Robust Housing Starts Data Offers Hope for 2Q Growth

May 19, 2015, 1:43 am

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Filed under: Mortgages, Economic Indicators, Housing Market, Home Buying, Economy

By Lucia Mutikani

WASHINGTON -- U.S. housing starts jumped to their highest level in nearly 7½ years in April and building permits soared, hopeful signs for an economy that is struggling to regain strong momentum after a dismal first quarter.

The strength in housing is in stark contrast with weakness in consumption, business spending and manufacturing, which has prompted economists to lower their second-quarter growth estimates and raised doubts that the Federal Reserve will raise interest rates before the end of 2015.

The stronger starts and permits data suggests that some real gauges of economic activity may finally be starting to accelerate during the spring.

"The stronger starts and permits data suggests that some real gauges of economic activity may finally be starting to accelerate during the spring, increasing optimism that the Fed may be on track to hike rates later this year," said Gennadiy Goldberg, an economist at TD Securities in New York.

The U.S. central bank has kept its short-term interest rate near zero since December 2008.

Groundbreaking surged 20.2 percent to a seasonally adjusted annual pace of 1.14 million units, the highest since November 2007, the Commerce Department said Tuesday. The percent increase was the biggest since February 1991.

Adding to the report's strong tenor, March's starts were sharply revised higher. Groundbreaking for single-family homes, which accounts for the largest share of the market, hit its highest level since January 2008. Starts for the volatile multifamily segment also recorded hefty gains last month.

While April's sharp acceleration in starts likely reflected pent-up demand during a harsh winter, a 10.1 percent jump in permits for future home construction to a near seven-year high 1.14 million-unit rate indicated the rebound was sustainable.

Home building is being boosted by solid gains in household formation as more young adults find employment and very tight housing inventories. Economists had forecast groundbreaking increasing to only a 1.02 million-unit pace and permits rising to just a 1.06 million-unit rate last month.

The dollar rallied against a basket of currencies, while prices for U.S. government debt fell. D.R. Horton (DRI), the largest U.S. homebuilder, advanced 1.7 percent. Lennar (LEN), the nation's second-largest homebuilder, gained 0.18 percent.

The S&P homebuilding index rose 0.86 percent and the housing index climbed 0.80 percent, outperforming the broad market, which was held back by weak financial results from Walmart (WMT).

The world's largest retailer said its customers were using their tax refunds and savings at the pump to pay down debt rather than spend on discretionary items, confirming a trend flagged by U.S. retail sales data since December.

Housing Firming

The firming housing market buoyed profits at Home Depot (HD). The world's largest home improvement chain by sales reported better-than-expected quarterly profit and sales, and raised its full-year sales and profit forecast Tuesday.

The signs of strength in housing fit in with views a rebound is under way. There is cautious optimism that housing, which has seen an acceleration in home sales and prices, will combine with a tightening labor market to lift the economy out of the soft patch hit at the start of the year.

"The strong rebound in housing starts confirmed expectations for housing to accelerate substantially in the second quarter and be a stand-out growth contributor amid otherwise sluggish indications for a pickup in GDP growth," said Ted Wieseman, an economist at Morgan Stanley (MS) in New York.

Based on April's starts data, economists lifted their second-quarter growth estimates by at least one-tenth of a percentage point to between a 1.7 percent and 2.7 percent annual pace.

The government reported last month that gross domestic product grew at a 0.2 percent rate in the first quarter. Weak March trade and inventories data, however, suggested the economy actually contracted.

The government will publish GDP revisions next week. Output at the start of the year was dragged down by the harsh winter, a strong dollar, a ports labor dispute and deep energy spending cuts in the first quarter.

Last month, groundbreaking vaulted 85.9 percent in the Northeast. There were also outsized gains in the Midwest and the West. Though starts fell 1.8 percent in the South, where most of the home building takes place, building permits were up 9.9 percent.

Single-family homes groundbreaking gained 16.7 percent. Starts for the multifamily homes segment increased 27.2 percent. Single-family permits increased 3.7 percent last month. Multifamily permits surged 20.5 percent.

 

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For Many Low-Income Workers, Calling In Sick Is a Luxury

May 19, 2015, 3:26 am

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Filed under: McDonald's, Retail, Labor, Job Market, Wal-Mart

By Anne D'Innocenzio

NEW YORK -- For Shannon Henderson, getting a cold or flu could be the difference between putting food on the table and going hungry.

As a part-time customer service representative at a Walmart in Sacramento, California, Henderson is one of an estimated 40 million American workers for who calling in sick is a luxury. If they don't work, they don't get paid.

"I'm super afraid of getting sick," said Henderson, 29, who slathers on hand sanitizer at work in hopes of fending off illness.

Paid sick leave is the next frontier in the fight for the country's lowest earners. Some of the same workers' rights groups that grabbed headlines recently by pushing companies for wage hikes are steering the conversation toward paid sick leave. The debate has caught the attention of governments and companies alike.

President Barack Obama is calling for federal legislation that would require companies to guarantee workers paid sick days. And since San Francisco started requiring that in 2007, nearly 20 cities and three states -- Connecticut, Massachusetts and California -- have passed similar measures. New York, Maryland and other states are considering laws too. And McDonald's and Walmart Stores, which have announced wage hikes recently, are making changes to their paid sick leave policies.

"Paid sick days are a job issue," said Ellen Bravo, executive director for Family Values (at) Work, a network of coalitions fighting to pass paid sick days and family leave policies. "When you don't have sick pay, you get docked."

The new focus comes amid wide disparities between the benefits received by the top and bottom rungs of the corporate ladder. Sixty-one percent of U.S. workers get at least one paid sick day, according to a national compensation survey of employee benefits conducted last year by the Bureau of Labor Statistics.

But only 20 percent of workers whose wages are at the bottom 10 percent get paid sick leave, compared with 87 percent in the top 10 percent. There's also a difference when comparing part-time and full-time employees: Seventy-four percent of full-time workers get paid sick leave, while 24 percent of part-time workers do, according to BLS.

Despite the disparities, some industry groups are fighting against laws requiring sick leave pay. Lisa Horn, director of congressional affairs at Society for Human Resource Management, a human resource management trade group, says many companies are leaning toward policies that lump sick, personal and vacation days together. But she says laws force companies to scale back on those benefits to keep down the costs associated with people taking sick days off.

"These mandates have a chilling effect on employers' ability to innovate and be creative with their leave options," she said.

Eileen Appelbaum, senior economist at Center for Economic and Policy Research, says mandated sick pay has not had a negative impact on some companies that have been surveyed. According to a survey the group did of businesses in Connecticut, which has required paid sick leave since 2012, one-third of workers took no paid sick leave. "They treat them as insurance," she said.

Big companies with operations nationwide are changing their paid sick leave policies ahead of legislation.

In February, Walmart, the largest U.S. private employer, said within about a year it would end the one-day wait for sick pay for all full-time U.S. workers. That's a change from the current system that requires Walmart workers in the U.S. to wait a day to use sick days, which means they have to use personal days on the first day out sick. (Full-time workers can earn up to two personal days and about six days of sick leave pay a year.)

Randy Hargrove, a Walmart spokesman, said the company also is reviewing its sick policy for part-time workers, who account for half of its 1.3 million-person workforce in the U.S. Currently, if part-time workers are ill, they have to use personal days.

McDonald's is taking a different approach by lumping personal and sick days together. Starting July 1, full-time and part-time workers at company-owned restaurants will begin to accrue personal paid time off after one year of service that can be used for sick leave.

An employee working an average of 20 hours a week will be eligible to accrue about 20 hours of paid time off a year. If employees don't take the earned time off, they will be paid for the value of it. The benefits apply to only McDonald's company-owned restaurants, which represent about 10 percent of its more than 14,300 restaurants nationwide.

"We've listened to our employees and learned that -- in addition to increased wages -- paid personal leave ... would make a real difference in their careers and lives," McDonald's President and CEO Steve Easterbrook said in a statement.

Workplace experts expect other companies to follow Walmart and McDonald's. "More employers are voluntarily adopting paid sick leave programs," says Mark Girouard, an employment attorney at Nilan Johnson Lewis who represents national retailers.

That is welcome news to workers who struggle to make ends meet when they take a sick day.

Henderson, the customer service rep, works under the 34 hours per week average that would make her a Walmart full-time employee, so the company's policy change doesn't affect her. She said she's looking forward to California's sick leave mandate, which goes into effect in July and allows workers one hour of paid sick leave for every 30 hours worked.

The single mother of an infant makes $10 a week -- an annual paycheck of a little over $16,000. Henderson, who says she can't afford to take time off, has gone to work with a runny nose and no voice. But last year, she said she took time off when she was pregnant because of morning sickness.

"We are human," said Henderson, who is a member of a labor-backed group OUR Walmart, which has pressed the retailer for higher wages and expanded benefits. "We can't control being sick."

 

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Why Your Chipotle Burrito Might Soon Cost More

May 19, 2015, 4:05 am

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Filed under: Company News, Earnings, Inflation, Food & Beverage, Restaurants

There's some bad news coming for Chipotle Mexican Grill (CMG) fans: Prices for some of its signature items will probably be inching higher this summer.

"Beef prices remain at historically high levels, although beef inflation was largely contained during the quarter," Chipotle noted during last month's conference call with analysts to discuss its first-quarter results. "We currently believe that the pricing for beef will remain at these elevated levels well into 2016 and perhaps even into 2017. As a result of this increased inflation, we expect to raise prices on steak and barbacoa this year -- most likely by the end of the third quarter."

In other words, the price of all of the burritos, bowls, salads and tacos that include steak and barbacoa as the primary protein will likely be moving higher. It will probably happen in September.

This isn't a heads-up for meat lovers to enjoy as much Chipotle as they can between now and then. After all, it won't be a dramatic increase. Chipotle estimates that the average increase will be around 4 to 6 percent. Chipotle prices vary by market, but this would mean that if your friendly neighborhood store is charging $7.25 for a steak or barbacoa entree, it will likely go up to between $7.55 and $7.70 in a few months.

We've Been Here Before

This isn't the first time that Chipotle has had to push prices higher. There was a big menu increase in May of last year. It was the chain's first major across-the-board boost in more than three years.

Customers probably didn't appreciate the move, but that didn't stop them from coming. Chipotle has posted four consecutive quarters of double-digit year-over-year growth in comparable-restaurant sales since last year's springtime increase.

The typical Chipotle restaurant rang up 10.4 percent more sales during the first three months of this year than it did a year earlier. The popular burrito roller shed some more light on that financial performance, pointing out how higher prices accounted for 610 of the 1040 basis points of improvement. Put another way, the price increase was responsible for more than half of the increase -- nearly 59 percent, actually -- but the balance came from an uptick in store traffic and customers ordering more items.

"Our intent last year was to cover the inflationary cost pressures of beef, but we undershot this level in hindsight as beef costs continued to rise," Chipotle explained during last month's call.

Pay Up to Eat Out

Food costs are a major part of a restaurant's pricing strategy, and chains eventually need to pass on rising expenses to its customers. If beef, pork, chicken and dairy prices are on the rise, it's a safe bet that Chipotle's menu board will be on the rise, too.

This will also happen if you eat at home. Supermarkets are always responding to commodity fluctuations, and often faster than restaurants do, since grocery stores work on leaner margins than eateries.

Restaurants will also pass on costs related to their operations. If rents move higher, utility bills climb, or minimum wage and health coverage requirements jump, it's going to ultimately show up on your tab as a customer.

We are already seeing signs of menu hikes this year. Cheesecake Factory (CAKE) announced that it will be kicking in a price increase this year that is larger than its historical average of 2 percent.

The restaurant industry knows that larger-than-usual increases this year could backfire. Chili's parent Brinker International (EAT) discussed the challenge of making it more expensive for someone to go out to eat in a climate of higher-than-normal price hikes during last month's earnings call. Brinker's CEO was concerned that the projected 3 percent increase for the industry in 2015 could test the restaurateur's pricing elasticity.

Even Chipotle is braced for the challenge. Its stock took a hit after last month's quarterly report when it warned that comps growth would decelerate sharply during the balance of 2015. Customers love Chipotle, but that won't do any good if folks on tight budgets can't pay more.

Motley Fool contributor Rick Munarriz owns shares of The Cheesecake Factory. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. Hungry for some good stocks? Click here to check out our free report for one great stock to buy for 2015 and beyond.

 

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Restaurants Are Jumping on the Fast-Casual Pizza Trend

May 19, 2015, 4:19 am

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Filed under: Company News, Industry News, Restaurants, Investing

The hottest trend in fast casual is no longer burritos, freshly baked sandwiches or even gourmet burgers. The key to fast growth in the otherwise stagnant restaurant industry is pizza.

Yes, pizza.

Unlike the traditional pizzerias that are best known for the quick deliveries of large pies, the fast-casual movement is led by chains that assemble individual-sized pizzas as they're ordered, firing them up in commercial ovens that bake up the customized pies in minutes.

Nation's Restaurant News recently singled out some of the rising stars of fast-casual pizza. They are small regional chains at the moment. There's Fired Pie in Arizona, Blast 825 in California and &pizza in the Washington, D.C., area.

The movement is strong, and even the biggest players are still in their infancy. Nation's Restaurant News points out that Pasadena-based Blaze Pizza was the first chain to hit 50 units last year, but two other concepts -- Pieology and Mod Pizza -- are expected to surpass 100 locations by the end of this year.

Things are moving pretty fast in this space and even the big boys are starting to pay attention.

There's Dough to Be Made

Chipotle Mexican Grill (CMG) hopped on the fast-casual craze early with its namesake burrito chain, and two years ago it made a tactical investment in Pizzeria Locale. It tweaked the concept by incorporating the assembly-line ordering process that has made Chipotle so popular, letting folks pick out individual toppings for the 11-inch pies that are then baked up in turbo ovens that deliver the goods in just two minutes.

Buffalo Wild Wings (BWLD) has also taken a minority stake in PizzaRev, another fast-casual concept. Customers order artisanal pizzas that are built as they're ordered and they're ready to eat after a three-minute stint in the oven.

Some of the chains that don't have affiliations with public companies are also well connected. Fired Pie was started by regional executives from California Pizza Kitchen and &pizza has Ruby Tuesday's (RT) founder as its chairman of the board.

With privately held chains growing quickly and big money behind some of the publicly traded operators, it's a safe bet that vacant stand-alone buildings and strip mall locations will be easy sells for this new breed of pizzeria. One would think that the new niche's success would come at the expense of traditional chains, but that hasn't been the case so far. Analysts see revenue at Papa John's (PZZA) and Domino's (DPZ) growing at 5 and 9 percent, respectively, this year. Then again, they have also embraced the trend by adding fancier fare to compete with changing dining preferences.

The fast-casual pizza trend is heating up, and just like the pies themselves, it's heating up in a hurry.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Buffalo Wild Wings and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days, and check out The Motley Fool's one great stock to buy for 2015 and beyond.

 

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Save Dollars While Dining Out -- Savings Experiment

May 19, 2015, 6:12 am

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Filed under: Savings Experiment, Food & Beverage

While we all love dining out, most of us don't realize the one tool restaurants use to get us to spend more is the menu. It looks innocent enough, but if you're not careful, you and your wallet could be headed for a subliminal shakedown. Here are a few things to look out for during your next meal.

First, check the prices. According to a recent study at Cornell University, people tend to spend more when the menus don't include dollar signs next to the cost. The reason is obvious: dollar signs remind people that they're spending money. Keep this in mind, no matter how hungry you are.

Next, keep an eye out for flowery descriptions. Restaurants know what language works, so if you see a meal description that reads like poetry, don't overlook the price.

Some restaurants also use subtle strategies to control what you order, like offering a dish in two different portion sizes. This strategy is called bracketing. The larger portion, with a higher price tag, is usually there to steer customers into ordering the smaller size, which appears to be a great deal in comparison. Often times, any dish with a three digit price is only there to make the other stuff look like a relative bargain.

Also, watch out for the hard sell on the daily special. Specials usually cost more than regular items and generally don't have a price on the menu. That's no accident. Always be sure to check the cost or you may be in for a big surprise when the bill arrives.

Lastly, don't always assume your refills are free. While a lot of places offer free refills, people tend to think it's the industry standard, but it's not. If you're ordering refills for table of four, this can potentially add up to $20 to the tab.

In the end, you can still eat well while spending less. Keep these sneaky strategies in mind during your next dinner and see the savings for yourself.

View Poll

 

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Penney to Face Class Action Lawsuit Over Phantom Discounts

May 19, 2015, 6:15 am

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Filed under: JC Penney, Retail, Shopping, Scandals and Lawsuits, Consumer Protection

By Jonathan Stempel

A federal judge has certified a class-action lawsuit that accuses J.C. Penney Co. (JCP) of marking up retail prices on apparel and accessories to trick shoppers into believing they were getting good deals when the items went on sale.

In a decision Monday, U.S. District Judge Fernando Olguin in Los Angeles said it was possible "in one stroke" to determine whether J.C. Penney's advertising practices caused shoppers in California to buy items at discounts that proved illusory.

The J.C. Penney complaint accused the retailer of running a "massive, years-long, pervasive campaign" to deceive shoppers about its pricing for private-label brands and outside brands, such as Liz Claiborne, sold exclusively by the retailer.

Lead plaintiff Cynthia Spann said she discovered this after buying three blouses for $17.99 each, a 40 percent discount from the "original" $30 price, only to learn the price was never above $17.99 in the prior three months.

By letting shoppers sue as a group, the decision could help them obtain greater compensation at lower cost from the Plano, Texas-based retailer than if they sued individually.

J.C. Penney didn't immediately respond Tuesday to requests for comment.

Similar lawsuits have been filed against retailers such as Kohls (KSS) and Men's Wearhouse's (MW) Jos. A. Bank unit.

Olguin certified a class of plaintiffs who bought private-label or exclusive items from J.C. Penney in California from Nov. 5, 2010 to Jan. 31, 2012 at discounts of 30 percent or more.

The plaintiffs accused J.C. Penney of violating state consumer protection laws.

The Federal Trade Commission has said retailers are supposed to sell items at original prices for a "reasonable length of time" before marking them down, if they wish later to provide the original prices to consumers who compare prices.

J.C. Penney moved away from discounts in 2012, when Chief Executive Officer Ron Johnson adopted a strategy of "fair and square" everyday low pricing. It resumed discounting after sales plunged, resulting in Johnson's ouster the following year.

Spann's lawyer wasn't immediately available for comment.

 

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Takata Air Bag Recall Doubles to Nearly 34 Million

May 19, 2015, 7:22 am

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Filed under: Company News, Transportation, Automotive Industry, Consumer Protection, Auto Recalls

By MARCY GORDON and TOM KRISHER

WASHINGTON -- Under pressure from U.S. safety regulators, Takata Corp. has agreed to declare 33.8 million air bags defective, a move that will double the number of cars and trucks included in what is now the largest auto recall in U.S. history.

The chemical that inflates the air bags can explode with too much force, blowing apart a metal inflator and sending shrapnel into the passenger compartment. The faulty inflators are responsible for six deaths and more than 100 injuries worldwide.

The agreement adds more than 10 million air bags to existing recalls, covering both the passenger and driver's side. The recalls of passenger-side air bags, previously limited to high-humidity states along the Gulf Coast, are now expanded nationwide to include 16 million vehicles. A nationwide recall of driver's air bags was expanded to more than 17 million vehicles.

This is probably the most complex consumer safety recall in U.S. history.

"We know that owners are worried about their safety and the safety of their families," said Mark Rosekind, head of the National Highway Traffic Safety Administration, as he announced the agreement. "This is probably the most complex consumer safety recall in U.S. history."

Safety regulators sparred with Takata for the past year over the size of the recalls and the cause of the problem. For the most part, the air bag maker refused to declare the inflators defective and even questioned the agency's authority to order it to conduct a recall.

Takata and 11 automakers that use its air bags, including Honda Motor (HMC) and Toyota Motor (TM), will have to sort out which vehicles are covered by the expanded recalls. NHTSA said the number of affected air bags could climb.

Prior to Tuesday, automakers had recalled 36 million vehicles worldwide because of the problem.

Before Takata, the largest recall in U.S. history was in 1980 when Ford Motor (F) had to fix 21 million cars and trucks with automatic transmissions that could slip into reverse. The Takata recall dwarfs last year's highly publicized recall of 2.6 million General Motors (GM) small cars for defective ignition switches and Toyota's recalls of 10 million vehicles for problems with unintended acceleration.

Immediate Action Needed

Rosekind said the agency and auto industry are still trying to determine precisely what is causing Takata's inflators to explode, but action needed to be taken immediately.

Takata's air bags use ammonium nitrate to inflate in a crash. But the chemical, which can be used to make bombs, is volatile. So far, testing has found that airborne moisture can get into the inflators and cause the ammonium nitrate to burn hotter than it should, Rosekind said.

He urged car owners who get recall notices in the mail should immediately make an appointment to get their cars fixed.

On Feb. 20, NHTSA began fining Takata $14,000 a day for failing to fully cooperate in the investigation. That fine accrued to more than $1.2 million before it was suspended Tuesday due to Takata's cooperation, NHTSA officials said. Other civil penalties are still possible, they said.

Still, it likely will be months or longer before Takata and other companies can manufacture all the needed replacement inflators. Inflators will be allocated to older cars and to high-humidity areas first, where people are most at risk, the agency said. The expansion will cost Takata millions of dollars.

Takata CEO Shigehisa Takada said in a statement that the action is a "clear path" to restoring the trust of automakers and drivers.

"We are committed to continuing to work closely with NHTSA and our automaker customers to do everything we can to advance the safety of drivers," he said.

-Krisher reported from Detroit. AP auto writer Dee-Ann Durbin contributed from Detroit.

 

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Market Wrap: Stocks End Mixed; Dow Inches to New Record High

May 19, 2015, 9:41 am

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Filed under: Energy, Market News, Housing Market, Federal Reserve, Interest Rates

By Noel Randewich

NEW YORK -- U.S. stocks ended mixed Tuesday, with the Dow rising marginally to a second straight record high, as Wall Street digested housing data that some saw as hopeful for an economy struggling to grow.

U.S. housing starts jumped to their highest level in more than 7 years in April and permits soared.

Some investors interpreted that as a promising sign that a slow economy may be gaining steam, while others focused on uncertainty about when the Federal Reserve will start raising interest rates to head off inflation.

There really is a lot of fear about the threat of higher interest rates.

"There really is a lot of fear about the threat of higher interest rates," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. "It's not an 'if' story. It's a 'when' story."

The Dow Jones industrial average (^DJI) rose 13.51 points, or less than 0.1 percent, to end at 18,312.39 points. The Standard & Poor's 500 index (^GSPC) hit an intraday record of 2,133.02 before ending down 1.37 points, or less than 0.1 percent, at 2,127.83, and the Nasdaq composite (^IXIC) dropped 8.41 points, or 0.2 percent, to 5,070.03.

The S&P had closed at record highs Friday and Monday after a stream of weak economic data suggested that Fed would wait to see more strength in the economy before raising rates.

The S&P is trading at 17.1 times forward earnings, compared with its 10-year median of 14.7, according to Thomson Reuters StarMine.

"We don't look at this as an overvalued market at all. We look at levels of cash and investments on corporate balance sheets as extremely strong," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

"Companies are buying back stock, raising dividends. They're acting in the best interest of shareholders more and more."

Oil Drops, Dollar Rises

Seven of the 10 major S&P 500 sectors were down, with the energy index off 1.23 percent. Oil prices fell as the dollar strengthened and on evidence of ample supplies of Middle Eastern oil despite wars in northern Iraq, Syria and Yemen.

Walmart's shares fell 4.37 percent at $76.43 and were the biggest drag on the Dow and the S&P 500 after the company reported lower-than-expected U.S. same-store sales growth.

Take-Two Interactive jumped 18.26 percent after its profit handily beat market estimates, helped by strong digital sales of "Grand Theft Auto V" and "NBA 2K15" games.

Declining issues outnumbered advancing ones on the NYSE by 1,829 to 1,225, for a 1.49-to-1 ratio on the downside; on the Nasdaq, 1,575 issues fell and 1,194 advanced for a 1.32-to-1 ratio favoring decliners.

The S&P 500 posted 44 new 52-week highs and 2 new lows; the Nasdaq composite recorded 113 new highs and 51 new lows.

About 5.9 billion shares changed hands on U.S. exchanges, below the 6.3 billion average this month, according to BATS Global Markets.

-With additional reporting by Sweta Singh and Tanya Agrawal.

What to watch Wednesday:

• The Federal Reserve releases minutes from its April interest-rate meeting at 2 p.m. Eastern time.

Earnings Season
These selected companies are scheduled to release quarterly financial results:

• American Eagle Outfitters (AEO)
• Eaton Vance (EV)
• Hormel Foods (HRL)
• L Brands (LB)
• Lowe's Cos. (LOW)
• NetApp (NTAP)
• Salesforce.com (CRM)
• Staples (SPLS)
• Target (TGT)
• Williams-Sonoma (WSM)

 

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10 Things Everyone Should Know About Credit Scores

May 19, 2015, 10:00 pm

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Filed under: Personal Finance, Credit Reports, Credit History, Credit Score, Financial Education

By Christine DiGangi

The last time I got up in front of a group to talk about my job, no one had questions for me. It was a high school career day a few weeks ago, and the students stared at me blankly as I dropped words like "personal finance," "credit scores" and "debt." I could tell they thought that the topics I write about are boring. Everyone was happy when the bell rang.

Then I spoke to a group of college students and community members, and the atmosphere couldn't have been more different. I went into the talk with a list of things I thought they'd want to hear about -- the event was called "10 Things Everyone Should Know About Credit Scores" -- but as people trickled into the auditorium, I thought I'd gauge their interest in certain topics. The idea was to make people feel comfortable talking to me about credit.

I tried to be casual: "Does anyone have anything specific they'd like me to talk about?" I asked with a smile, hoping maybe one person might say something. The reaction surprised me: People immediately started blurting out questions, and I hadn't even introduced myself yet.

• "How do you build credit? I mean, how does it work?"
• "Is it ever too late to build credit?"
• "How do student loans impact your credit?"
• "How do you get credit when no one wants to give it to you?"

I was happy to hear their questions, but I thought back to those high schoolers and got a little sad: My group at the college asked a lot of questions about the basics of personal finance and recovering from bad credit -- perhaps if they'd had conversations about these things earlier, things would be different.

There are way more than just 10 things you should know about credit scores, but here's what I told that group.

1. Credit reports and credit scores differ. Credit scores are calculated using the information on your credit reports, which includes details of your credit accounts, how often you apply for credit, debt collection accounts and some public records, among other things.
2. Your scores are based on five core factors. Those factors are (in order of importance) payment history, credit utilization, average credit age, account mix and inquiries. You can find a more detailed explanation of each of those factors here.
3. You can get your scores and reports for free. You're legally entitled to a free copy of your annual credit report from each of the three major credit reporting agencies: Equifax, Experian and TransUnion. You can get your credit scores for free from various places, including two scores from Credit.com.
4. Checking your own score won't hurt it. Only hard inquiries (aka when a lender looks at your credit when you apply for a loan or credit card) have a negative impact on your scores, and the effect is small and temporary.
5. There are many different scores and ranges. When you're trying to figure out where you stand or if your credit is improving, make sure you are comparing the exact same score and that you know the range - wherever you're getting the score from should tell you that information. For example, a 750 FICO score is not necessarily equivalent to a 750 in another scoring model.
6. Your credit can help you spot fraud. If someone runs up a large credit card bill or takes out credit in your name, it will show up on your credit report and affect your credit score. Watch your score for changes you did not anticipate.
7. Your credit score can cost you thousands over a lifetime. A low credit score means you'll probably have to pay higher interest rates on things like credit card balances and mortgages. You can see an estimate of how much your credit will cost you using the lifetime cost of debt calculator.
8. Joint accounts affect your credit scores, but there aren't joint scores. If you open a loan or credit card with a partner, the account activity will be reflected on both your credit reports. Joint accounts are different than authorized users, but whenever you share credit, make sure you're aware of who will be responsible and who will be affected if a payment is missed.
9. Negative information eventually ages off. Different kinds of negative information will remain on your credit report for different periods (bankruptcy is an exception), but generally, negative information ages off your report and no longer affects your score after seven years.
10. Credit scores aren't the only things that matter for lending decisions. A credit score isn't the only thing lenders consider when reviewing applicants. If you have no credit or poor credit, you may be able to secure a loan through an alternative lender, and in some situations, making a personal appeal or giving a lender more context to your credit report can help you access financial products.

The Questions I Was Asked

As far as the other things the group wanted to know about, here are some answers.

• "How do you build credit? I mean, how does it work?" Focus on those five fundamentals that determine your credit score; mostly, use credit sparingly and make payments on time. It takes years to build good credit, but it's worthwhile to be patient.
• "Is it ever too late to build credit?" No. Your credit score can affect you for a lifetime, so it's always worth trying to improve.
• "How do student loans impact your credit?" Making payments on time is good. Not doing that is very bad.
• "How do you get credit when no one wants to give it to you?" There are a few options: See if you can get a secured card or other credit card designed for people with bad or no credit. Then, spend very little money on it and make the payments on time. You can try piggybacking on someone else's credit by becoming an authorized user, but that's a lot to ask of a friend or family member since they'll be ultimately responsible for any debts you incur. There are also some companies that will help you get loans based on your payment history of rent or utility bills, if that shows a pattern of responsibility.

What questions about credit or credit scores do you have? Share them with me, and I may write an article to answer them. Christine DiGangi covers personal finance for Credit.com.

 

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Fly in the Front of the Plane - on the Cheap, Maybe for Free

May 19, 2015, 10:00 pm

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Filed under: Travel, Travel Industry, Vacation Planning

By Robert McGarvey

Don't kid yourself. Flying in coach isn't nearly as nice as flying upfront, where there's vastly more space, the drinks are included, and the food often is decent and of course free. On a flight under two hours, maybe it doesn't matter. But on longer flights -- and definitely any flight to another continent -- flying in front makes all the difference.

At what cost? In a quick search on Hipmunk for a Newark, New Jersey, to Los Angeles round trip, $314 showed up as the cheapest in coach. In business class the same flight was a wallet deflating $1,189. That differential is typical. Service upfront is better, because the passengers are paying for it.

You want it but not at the full sticker price? Know this: the upfront game has shifted in ways that very much may favor you. Historically, airlines served up business and first class seats, gratis, as perks to their frequent fliers. That is much less common today. Airlines don't want to give away premium seats when they can sell them. What this means is that unsold seats upfront are in play and costs are dynamic especially as the flight time draws near. Here are proven techniques for getting upgrades on the cheap, occasionally for free.

Look When You Check In

Always look at the upgrades offered when you check in online, said travel blogger Wilko van de Kamp. "I've been offered business class seats during check in for anywhere between $150 to $300, for both trans-Atlantic as well as North American long-haul flights." Prices definitely vary, from airline to airline and route to route, but at 24 hours before take off -- when online check in opens -- the carrier has a solid count of empty seats upfront, and it is in fast-forward mode to fill them.

Ask the Gate Agent

The next opportunity is when you arrive at the airport, and there the advice is simple: ask the gate agent, urged travel expert Joe Brancatelli, who blogs at JoeSentMe. He added: "It never hurts to proactively ask and see if there is a cheap upgrade available." The clock is ticking ever louder, and carriers hate to take off with empty seats upfront, because that is money lost. Deals can be stunning. Ryan Lile of the Frequent Flyer Academy said he scored a business class ticket to Nicaragua last year for only $300 more than coach. Other fliers tout similar coups with the advice being that prices fall on front of the cabin seats as take-off nears. In some cases, they say, just a few dollars more has bought an upgrade and that, really, is money well spent.

Use Your Miles

Use miles to buy your way upfront, said Ari Charlestein who operates AwardMagic.com. Have 15,000 American Airlines miles? You can buy yourself an upgrade from discount economy to business on a domestic flight. Every airline offers similar deals. You don't have miles to burn? Listen to Charlestein -- play credit card bingo, signing up for cards that deliver bonus miles for doing so. Many airlines offer 50,000 miles just for signing up for their credit card. Charlestein said he signs up for 10 to 12 credit cards yearly, just to rack up the bonuses. "It's a game," he said, but winners also get tasty rewards.

Dress Nice

Prefer free? Advice from multiple sources is wear your go-to meeting clothes when you plan to ask for a free upgrade. It sounds so retro but, sources insist if you look the part of a front of the plane passenger, you just may score a seat that simply did not sell and time is about at an end.

Volunteer to Be Bumped

You have schedule flexibility, and it helps also to be equipped with nerves of steel? In that case: volunteer to be bumped, suggested Kyle Stewart who blogs at The Trip Sherpa. When a flight is oversold and the airline asks for volunteers, make your move, he suggested. "Everything is wide open," he said. "The smarter you are, the more you will get. Ask for a confirmed seat in first or business."

Stewart continued: "The agents can even give you first on an international flight. The system is about re-accommodating the passenger." Why would they give away a first class flight? Simple, said Stewart. What they don't want to do is part with cold, hard cash. And they need to lure passengers from the oversold flight before that plane can take off, so if a front of the plane seat on a later flight is what it takes, consider it done. Be plain. Say you will take the bump but you want a guaranteed seat up front on the next available flight. You just may get your wish.

 

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6 Strategies to Save Money While Moving

May 19, 2015, 10:00 pm

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Filed under: Real Estate, Career Change, Moving, How to Save Money, Financial Education

By Trent Hamm

There comes a time or two (or more) in everyone's life when they have to pack up their belongings and change their place of residence. Whether it's due to career changes, personal life changes or something else, it's time to move on.

However, moving can be expensive. This becomes more true as your family grows and your possessions accumulate. We're not talking about the new rent or the new mortgage or the new insurance here, but the simple moving expenses that can really add up. Here are six strategies to make your move less financially painful.

1. Sell, Sell, Sell

There is no better time than the months before a move to go through your possessions, figure out what you don't use and sell it off. You should evaluate every item you own, and ask yourself honestly whether or not you will ever use this item in the future. If so, is it worth keeping it rather than just borrowing or renting it (think: books and the library, videos and rentals, and other strategies for borrowing).

When selling items, several strategies make sense. Craigslist is a great resource for selling larger items. For smaller items, especially ones people tend to collect (like rare books and DVD sets), eBay is a powerful tool. Yard sales are a great way to get rid of larger bulk items like clothing, and consignment shops are a good way to sell quality furniture and clothing.

2. Get Lots of Sturdy, Free Boxes

As soon as you have an inkling that you might move, you should start saving every sturdy cardboard box you can get your hands on, along with packing material, like old newspapers.

Unfortunately, many people don't have a lot of time for this kind of planning. In that case, there are several places in the community to look for free moving boxes. I've had personal success finding cardboard boxes on Freecycle and Craigslist, as well as asking for boxes at liquor stores, bookstores (if you have some in your community) and grocery stores. Liquor store boxes are the best, because they're sturdy and don't have crumbs of food.

3. Avoid Hiring Movers

Moving services are incredibly expensive. Rather than simply drop thousands of dollars on a moving service, look into what it would take to move on your own. Can you ask friends to help? A few six packs of beer and pizzas while loading a rental truck or trailer (and maybe saying a few goodbyes) is far less expensive than paying someone to load and unload that truck. If your move is relatively close, perhaps you could personally move much of your stuff over a number of car loads.

Friends are often happy to help with moving if asked, but be sure you have clear tasks for them to accomplish when they come over so they're not standing around awkwardly while you figure out what's next.

4. If Hiring Movers, Do as Much Work Upfront as Possible

The advice above for friends also stretches to any moving professionals you hire. The less you have completed when they arrive, the more they have to do, and the less clear the tasks, the longer it will take them. If you're paying by the hour, that means money out of your pocket.

If you're hiring someone to move your stuff, have everything boxed and ready to go before that person arrives. Label all the boxes on the outside, and if anything is fragile, clearly mark it. Have any large items you want transported ready to be picked up and carried out the door. Remember, you're likely paying these guys by the hour, so when you spend an hour doing work that they'd spend an hour doing, you're literally saving an hour's worth of their rate. Cut their work and time down to the bare minimum.

5. Be Smart About Utility and Service Shutoffs

Many utilities require you to pay for a full month of service at a time, so if a service isn't absolutely essential, cut off that service before you leave rather than after so you're not paying for it during a time when you're not living there. That means contacting your service companies, such as your Internet service provider, cable provider, and so on, more than a month before your move-out date.

6. Buy Minimal Furnishings in Your New Place

Once you move into a new place -- especially a larger one -- it can be tempting to want to fill the rooms with stuff. That's natural, but temper that desire by buying minimal furnishings to fill your rooms. Don't be afraid to hit Ikea or discount stores for your first batch of furnishings. Over time, you can slowly upgrade from that basic level as needed. Plus you haven't dug yourself into a debt hole by making a bunch of impulsive and expensive decisions right after moving in.

Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions.

 

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You Don't Love Your Family If You Don't Have a Will in Place

May 19, 2015, 10:00 pm

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Filed under: Real Estate, Family Money, Personal Finance, Estate Planning, Wills

By Jason Notte

NEW YORK -- If you haven't figured it out by now, and many of you haven't, a will is important and you should have one. In fact, it's the bare minimum you should have when planning your estate.

According to a survey by Caring.com, just 56 percent of American parents have a will or living trust document. A full 27 percent have made no plans for their estate whatsoever and 16 percent of their kids are unsure whether their parents have made preparations or not.

"I've been doing this for quite a long time and, through hundreds of clients, you walk down a path," says Masood Vojdani, founder of Bethesda, Maryland-based financial firm MV Financial. "Along this path that you walk on, you often find that nobody wants to ask the hard questions and nobody wants to answer them. Oftentimes, they're overlooked."

Those questions can be as simple as "Do you have a will?" or "Have you updated your will?" If anyone bothered to ask -- and 25 percent of adult children don't -- only 40 percent of parents who have a will say they've updated it within the past five years. Vojdani notes that if your will isn't up to date, your wishes aren't up to date and may be influenced by changes within your family or changes to the law. In states where wills are subject to probate law, that can mean exposing your family to a lengthy period in court just to have your wishes fulfilled. Even then, your estate can take a sizable hit if you haven't protected your assets through a trust.

At a meeting of 700 employees of government contracting firms, Vojdani asked a simple question: Do you love your spouse and your children? Only 11 unmarried people failed to answer yes. He then asked how many of them had a will and reviewed it recently. Fewer than 60 answered in the affirmative.

"I said do not lie to your spouse: You do not love them," he says. "If you did, you would not leave them unprotected."

If you're in a second marriage, if you're choosing to disinherit someone or even if you just want to name a guardian for your child and make sure they're not diving into a seven-figure inheritance at age 10, a will is a good idea. As Kim Dula, a partner at Marlton, New Jersey-based Friedman points out, a will can set your intentions in stone and protect your family from not only themselves, but from creditors. But it can only do that if it's accurate and up-to-date.

"The biggest thing that I see repeatedly, though, beyond people who don't have a will, is people who don't revisit them," Dula says. "Maybe they have that will created when they're very young, but that will has to be revisited as your family grows, as your career grows, as your assets grow and as tax laws change. It's an investment in their family's financial future and well-being."

Lost to Taxes

If you have considerable assets at stake, a will may not cut it. Vojdani relays the story of one high-income client whose spouse passed away and left her completely confused about where assets were and how they would be transferred. She had to go through probate and is still in the middle of that process but, because her husband's estate was in a will instead of an irrevocable trust -- which would have shielded certain assets from estate tax -- her family lost more than $5 million of the estate to taxes.

That's a nasty surprise, but one that a lot of families face. The Caring.com survey found that 52 percent of adult children don't know where their parents store their estate documents. Meanwhile, 58 percent don't know the contents of the documents. The more assets a family has, the more it puts at risk by not having a sound estate plan in place.

"Go back through history: The Kennedys and Elvis Presleys of the world lost more of their assets through estate taxes than anywhere else," Vojdani says. "Creating an estate plan says 'Honey, I love you' or 'Kids, I love you.' 'I want to keep this family together and its estate intact.' "

That said, there are some assets that don't require a will to make it into the right hands. If you have non-probate assets such as a 401(k) plan or life insurance plan, just designating a beneficiary should be enough to get those assets to your loved ones -- or even exempt those assets from creditors, in certain states. If you own a property jointly, as Dula notes, it typically just goes directly to the next person on the title. A will or trust can still come in handy if any of those assets have a minor as their designated beneficiary though.

Getting It Right

Palmer Williams, national sales director with Saybrus Partners, partners with financial advisers to provide life insurance options for clients. He says that estate planning is about making sure the right people get the right assets in the right manner with the least amount of cost, but that identifying those people, assets and vehicles (wills, trusts, etc.) can get complex. If a child is named on a life insurance policy, Williams says it's always advisable to consider a trust.

"We try to encourage financial advisers to simplify the discussion," Williams says. "With a life insurance policy, if your beneficiary is a minor child and there's not a trust set up, you're often left with the conservatorship process through the state that can be burdensome and inflexible."

That conservatorship requires the state to provide an authority to account for how that child is being cared for. Unfortunately, that ends when a child is 18 or 19 and the payout just goes immediately to the beneficiary afterward. A trust allows a parent to determine when a child gets that money and how much they get, either at once or over time. All other assets that aren't under contract or title and don't require a named beneficiary, however, would be distributed by the laws of the state you're domiciled in if you don't have a will in place.

"It's time-consuming, it can be costly and it creates an incredible amount of stress for the family you've left behind," Dula says. "The surviving family is already going through such a trying time with the death of a loved one, and now dealing with all of this creates a lot of confusion and can be very painful. To prevent that and put this all in place when somebody is healthy and competent, it's a nice thing to do and it's an investment that everyone should be considering."

-Written by Jason Notte in Portland, Oregon, for MainStreet.

 

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Boomers' Biggest Retirement Regret? Not Working Longer

May 19, 2015, 10:00 pm

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Filed under: Personal Finance, Job Market, Career Change, Early Retirement, Financial Education

By Hal M. Bundrick

NEW YORK -- Many American workers have begun proclaiming the end of retirement. An Allianz study released last week found that 82 percent of baby boomers -- and Gen-Xers -- claim that a traditional retirement is a "romantic fantasy of the past." A recent headline declared, "70 Is the New 65." A few years ago, a Wells Fargo survey of "pessimistic" workers facing delayed retirement inspired headlines in the financial media of "80 Is the New 65." Forget golf and antiquing: It's a work-till-you-drop world.

Now, a new study from Bankers Life finds 41 percent of baby boomers still in the workplace expect to work beyond age 69 -- or never retire. Of those already retired, 69 percent of middle-income baby boomers say they would have liked to have been able to work longer.

You would think that such a never-ending work ethic might be rooted in financial fear. But of the retired baby boomers who do have a job, the respondents say it's not just a money thing. In fact, six in 10 say they work for nonfinancial reasons -- because they want to, not because they have to. Those surveyed cite such reasons as staying mentally sharp (18 percent) and physically active (15 percent), as well as maintaining a sense of purpose (15 percent).

Working simply because you want to may sound like a great life, but digging deeper into the survey reveals a dark reality. While boomers may want to work in retirement, most retired boomers (72 percent) aren't working at all. And half of those who don't work would like to have a job but can't get one, mostly due to health issues.

Physical setbacks and the steep costs of health care can shock even the most financially prepared boomer. A Fidelity analysis last year estimated that couples retiring at age 65 are expected to face $220,000 in health care costs during their retirement years.

So much for the working retirement that many boomers are thinking will bail out their lack of savings or keep their minds and bodies active.

However, it's not simply a health issue, as noted by Teresa Ghilarducci of the Schwartz Center for Economic Policy Analysis in New York. Older workers are finding it harder to get hired and are making less money.

"Calling for an increase in the retirement age as a solution to a lack of retirement savings overlooks nearly half a century of economic literature on earnings," Ghilarducci writes in a recent blog post. "Economists have long known that age/earnings profiles have a parabolic shape, demonstrating a visible decline after the ages 55-59 as older workers are overlooked for promotions and on-the-job training. Workers experience a decline in earnings after ages 55-59 regardless of education levels."

As Ghilarducci said in a Slate interview in March, "Working longer is a retirement plan like winning the lottery or dying earlier is a retirement plan. Being able to work longer is not a plan. It's a hope."

And as the saying goes, "Hope is not a strategy."

 

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FTC: Cancer Charities Bilked $187 Million From Donors

May 20, 2015, 2:31 am

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Filed under: Charity, U.S. Government, Consumer Protection, Ripoffs & Scams

By Diane Bartz

WASHINGTON -- The U.S. government has charged four cancer charities with misusing more than $187 million in donations, with two agreeing to be dissolved and two fighting the allegations, the Federal Trade Commission said Tuesday.

The FTC, 50 states and the District of Columbia charged the Cancer Fund of America, Cancer Support Services Inc., the Children's Cancer Fund of America and the Breast Cancer Society Inc. with collecting millions of dollars in donations but doing little to help patients.

The Children's Cancer Fund of America and Breast Cancer Society Inc agreed to shut down. Three officials agreed to be banned from charitable fundraising.

In a note on the Breast Cancer Society's website, Executive Director James Reynolds II, who has agreed to leave fundraising said the organization wanted to avoid an "expensive and distracting legal battle."

The Cancer Fund of America opted to fight the government in court, as did the related Cancer Support Services organization and its president, James Reynolds Sr.

The Center for Investigative Reporting put the Cancer Fund of America second on its America's Worst Charities list. Based on data from December, it said the group raised $86.8 million for charity but gave just 1 percent of that to cancer patients.

The Children's Cancer Fund of America ranked No. 9.

The FTC said in its complaint that the organizations portrayed themselves as legitimate charities to raise money from telemarketing calls and from the Combined Federal Campaign, which collects from U.S. government employees.

Instead, the complaint said, the groups "operated as personal fiefdoms characterized by rampant nepotism, flagrant conflicts of interest, and excessive insider compensation, with none of the financial and governance controls that any bona fide charity would have adopted."

Some of the money was used for Las Vegas, New York and Disney World trips; vehicles; gym memberships; Jet Ski outings; dating website subscriptions; and cruises, the complaint said.

Professional fundraisers that the organizations hired sometimes kept 85 percent of what they collected, the FTC said.

It said the organizations inflated their revenues to hide their misuse of donations.

The FTC said it had proposed judgments of $65 million against the Breast Cancer Society and $30 million against the Children's Cancer Fund of America, which is what they collected from 2008 to 2012.

"The money is mostly gone," said Jessica Rich, director of the FTC's Bureau of Consumer Protection. The FTC has collected about $1 million, she added.

 

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The Right Way to Handle an Inheritance

May 20, 2015, 2:55 am

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Filed under: Personal Finance, Emergencies, Wills, Debt Assistance, Financial Education

By Kira Brecht

If you are fortunate enough to receive an inheritance, buy a nice bottle of Champagne and toast your benefactor. But then institute a cooling-off period before you start spending, financial advisers recommend. A new car, vacation or kitchen renovation may be in your future, but make sure you carefully assess your financial picture and retirement planning goals so you can maximize the inheritance for your long-term financial security.

"Say, 'I'm not going to do anything for three months.' Develop your plan. Don't react emotionally," says Ann Minnium, a certified financial planner and founder of Concierge Financial Planning, based in Scotch Plains, New Jersey.

Even if you are skilled at managing your money, experts say it's still important to take a breather and develop a financial plan. In the meantime, you could park the windfall in a high-yield savings account or a balanced mutual fund for six months or so to sort out your priorities.

"Don't go out and quit your job, give money to your family and friends or buy that new Bentley before you determine how wealthy you really are," says Marcus Miller, an adviser at Indianapolis-based Deerfield Financial Advisors.

Minnium says she worked with a married couple in their mid-30s who received an inheritance of about $80,000. "They mindlessly spent away about $5,000 because they got excited," she says. "See an adviser who can take a global look at your financial situation. Formulate a financial plan so you can see what the best use of those resources will be."

Here are the best ways to handle an inheritance, according to advisers.

Create a list of financial goals. Prioritize and address any bad financial habits that have tripped you up in the past. Also, do a cash-flow analysis to see how much money you need both in the short term and long term to help you determine where you should direct the money.

Fund an emergency account. A top priority should be your emergency cash reserves. Do you have at least three to six months of living expenses in an emergency fund you could tap at a moment's notice? Before directing the money elsewhere -- even toward debt reduction -- make sure your emergency account is fully funded.

Three months is the minimum you should have access to, says Danielle Schultz, a certified financial planner and principal at Haven Financial Solutions, an Evanston, Illinois-based fee-only financial planning firm. "If you don't have an emergency fund, you will always have debt. When the next emergency happens, back it goes on the credit cards," Schultz says.

Pay down debt. The next priority is outstanding debt, which can include student loans, credit card debt and mortgage debt. The couple Minnium advised had student loan debt. "Their monthly payment was not even covering the interest. We directed $20,000 of the inheritance to that loan," Minnium says.

For other debt, including mortgages, it is important to consider the interest rate and compare that to an expected investment return. "If the debt is at a relative high rate, say over 5 percent, probably you should consider paying it off," Schultz says. "But if it is a low-rate mortgage, and you are relatively young with decent employment prospects, you'd probably be better off investing."

For example, look at the after-tax rate of interest you are paying on your mortgage. "If you are in the 25 percent tax bracket, paying 4 percent on your mortgage, you receive a tax deduction for part of the mortgage, which means you are really only paying a 3 percent interest rate," Miller says. Compare that to a diversified portfolio of stocks and bonds that could earn 6 percent to 7 percent annually, he says.

Retirement savings. Next in line is investing in your retirement savings accounts. If you haven't been contributing the maximum to a 401(k) or individual retirement account, do it now. "Say you earn $65,000 this year and spent it all. But now you receive an inheritance of $100,000. Contribute to your Roth or workplace retirement from the $100,000, sheltering some of it from taxes and allowing it to earn tax-free [returns]," Schultz says.

Miller agrees: "In almost all cases, it makes sense to maximize your retirement accounts if your cash flow allows you to do so."

Have a little fun. Finally, some advisers suggest spending 5 percent to 10 percent on discretionary purchases. "It is nice to treat yourself. List that as one of your goals, and then you can decide if it is really worth it or not," Minnium says.

Just don't use a one-time windfall as an excuse to change your lifestyle. Deploying that inheritance wisely can help you climb onto firmer financial footing and lay the groundwork for a more secure future.

 

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Major Banks Admit Guilt in Forex Probe, Fined $6 Billion

May 20, 2015, 3:22 am

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Filed under: Currency, Financial Reform, Banks, Scandals and Lawsuits, World Markets

By Karen Freifeld, Steve Slater and Katharina Bart

NEW YORK, LONDON and ZURICH -- Four major banks agreed to plead guilty Wednesday to trying to manipulate foreign exchange rates and six were fined nearly $6 billion in yet another settlement in a global probe into the $5-trillion-a-day market.

Authorities in the United States and Britain accused traders at Citigroup (C), JPMorgan (JPM), Barclays, UBS (UBS) and Royal Bank of Scotland (RBS) of brazenly cheating their clients to boost their own profits using invitation-only chatrooms and coded language to coordinate their trades.

The penalty all these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct.

The misconduct occurred up until 2013, after regulators had started punishing banks for rigging the London interbank offered rate, an interest rate benchmark, and banks had pledged to overhaul their corporate culture and bolster compliance.

In total, authorities in the United States and Europe have fined seven banks over $10 billion for failing to stop their dealers from trying to manipulate foreign exchange rates -- used every day by millions of people from trillion dollar investment houses to tourists buying foreign currencies for their holidays.

Wednesday's settlement stands out because Citigroup, JPMorgan, Barclays and Royal Bank of Scotland pleaded guilty and for the size of the penalties, including a $2.5 billion fine by the Department of Justice, the largest set of antitrust fines ever obtained in its history.

"The penalty all these banks will now pay is fitting considering the long-running and egregious nature of their anticompetitive conduct," said Attorney General Loretta Lynch at a news conference in Washington.

Lawyers said the guilty pleas would make it much easier for pension funds and investment managers who have regular currency dealings with banks to sue the banks for losses on those trades.

"There is already a lot of work going on behind the scenes assessing how claims could be brought forward and those potential claimants will be looking to today's announcement for evidence to support their analysis," said Simon Hart, banking litigation partner at London law firm RPC.

Barclays

Britain's Barclays was fined a record $2.4 billion Wednesday, underscoring how widespread the misconduct was. Barclays staff continued to engage in misleading sales practices despite Chief Executive Officer Antony Jenkins' pledge to overhaul the bank's high-risk, high-reward culture.

Barclays' sales staff would offer clients a different price to the one offered by the bank's traders, known as a "mark-up" to boost profits. Generating mark-ups was a high priority for sales managers with one employee noting, "If you ain't cheating, you ain't trying."

Barclays fired four traders in the last month as a result of the investigation and New York's Superintendent of Financial Services ordered it to fire a further four who had been suspended or placed on paid leave.

Benjamin Lawsky also warned that he was still probing the bank's use of electronic systems for foreign exchange trading, which make up the vast majority of transactions in the market.

"Put simply, Barclays employees helped rig the foreign exchange market. They engaged in a brazen 'heads I win, tails you lose' scheme to rip off their clients," Benjamin Lawsky said in a statement. "While today's action concerns misconduct in spot trading, there is additional work ahead."

Barclays had set aside $3.2 billion to cover any forex-related settlement and shares in the bank rose more than three percent to an 18-month high as investors welcomed the removal of uncertainty over the forex scandal. RBS shares rose nearly 2 percent.

In New York, shares in JPMorgan and Citigroup were down 0.7 percent and 0.8 percent respectively.

UBS

Swiss bank UBS, which avoided a guilty plea over the forex debacle, pleaded guilty instead to one count of wire fraud and will pay a $203 million fine for its role in rigging Libor after its involvement in the forex scandal breached an earlier Justice Department agreement.

Switzerland's largest bank also had to pay $342 million to the Federal Reserve over attempted manipulation of forex rates.

The U.S. central bank fined six banks for unsafe and unsound practices in the foreign exchange markets, including a $205 million fine for Bank of America (BAC), which, like UBS, avoided a guilty plea.

UBS's penalty was lower than expected and this contributed to a more than three percent rise in UBS shares to their highest level in six and a half years.

The global investigation into manipulation of foreign exchange rates has put the largely unregulated forex market on a tighter leash and accelerated a push to automate trading. Authorities in South Africa announced this week they were opening their own probe.

-With additional reporting by Lindsay Dunsmuir in Washington; Joshua Franklin and Oliver Hirt in Zurich; and Steve Slater in London. Writing by Carmel Crimmins.

 

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Cash Conversation: Plan Your Big Summer Trip - as a Family

May 20, 2015, 3:50 am

≫ Next: Why Americans Can't Keep Lifestyle Spending in Check

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Filed under: Holiday Shopping, Family Money, Travel, Vacation Planning, Financial Education

By Natalie Wearstler

In our "Cash Conversation of the Month" series, we're highlighting big-picture discussions you should consider having with the key people in your life to help keep your money goals on track.

This month, as the summer getaway season fast approaches, it's prime time to plot out your family vacation. But rather than do it all yourself, consider including your kids in the planning this year.

Whether you want to jet off to the islands or embark on a cross-country RV trip this summer, one thing is certain: You'd better have some money saved up.

According to a 2013 American Express survey, the average family of four can expect to shell out over $4,500 for a big vacation -- a sum that can make even the coolest parents sweat.

But what if you could turn that sticker shock into a family-wide exercise in responsible money management?

From helping keep tabs on a trip budget to researching prices, the benefits of involving kids in the summer vacation planning process are worth their weight in gold.

Why This Conversation Is So Important

Think back to your own childhood. Did your parents talk openly about what vacations cost? Did they grant your every request on trips, or explain that unlimited activities and treats weren't in the budget?

Chances are, snippets of these moments have stayed with you -- for better or worse.

"[That's why] I ask all of my clients about their first money memory," says Dory Rodriguez, a certified financial planner at HighPoint Planning Partners in Downers Grove, Illinois. "It typically has an impact on their adult decisions."

By introducing your children to concepts like saving for a vacation and deal hunting during the planning process, you can help ensure the money memories they develop are healthy ones.

Drill down on specifics by polling family. For instance, would your kids rather fly to Orlando for $2,300 and spend three days at Disney, or drive for $1,300 in exchange for a five-night stay?

How to Jump-start It

Before you call a family meeting to discuss an upcoming trip, Rodriguez recommends nailing down a range of how much you can reasonably spend.

From there, drill down on specifics by polling family members. For instance, would your kids rather fly to Orlando for $2,300 and spend three days at Disney, or drive for $1,300 in exchange for a five-night stay?

"If your kid fully understands [the trade-offs you're presenting], further explain the breakdown of gas, hotels and food within those figures," Rodriguez says, adding that when she was completing this exercise with her own children, they found it helpful to map out the pros and cons of each option on a chalkboard.

Once your budget and high-level plans are set, ask your kids to help you compare entertainment and lodging costs. Elementary and middle school-aged kids can perform basic research, like pricing amusement park tickets, while teens can scour the web for hotels with Wi-Fi and an outdoor pool.

Challenge them to keep an eye out for deals and discounts -- like the ones offered to AAA members -- and explain that any savings can be reallocated for special meals out or bonus activities.

Then it's time to start saving! Place a clear jar where everyone can see it, and encourage every family member to contribute to it whenever they can.

"And make it physical," Rodriguez says. "Everything these days is credit cards and electronic transfers. A lot of times, kids don't touch money at all."

Use age-appropriate techniques to increase participation, like handing preschoolers leftover bills or coins to add to the jar, and asking teenagers to chip in part of their allowance. And make sure they see you regularly dropping in money, too.

Once the jar is full or you've met your goal, head to the bank. Let your kids write out the deposit slip, stand in line and hand the money to the teller -- then ask for a receipt so everyone can marvel at the account balance.

"Now that the goal is realized, the kids can start planning the next steps," Rodriguez says. "Have them draw a picture or draw up a list of what they'll need to pack, and make a card that says 'We did it! We're going on our trip!' "

 

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Why Americans Can't Keep Lifestyle Spending in Check

May 20, 2015, 4:18 am

≫ Next: ConAgra to Pay $11.2M to Settle Salmonella Criminal Case

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Filed under: Personal Finance, Budgeting Tools, Spending, Financial Education

By Jennifer Liu

Deciding what to do each time you get your paycheck can easily turn into an angel versus devil on each shoulder debate.

On the one hand, you know you should pay yourself first to keep your financial goals on track. But then that ever-present temptation to "treat yourself" starts to kick in, too.

Sound familiar? Then you're in good company.

According to a new poll, 44 percent of Americans who earn more than $75,000 a year say they aren't able to save as much as they should thanks to their "lifestyle purchases."

Their biggest splurge? Fine dining, with an overwhelming 68 percent of people pointing to pricey meals out as the top culprit.

Of course, all that extra spending can have a major impact on finances. After all, a third of people in the study said that this lack of discipline -- not their income -- is what ultimately holds them back from hitting their money goals.

In fact, just about 53 percent of poll participants between 35 and 44 believe they are saving enough to retire comfortably. And those 45 to 54 years old are even less confident: just 37 percent feel their nest eggs are on track.

The bottom line: no matter how hefty of a paycheck you bring home, it's easy to eat into your monthly budget ... literally.

Of course, here's the upside to these findings: much of these overextended lifestyle purchases can be curbed. Learn how to budget successfully -- while still allowing for splurges -- with the one-number strategy.

 

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ConAgra to Pay $11.2M to Settle Salmonella Criminal Case

May 20, 2015, 5:55 am

≫ Next: Takata to Boost Production of Replacement Air Bag Inflators

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Filed under: Company News, Food & Beverage, Scandals and Lawsuits, Consumer Protection

By RUSS BYNUM

SAVANNAH, Ga. -- ConAgra Foods (CAG) agreed Wednesday to pay $11.2 million to settle a federal criminal charge that the company shipped Peter Pan peanut butter tainted with salmonella from a plant in Georgia more than eight years ago, triggering a massive recall and food-safety investigation after more than 600 people got sick.

Federal prosecutors filed a single misdemeanor charge against the Omaha, Nebraska, based company along with a plea deal Wednesday in U.S. District Court in Georgia. No company executives were charged. Instead, ConAgra was charged as a company with one count of shipping adulterated food. The company agreed to pay $8 million in criminal fines and $3.2 million in forfeitures to the federal government.

A lot of people got very sick because of the conduct in this case and we are committed to doing all we can to make sure that does not happen again.

In 2007, a salmonella outbreak blamed for sickening at least 625 people in 47 states was traced to the Sylvester, Georgia, plant where ConAgra made Peter Pan and Great Value peanut butter. As a result, the company recalled all of its peanut butter that had been manufactured since 2004.

U.S. Attorney Michael Moore of Georgia's middle district, which handled the prosecution, said in a statement the plea and fine "should sound the alarm" to U.S. food producers that authorities are watching.

"A lot of people got very sick because of the conduct in this case and we are committed to doing all we can to make sure that does not happen again," Moore said.

ConAgra Chief Operations Officer Al Bolles said the company didn't know its peanut butter was contaminated with salmonella before it was shipped, and it is committed to ensuring the safety of its products.

"We did not, and never will, knowingly ship a product that is not safe for consumers," Bolles said. "We've invested heavily in leading-edge food safety technology and practices over the past eight years, and we are thankful for all of the people who recognize that."

The ConAgra plea deal, which still must be approved by a federal judge, extends a recent string of high-profile food safety prosecutions.

Two former Iowa egg industry executives were sentenced to three months in jail earlier this year for their roles in a 2010 salmonella outbreak. Last year, two Colorado cantaloupe farmers received probation after being convicted in a deadly 2011 listeria outbreak. And last fall, the former owner of Peanut Corporation of America, Stewart Parnell, was convicted in a 2008 salmonella outbreak also linked to peanuts processed in Georgia. Parnell still awaits sentencing and could face prison.

ConAgra officials blamed moisture from a leaky roof and a malfunctioning sprinkler system at its Georgia production plant for helping salmonella bacteria grow on raw peanuts. The plant was upgraded and ConAgra adopted new testing procedures before reintroducing Peter Pan peanut butter a few months after the recall.

-AP business writer Josh Funk in Omaha, Nebraska, contributed to this story.

 

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Takata to Boost Production of Replacement Air Bag Inflators

May 20, 2015, 6:47 am

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Filed under: Company News, Automotive Industry, Manufacturing, Consumer Protection, Auto Recalls

By Ben Klayman

DETROIT -- Takata Corp. said Wednesday it plans to boost production of parts needed to replace potentially deadly air bag inflators that could spray vehicle occupants with metal shards.

On Tuesday, the Japanese supplier doubled its recall of the defective air bags to nearly 34 million vehicles, making it the largest automotive recall in U.S. history. Takata shares fell 10.2 percent to 1,353 yen Wednesday in Tokyo.

Takata's air bag inflators have been found to explode with too much force, spraying metal fragment inside cars and forcing automakers to recall more than 53 million vehicles worldwide since 2008. The component has been linked to six deaths, all in cars made by the supplier's top customer, Honda Motor (HMC).

A Takata spokesman said the company will boost output of the replacement parts to 1 million inflators a month by September, an increase of 100,000 parts from the previous forecast and up from the current monthly level of 500,000. He didn't specify if all the additional production would be added at Takata's inflator plant in Monclova, Mexico.

The spokesman added that the company had just passed 3.8 million replacement kits made in total.

Takata has faced pressure from U.S. safety regulators, lawmakers and its automaker customers to increase production of the replacement parts needed in the recall.

On Tuesday, Mark Rosekind, administrator for the U.S. National Highway Traffic Safety Administration, said he didn't know how long it would take to complete the Takata recall. "There is no question, it could be some years," he said.

Takata has said in the past it is working with other suppliers to increase availability of replacement parts.

Contingency Plans

General Motors (GM) said last December it had developed contingency plans to deal with a potential shortage of replacement parts, including directing Takata to share inflator specifications and data with rivals Autoliv and TRW so that any replacement parts would work in GM vehicles. A GM spokesman said on Wednesday there was no update on those plans, but that it was conducting extensive testing.

Autoliv said Wednesday it was ready to boost production capacity to meet increased demand for replacement air bag inflators needed in the Takata recall.

The Swedish company said in January it was targeting additional production capacity of up to 25 million air bag inflators for delivery in 2015 and 2016.

Autoliv spokesman Thomas Jonsson said Wednesday that the company is building replacement inflators for Honda and several other unidentified automakers, but he had no sense of how long it would take for the industry to meet the demand for replacement inflators.

A Honda spokesman said on Wednesday that the company also is using Japan's Daicel Corp. and TRW for replacement inflators. TRW was recently acquired by Germany's ZF Friedrichshafen.

Daicel said in February it would build a second U.S. plant for air bag inflators in early 2016, bringing forward plans partly to meet demand for alternatives to Takata's potentially deadly inflators. It said the previous month it would boost output of replacement inflators in Japan.

A Toyota Motor (TM) spokeswoman said Wednesday the company is working with Takata for most replacement inflators, but will use Daicel for some parts.

A spokesman for Nissan Motor said Wednesday that the company wouldn't comment about supplier selection or potential negotiations. Ford Motor (F) has previously said it has spoken with Takata rivals about buying replacement parts.

Last November, BMW disclosed Takata would shift inflator production for the German luxury automaker's vehicles to the Japanese supplier's plant in Germany from its factory in Mexico.

-With additional reporting by David Morgan in Washington.

 

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