Friday Financial Five – May 9th, 2014

Friday Financial Five – May 9th, 2014

Wealthy people against income inequality

Economists on both sides of the income inequality debate continue to argue both its existence and the possible detriment it might present to the economy. According to a CNBC survey, one group has weighed in on the matter and believes income disparities exist and should be rectified. That group, surprisingly, is millionaires. According to the survey, a majority of millionaires believe it’s a problem and support higher taxes and a higher minimum wage. One quarter of the millionaires surveyed attributed their wealth to hard work, while 10 percent cited education. Meanwhile, the number one method cited to reduce inequality was increased educational opportunities for the less wealthy.

Student loan interest rates increasing

The rising interest rate environment will hit student loan borrowings, a cumulative debt that is already over a trillion dollars. For the 2014-2015 school year, the rate on undergraduate Stafford Loans will be increasing from 3.86 percent to 4.66 percent. Graduate Stafford loans will increase from 5.41 percent to 6.21 percent and PLUS loans will go from 6.41 percent to 7.21 percent. While the higher cost of borrowing may provide some headwind to higher education, a recent study by the Federal Reserve Bank of San Francisco estimates that a college degree adds roughly $800,000 to one’s lifetime earnings.

Premature withdrawals on the rise

With the decrease in home equity to dip into, there’s an uptick in premature withdrawals from retirement accounts. This disturbing trend resulted in $5.7 billion in penalties in 2011 to the Internal Revenue Service. Obviously, the more disturbing result is less money left to grow tax deferred for individuals’ retirement nest egg. A penalty free withdrawal should be considered for those meeting certain financial criteria or facing financial hardship.

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China to surpass US in economy size

It seems logical that a country with many times our population might eventually surpass the United States’ economy in size. One measure, the PPP (purchasing power parity), suggests it might happen as early as this year. Based on the countries’ respective growth rates, it seems a foregone conclusion that China will overtake the U.S. in economy size in the next ten years. The major surprise of the recent news is how imminent it is and how quickly China has grown since 2011.

Mothers and the economy

In honor of Mother’s Day, appreciate and laud the fairer sex’s contributions to the country’s well being, both at home and in the workplace. Looking at the last three decades, we’ve seen a dramatic increase in total hours worked by mothers, according to a report by Center for American Progress. The percentage of mothers working full time increased from 27 percent in 1979 to roughly 44 percent in 2012. Increased work hours by all women added roughly $1.7 trillion to the country’s output over that period of time.

 

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected].