Cash Money Life» Economy

What is a Living Wage and Does it Exist in the US?

Ryan — Wed, 29 Apr 2009 12:19:58 +0000

Earlier this week my wife and I announced that she will be a stay-at-home-mom when we have our first child in a couple months. We feel both blessed and excited to have this opportunity because we both know many people simply cannot afford to raise a family on one salary.

Our grandparents did it… why can’t we?

My dad’s parents immigrated to the US after WWII. They moved to California and raised 7 children on one salary. That seems even more amazing when you realize my grandfather did not have a college education – he primarily worked as a truck driver and delivery man. My dad told me they never had a lot of luxuries, but they also never went without the essentials. They lived a normal middle class American life.

In today’s American society, families with 7 children are rare. It would be even more rare to see a blue collar worker head a family of 7 children and not struggle to live a normal middle class life. So what happened between then and now? Why is it such a struggle to get by?

What is a living wage… and does it exist anymore?

A living wage is:

“the minimum hourly wage necessary for a person to achieve some specific standard of living… this standard generally means that a person working forty hours a week, with no additional income, should be able to afford a specified quality or quantity of housing, food, utilities, transport, health care, and recreation.” (from Wikipedia).

A living wage is not “the minimum wage.” Notice the definition didn’t state that a living wage is the “minimum wage” set by a government. A living wage is the minimum amount of money one must earn to afford a standard quality of life. Many states and localities have enacted a minimum wage higher than the federal minimum wage because the federal minimum wage is not sufficient for many people to live on.

Does a living wage exist in the US? There are millions of people struggling to get by in the US. I’m not talking about addicts or lazy people. I’m talking about people who work hard every day and strive to improve themselves and their situation. A good example of this can be seen in the documentary, Waging a Living. The documentary follows 4 individuals as they struggle to get by while working jobs at or slightly above the minimum pay level. Waging a Living was a powerful documentary and it was difficult to watch because you see how much of a struggle it is for many people to get by.

Why is it such a struggle? I can’t believe that people don’t work as hard today as they did just a few decades ago. But it seems like more people have trouble getting by. Why is that?

I won’t pretend to have the answer, but I would love to read your opinions.

~$~

This article written by Ryan Guina. Ryan is the founder and editor of this site. He is a writer, small business owner, entrepreneur, and professional in the corporate world. He served over 6 years in the USAF and also writes about military money topics at Military Finance Network.

All content copyright Cash Money Life.

No Stimulus Check This Year – Pay Yourself First Instead

Ryan — Fri, 27 Feb 2009 12:43:16 +0000

There will not be an economic stimulus check this year, at least not like last year’s economic stimulus check. No, this year’s stimulus is different. Instead of receiving a check, the Treasury Department has instructed employers to reduce the amount of taxes they withdraw from each paycheck. Starting April 1, you will start seeing a little extra money in your paycheck – about $45 per month for a single tax filer.

Making Work Pay tax credit

The 2009 Economic Stimulus Recovery Bill includes a section called the Making Work Pay credit, which gives working families a $400-$800 earnings credit. But instead of sending out checks like last year, the government decided that withholding fewer payroll taxes would be a more efficient way of giving people a tax break. It should be automatic, so there won’t be confusion about when checks go out and the Treasury won’t have to print and mail checks (that was a fiasco!).

Pros and cons of the Making Work Pay tax credit. The downside is that most people won’t notice they are bringing in more money each check and many will fritter away without a second thought. The positive is that it forces people to save their money if they want this tax credit to make a difference.

What can you do with an $11 per week tax credit?!

The same thing you can do with a check for $400, but you need to make sure you save the money instead of letting it slip through your fingers each week.

Pay yourself first. $11 each week isn’t a lot of money, but then again, Rome wasn’t built in a day. Even small savings can grow large if you save consistently.

I challenge you to save your Making Work Pay credits. You will begin receiving the extra stimulus money starting April 1, 2009. You might not notice a big difference at first – after all, it is easy to miss $11 per week. But because it is so easy to miss is the reason you should save it!

$11 per week is less than $2 per day. If you can do it, set up a system to automatically save that money each week. Automatically transfer it to an online high-yield savings account where you can earn interest on your savings like FNBO Direct or ING Direct, or place it in a piggy bank at home. It doesn’t matter; just save it! Before you know it, those invisible $11 bonuses add up to a more meaningful amount of money, and more importantly, you started a good habit of saving money for your goals.

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2009 Stimulus – Education and Other Benefits

Ryan — Wed, 18 Feb 2009 10:46:21 +0000

In two earlier articles, I discussed how the 2009 economic stimulus recovery plan could affect your taxes and how the stimulus will affect people receiving unemployment benefits. In addition to these benefits, there are a couple more provisions that will have a direct impact on tax payer’s wallets. These include some educational provisions, and direct assistance provisions like food stamps and welfare programs.

Educational provisions in the 2009 economic recovery plan

The stimulus plan calls for educational grants and tax credits.

Tax credits. Individuals making less than $80,000 or families making less than $160,000 can get up to $2,500 in tax credits for college tuition. 40 percent ($1,000) of the credit is refundable.

Pell grants. The maximum amount of money a student can receive from the Pell grant increases to $5,350 per student for the 2009-2010 school year.

Direct personal benefit provisions in the 2009 economic stimulus plan

People have complained for years that food stamps and welfare are not sufficient. The 2009 economic recovery plan calls for a boost.

Food stamps. The 2009 economic stimulus bill includes a line item that would increase food stamp payments by 13.6%. A family of four currently receives $588 per month, and would receive an additional $80 per month. The bill also increases aid to state and local groups that provide food and shelter, such as food banks, homeless shelters, Meals on Wheels, and other similar groups.

Temporary Assistance for Needy Families. The 2009 stimulus bill provides funding for states to create a new fund for the welfare program called Temporary Assistance for Needy Families, which provides cash assistance to the needy. This program is expected to be in place through 2010.

My thoughts about the 2009 economic stimulus plan

I think this is a better overall plan than giving people a couple hundred dollars, a pat on the back, and a telling them “good luck in 2009.” I didn’t cover every provision covered in the stimulus plan, but there are many others including provisions that should create jobs and give companies certain tax breaks which will hopefully stem the tide of unemployment. The first economic stimulus plan was just a check with the hope that people would spend money. The 2009 economic stimulus recovery plan is more about helping those who need it most – those who are low income and unemployed.

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Unemployment Benefit Provisions in the 2009 Economic Stimulus Plan

Ryan — Tue, 17 Feb 2009 18:58:28 +0000

The 2009 economic stimulus recovery plan calls for a host of benefits for states, taxpayers, companies, and certain industries. In addition to personal tax breaks in the 2009 economic stimulus plan, you may be able to receive additional benefits if you received unemployment benefits of signed up for COBRA insurance coverage after a certain date.

Unemployment and COBRA benefit provisions in the 2009 economic stimulus plan

The unemployment level in the US has increased in recent months and the US government has stepped up the benefits unemployed workers are eligible for. There are a few changes of note:

Longer unemployment benefits. The bill calls for an additional 20 weeks of normal unemployment benefits, plus up to 13 additional weeks on top of the 20 extra weeks for unemployment filers who live in a “high unemployment state.” There are currently 30 states that qualify under the “high unemployment” label. Be sure to check with your state’s employment bureau for more information about your state.

Increased unemployment payments. The average weekly unemployment benefit in the US is around $300. The 2009 stimulus bill will temporarily increase payments by $25 across the board.

Tax exemption of some unemployment benefits. Unemployment benefits are considered taxable income. The new economic stimulus bill is calling for the first $2,400 of unemployment benefits paid in 2009 to be exempt from federal income taxes.

Health insurance help for the jobless. Another provision of the 2009 economic stimulus bill assists eligible jobless workers to pay for health insurance under COBRA. COBRA Health Insurance coverage gives newly unemployed workers the opportunity to continue receiving the same health insurance that was provided by their former employers – however, the newly unemployed workers must pay the entire cost out of pocket and they are only eligible to receive these benefits for a set period of time.

COBRA Insurance subsidies

As part of this stimulus bill, the government will subsidize 65% of the COBRA premiums for workers who were laid off between Sept. 1, 2008, and Dec. 31, 2009.

Who is eligible for the COBRA subsidy? The subsidy is limited to tax payers whose income is less than $125,000 for individuals or $250,000 for couples, and is good for up to 9 months of coverage. The bill will also extend the window of opportunity to sign up for COBRA coverage by 60 days for workers who were laid off between Sept. 1, 2008, and the day the stimulus law goes into effect.

How do you receive the COBRA subsidy? Employers pay for the subsidy out of their operating expenses, then file for reimbursement from the government. You will need to contact your former HR department for more information. Be patient with them if they do not have all the information readily handy – this is new for them too!

Additional benefits. The bill also gives states additional funding to increase the level of Medicaid availability for workers who cannot afford health care or who cannot sign up for COBRA Coverage because their former employer did not offer a health care plan.

For more information please visit the Department of Labor:

Best of luck to everyone who is searching for new work.

~$~

Welcome to the White House President Obama, Here’s a List of Things to Do

Ryan — Mon, 19 Jan 2009 10:25:20 +0000

Tomorrow is Inauguration Day, the day President Obama will be officially sworn in as President of the United States. This will be an historic day for the US, and the world will be watching President Obama and his family as he ascends into one of the most powerful jobs in the world. And he has his work cut out for him. In addition to being the Commander in Chief of the world’s most powerful military, President Obama will be in charge of running one of the world’s preeminent economies; an economy that is in the midst of a crisis.

Here are some of the pressing issues facing Americans; President Obama’s to do list, if you will.

The Economy

The US and world economy are in the midst of the worst financial crisis that most people have witnessed. There are thousands of problems, and no easy solutions. Here are a few areas to concentrate on for the next few years:

Stabilize the stock markets. The stock market bled off roughly 40% of it’s value in 2008. The financial crisis has been felt worldwide and new problems are arising on an almost daily basis. The most important thing at this point is stabilizing the markets, which is no easy task. Until the markets stabilize, many people will not be willing to inject more capital into equities, causing equities to continue to lose value.

Stabilize the banking system. Along with the real estate markets, the banking system is one of the hardest hit sectors during this recession. Quite a few major banks have folded and we may see several more fold before all is said and done. In response to the crisis we have seen the FDIC raise it’s insurance limits to convince people to leave their money deposited with the banks, and we have seen billions of dollars given to banks in the form of loans, write offs, and in exchange for equity. Until the banking system is stabilized, the credit crunch will continue to affect people and businesses. Which leads us to our next concern – unemployment.

Stem unemployment. Over 2 million Americans lost their jobs last year, and the numbers continue to climb. There are estimates that almost a million more people may file for unemployment insurance benefits in the coming year. Many companies simply don’t have the cash flow to continue operations – which means they need to lay people off or even shut their doors for good. We need to find a way to decrease te unemployment rate and the growing ranks of the unemployed.

Create jobs. Creating jobs is part of your American Recovery and Reinvestment Plan. And I think it is a great idea. While campaigning, your goal was to create 2 million more jobs, and you recently increased the goal to 3 million new jobs. This is a grand task, and I hope you can pull it off. Some of the jobs you want to create include rebuilding bridges, repairing and building new roads, computerizing the health care system, updating school labs and libraries, and increasing green energy initiatives. There will be many opportunities in these areas. So let’s get started!

Another Stimulus Check? Last year, President Bush’s Administration sent the American public an economic stimulus check to try and stimulate the economy by increasing spending. There have been rumblings of a second economic stimulus check in 2009, but we haven’t heard anything definitive yet. The stimulus plan proposed by your administration calls for a tax credit which will reduce the amount of taxes withheld from paychecks throughout the year. This will increase cash flow for millions of taxpayers, even if it is not quite the same as a stimulus check.

Health Care Reform

Health care is a touchy subject in America. There is much that can be improved about our health care system, but there are no clear answers as how that should be done. While I don’t think we need to socialize health care through a universal health care program, I believe we need health care reform. The most important issue – to make health care and health insurance more affordable.

Health insurance. One big problem is that health insurance is almost always tied to employment in the US. We need to make it easier for uninsured, self-employed, and small businesses to group together to get discounts on health insurance. We need to make it easier for health care companies to compete for business across state lines. When insurance companies compete for business, the consumer wins. And that means more people can afford health care, which will decrease the number of people who rely on government assistance.

Health care records. One of your goals is to standardize medical records and update the health care computer system. I think this is a great goal. Standardization will likely be a complicated and expensive endeavor, but one that will pay dividends in the long run. It should lower administrative costs and reduce errors – errors that could have devastating impacts on patients’ health. Your goal is ambitious, President Obama, and I hope you succeed.

Renewable Energy

Renewable energy is more than just a catch phrase. It should be a model that the United States works toward until we can lessen our reliance on foreign fuels and expensive electricity created by polluting our nation with coal and its byproducts. We should look at countries like France and Brazil as role models and find ways to create a surplus of energy so we too can become exporters of energy instead of importers of energy.

Solar and wind energy are free resources that need we need to tap into more than we are currently doing. Yes, the infrastructure is expensive, but as technology improves and is mass produced, costs will drop, making the infrastructure less expensive to install and operate. We also need to improve automobile fuel efficiency and decrease our reliance on foreign fossil fuels. The less money we spend on foreign fuels, the more money that stays in the US, which will work toward decreasing trade deficits.

Obama’s American Recovery and Reinvestment Plan

I like your American Recovery and Reinvestment Plan. It is ambitious and addresses some of the key concerns of the American public. I admire your willingness to reach across party lines and work toward a common goal – improving our nation. We, as a nation have a lot of work ahead of us, and I believe we can achieve great things.

For those who are not yet familiar with it, here is Obama’s American Recovery and Reinvestment Plan, as addressed to the nation:

~$~

Inflation – Worst Case Scenario

Ryan — Wed, 14 Jan 2009 11:07:43 +0000

About a year ago I wrote a tongue in cheek article about how inflation is inconvenient. At the time, I was a little disappointed that the price of an ice cold beverage at my workplace increased 25%. Actually, it wasn’t the price increase that bothered me so much as having to carry around quarters. I know, it’s not that big a deal. It’s not like I had to run through the streets with a wheelbarrow full of money just to buy a loaf of bread! (yes, that has happened, keep reading!).

Inflation and hyperinflation

The inflation rates in the US and most first world countries have been relatively minor in the last few decades. It has been just high enough to keep the economy moving along. But what about really bad inflation? By really bad, I mean the worst possible situation you can imagine – run away inflation, or hyperinflation.

As much as we may hate inflation, it could be much worse. Here are three examples of hyperinflation that should make all of us feel a little more grateful about our current economy!

Hyperinflation in Zimbabwe

This weekend, the Zimbabwe Central Bank introduced two new bank notes in $20 billion and $50 billion denominations. The new $50 billion note is only enough money to buy two loaves of bread. As of Friday, Jan 9, 2009, the US dollar was trading at around $25 billion ZW dollars.

How bad is the inflation? In June The inflation rate is officially estimated at 231 million percent, or 231,000,000%. Only three weeks ago, a $10 billion note could purchase 20 loaves of bread, whereas it can now only purchase ½ loaf of bread. In other words, the money is worthless. (from CNN)

Hyperinflation in 1920’s Germany

The hyperinflation that Zimbabwe is experiencing is not the worst recorded case of hyperinflation. During post WWI, pre-WWII Germany, hyperinflation caused the inflation rate to swell from 300-800 billion percent, or 300,000,000,000% – 800,000,000,000% over a 6-month period. The value of German mortgages in 1913 was roughly $10 billion US dollars. At the height of hyperinflation in late 1923, these mortgages were only worthy one US penny (source).

Hyperinflation was so bad that workers demanded to be paid daily, or even multiple times per day, so that their wages would not be worthless at the end of the day. When they received their pay, workers ran from their jobs to the store in the hopes that their paychecks would still be enough to purchase a meal or some goods. Prices often changed hourly. There are stories of people using wheelbarrows to haul enough money to buy a loaf of bread. Money was sold or traded by weight and creative minds found other uses for the money, including making clothing with it, using it for wallpaper, and stuffing it in clothing and walls for insulation. This period of hyperinflation wiped out most of the middle and upper classes in Germany.

Hyperinflation in Hungary – worst case scenario

Amazingly, the hyperinflation experienced in Germany in the 1920’s was not the worst case of inflation on record; it is just one of the most widely known cases. The worst case of hyperinflation on record occurred in Hungary shortly after WWII when the Hungarian currency, the pengo, reached record levels of inflation. The largest denomination banknote of any currency ever printed was the 100 million b.-pengo note (pictured here), which was worth 10 ˆ 20 or 100 quintillion pengo.

The b.-pengo note was worth one trillion pengo; so the 100 million b.-pengo note can be read as 100 million x 1 trillion, which is 100 quintillion, or 100,000,000,000,000,000,000.

The end result was a new currency to replace the worthless Pengo, the Forint was introduced in 1946 at the rate of 400 octillion pengo (400,000,000,000,000,000,000,000,000,000 or 400 x 10 ˆ 29) to 1 Forint.

Those numbers are so large I can’t even comprehend them!

Can Hyperinflation happen in the US?

I know what some people are thinking… can we experience hyperinflation in the US? Yes, it’s possible… But! Hyperinflation is usually caused by the collapse of a country’s government or as a result of war. And if that happens, well then I think we will have other problems to worry about!

If you enjoyed today’s little history lesson, here is some other fun reading:

Photo credit: wikipedia.

~$~

Obama’s Road to Recovery – More Jobs, More Money in Your Pocket

Ryan — Sun, 04 Jan 2009 11:40:17 +0000

President elect Obama recently announced his economic recovery plan, the American Recovery and Reinvestment Plan. It doesn’t appear that his plan includes a second economic stimulus check, at least not like the last stimulus check. But Obama’s plan just may put more money in your pocket anyway. Obama’s plan calls for several major projects that he hopes will create upward of 3 million jobs, improve our nation’s schools and infrastructure, computerize the health care system, decrease our dependency on foreign energy and lower taxes for American workers. This is a series of lofty goals, but our economy is in a recession, and it will take bold moves to set us on the path toward recovery.

Here is what Obama’s new economic stimulus plan calls for:

Double renewable energy

I’m a big fan of renewable energy, as well as increasing reliance on more energy efficient items such as CFLs and more energy efficient vehicles. Obama’s plan calls for doubling renewable energy sources in the US, and increasing the energy efficiency of government buildings. I support this 100% and think we should have started it years ago. The more we use our free resources such as wind, sun, and hydroelectric power to provide power our homes, the less we need to rely on digging coal and importing foreign fossil fuels. I haven’t heard any mention of it, but I also support the building of nuclear power plants, which provide a cleaner, safer, cheaper, and more efficient means of producing electricity. France has been a world leader in nuclear power for years, and now supplies much of Europe with their excess electricity.

Rebuild roads and schools and modernize classrooms

There are many highway systems and bridges across the US that are becoming dangerous.Creating jobs to repair our infrastructure will increase safety and provide hundreds of thousands of jobs. And those workers will spend the money they earn, which should work well for our economy.

Modernize classrooms, labs, and libraries. Many schools are funded at a state or local level, and many states and cities are currently running on a deficit, as their funds are running low due to decreased tax income, job losses, and an overall bad economy. Government funding will help make up that shortfall and make it easier to improve our schools.

Computerize the health care system

The US health care system has a lot of room for improvement. One of the biggest areas for improvement is cost and availability. But another major area of concern is our health care system’s complexity. There are literally thousands of different computer systems to track the same information and the problem is that many of these systems do not communicate well with each other. This means there either needs to be an intermediate system used to translate raw data into a form that can be used by another system, or the data needs to be manually input into the other system. This causes a lot of costly and sometimes dangerous errors to be made and creates delays to filing claims for health care. The government would be well served to create and Enterprise Resource Planning System to integrate health care information and claims systems to reduce errors and other complications that arise from incomplete or incorrect data.

Cut taxes

While he was campaigning for President, Barack Obama proposed several tax cuts aimed toward reducing the taxes that people in the middle and lower income tax brackets pay. While it doesn’t appear as though Obama is prepared to send tax payers a check like the first economic stimulus check, it does appear as though he favors creating a new tax credit that would be advanced to tax payers, meaning workers would see the money in their checks now instead of as a credit at the end of the year. The proposed plan calls for up to $500 for single people and up to $1000 per married couple.

Will Obama’s American Recovery and Reinvestment Plan work?

First off, this is only a plan; Obama has not yet been sworn into office, and this has not yet been approved by Congress. But I think he wants to get things started quickly, and I commend him for stepping up and taking charge. I think his plan is a step in the right direction, but even if it is approved and implemented, our economy faces an uphill battle, and it will likely take a few years before we see major improvements.

The other consideration is the cost of the plan. Initial estimates put the plan cost at $650 billion – $750 billion, but some economists estimate that it could reach as high as $1 trillion. Obama’s recovery plan calls for increased spending, and the only way to pay for increased spending is to decrease spending elsewhere, or increase income (usually in the form of taxes). Obama has not proposed any major program cuts, and has not yet mentioned how he will pay for his recovery plan.

There are obviously many details that need to be worked out, and I think this will be an interesting topic over the next few months.

More information about Obama’s recovery plan can be found here:

~$~

Watch Out for Inflation in 2009

Ryan — Sat, 13 Dec 2008 13:08:00 +0000

This is a guest post by Simit Patel, a contributing analyst at InformedTrades.com, a site that offers free courses on trading the world’s financial markets.

At the time of this writing — December, 2008 — the US economy is characterized by deflation. Deflation means the supply of money is falling, the value of currency is rising, and asset prices are declining. In times of deflation, it’s often best just to pay down your debts and save your cash.

By the end of 2009, however, the economy might be very different. In fact, many economists, myself included, are more concerned about inflation towards the end of 2009 and through 2010.

Why inflation may increase in the coming year

1. The US government continues to amass more debt. The bailouts that have been promised and continue to be promised, as well as entitlement payments in the form of social security and unemployment, are coming at a time when the tax base is diminishing. The result will be a need to finance this via the issuance of debt — i.e. US Treasury bonds. The key question, though, is who is going to buy this debt? Foreigners, particularly China, have been big buyers of US Treasuries. But the economic problems have been a global issue, and thus the appetite for US Treasury bonds may be diminished — particularly when rates are low.

If the US government cannot find buyers of its debt, it will simply need to print the money. This will increase the likelihood that the money existing in supply will be devalued, so that it will take more dollars to buy the same amount of goods and services. This concern is one of the reasons some economists were particularly opposed to the bailouts that have been promised.

2. Worldwide uncertainty. As the recent events in Mumbai have shown, the world is still in a time of great tension. President-elect Barack Obama has already voiced concerns about Pakistan, and has stated the US military may need to position troops there. As the world is very interconnected economically, countries can attack in ways that do not involve soldiers. For instance, many US dollars and US Treasury bonds are now held by foreign central banks. Those central banks can thus wage “economic warfare” by selling bonds and US dollars, which will result in decreased demand for US dollars and a greater supply of them on the market. Such a scenario will devalue the US dollar.

The central banks of China and Iran have recently both increased their holdings of gold. Whether they are waging economic warfare or simply holding more gold, the result is the same: evidence of a decreased demand for US dollars.

How Can You Protect Yourself?

To protect yourself financially, consider three things:

1. Hedge against currency devaluation. As anyone who lived through the inflationary depression of Argentina in 2001 can tell you, gold and silver are great ways to preserve your wealth, and historically have been great hedges against currency devaluation. Since the US dollar has lost much of its value since 2001, gold has risen in value as well.

2. Buy durable goods. As the value of your currency may be dropping, now is actually a good time to buy. If you are planning big purchases over the next few years, it may be worth considering purchasing them now if you can afford to do so.

3. Don’t prepay long term debt. Just as you should consider buying real goods now, it may also be worthwhile to delaying payments on debt — especially if your debt is at a fixed interest rate, and if you can afford to do so. It will be to your advantage to pay your debt back when the currency is worth less, as you will have bought while the currency was more valuable then when you paid the debt back. This strategy is a bit more risky, though, and thus you should be careful before trying it — consider your personal wealth and the terms of the debt carefully before taking part.

~$~