Can Money Actually Buy Happiness? More Cash on Hand Just Might!

If you are like me, you are keeping a close eye on your investments these days.  With stock prices at record highs, and bond yields still very low, it is not easy to find places to park our hard earned money that provide a low risk of loss paired with good returns. 

Trying to figure out what’s next can practically make you nuts.  Check out these headlines from CNBC:

  • “Bill Gross says all financial markets are ‘increasingly at risk.’”
  • “Bob Doll: Tech sell-off may not be over but it will breathe new life into the market.”
  • “Billionaire Ron Baron says the stock market and economy will double in 13 years.”
  • “The tech wreck is a sign there could be a summer swoon.”
  • “A record number of investors believe the stock market is overvalued, survey shows.”
  • “RBC raises stock market outlook into the tech wreck, sees 7% S&P 500 rebound into the end of the year.”
  • “Analyst Mark Mahaney on why tech stocks are not in a bubble.”

And these were just from the last two days!  No wonder most of us don’t sleep very well at night.  I can’t recall a time when so much has been riding on the economic performance of our country which translates directly into the growth of our investments—particularly those in our retirement accounts.  In the face of shrinking pensions and the instability of pension funds, combined with the potential of further modifications to Social Security, there are not just a few of us biting our fingernails.

So when our youngest daughter came to me the other day and asked if she should put some of her hard earned college savings into an investment that would earn her a higher rate of return I just sort of locked up.  I think I just blinked blankly for a moment or two before saying “Don’t do anything.  Leave it right where it is in the bank if you want to sleep at night.”  Those were the best words of investment wisdom I could come up with.

Ah, for the days of recommending she buy, ala Forrest Gump, as many shares as she could in a “little fruit company.”  True, banks in general hardly pay anything for the use of our money, but by and large they are safe and may, in fact, provide an even more valuable return: “Life Satisfaction.”

The American Psychological Association published a study done by Peter M. Ruberton (University of California, Riverside), Joe Gladstone (University of Cambridge) and Sonja Lyubomirsky (University of California, Riverside) entitled “How Your Bank Balance Buys Happiness: The Importance of ‘Cash on Hand’ to Life Satisfaction.”  (American Psychological Association, 2016).

Their study looked at the relationship between types of wealth and our feelings of well-being.  They pointed out that there have been a number of studies done that show a “…small, but discernible, relationship between income and well-being…”  They note that “Superficially, it appears that wealthier individuals—or at least, those who have sufficient wealth to meet, or marginally exceed, their basic needs (Kahneman & Deaton, 2010)—are also happier.”

Yet their study found that wealth alone provided an “…incomplete portrait of the link between wealth and well-being.” For example, someone who is wealthy but overspends their income, or is in significant debt, may be less satisfied with their life than someone who is more frugal and smarter in how they save and invest. 

To look deeper into “Life Satisfaction” their study was done using a large, but random, sample of customers of a large national bank in the United Kingdom. 

Their conclusion?  “Our results suggest that having a buffer of money available in checking and savings accounts confers a sense of financial security, which in turn is associated with greater life satisfaction…This finding suggests that people with low liquid account balances may feel more economically distressed—and thus less satisfied with their lives—than their peers with higher balances, even if their incomes and spending, considered separately from their account balances, would predict high financial security.”

So, if “Life Satisfaction” is your goal, nothing quite seems to beat cash on hand.  Take it to the bank.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded innorthern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

Welcome to the Wild Ride: The Debt Picture Heading into 2019

Do you ever feel like you have been put in a blender and someone hit the ‘frappe’ button?

Or as a good friend of mine is fond of saying, sometimes life feels like “being in a cow pasture in a tornado with a thimble for an umbrella.”  His language is a bit more colorful, but since this is a family blog, I have rephrased a bit to reach a ‘G’ rating.

At all events, if you are feeling like this you are not alone.  The last month or so has been a really wild ride in politics, finance, the economy, and consumer spending.  And then let’s just throw in the holidays for good measure!

If you are an investor, or even have your retirement savings in the stock market, you could not have missed the wild drop and subsequent swings in market value.  Rising interest rates and concern about trade policies and the impact on the world economy seemed to be the fundamental finger that hit the ‘frappe’ button.

And yet the consumer remains pretty confident.  While the most recent trends in consumer confidence have tempered a bit, they are still high and no doubt are reflected in the continuing record setting levels of household debt.

The Federal Reserve of New York released their latest report on household debt, this time for the 3rd Quarter of 2018, and noted once again we hit another record at $13.51 trillion (read the report here) Among some of the findings are:

  • This was the 17th consecutive quarter with an increase, up 1.6% from the second quarter of 2018.
  • Total household debt is now $837 billion higher than the previous peak in the third quarter of 2008.
  • Mortgage balances continue to grow and now stand at $9.1 trillion, an increase of $141 billion from the previous quarter.
  • New auto loans grew by $158 billion, which is the highest seen since 2004.
  • Credit card balances hit $844 billion (a $15 billion increase).
  • The aggregate credit card limit rose for the 23rd consecutive quarter, a 1.3% increase.

Of interest is that the median credit score for housing loans was 758 which the Fed suggests means that since the housing loans are primarily going to those with high credit scores, availability of mortgage loans is actually pretty tight.

In contrast, those with subprime credit scores were given a much greater percentage of auto loans.

There is some not so good news in the report, at least if one is concerned about the consumer’s ability to repay their debt:

  • Aggregate delinquency rates increased in the third quarter.
  • 7% of outstanding debt was in some state of delinquency, an uptick of .2%. While that does not seem like much, that was the largest uptick in seven years.
  • Of the $638 billion that is in delinquency, $415 billion is seriously delinquent.
  • Much of this shift is due to a large increase into delinquency for student loans.
  • That said, credit card delinquencies (greater than 90 days) have continued to rise, and have been doing so for more than a year. They remain elevated when compared to historic levels.
  • Auto loan delinquencies have continued to increase and have been doing so since 2012.

Some additional interesting data has been published recently in a blog by Wallet Hub.  Alina Comoreanu, writing “Credit Card Debt Study: Trends & Insights” for the company (read the blog here) points out the following:

  • Although the consumer has been able to repay their debts to this point, the rise in additional credit card debt has now countered these repayment efforts.
  • Debtors repaid $40.8 billion in credit card debt in the first quarter of 2018, but then accumulated $38 billion in new debt.
  • Wallet Hub says they also see an additional $70 billion in new credit card debt by the end of 2018.

Of particular interest is Wallet Hub’s observation that “Looking at the average credit card debt per household, it increased 2 percent from $8,107 in the third quarter 2017 to $8,284 in the third quarter 2018. The third quarter balance is approximately $177 from being ‘unsustainable’ for consumers…”

Things to worry about?  Certainly.  We always encourage vigilance by our valued clients, and in particular to take a few steps to ensure your outstanding debts are collected promptly:

  • Turn over your placements to us for collection at your earliest possible convenience. The old saying that ‘the older they are the farther they go’ is quite true.
  • Review your year-end receivables now and turn them over to us as soon as possible. With tax season fast approaching this is the optimal time to initiate collection activity.
  • If you do not have a consumer financial agreement in place with your customers, strongly consider using one. This type of payment agreement (where the consumer agrees to your terms for payment) is a powerful collections tool.  Put one to work for you.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 13 years.

A Sad Fact: Most of Us Would Fail Finance 101

Apparently, but unbeknownst to me, April is Financial Literacy Month. We really should have had a party.  If I knew I would have baked a cake.  Well, so it goes.

I am not sure who it is that is in charge of proclaiming special days and months.  For some reason “Men in Black” comes to mind.  This one sort of came from out of the blue but was mentioned in passing by Cameron Huddleston of GoBankingRates.com in a blog titled “Most Americans Can’t Pass This Tricky Finance Quiz, Survey Finds.”

The survey of 2,000 adults, conducted by GoBankingRates, showed that most adults could not correctly answer six common finance related questions. In fact, it would seem only about 2% of us would pass.

Here are the six questions they asked (if you wish to take the quiz and see the answers you can find it here):

  1. What are the 3 major credit bureaus?
  2. A 401k refers to a tax credit for retirement. True or False?
  3. Of the following, what best describes what “APY” is?
  4. Income does not impact your credit score. True or False?
  5. What does a CD offered by a bank stand for?
  6. What’s the difference between a saving account and a checking account?

How did you do?  If you passed, have a donut on me!  If not, time to study up!

The quiz overall is interesting.  With regard to the business of debt collection, perhaps more so because we find many of the debtors we work with simply got themselves into a financial predicament due to a basic lack of knowledge of how to manage their money.

In particular question number 4 caught my attention. Often, maximizing one’s credit score is the pivot around which financial health revolves.

In a follow up blog by Kathleen Elkins (writing for CNBC: “Less than half of Americans can answer this key question about credit scores”) she elaborates a bit more on what goes into calculating a credit score.

Here are the five factors and their weighting that affect a person’s FICO score.  They are (quoting directly from her blog here):

  1. Payment history (35 percent): Your repayment of past debt, whether it be credit card debt or a mortgage, is the most important factor because it helps determine how you’ll handle future payments. You want to make consistent, on-time payments to improve your credit or maintain a good score.
  2. Amounts owed (30 percent): This category is credit utilization, which is the ratio of how much you’ve spent on your credit card versus the card’s limit. Ideally, you want to use under 30 percent of your available credit.
  3. Length of credit history (15 percent): How long you’ve had an account open and the time since your most recent transaction also affects your score. Newer credit users may have a harder time getting a high score since there’s less data available on payment history.
  4. Credit mix (10 percent): Your score considers the types of credit you use, like credit cards, retail accounts, installment loans and mortgage loans.
  5. New credit (10 percent): Opening up new credit cards, especially all at once and if your history isn’t established, can count against you. Too many hard inquiries, such as those that occur when you’re applying for an apartment or signing up for a new card, can impact your score negatively, while soft inquiries, such as background checks, do not.

We use credit bureau reporting as a powerful tool in collecting bad debts as a consumer’s ability to obtain credit is directly linked to their credit score. That ability can be significantly impacted by a bad credit rating.  Paying off bad debts quickly can often revive a poor credit score.

Over the past few years consumer debt has increased to historic levels and shows no signs of slowing down.  Yet, most of our younger generations don’t even know what a credit score is let alone what factors play into it and why it is important.

Knowledge is power and financial knowledge can lead not only to financial power but even more importantly financial health.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years.