I got one of those forwarded-a-million-times emails from a friend warning against purchasing gift cards during the holidays from certain stores that may be headed for bankruptcy. Then it contained a long list of retailers. I thought this might be an internet hoax, but according to Snopes.com, it’s partially true. Companies can still issue gift cards when they are in Chapter 11 — Circuit City is doing that right now — and can also legally stop honoring gift cards when they declare Chapter 11. The only chance of getting your money back may be standing in line in bankruptcy court with other creditors (not likely to happen). More than $100 million in gift cards were reportedly compromised with the bankruptcies of Linens and Things and Sharper Image.
Some retailers will allow the cards to be redeemed during a reorganization, while others implement funky policies. Sharper Image, for example, allowed shoppers to redeem its gift cards after its Chapter 11 filing, but they had to make purchases worth double the value of the card in order to use them (in other words, consumers got 50 cents on the dollar). If you’re a gift-card giver, you may want to choose widely accepted cards, such as those from American Express, Visa, Mastercard and Discover; or choose a mall-based card that’s useable at an array of retailers.
In the meantime, don’t sign up for store cards just to get 10 or 15% off at the register. I explain why in this interview on the weekend Today Show.
In last week’s Yahoo!Finance story I wrote about a proposal for a Consumer Credit Safety Commission. Because I write a column, I get to come down on one side of an issue occasionally, and this is one I feel really passionate about. I wrote a lot about the mortgage debacle when it first happened, opposing bailouts for homeowners, because I thought the cause was mainly people failing to due their due diligence and taking on mortgages they couldn’t afford.
Then I saw the data that showed that showed many people who qualified for lower-interest mortgages were pushed into high-interest subprime loans by brokers out for the juiciest commissions. And other data that showed, at least at the beginning of the boom, 80 percent of subprime mortgages were refinances — not new homebuyers. In other words, someone who may have had a stodgy 30-year fixed-rate loan but was convinced to refi into a bad mortgage.
Sure there were foolish and greedy borrowers as well as outright fraud. But think how much trouble might have been avoided had mortgage brokers been subject to a simple suitability clause — as registered investment advisors are by the Securities and Exchange Commission. If I tell my stock broker that I want him to invest my money in something conservative, he can’t put me in derivatives. What would have happened if mortgage brokers were required to put borrowers in the best product for which they qualified? Ot if they were required to determine that it’s not suitable to put someone in a mortgage who has no income.
Harvard Law School’s Elizabeth Warren and Amelia Warren Tyagi have written most extensively and eloquently on the need for fair rules in this game, most recently in Harper’s. Here’s my comment on the topic today on Fox Business News.
Citigroup announced more than 50,000 in job cuts today, capping a difficult year for professionals in financial services, and one in which total layoffs could surpass 1 million, according to Challenger, Gray and Christmas, the Chicago-based outsourcing firm. To help laid-off workers, Challenger is offering free phone consultations for job-seekers on December 29 and 30 from 9am to 5pm CST. For free advice, call (312) 332-5790.
Planned job cuts announced by employers have steadily risen throughout 2008. The first quarter saw 200,656 job cuts. Layoffs climbed 37 percent in the second quarter to 275,292. In the third quarter, job-cut announcements reached 287,142, the largest quarterly total since 2005. (Keep in mind, though, that companies may not always follow through on planned cuts; Challenger only tracks the announcement.)
Challenger expects heavy downsizing to continue through the first half of 2009, as measures to solve the financial crisis take time to work their way through the economy. Meanwhile, job seekers have seen their searches lengthen by nearly one month, according to the Challenger Job Market Index. The median job search among those winning positions in the third quarter lasted nearly 4.4 months. It’s one reason why boosting your emergency fund makes sense in a recession. Here are some other ideas to help recession-proof your finances.
Hooray for Ohio and Arizona voters, who sent stinging rejections to abusive payday lenders in their states on November 4. Responsible citizens saw through the multi-million dollar promotions — that were sponsored by the industry under the guise of that “reform.” The Predatory payday lenders lost the Ohio ballot referendum by a margin of 2 to 1 and the Arizona initiative by a 3 to 2 margin.
The payday lending industry makes extremely high-interest loans repeatedly to borrowers unable to pay off the debt. According to the Center for Responsible Lending, they typically charge fees equal to 400 percent APR and higher. The average borrower has eight transactions a year that end up costing more in interest than the original debt. Click here to learn more about payday lending.
The federal government recently passed a law capping interest rates than can be charged to members of the military at 36 percent, effectively barring payday lenders from ensnaring them in these loans. Congress should ban payday lenders outright, but in the absense of leadership, states are moving against these loan sharks. Fifteen states and the District of Columbia have capped rates in a similar range.
Ohio was among those states, but after it passed a new law this year capping interest rates at 28 percent, the payday lending industry initiated a ballot measure to repeal it. In Arizona, payday lenders backed a ballot initiative to try to make permanent a temporary measure to exempt payday loans from the state’s 36 percent cap. Payday lenders knew lawmakers were unlikely to renew that exemption when it expired in 2010, but thought they could trick voters into doing it. Frankly, Arizona citizens should be demanding to know why their lawmakers exempted payday lenders from the cap in the first place.
I attended Glamour Magazine’s 19th annual Women of the Year Awards and dinner last night in New York. The electrifying evening featured a who’s who of the powerful, influential and beautiful: Nicole Kidman; Condoleezza Rice; Hillary Clinton; Tyra Banks; Chanel CEO Maureen Chiquet; environmentalist Jane Goodall; artist Kara Walker; three Nobel winners, Jody Williams, Rigoberta Menchu Tum, and Shirin Ebadi; Olympians Misty May-Treanor (still on crutches from her accident on Dancing with the Stars) and Kerri Walsh. Presenters included Mayor Mike Bloomberg, Natalie Portman, Salman Rushdie, Barbara Walters, Katie Couric, and America Ferrera, among others.
Then there was 10-year-old Nujood Mohammed Ali of Yemen, wearing an eggplant-colored caftan, her long ebony hair pulled off her petite face in a orange headband. When Nujood was nine, her impoverished parents married her off to a 30-year-old man, who promised not to consummate the marriage until Nujood was older. It didn’t work out that way. So one day, she took a bus and a cab to the courthouse, and waited until the judge noticed her. When he asked what she wanted, she replied, “a divorce.” Working with human rights lawyer Shada Nasser, Nujood became the country’s first child bride to legally end her marriage. She is back with her family and received a scholarship to school.
Child brides are common in Yemen, where per capita income is $900 a year, and the birth rate is among the highest in the world (the average Yemeni woman bears seven children). Nearly half the population is under age 15, and the estimated illiteracy rate among women is 65 percent.
Nujood gave a brief, halting speech in Arabic, smiling shyly at the packed house at Carnegie Hall. She said she wanted to protect herself, and other girls like her. It was heart-rending to watch as I thought of my own daughters, who are 11, 9 and 6. The Girls World Communication Center provides schooling and skills training to help Yemeni girls at risk of early marriage become self-sufficient. Click here to support the cause.
At the dinner after the awards, I had the pleasure of meeting the gracious Ms. Rice and American Idol winner David Cook, a terrifically nice guy who is psyched about his debut album, Bar ba sol, out next week. (He actually made Hillary Clinton blush with his serenade, “The First Time Ever I Saw Your Face.”) Congratulations to Glamour editor-in-chief Cindi Leive for a remarkable and inspiring evening.
My latest Yahoo!Finance column looks at some practical ways to save $500 by the end of the year. This might be second-nature to some readers, but I know plenty of people who would like to boost their cash for the holidays who don’t take advantage of these ideas. If you’re looking for more on the topic, this column looks at the psychology of saving, this post is about zapping junk mail and catalog temptations, this one is on minimizing wedding expenses, and this column examines some of the structural reasons people don’t save. I’ve written about saving money on gas, but it’s not exactly a hot topic at the moment (I spotted fuel for $1.99 a gallon in NJ this weekend!) I would really like to hear your best savings tips.
Now a tip for hard-core latte drinkers: I usually give out Starbucks giftcards for the holidays. Costco is currently marketing five $20 giftcards — a $100 value — for $80. A little extra for people who can’t kick the habit. (Of course, you have to have a Costco membership, or know a sympathetic coffee drinker who does.)
An historic election sweep, another market decline of more than 5%, and lots of hard work ahead for the new president. Clusterstock has a nice concise piece summarizing the challenges Barak Obama will face when he takes office. And check out this story today on Reuters looking at how Democrat control could affect the mutual fund industry.
On the personal finance front, intriguing story about the cost of healthy food by Tara Parker-Pope in today’s New York Times. She profiles several people who tried to live on as little as $1 a day, as many people in poor countries do. Not surprisingly, the menu featured lots of oatmeal and peanut butter and jelly.
Read to my daughter’s class this morning in honor of her 6th birthday. Actually, the kindergarteners read to me — I brought a couple of the “Carl” books by Alexandra Day, a series about a rotweiler and the baby he keeps an eye on while mom and dad go out. No words on the pages; the kids were very creative in their ideas about what the copy should say.
Then off to vote at the fire house. Not a long line, maybe 15 people ahead of me, but that was at 9:15am when the commuters were gone. (One of the kids waiting with his mom was appropriately dressed as a fireman.) Volunteers had brought a big container of coffee from Dunkin’ Donuts which was, by 9:15am, nearing ice coffee status.
Fortunately, I can get a free coffee at Starbucks! Participating stores are offering free java to those who do their civic duty — just go to the counter and tell the barista you voted (the old-fashioned honor system at work). Nice to see an election day rally underway (we’ll see how it closes). In the meantime, for anyone who is sticking with their 401(k) contributions through this volatile year, check out this encourage piece on stocks by Jeremy Siegel.
The Washington Post reports today on an effective way to derail a teenager’s future: Let them watch Sex in the City. A study that tracked 700 teens age 12-17 for three years found that those who watched a lot of television with flirting, necking, discussions of sex and sex scenes were twice as likely to be involved in a pregnancy than those who watched the least. The study, published in the current issue of Pediatrics, is the first to show a link between TV sex and teen pregnancy. Among the shows watched were Sex and the City, Friends and That ’70s Show. You can read the full story here.
About one-third of American teens get pregnant by age 20, the highest rate among fully industrialized nations. Teen childbearing in the U.S. costs taxpayers more than $9 billion annually, according to a 2006 report by the National Campaign to Prevent Teen Pregnancy, including increased costs for health care, foster care and incarceration.
Only a third of teen mothers finish high school, nearly 80 percent of unmarried teen mothers end up on welfare, and their children are at greater risk for abuse and neglect, the Campaign reports.
Just one more reason to cancel the cable and turn off the tube.
According to a recent survey by myFi, a financial service of Citi, Americans are largely blaming one another for the financial crisis. Among the 5,000 people polled, 72 percent blame the crisis on excessive spending by American consumers; 64 percent blame Wall Street; 62 percent blame excesssive borrowing by homeowners; and 59 percent blame the federal government.
I think there’s plenty of blame to go around, which I laid out in this Yahoo!Finance column. The one issue I failed to mention was that on Capitol Hill, almost no one is looking out for the common man’s finances – only for the people who provide campaign contributions. Hedge Fund manager Andrew Lahde discusses that problem pretty eloquently in his farewell missive to the shareholders of his hedge fund, which he closed after just one year — in which he earned an 866% return betting against the subprime collapse. CNBC posted Lahde’s letter on its website.
It’s worth pointing out that there are still a few elected officials pushing legislation to protect the consumer:
-Reps. Russ Feingold and Hank Johnson sponsored a bill to address unfair mandatory binding arbitration agreements, which are now in virtually every consumer contract you sign.
- Maloney, Frank and Rep. Julia Carson have sponsored legislation to protect consumers from unfair bank overdraft practices.
