Friday Financial Five – May 9th, 2014
Friday, May 09, 2014
Wealthy people against income inequality
Economists on both sides of the income inequality debate continue to argue both its existence and the possible detriment it might present to the economy. According to a CNBC survey, one group has weighed in on the matter and believes income disparities exist and should be rectified. That group, surprisingly, is millionaires. According to the survey, a majority of millionaires believe it’s a problem and support higher taxes and a higher minimum wage. One quarter of the millionaires surveyed attributed their wealth to hard work, while 10 percent cited education. Meanwhile, the number one method cited to reduce inequality was increased educational opportunities for the less wealthy.
Student loan interest rates increasing
The rising interest rate environment will hit student loan borrowings, a cumulative debt that is already over a trillion dollars. For the 2014-2015 school year, the rate on undergraduate Stafford Loans will be increasing from 3.86 percent to 4.66 percent. Graduate Stafford loans will increase from 5.41 percent to 6.21 percent and PLUS loans will go from 6.41 percent to 7.21 percent. While the higher cost of borrowing may provide some headwind to higher education, a recent study by the Federal Reserve Bank of San Francisco estimates that a college degree adds roughly $800,000 to one’s lifetime earnings.
Premature withdrawals on the rise
With the decrease in home equity to dip into, there’s an uptick in premature withdrawals from retirement accounts. This disturbing trend resulted in $5.7 billion in penalties in 2011 to the Internal Revenue Service. Obviously, the more disturbing result is less money left to grow tax deferred for individuals’ retirement nest egg. A penalty free withdrawal should be considered for those meeting certain financial criteria or facing financial hardship.
China to surpass US in economy size
It seems logical that a country with many times our population might eventually surpass the United States’ economy in size. One measure, the PPP (purchasing power parity), suggests it might happen as early as this year. Based on the countries’ respective growth rates, it seems a foregone conclusion that China will overtake the U.S. in economy size in the next ten years. The major surprise of the recent news is how imminent it is and how quickly China has grown since 2011.
Mothers and the economy
In honor of Mother’s Day, appreciate and laud the fairer sex’s contributions to the country’s well being, both at home and in the workplace. Looking at the last three decades, we’ve seen a dramatic increase in total hours worked by mothers, according to a report by Center for American Progress. The percentage of mothers working full time increased from 27 percent in 1979 to roughly 44 percent in 2012. Increased work hours by all women added roughly $1.7 trillion to the country’s output over that period of time.
Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at email@example.com.
Related Slideshow: Bureau of Economic Analysis: Real Personal Income Data for New England Municipalities, 2008-2012
The U.S. Department of Commerce released "real personal income" data for both all the states, as well as metropolitan area, from 2008 to 2012.
Below are the New England metro areas ranked from least personal income growth from 2011 to 2012 -- to the most, as well as prior years.
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