Filed under: Family Money, Personal Finance, Celebrities, Barack Obama, Financial Education
As the leader of the free world -- and one of the most influential men on the globe -- many issues weigh on President Obama's shoulders daily. Is he also a leader in his personal wealth?
No, according to Kathy Kristof of Kiplinger. "A review of the financial disclosures [the Obamas] filed in May [of 2012] uncovered what many of us see in our own financial lives -- neglect, inertia, poor diversification and spotty investment choices."
The 2012 Stop Trading on Congressional Knowledge Acts makes public the personal finance moves of Congress members, executive branch officials, federal judges and their staffs, with ranges in various categories. Let's take a look.
Good: Writing His Memoirs
The Obamas' tax liability was larger than the president's salary in 2010, and that's because of significant royalties from his books -- much of the $1.7 million he made that year. In 2012, "Dreams From My Father" generated $100,001 to $1 million, as did "Of Thee I Sing: A Letter to My Daughters," from which the after-tax proceeds were donated to scholarship funds for children of fallen and disabled soldiers. "Audacity of Hope" earned the president $50,001 to $100,000 that same year.
Additionally, the writing of a children's version of "Dreams From My Father" earned the president a $225,000 advance; he also got to collect between $1,000 and $2,500 in royalties for "Surviving Against the Odds: Village Industry in Indonesia," his late mother's book.
The president's earnings from his day job are greatly dwarfed by what he's collected from book deals, at just $395,188 in 2010. Obama's income placed him in the 26.3 percent federal tax rate in 2010, although the Obamas qualified for a refund of $12,334, due to $373,289 in itemized deductions, having given $245,075 to charity that year -- 14.2 percent of their income.
Good: Sasha and Malia's 529 Savings Plans
Kiplinger estimates that Sasha and Malia's 529 college savings plans have between $100,000 and $200,000 each. MyBankTracker estimates they're worth between $200,004 and $400,000. The president might be doing a lot to help American students deal with their college debt, and he clearly doesn't want his daughters to be in a position where they need to borrow.
The president opted for Illinois' Bright Directions 529 plan for his daughters, with the deposited funds divided equally between two investment options: one based in stocks and the other in bonds.
Good: $250,000 to $500,000 Emergency Fund
If the rule of thumb is to have six months of income (his presidential salary is $400,000) saved for an emergency fund, then the Obamas are set. With an estimated 28 percent of Americans having no emergency savings to speak of, the Obamas are being responsible with their money should an unexpected event occur. The president declared $50,001 to $100,000 in a JPMorgan Chase (JPM) Private Client Asset Management checking account, between $1,000 and $15,000 in a JPMorgan Chase Private Client savings account, as well as an additional $100,001 to $250,000 in a Northern Trust checking account, according to his 2013 executive branch personnel public financial disclosure report.
Good: No Reported Debts or Liabilities
The Obamas weren't always debt-free, and struggled early on with financial burdens. The president spoke of this in April of 2012, stating: "I went to law school and college with the help of scholarships; so did my wife. We were still paying off student loans nine years after we graduated. I bought my first car for about $900. It had a big hole in the floor that allowed you to see the road, so I knew my wife wasn't marrying me for my money. We had credit card debt we hadn't paid off. [In fact] our personal finances ... weren't stable until fairly recently."
The president has no liabilities listed on his 2013 executive branch personnel public financial disclosure report, save for his 30-year mortgage, taken out in 2005, with a value of between $500,001 and $1 million. Liabilities of $10,000 or less are not required in the report.
Bad: Too Conservative of an Investment Strategy
The Obamas are incredibly conservative about their money in the market, with 92 percent of their portfolios held in cash. The couple's $4.7 million in cash investments is divided between Treasury bills and notes, as well as checking and savings accounts, according to Kiplinger.
The couple held only $325,000 in stocks as of 2012. By keeping a whopping $1 to $5 million in Treasuries, the Obamas are missing out on more impressive investment returns, both due to the amount they place in the market, as well as how aggressive their investments are. Those millions in Treasuries only generated a return of between $5,001 and $15,000 for the Obama family that year.
Bad: Taking Too Long to Pay Off Student Debt
The president took a reported 13 years to pay off his Harvard Law School debt. According to U.S. News & World Report, Obama paid off his law school debt in 2004; however, he could have put at least $100,000 away in savings each year by living frugally, with Chicago-area housing costs factored in along with inflation rates. With income over $200,000 annually between 2000 and 2004, frugal living habits could have saved the president significant loan interest if he'd paid down more each year and had limited his annual budget to $75,000.
Bad: Weak Retirement Savings
Fidelity Investments suggests that people save eight times their ending salary for retirement, with one year's salary saved by the age of 35, three year's salary by 45 and five year's salary by 55. At 53 years old, the president should have almost eight years' salary saved up; and yet, the president only has between $600,004 and $1.35 million saved, according to his 2013 financial disclosure report.
The president cataloged three Vanguard 500 index retirement funds, each with $100,001 to $250,000 deposited. Additionally, the president noted a pension plan for the Illinois General Assembly, valued between $50,001 and $100,000, as well as a former 403(b) retirement plan with the University of Chicago. However, if Obama ends up anything like Bill Clinton, he's likely to make even more money after leaving the White House.
Bad: Neglected to Refinance His Home
Obama's mortgage is held with Northern Trust in Chicago. It's a 30-year loan at an interest rate of 5.625 percent -- and the president never capitalized on still-low mortgage rates to refinance the loan.
With the prime rate still at 3.25 percent, the Obamas could save tens of thousands of dollars in interest paid on their 9-year-old loan, especially since the loan amount itself is estimated between $500,001 and $1 million in value. According to MortgageCalculator.com, the president spent over $1.5 million for his home in 2005. What's more, Illinois has the second-highest property taxes in the nation, meaning the Chicago home is blowing through even more money.
