Monthly Archives: February 2015

Case Study: 401(k) Plans Under the Microscope

The recent news that the Supreme Court will be taking on a lawsuit involving a company’s 401(k) plan is sending shockwaves through the investment field.

Let’s start with the basics first.  A 401(k) plan, also known as a defined contribution plan, is a retirement plan administered by companies on behalf of their employees.  The employer selects the menu of investment options available to employees and also may offer to match an employee’s contribution to the plan.  The employee sets aside a certain percentage of their pay to contribute to their plan and selects investments.

As company pensions have declined, the 401(k) has become the primary retirement vehicle, with over $4.5 trillion in assets, as this chart indicates: Continue reading

Chart of the Week: What Do Credit Card Perks Tell Us About Credit Card Industry?

From the Economist:

CreditCards

Credit Cards often provide perks to convince cardholders to sign up with them.  Two common incentives are balance transfer offers which allow new cardholders to transfer existing credit card balances over and not pay interest for a period of time.  The other perk is the bonus airline miles offered for signing up.

The Economist noted that this chart indicates the stresses being felt by the card companies as they compete for customers:  Continue reading

Question: Can Credit Card Companies Change The Interest Rate You Pay?

Answer:  Yes.

A good reminder today that they can. American Express announced that it will be raising interest rates by an average of 2.5% on over 1 million of their customers (Bloomberg):

AmEx told more than a million customers this month that their annual rates will climb an average of 2.5 percentage points, following a review last year, said people briefed on the move. The firm sent letters saying it’s making adjustments after finding their rates were below those for rival cards held by borrowers “with similar credit profiles,” according to a copy obtained by Bloomberg News.

If their explanation sounds a little fishy to you, in this era of Big Data, you are not alone.  Recall last week’s news that AMEX was losing their exclusive agreement with Costco and suddenly this looks like a strategy to plug that hole.

How frequently do credit card companies increase rates on their customers? Continue reading

New Products: Making Savings More Automatic

Plenty of start-ups working on ways to make saving even more automatic.  From American Banker:

The Digit product’s debut comes as consumer advocates are encouraging the financial sector to develop technologies that help people save. American Express, for example, has created an initiative to reimagine savings for its reloadable prepaid card Serve. Even, which is in pilot mode, will automate deposits to savings accounts on weeks when users have earned more money than they do on average. SmartyPig, in Iowa, lets people create goal-based savings accounts. Qapital, which partners with Lincoln Savings Bank and targets millenials, is readying to launch its savings app in March. And prize-linked savings are now legal for banks in some states.

Might be fun to have students research one of these products (Digit, AMEX’s Serve, Even, SmartyPig, Qapital and prize-linked savings accounts) and report back to the class on: Continue reading

What Can SchoolHouse Rock Teach Us About Money?

I am going “retro” on you with this post.

Hat tip to my good friend, Andy Kavulich, who has a better memory than me recalling the School House Rock series, which had a few videos pertaining to money (I only remembered “I am a Bill” and “Conjunction Junction”).  While these videos may seem targeted to a younger audience, I think that they can be used at the high school level too by asking students to watch them more critically, apply the advice given to their own situation and even make recommendations based on their knowledge.

The videos below cover budgeting, investing and banking/saving.  I have also listed questions to prime students as they are watching:

Dollars and Sense would be appropriate for your banking/checking/savings unit:

  • In the video, the banker explains interest to the country singer wannabe.  Describe in your own words how interest can work for and against you.
  • What are two elements of this video that don’t seem reasonable in your view?
    • Potential answers:
      • Would a bank really lend money to her since she doesn’t appear to have a steady job?
      • Rather than get a bank loan, most people would buy that new guitar and amps using a credit card which would have an interest rate closer to 20% (compared to 10% the bank was offering).
      • Since interest rates are so low today, if she saved her money, she would only have about 1% more in her account.

Continue reading