepted practice in the corporate world. The idea is that if a company or, more likely in this case, a government entity, has agreed to provide pension benefits to workers in the future, the value of those benefits should count as savings for the worker, even if the company or the government doesn't project an income stream large enough to cover all those pension IOUs.    *[WSU]: Wayne State University The promises that aren't backed by an income stream are called unfunded liabilities, and by changing how it counts them, the government added almost $200 billion to the nation's personal savings for 2012. The catch is, what if those promises don't come true? The accounting change was made shortly after Detroit became the largest U.S. city to file for bankruptcy, in part due to the unfunded liabilities in its pension plan, raising questions over whether pensioners will actually receive the benefits they've been promised. Signs point to more strains on state and local government pension funds down the road.    *[WSU]: Wayne State University Americans tell pollsters they're increasingly anxious about retirement security. That's a big problem for workers and policymakers to tackle, and one that an accounting change isn't going to ease.    *[WSU]: Wayne State University

In politics, Americans hate the players, not the game

"Don't hate the player, hate the game," Ice-T famously rapped. But when it comes to Congress, Americans take the opposite view. A new Pew Research Center poll released Friday shows that a majority of Americans blame lawmakers for the problems that plague Congress, not the political system in which the operate. Fifty-eight percent say the system is fine and that members of Congress are the issue. Just 32 percent blame the system.    *[WSU]: Wayne State University Americans have increasingly blamed lawmakers, not the system, for dysfunction in recent years, as the chart above shows. And there's little disagreement across party lines, with majorities of Democrats (64 percent), Republicans (57 percent) and independents (55 percent) holding members of Congress more accountable for problems than the political backdrop of their actions. The poll was taken from Oct. 9-13, just before lawmakers reached an agreement to reopen the government and avoid hitting the debt ceiling. So what does it all mean? Two things. One, the public isn't as fed up with the political and governing framework itself despite the many declarations that "the system is broken." What's broken, in their view, is the people who are running it. Which leads into the second big takeaway: Here's yet another reason incumbents should be on notice this cycle. Thirty-eight percent of Americans say they do not want to see their own member of Congress reelected in 2014, according to Pew data released this week. That's the highest percentage wanting to toss out their own member in more than two decades of Pew surveys.    *[WSU]: Wayne State University

Mitt Romney’s money-making: It’s a virtue, not a vice

In his July 1 Sunday Opinion column, “Mitt Romney demands a retraction,” ombudsman Patrick B. Pexton asserted that Bain Capital, the private equity firm founded by presidential candidate Mitt Romney, “didn’t and doesn’t make anything.” Mr. Pexton couldn’t be more mistaken. Bain Capital, with Mr. Romney at the helm, made the most vital tool of all, the hallmark of virtue and the lifeblood of prosperity: It made money. Mr. Pexton’s subtle jab is emblematic of the troubling, emerging narrative on Mr. Romney’s profit-seeking past. These constant condemnations reflect a fundamental misunderstanding of money. Contrary to the claims of the left, money is not the product of scheming, of luck or of force; money is the product of reason. Money and the wealth it represents are made possible only through the ambition and foresight of great men. Based on the money he’s made, Mr. Romney is a great man indeed. If Mr. Romney is to be attacked, let him be attacked on the grounds of his political inconsistencies, his misguided policies and his social awkwardness. But let it not be for the money he’s made; let it not be for his virtues. ****Jordan McGillis** , Arlington**

Kitchen Table Economics: Nick Bourke

_This is part of the Post Live panel discussion ‘Kitchen Table Economics,’ held April 16 at The Washington Post. View other videos from the discussionhere. _ **Director, Safe Small-Dollar Loans Research Project, the Pew Charitable Trusts** **** S ome research is showing that consumers are starting to spend more. They’re feeling more optimistic, and that is good for the economy. Let’s talk a moment about savings. Our friends in the Czech Republic, Australia, Belgium and especially Germany, households there are saving a lot more of their disposable income than U.S. households. The German savings rate is about double what the U.S. rate is by the OECD’s measure. But our friends in Canada and Japan and the Nordic countries are saving a lot less of their disposable income. And interestingly, the trend in the U.S. seems to be that the recent peak in household savings was around 2010, and it’s starting to decline again. About one-third of all U.S. households lack enough liquid assets to be able to live for three months at the poverty line. Similarly, half of all U.S. households in the survey said that they probably could not or certainly could not come up with $2,000 within 30 days if they needed to. Almost half of households in this country. The phrase that has emerged to talk about this situation is financial fragility. And it is a real issue in this country, and it’s something that those of us who care about the consumer financial balance sheet are really watching. There’s some other interesting research out there that talks about how everybody makes mistakes. Everybody is a non-optimal financial decision-maker at one point . . . and a lot of people fortunately in this country do have the wherewithal to withstand those financial mistakes. But a lot of people don’t. How can we help address this situation? I think a lot of it does come down to helping consumers and households to understand and manage their risk. That means that they need more of an awareness of risk, an awareness of a need to protect against risk, and the importance and the benefit of developing even minor cushions to protect against risk. A mistake can be buying a home when you’re not ready to afford it. But a mistake can also be buying a home and then getting a mortgage that has points when you can find a mortgage that doesn’t.

How inequality made the recession worse

In 2006, near the peak of the housing boom that preceded the Great Recession, the top 20 percent of Americans held roughly 80 percent of the nation's wealth. The bottom 20 percent held roughly -1 percent (meaning those folks had more debt than assets). Those statistics are a blunt portrait of wealth inequality in the United States — and new evidence suggests they help explain why the recession was so brutal.  What they found is simple, intuitive and important: Americans with no wealth — or negative wealth — saved a lot higher share of their incomes during the recession than anyone else did. That additional savings at the bottom end may well have been a smart move for those wealth-poor Americans, but the trend also drained some critical consumer spending power from the economy when it really could have used it. “Without wealth inequality, there still would have been a consumption recession," Krueger said in an interview. "It just would not have been as large.” One of the classic features of recessions is what economists call a "demand shock." It's basically a downward spiral of money being pulled out of the economy. Growth contracts, business sales begin to fall, workers are laid off. The unemployed spend less money, which slows growth even more. Krueger and his colleagues investigated whether inequality made that demand shock worse in the Great Recession. To do it, they divided American households into five groups, based on their net worth in 2006. They looked at the average disposable incomes for each group, and how much of that income each one tended to spend in 2006. Not surprisingly, the least wealthy Americans spent the largest share of their incomes, at 90 percent. The wealthiest spent the lowest share, 63 percent.  If the least-wealthy had only pulled back as much as the very wealthy, overall consumption would not have fallen as rapidly. But that would have left those most vulnerable households even more vulnerable to job loss or wage cuts as a result of the recession. Which is to say, it's logical for people with no assets to save something, anything, during a downturn when economic fears mount, but it's bad for consumption growth overall. An economy with more evenly spread wealth, the economists conclude, would by extension shed less consumption during a recession than one with pronounced income inequality. They also conclude that policymakers can mitigate the consumption effects of inequality by helping the wealth-poor endure the uncertainties of a downturn — namely, by providing them extended unemployment insurance. That insurance, Krueger said, "is an effective tool for stabilizing aggregate consumption.” He added "This is not something that is earth-shattering as a novel finding. It comes out very clearly in the models that we study.” That's true, but it's also worth repeating. Models are nice for policy, but evidence is even better.

How inequality made the recession worse

Blame our current fiscal mess on Reagan, not Kennedy

Robert J. Samuelson [“The mistake we’re still paying for,” op-ed, July 9] called the genesis of our debt problem “the blunder of the Sixties” and blamed it on President John F. Kennedy. But the facts do not support this assertion. Deficits averaged about 1 percent of gross domestic product for the decade beginning with Mr. Kennedy’s first fiscal year. This figure edged up in the 1970s, but the deficits really exploded in the 1980s, when our structural problem became endemic. The 12 budget years of the Reagan and George H.W. Bush administrations featured deficits averaging above 4 percent of GDP. Mr. Samuelson wrote off the herculean effort undertaken during the Clinton administration to end the deficits as some sort of accident. It was anything but. Independent presidential candidate Ross Perot scared the political class straight, and both parties pushed to tame the deficit dragon: Republican Congresses restrained spending, and a Democratic president raised taxes in his first year and refused to lower them again. (The peace dividend and the dot-com boom played supporting roles.) Then a Republican president allowed a Republican Congress to indulge its tax-cut fetish in 2001, and we were off the wagon again. If there was a first decade of fiscal blunders, it was the 1980s and not the 1960s. And if a primary presidential blunderer must be indicted, it is Ronald Reagan and not Kennedy. ****Chris Siple,** Arlington**

The Insiders: Obama needs to admit mistakes

With President Obama beginning his media tour tonight, the messages he sends will be important. I say “messages” – plural – because America needs to hear more from the president than just plans for Syria.    *[WSU]: Wayne State University Everyone has been so alarmed and dismayed by the mistakes concerning Syria that it’s been easy to overlook how alarmed and dismayed everyone is about the economy. A troubling new set of economic data was released last Friday, but you wouldn’t know it from listening to Obama. Americans are rapidly dropping out of the workforce, with the labor force participation rate now at its lowest point (63.2 percent) since August 1978.    *[WSU]: Wayne State University Every president has to find a balance between being optimistic and seeming delusional about the economy. It’s one thing to be upbeat and optimistic, and another to appear completely disconnected and clueless. On Friday, after the jobs report was released, Obama said, “The United States is a source of strength in the global economy. … We’ve put more people back to work, but we’ve also cleared away the rubble of crisis and laid the foundation for stronger and more durable economic growth.”    *[WSU]: Wayne State University If you think I’m being unfair or am unnecessarily alarmed, remember that this is the president who also told us five days ago, “I didn’t set a ‘red line,’ the world set a red line. … My credibility is not on the line.” Is he trying to kid us or is he kidding himself? The former possibility is insulting and the latter is frightening.    *[WSU]: Wayne State University I don’t expect the president to be in a fetal position, saying, “Woe is me, all is lost,” but a little acknowledgement of reality might go a long way. He should admit that things haven’t gone precisely according to plan, and that some policy adjustments need to be made. Obama should acknowledge some of the mistakes made by his administration, a la Ronald Reagan’s admission after the failures of the Iran-contra affair. In his 1987 State of the Union address, Reagan told Congress, “We did not achieve what we wished, and serious mistakes were made in trying to do so.” This admission, although it came late in his presidency, gave Reagan somewhat of a reset.    *[WSU]: Wayne State University If Obama can put his ego aside and admit some mistakes of his own in today’s media tour or in tomorrow night’s prime-time address to the nation, it might give him more maneuvering room, which means more time and options.  It could also give the impression that he is doing something measured and reasonable, instead of just compounding his red-line blunder.  He should acknowledge that some of what he has said about Syria is regrettable. And on the economy, he should own up to the wrong assumptions and predictions that his administration has made over the past five years and assure the American people that he gets it.  He needs to pledge that his administration will be more careful going forward and will not continue to pursue policies that obviously suppress economic growth. President Obama shouldn’t expect anyone to pretend that he didn’t draw a red line in Syria or that his economic policies are working here at home.

For investors, it’s a perfect time to go back to the basics

Look around you: This is the time of year when the pages of newspapers and magazines are filled with predictions and lists and all manner of money-losing nonsense. I have pushed back against much of this silliness in these pages over the years. Today, I am going to suggest you take a different route: Focus on 10 basic, simple truths that many investors seemingly ignore. Some of you are unaware of these realities; others understand them intellectually but cannot act on your knowledge. These are the simple things that amateurs and pros alike get wrong. There are no guarantees on Wall Street. But if you take the following admonitions to heart — and act on them — I will extend you this money-back guarantee: You will become a much better investor. Enough chatter. On with the list: **1\. Stock picking is a sucker’s game.** The ability to select stocks, manage them over time and know when to sell them is incredibly difficult, even for professional fund managers. 2014 was an especially challenging year, with 85 percent of mutual fund managers under-performing the benchmark S&P; 500. A lot of what people think of as trading skill is actually just random luck (a lesson that many investors eventually learn, but only after losing a huge amount of capital). Even those who beat the market a few years in a row end up a wash once fees and other costs are considered. **2\. Turnover, fees and taxes exert a huge drag on returns.** In addition to the challenge of picking winning stocks, you then have to deal with all the expense associated with turnover. Commissions add up, taxes are a big drag, margin ain’t cheap. A good accountant costs money as well. The math on this one is obvious, yet investors often fail to recognize it: Keep your costs low and your turnover lower and you will win in the end. **3\. You are an error machine, a mess of biases and emotions.** When it comes to investing, you are your own worst enemy. You allow short-term thinking to derail your long-term plan (assuming you have one). Emotions get in your way, as your lizard brain behaves as if you are still on the savannah fighting for your very life. You allow yourself to be unsettled by the day-to- day noise — irrelevant news, temporary setbacks, even company gossip. This is a recipe for failure. In short, you suck at this. But it’s not your fault, it’s how you were built. A little awareness goes a long way in correcting these wetware errors. **4\. Hedge funds are great at making hedge fund managers rich (making you rich, not so much).** The hedge fund industry is not having an especially good year in terms of performance. While the S&P; 500 gained more than 10 percent in 2014, the industry is barely positive, racking up gains of just 2 percent. But thanks to the industry’s “2&20” model — charging fees of 2 percent of assets under management, plus 20 percent of trading gains — it means big bucks for managers. Yet despite this underperformance, hedge funds continue to attract massive amounts of money, with total assets at $2.82 trillion. It is perplexing that so many investors keep playing this game. This is why it has been said that “Hedge funds are a wealth transfer system disguised as an asset class.” **5\. You are likely less diversified than you think.** I’m amazed by what people believe diversification means. We often review other portfolios in our office that are little more than huge collections of overlapping funds — lots of similar big cap companies, lots of tech, very little in the way of small cap value, REITs, TIPs, munis or other asset classes that are less correlated with each other. Meanwhile, the typical stock portfolio often looks like an expensive concentrated bet. Rather than play this game, a broad asset allocation strategy is vastly superior, holding asset classes that do not move in lock step with each other. No one knows what the top-performing asset class will be next year. Lacking this prescience, your next-best solution is to own all of the classes and rebalance regularly. **6\. You can only succeed if you educate yourself, remain patient and practice discipline.** Do you understand what “the long term” actually means? You need to recognize that periods of volatility and drawdowns are not at all uncommon over time. You must grasp that in a diversified portfolio, some asset classes will always be lagging while others will be leading (this is a feature, not a bug). And, you need to really comprehend what your portfolio was designed to do. Finally, you have to have the discipline to stay the course even when it is uncomfortable. Without these skills, you cannot successfully manage your own investing. **7\. You may not need a financial adviser.** If your financial circumstances are relatively simple, you probably don’t need to pay for full-service financial planning. If you can control your emotions, you can manage a simple allocation plan on your own. Unfortunately, a lot of people lack the self-discipline to handle market pressures when the going gets tough. They may need an adviser to talk them off the ledge. Then there are investors who have complex financial circumstances, with many moving parts. Tax and estate considerations, generational wealth transfers, sale of a business and many other complexities suggest you should seek out good advice. Just understand what you are paying for, and then derive full value for it. **8\. Understanding financial truths intellectually and emotionally are two completely different things.** Even when you understand what you are supposed to do, it is very, very hard to actually do it. Since we are approaching the time of year when new year’s resolutions get made, think about how many people vow to stop smoking, exercise and lose weight. Then consider how many achieve those goals. The same gulf appears between people’s financial intentions and how they actually behave. **9\. It is never too late to start. That said, sooner is much better than later.** Patrick O’Shaugnessy is a twentysomething who wrote the book “Millennial Money.” He points out you will never have a longer investing timeline over the course of your entire working career than when you are in your 20s. This can have a potentially enormous impact on your investing returns. **10\. The secret to success in investing in one word: compounding.** The beauty of investing is that you get to compound gains upon gains. Over time, that adds up to outsized returns — but only if you allow time to work in your favor. Consider a simple portfolio that yields 8 percent a year. Over 30 years, the money will multiply tenfold. That’s the power of compounding. William Goldman said “Nobody knows anything.” The screenwriter was referring to the movie business, but he might as well have been talking about finance. Still, after many years of study, we do know something. It is up to you to learn to separate fact from fiction and invest accordingly. This list can give you a head start. Ritholtz is chairman and chief investment officer of Ritholtz Wealth Management. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture. On Twitter: @Ritholtz.

Payday loans aren’t the problem. The problem is poverty.

In all the discussion about how to regulate small-dollar loans -- how to preserve access to short-term credit, while protecting consumers from falling into cycles of debt -- one very important element is getting lost.    *[WSU]: Wayne State University No person should be living so close to the financial brink that he or she has to borrow against future wages just to pay the bills. This is not the kind of debt people take on to improve their earning potential, like a business or student loan. This is the kind of debt people take on because their tanks have hit empty, and there's nowhere else to turn. And more people are finding themselves in that situation more often these days. Here are three things that have happened in conjunction in America over the past decade: Debt loads have increased. Real earnings have stagnated. And payday lending has exploded \-- while storefronts have declined from a high of 22,000 in 2007 to about 18,000 today, online lending has tripled in volume, to almost equal the $5 billion that flows through brick and mortar establishments.    *[WSU]: Wayne State University The first two bear some relation to each other. Over the past half century, we've replaced healthy wages with robust access to credit: Even if you weren't earning much, you could at least borrow enough to make it feel like you were. While that problem has started to subside after the housing bubble burst, debt loads remain much higher than they were a decade ago, real earnings haven't caught up, and the U.S. personal savings rate remains half what it was in the 1960s and 1970s. That's meant that the average American has very little financial leeway when something unpredictable happens -- or if he or she just needs to scrape together enough money to pay monthly expenses, which the Pew Charitable Trusts found was the biggest reason people use payday loans. And these aren't the poorest of the poor. These are people who actually have an income stream -- it's just too small to build up a cushion, and since they may have defaulted on some of that credit they took on earlier, they don't qualify for traditional loans. Now, the paycheck-to-paycheck crowd includes 38 million Americans who are sitting on some wealth, like a house or a car, that's hard to liquidate when a need for cash comes up.    *[WSU]: Wayne State University So it's probably reasonable that regulators, the industry, and even some advocates agree that quick cash should be available in some form. At the moment, evidence suggests that payday loans actually make it harder for borrowers to pay their bills, but banning them outright might lead to the formation of an illegal market that could get people in bigger trouble, and there are ways to reform the market to keep that from happening.    *[WSU]: Wayne State University But let's not act like everything is fine as long as the small-dollar option is relatively "safe." To make a slightly awkward analogy, even if you believe that safe abortions should be legal and easily accessible, they're not the optimal outcome: It would be better if women didn't find themselves in the position of needing one in the first place. The same goes for expensive emergency credit. Mitigating the negative side effects shouldn't erase the focus on root causes of the disease. In this case, payday loans aren't the problem. The problem is poverty. And of course, it's a lot harder one to fix.

Democrats should not get overconfident

● Regarding Eugene Robinson’s Nov. 16 op-ed column, “They still don’t get it”: The Democrats will be making a big mistake if they lull themselves into thinking that they can coast to easy victories in the years to come. A similar thinking was at work following President Obama’s victory in 2008. It only took two years for the GOP, which had been blamed for the financial crisis at the end of President George W. Bush’s second term, to come back roaring in the midterm elections in 2010. Money can do wonders. The 30 GOP governors will do all they can to keep the House in the GOP hands, and may even be successful in denting the Democratic majority in the Senate, in 2014. Sivakumar Tadikonda, Herndon

Here’s where I messed up. And this is what I learned.

It is an annual rite of passage. Each year, I assess the errors, blunders and gaffes I made in the course of running an asset management business. I find the process incredibly productive. As a bonus, it keeps me off the list of “never wrong” commentators that www.pundittracker.com appropriately mocks throughout the year. Why should you make a list of your mistakes? In the investment business, you must expect to be wrong. This ritual forces you to stop lying to yourself about what a great investor you are. In most fields, if you get 3 out of 5 things wrong, your career is in deep trouble. Imagine if a doctor had 60 percent of clients die on him, or an accountant with a 60 percent audit rate. Investing is more comparable to baseball, where hitting the ball only two out of five times means you are batting .400 — making you one of the greatest batters of all time. (Congratulations — you are Ted Williams!) Understanding this strikeout ratio is just a small part of successful investing. It also helps to have a plan in place so you know what to do when you whiff. I am frequently — and, on occasion, spectacularly — wrong. But I expect that to be the case. Pretending to divine what stocks will go up or down or where the market will be in three or six months is not only silly, it’s also counterproductive. Instead, I suggest you anticipate errors and be prepared to correct them, quickly. Hence, my goal every year is to make a whole new set of errors, rather than repeating the same mistakes over and over again. On that note, here’s how I fared in 2013: 1 **Tactical moves:** Last year, a few of my tactical moves worked out, but more than a few did not. Even when you are right, there are costs and taxes associated with being tactical. When you are wrong, there are opportunity costs. At times, I carried excess cash, and that was a drag on performance. **Solution:** The goal in executing tactical moves should not involve trying to sidestep the 10 to 15 percent retracements. Instead, aim to avoid the large crashes — those 25 percent-plus moves to the downside. We can reduce frequent tactical moves by tightening the metrics that feed our decision-making. Ideally, a defensive tactical investment should be deployed sparingly — twice per decade would be a lot. It should not be an annual event. 2 **Real estate/housing market:** I doubted — and continue to doubt — the housing market recovery. I expected more foreclosures, more underwater-owner walkaways and an even bigger bank-owned real estate overhang to weigh on the market. I was wrong. Instead, the market stabilized, and prices rose. I failed to recognize just how powerful the Fed’s mortgage purchasing program, Operation Twist, was. Today, you can get a 30-year fixed mortgage for about 3.5 percent. This has increased the buying power of those in the market. And the various multibillion-dollar mortgage settlements have given banks more flexibility in how they handle all of the property that remains on their books. I also overlooked the impact of $25 billion in private-equity investment in homes. **Solution:** Be aware of the inorganic nature of this improvement, but do not underestimate the ability of the central bank to stabilize a housing market. After a 35 percent fall, the downside might be somewhat more limited. 3 **JPMorgan:** I have been critical of the too-big-to-fail banks that have opaque balance sheets. The trouble arises when we try to own a balanced portfolio with a proportional amount of exposure to the financial markets. One solution was to own companies with cleaner balance sheets and less credit risk — firms such as Visa and Berkshire Hathaway. The “Fortress Bank” that Jamie Dimon created suckered me in. Less than a year later, the London Whale lost all of my profits in the position. And then some. **Solution:** Have more courage of your convictions. If you think too-big-to- fail banks are not worthy of investment because of their impossible-to-read balance sheets, well, then don’t buy them. There are lots of alternatives to get financial-sector exposure, including small-cap funds and regional banks. Be aware of the trend, but do not accede to the crowd. 4 **Facebook:** After berating Facebook for the better part of two years on valuation, fabricated metrics and a weak business model, I began to wonder if I was suffering my own confirmation bias — perhaps I was simply looking for information that backed up what I already thought. Self-doubts led me, as the stock came in on the day of the IPO, to buy Facebook for aggressive portfolios. Our stop-loss discipline prevented us from taking much of a loss on it — it was sold before the day ended as it traded down to the IPO price. **Solution:** Again, this requires the courage of your convictions. I owned Facebook for less than a day. It never should have been bought until it neared my valuation of $25 billion (about $13 to $16 a share). If, occasionally, you have to miss a party where everyone else is having fun, so be it. 5 **Global macro:** One error I made this year was allowing macro views to trump our more pedestrian day-to-day investing approach. We all love to look at the really big picture, but in three of four years, it has not been a good way to make money. While global macro often works out well at major turning points, the rest of the time it has the potential to create excess activity and mischief. **Solution:** Asset allocation has proven itself over time. Avoid becoming distracted by noise. Those are the big ones for last year. Be proud of your errors. If you are not making any mistakes, you are being excessively risk-averse. Investing involves risk, and that means you will occasionally be wrong. And although it is okay to be wrong, it is not okay to stay wrong. Come back in 12 months for a whole new set of mistakes. Ritholtz is chief executive of FusionIQ, a quantitative research firm. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture. On Twitter: @Ritholtz.

How to retire without regrets

Many of us look back at those wasted years of our youth and wish we had done at least a few things differently. That’s been proven in a recent survey by Allianz Life Insurance Co., which said 32 percent of those polled say they regret major life choices. The biggest regrets were not following their dreams (39 percent), not taking more risks with their careers (38 percent) and not taking risks with their lives in general (36 percent). But there is another big regret that many people have, and that’s that they did not do enough to prepare for retirement. By now you should know the numbers. Surveys show that people have not saved enough. And they are worried. According to PwC’s 2016 Employee Financial Wellness Survey, 37 percent of those interviewed were worried that they would not be able to retire when they wanted. That survey tracks the financial well-being of full-time-employed U.S. adults nationwide. Another survey, by the Indexed Annuity Leadership Council, says a quarter of Americans are worried about running out of money in retirement. But the biggest regrets aren’t always financial. “Some folks say ‘I wish I had enjoyed life a little more when I was working,’ ” says Aaron W. Smith at A.W. Smith Financial Group in Glen Allen, Va. “Now that they are older, their health is not allowing them to do some of the things they’ve always wanted to do in retirement.” As I’ve said many times before, retirement is hard, as is preparing for retirement. So here’s some help from people who, for the most part, have done it. **Not starting earlier.** “People always talk about how they wish they would have started sooner, put more away,” says Tim McGrath at Riverpoint Wealth Management in Chicago. “A lot of times, clients wish they would have gotten organized regarding finances. If they had done it earlier, they would have changed their habits. “ **Not retiring sooner.** This may surprise people, but it comes up with financial planners more often than you think. “My clients don’t always retire when they say,” says Ken Moraif, a senior adviser at Money Matters. “Faced with actually retiring, it is stressful. So they delay it. After they do (retire), they say, ‘I don’t know why I waited.’ They endured at work a little longer than they needed to.” Kirk Cassidy, co-president of Senior Planning Advisors in Farmington Hills, Mich., says people work longer than they need to because they don’t have a customized income plan. “They have regrets afterward when they find out they didn’t need to,” he says. “They were working for their children rather than themselves. Working did not change their quality of life. It only changed their children’s quality of life in their death.” **Not getting help from a financial planner earlier.** “One of the biggest is ‘I wish I had come to see you, or someone like you, years ago,’ ” Smith says. “I didn’t come to see you because it wasn’t important at that time. I was intimidated, or I was embarrassed at where I was.” “Another regret is they take advice from the people they love,” he says. “We all do that. They wish they didn’t get that advice from a friend or a co-worker.” **Not making the right decisions for their surviving spouse.** Smith says clients often wish they had made better decision on their pension distributions. “That’s a biggie,” he says. “A lot of retirees, if they work for a government agency or corporation that offers a pension, and they’re married, find we should have made a better decision with the pension.” Pensions offer a larger monthly benefit for a single-life benefit than they do with a survivor annuity. But the single-life benefit ends when the pensioner dies, leaving the surviving spouse without a benefit. “Some of the folks who have taken the single-life benefit weren’t in that great of health,” Smith says. “But the loved one was in better health. It leaves the loved one without a pension for the remainder of their life.” **Not considering taxes when making withdrawals from retirement accounts.** “Retirement planning, especially withdrawal, can be like a Rubik’s cube,” Cassidy says. “You can solve the blue side, then you have a problem with the orange side. It can be complex. We want to make sure we take distributions from the right source at the right time at the right ages.” **Not understanding when your strategy changes from saving to spending/withdrawal.** “When we are younger and accumulating wealth, we are making decisions in isolation,” Cassidy says. “We are buying this mutual fund, buying this life insurance and taking Social Security at this time. We are making decisions in a vacuum as opposed to looking at it holistically. A holistic approach is not a one-size-fits-all retirement plan. Each one will be custom and individual, based on age, wealth, net worth, assets they have.”

Hold bankers accountable for their crimes

Last week, Attorney General Loretta E. Lynch announced that five major banks were pleading guilty to criminal charges for what she described as a “brazen display of collusion” to manipulate the currency markets. The banks — Citigroup, JPMorgan Chase, UBS, Barclays and Royal Bank of Scotland Group — were hit with $5.6 billion in fines and penalties. Sensibly, the banks were forced to plead guilty, not simply pay fines in settlements where they neither admitted nor denied the changes. But the charges still were brought against banks, not bankers. No banker was held accountable. The personal fortunes of the bankers who profited were not touched. Shareholders, not bankers, will pay the fines. The Justice Department would have us believe that criminal banks ran profitable criminal conspiracies without involving any bankers. The unwillingness to hold bankers accountable for their frauds and crimes is a great and continuing failure of our justice system, one that poses a clear danger to this country in the years ahead. Banks have been on a criminal wilding — allegedly laundering money for drug dealers, systematically defrauding homeowners on their mortgages, routinely committing perjury in courts and much more. They’ve paid more than $60 billion in fines over the past two years. Yet virtually none of the bankers — certainly not one of those who claim to run these behemoths — have been held criminally accountable. They have recovered from the economic crash they helped cause, even if millions of Americans have not. And their criminal environment and culture remains intact, despite scandal and plea agreements and tens of billions in fines. Yes, the banks are back. As the New York Times’s Neil Irwin reported, employment has returned to 2007 levels; the gap between the pay of Wall Street workers and everyone else is back near record levels, and the profits of the financial sector are soaring. This is, as Irwin notes, a glaring contrast to what occurred after the crash that led to the Great Depression in the 1930s. Then banks were shackled, tightly regulated and greatly diminished in scope and license. The result was decades without major financial crises, during which the economy boomed and the United States grew together, with inequality decreasing. Now, however, while Dodd-Frank reforms have forced some changes, the big banks are more concentrated than ever. They continue to profit from high leverage, exotic trades and very high risk. They remain too big to fail — and apparently the bankers are too big to jail. More and more studies, including one by the International Monetary Fund, hardly a radical bastion, suggest that a bloated financial sector is bad for an economy. It generates destructive booms and busts. Its high pay entices the most creative to use their talents on financial schemes rather than in more productive activities. Its culture of greed corrupts not just Wall Street but also our politics and economy more generally. And these recidivist banks — and the bankers who run them — clearly remain unrepentant. The law firm Labaton Sucharow recently updated its 2012 survey of bank employees and their ethics. It noted that there was a “marked decline in ethics” in the three years since their first survey. More than one-third of those earning $500,000 or more annually reported that they had firsthand knowledge of wrongdoing in the workplace. The percentage of bankers who believed their own colleagues had engaged in illegal or unethical behavior has nearly doubled since 2012. According to the bank employees, this isn’t an accident. Nearly one in three admits that compensation and bonus plans in their company “could incentivize employees to compromise ethics or violate the law.” The raft of charges, costly settlements and now criminal pleas apparently has had little deterrent effect. The report found that the banks weren’t responding by cracking down on crime; instead, they reported a “proliferation of secrecy policies and agreements that attempt to silence reports of wrongdoing” and discourage workers from reporting lawlessness to government authorities. The criminal pleas by the five banks will not redress this. In a stinging dissent, Securities and Exchange Commission Commissioner Kara Stein objected to the fact that the SEC granted the guilty banks waivers from the automatic disqualifications that they should have suffered, measures that would have had a dramatic effect on business as usual. She summarized the criminal conspiracy, noting, “The conspirators communicated . . . almost daily in an exclusive online chat room that the traders referred to as ‘The Cartel’ or ‘The Mafia.’ ” They “lied to customers in order to collect undisclosed markups. . . . This criminal behavior went on for years, unchecked and undeterred.” Yet the SEC waived the disqualifications after already having granted more than 20 waivers to the same banks for criminal activities in the past. Stein wrote, “This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers. We have the tools, and with the tools the responsibility, to empower those at the top of these institutions to create meaningful cultural shifts, yet we refuse to use them.” The big banks — and the danger they still pose to our economy — should be at the center of the 2016 political debate. Last week, Sen. Bernie Sanders, a candidate for the Democratic presidential nomination, introduced a bill titled “Too Big to Fail, Too Big to Exist,” calling for breaking up the big banks. With bankers lavishing big contributions on political candidates in both parties, citizens and the media should insist that candidates describe how they would deal with banks that are too big to fail and with recidivist banks that seem to operate as continuing criminal conspiracies. We need to know who is prepared to stand up and who is in the banks’ pocket. _Read more fromKatrina vanden Heuvel’s archive or follow her on Twitter._ **Read more about this topic:** The Post’s View: Keep the line bright in Dodd-Frank

What Obama deserves credit for — and doesn’t

It is far too early to render final judgment on the Obama presidency. All the chatter about his “legacy” overlooks two obvious realities. The significance of President Obama will depend heavily on events that have not yet happened (for starters, the fate of the Iranian nuclear deal) and comparisons, for better or worse, with his successor. Still, it’s possible to make some tentative observations. As I’ve written before, the administration’s greatest achievement was, in its first year, stabilizing a collapsing economy and arguably avoiding a second Great Depression. Even now, only eight years after the event, many people forget the crash’s horrific nature. Unemployment was increasing by roughly 700,000 to 800,000 job losses a month. No one knew when the downward spiral would stop. In this turbulence, Obama was a model of calm and confidence. The policies he embraced — various economic stimulus packages, support for the Federal Reserve, the rescue of the auto industry, the shoring up of the banking system — were what the economy needed, though they were not perfect in every detail. Although the subsequent recovery was disappointing, it’s not clear that anyone else would have accomplished more. If Obama had done nothing else, rescuing the economy would ensure a successful presidency. But he did do other things, and we shouldn’t forget the historic significance of having an African American as the nation’s leader. Still, his broader record is mixed. I think he will get credit for Obamacare, regardless of how Donald Trump and the Republicans modify it. The argument will be made, accurately I think, that the expansion of insurance coverage to roughly 20 million Americans would never have occurred if Obama hadn’t put it at the top of his agenda. This does not mean that promoting Obamacare was uniformly wise. It did not solve the problem of high health-care costs, and it aggravated political polarization. It also seems a product of personal ambition, reflecting Obama’s desire to be remembered as the liberal president who finally achieved universal coverage. In reality, even after the 20 million, there were an estimated 28 million uncovered Americans in 2016, says the National Center for Health Statistics. Some of Obama’s biggest setbacks were widely shared. One was coming to grips with an aging society. As I’ve repeatedly written, the growing population of older people is distorting government priorities, because Social Security, Medicare and Medicaid (which covers nursing home care) increasingly dominate the federal budget, squeezing other programs and enlarging budget deficits. Obama never dealt aggressively with this problem, because doing so would have offended his liberal political base. His failure made it impossible to secure major concessions from Republicans on raising taxes. Similar failures plagued immigration policy and climate change. Facing political paralysis, Obama resorted to executive orders and regulations. Many will probably be revoked in a Trump administration. What Obama lacked was the ability to inspire fear as well as respect, and this also helps explain why his foreign policy often fell short — Syria being the best but not the only example. Few presidents have worshiped their words more than Obama. To take one example: His farewell speech last week ran 50 minutes; the average for seven other post-World War II presidents was 18 minutes, according to the Wall Street Journal. Not only did he worship his words, but he assigned them more power than they possessed. At times, he seemed to treat the White House as a graduate-school seminar where he was the smartest guy in the room and, therefore, deserved to prevail. At news conferences, he gave long, convoluted responses full of subtleties that may have impressed political and media elites but didn’t do much to shift public opinion. Our government has turned into a quasi-parliamentary system. Controversial proposals are supported and opposed mainly, or exclusively, by one party or the other. This is a bad development. It strengthens fringes in both parties, who hold veto power. It discourages compromise and encourages stalemate. The legislation it produces is often acceptable to partisans but less so to the wider middle class, undermining public faith in government. The question historians need to ask is whether Obama contributed to this dysfunctional system or was victimized by it. He was unable to construct a working relationship with congressional Republicans. Was this because, as the White House has contended, Republicans had been unmovable from partisan positions? Or was Obama complicit, because his own partisan constraints left little maneuvering room? Maybe both. In this era of snap judgments, a true verdict on Obama is years away. _Read more fromRobert Samuelson’s archive._ **Read more on this issue:** Robert J. Samuelson: The Obama legacy that can’t be repealed Dana Milbank: The farewell message Obama wishes he could give: ‘You’re welcome!’ Letter to the Editor: The median income tarnishes President Obama’s legacy

Retirement mistakes people make at every age

Retirement security didn’t always feel this out of reach. People worked until their early 60s, earned pensions and collected Social Security. Today, most people expect that they will rely on their own savings, and some worry that Social Security is no longer a sure thing. Workers now need to view the income they earn throughout their careers, which can span 40 years, as money to last them into their 80s and beyond. People stumble with their retirement savings at all stages of life as competing interests — student loans, the cost of having children, health emergencies and home obligations — manage to get in the way. But the cost of putting off saving can be dire: Roughly 40 percent of baby boomers and Generation Xers risk running out of money in retirement, according to the Employee Benefit Research Institute. It’s a tricky balancing act, and the mistakes that are more likely to make workers stumble will look different depending on whether a person is fresh out of college or at the tail-end of his career. **20s: Focusing too much on student loan debt**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Some young workers may think it’s smarter to use their meager paychecks to aggressively pay off student loan debt before they start saving for a phase of their life that’s still decades away. But that would mean giving up the biggest advantage they have when it comes to saving for retirement: time. “If you start saving at 22 you need to save half as much on a yearly basis as you would if you started at 32 to get to the same dollar amount,” says Scott Holsopple, managing director of retirement solutions at the Mutual Fund Store, a group of investment advisers. Workers who receive matching contributions from employers should at least save enough of their income to take advantage of that match, says Antwone Harris, a financial planner with Charles Schwab. “That’s just free money” that would otherwise be left on the table, Harris says. They should also set the plan to automatically increase the contribution rate by 1 percentage point each year, says Scott Halliwell, a financial planner with USAA, until they are contributing at least 10 percent. If the plan doesn’t allow for automatic increases, workers should increase their savings rate every time they get a pay raise, he says. **30s: Cashing in retirement savings to buy a house**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico After managing to put away a decent sum for their nest eggs, some people may find themselves tempted to use the cash today. Maybe there are children in the picture, creating the need for more space. And some workers may feel like they can afford a house now that their paychecks are bigger — if they could just finish saving up for that down payment. But by using that money now, some people could be setting themselves up to struggle in their later years, advisers say. “They buy an expensive house instead of a comfortable retirement,” Halliwell says. Tax law allows workers to use their retirement savings to buy their first home, further adding to the temptation. The Internal Revenue Service allows penalty-free withdrawals of up to $10,000 from Individual Retirement Accounts for first-time homebuyers. There are similar allowances for 401(k) plans, but the withdrawal would come with a 10 percent penalty or in the form of a loan that would need to be paid back immediately if a person changed jobs. People who struggled to save for a down payment may have a hard time covering maintenance, taxes and other expenses that arise as a result of home ownership, Halliwell says. And that $10,000 would be worth much more in retirement if it had remained invested where it could grow and compound interest. **40s: Prioritizing the kids’ college**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico The goal here is typically to keep children from taking out loans for college so that they can earn a degree — and the higher pay that comes with it — without being weighed down by debt. But the approach may backfire in the long run if parents are cutting back on their retirement savings to cover those education costs. “As soon as you start decreasing retirement that’s going to be a red flag,” Holsopple says. While there are multiple ways to pay for college, there aren’t as many options when it comes to paying for retirement, advisers say. Some teens may be able to work to cover expenses while they’re in school, Halliwell says. Families can also consider less expensive options, such as state colleges or community colleges that have lower tuition rates than private universities. Plus putting their college education ahead of your retirement now could backfire for both parties. “Eventually they’re going to become a burden to their children,” he says. **50s: Being unrealistic about what retirement will look like**   With retirement roughly a decade away, workers should start managing their expectations for what they will realistically be able to do in retirement. Some people may find that they need to delay it or take on a part-time job because they haven’t saved enough. “This is where you start focusing on the trade-offs you’re going to face in retirement,” Holsopple says. “This is where you start to evaluate your situation.”    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Advisers say people should start setting up for their post-retirement jobs in their 50s by building a consulting firm or freelance business that may provide more flexibility and added income in retirement. People in their 50s should also be saving as much as they can, even if they have been saving all along, Holsopple says. That includes saving at least 15 percent of pay and making additional catch-up contributions of up to $5,500 that the IRS allows for people age 50 and up. **60s and beyond: Blowing through the money too quickly**    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Some people mistakenly think that once they stop working their only choice is to draw down on their savings until they run out of money. But pre-retirees and retirees can still make changes that can help their savings last longer. For starters, some people may decide to work a little longer or to take on part-time work so that they can put off the need to tap their retirement savings and can stash more money away. “Just a couple of years of extra work can make a huge difference,” Halliwell says. With life expectancy increasing, retirees should plan on having their savings last another 25 to 30 years, if not more, advisers say. People can boost their income and stretch that money if they keep it invested instead of moving it primarily to cash. Some retirees may invest in a mix of bonds and dividend-paying stocks that can create a stream of income, and some stock exposure may still help boost returns in the long run. “You’re still going to be an investor for another 20 years or more in retirement,” Holsopple says. Retirees should also be flexible about how they draw down those savings and stay open to changing their approach if their savings take a hit, says Luke Delorme, research fellow at the American Institute for Economic Research. For instance, someone who withdraws a fixed percentage of savings each year would withdraw less money after a market downturn than someone who takes out a set dollar amount, he says. That could leave them in a better position to recover if the market rebounds because more of their savings would remain invested, he says. Related: Need to reboot your retirement plan? Let us help    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico When your second career starts at 73    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico Why your baby needs a retirement account    *[WSU]: Wayne State University   *[Tue]: Tuesday   *[Wed]: Wednesday   *[UNM]: University of New Mexico

Millennials’ money misfortune

It’s no secret that many members of the millennial generation are struggling financially. They may be the first cohort to end up worse off than their parents. The sheer number of millennials — about 80 million — makes them a significant force in the U.S. economy. But many of them have trouble accurately answering basic personal finance questions, spend more than they make and are worried about their debt, according to a new survey by the Investor Education Foundation of the Financial Industry Regulatory Authority. In looking into the finances of millennials, Ameriprise Financial found in a multi-generational survey that an overwhelming majority of them feel stretched by car payments, credit cards and other bills. Only 57 percent with access to a workplace retirement plan are contributing enough money to take full advantage of the employer match. The Pew Research Center released a report comparing previous generations and millennials, and it concluded that “coming of age during the country’s deepest economic downturn since the Great Depression” has made it hard for them to establish themselves financially. Separate from the report, Paul Taylor, a Pew executive vice president, has written a book that takes a more in-depth look at the generational gaps. In “The Next America: Boomers, Millennials, and the Looming Generational Showdown,” Taylor says that baby boomers and millennials are the lead characters in a coming economic battle. “Every family, on some level, is a barter between the generations — I care for you when you’re young so you’ll care for me when I’m old,” Taylor writes. But many millennials won’t be able to afford that. The changing of the script is best captured by the two big generations, Taylor says. He points out that baby boomers will be “crashing through the gates of old age in record numbers for the next two decades, not nearly as well fortified financially for the journey as they’d hoped; and the millennials, 20-somethings who have landed back in their childhood homes in record numbers because they haven’t been able to get launched in a hostile economy.” Consider these findings from the Pew research: • About half of millennials with student loans say this debt has made it more difficult to make ends meet. • Unemployment remains high. Pew says 13 percent of the 18-to-24 age group were out of work in the first month of this year. • The share of young adults living in their parents’ home reached a historical high in 2012, three years after the Great Recession ended. • Most millennials say they would like to marry. But many, especially those with lower levels of income and education, don’t think they can because they don’t have “a solid economic foundation.” • When compared with the Gen Xers and boomers, millennials have less wealth and income than the two immediate predecessor generations had at the same stage of their lives. And what conversation about the generations can be conducted without addressing Social Security? Absent any changes to the system, “virtually all millennials will get back less in benefits than they contribute in taxes,” Taylor writes. Four years ago, about the time the oldest baby boomers began to retire, annual revenue into the Social Security system began to fall below annual payments. Could we see a showdown between the generations on cuts to Social Security? “At its core, this is a problem of generational equity,” Taylor writes. “The young today are paying taxes to support a level of benefits for the old that they themselves have no prospect of receiving when they become old.” The problem with Social Security funding is not lost on millennials. Fifty-one percent of them don’t think there will be any money for them in the Social Security system by the time they retire. Thirty-nine percent believe they’ll get reduced benefits, according to the Pew report. And yet, despite this pessimism, 61 percent of young adults oppose Social Security benefit cuts. Even with their financial burdens, millennials are economically optimistic overall. Contrary to the evidence that they are struggling, 51 percent said that they may not earn enough now but that they expect to in the future, Pew found. Taylor was a guest on Jon Stewart’s “The Daily Show” to talk about the generational showdown. In his typical funny and insightful way, Stewart said he didn’t think there would be much of a fight because millennials are younger, healthier and probably stronger. To which Taylor responded with a LOL quip: “They’re still living with mom and dad, so it’s a little hard to mount a generational war from your childhood bedroom.” Yet ultimately, the economic fates of all the generations are intertwined. We need each other. Write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com. Comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. More from Sunday Business: This is what a job in the U.S.’s new manufacturing industry looks like Pearlstein: Digital revolution: A clear look at clean cuts it can make