March 28, 2024

Bucks Blog: Why It’s Hard to Build Emergency Savings

Despite improvement in the economy, more than a fourth of Americans have no emergency savings. And those who do manage to sock away some money in basic savings accounts get abysmal interest on their funds and sometimes have to pay excessive fees.

Half of Americans have less than three months of expenses saved up, and just a quarter have six months saved, which is the typical recommendation for emergency financial reserves, according to a report from the financial Web site Bankrate.com. The survey by Princeton Survey Research Associates International queried 1,004 adults from June 6 to 9 using landlines and cellphones. The margin of sampling error is plus or minus 4 percentage points.

Meanwhile, in a separate report, the Consumer Federation of America finds that statement or passbook savings accounts, the main place where lower- and moderate-income consumers put their savings to cover unexpected expenses like car repairs or dental bills, are very stingy with their interest rates and sometimes hit customers with extra fees. The accounts are used by about three-fifths of households nationally, the report found.

The federation’s report is based on an analysis of information about traditional savings accounts from the Federal Reserve Board’s 2010 Survey of Consumer Finances, and research on the Web sites of 150 banks, including the 50 largest as measured by the number of branches, as well as the 10 largest credit unions. The Federal Reserve data was analyzed for the federation by Catherine Montalto, a family economics professor at Ohio State University.

The federation’s report found that 17 percent of banks reviewed paid just 0.01 percent interest or less, or no more than 10 cents annually, on a $1,000 balance. Just 4 percent of the banks pay more than 0.25 percent on basic savings accounts. Interest rates on such accounts, in short, are “ridiculously low,” said Stephen Brobeck, the federation’s executive director, during a telephone briefing.

What’s more, the accounts may hit customers with significant fees that wipe out even the negligible interest they earn. For instance, in a sample of about two dozen banks, some banks charge fees from $1 to $12 if the account is inactive for as little as six months. While most banks don’t charge the fees unless the balance drops below a minimum balance (sometimes as low as $50), one online bank charges a $10 fee after six months of inactivity, regardless of the balance.

The inactivity fees are especially burdensome for savers who have built their account to a certain level as an emergency cushion and then just let it sit until needed, said Mr. Brobeck. “A consumer who wants to park funds but doesn’t make additional deposits and doesn’t have any emergencies could get whacked with these fees,” he said.

Some banks also penalize customers for excessive withdrawals. Federal regulations limit withdrawals from a savings account to six per month. But a significant number of banks — half of the large banks in the study — limit withdrawals to three a month and charge fees for each withdrawal over the limit. The fees vary widely, from 50 cents to $15 at large and medium banks and 50 cents to $10 at small banks.

The Bankrate report found that while the savings numbers are slightly better than before the recession, when just 39 percent had three months of expenses in the bank, they are still troubling, said Greg McBride, senior financial analyst at Bankrate.

The main culprit appears to be stagnating wages, he said; people have shed debt since the recession, but they still don’t have much excess cash.

It’s true that interest rates don’t offer much incentive to save, but Mr. McBride said an emergency fund was not meant to earn big investment returns. Rather, it’s just what it should be: a safe stash of cash for unexpected expenses.

The best way to build an emergency fund, he suggested, is to arrange for automatic transfers from a checking account into a savings account.

By arranging for automatic transfers, most savings accounts waive monthly service fees, Mr. Brobeck of the consumer federation said.

Do you have an emergency fund? Is it kept in a typical savings account?

A version of this article appeared in print on 06/29/2013, on page B4 of the NewYork edition with the headline: Slim Savings,
Earning Little.

Article source: http://bucks.blogs.nytimes.com/2013/06/25/why-its-hard-to-build-emergency-savings/?partner=rss&emc=rss

E.U. Privacy Proposal Lays Bare Differences With U.S.

BERLIN — Europe’s push to extend consumer protection to the digital economy has become the target of what observers are calling an unprecedented lobbying assault in Brussels by Silicon Valley technology companies and the U.S. government.

All the major U.S. tech companies have directed their Brussels-based lobbyists to follow the proposals as they work their way through the European Parliament. Together, the new laws could give 500 million consumers the ability to block many forms of online Web tracking and targeted advertising.

But in an unusual display of direct diplomacy, the U.S. Commerce Department is also lobbying on behalf of the Obama administration, which is concerned that sweeping new privacy controls could hurt the U.S. tech industry in Europe.

So it was no surprise when three U.S.-based representatives of the American Civil Liberties Union, the Consumer Federation of America and the Friends of Privacy U.S.A, an offshoot of the London-based Privacy International, weighed in themselves during the past week with a different message: Europe needs to pass tough new restrictions to save the digital economy, not destroy it.

The proposal, made last February by Viviane Reding, the E.U. justice commissioner, has brought into the open how much Europe and the United States differ on privacy rights and their role in the digital economy.

Barry Steinhardt, the chairman of Friends of Privacy, founded just last year, called it a “titanic clash.”

“The rest of the world is looking to see who will prevail because the Asians, Latin Americans and Africans all need to do business with the U.S. and Europe,” Mr. Steinhardt said. “So this is extraordinarily important for Americans.”

Mr. Steinhardt, Susan Grant, the director of protection for the consumer federation, and Ben Wizner, a lawyer who focuses on speech, privacy and technology at the A.C.L.U., met with a handful of European members of Parliament. They included Jan Albrecht, a German lawmaker who is the prime sponsor of the proposal, and Sean Kelly, an Irish conservative who has sponsored amendments to allow global businesses to continue with unfettered data mining in Europe.

In interviews, the three said they had taken the unusual step of lobbying directly in Europe to counter the activities of American technology businesses and the U.S. Commerce Department, which has led an effort to weaken or remove provisions of the European legislation that would let people block or limit standard Web tracking.

“We are here to correct the record,” Mr. Wizner said. “Certainly the U.S. government has been making misleading statements about the state of electronic privacy law in the U.S., how consumer protections are as strong in the U.S. as in Europe. But that is simply not the case.”

Mr. Wizner said the United States had no equivalent to Europe’s general data protection law. U.S. law, he said, guarantees consumer privacy only in specific cases, like medical and financial records, but permits online companies to conduct unfettered data mining with only take-it-or-leave-it privacy controls.

Under the proposals, Web businesses would be unable to perform basic collecting and profiling of individual computer users unless they gave their explicit consent as part of policies that allow them to specify what kinds of information could be collected and for what purpose. Businesses would also have to permanently remove and delete personal information from users upon request, and national regulators would gain the ability to fine companies up to 2 percent of their annual sales for not complying.

The proposals are before the European Parliament and a council of 27 E.U. justice ministers, which are attempting to put together consensus positions. Parliament is expected to complete its draft by late April and would then enter negotiations with the justice ministers over the remainder of the year, with adoption expected in early 2014.

The outcome of the debate is critical to U.S. technology companies, which typically generate a third or more of their sales in the 27-nation European Union, often commanding greater, and more lucrative, market shares than in the United States.

Article source: http://www.nytimes.com/2013/01/26/technology/eu-privacy-proposal-lays-bare-differences-with-us.html?partner=rss&emc=rss

Mortgages: Counseling Before Borrowing

“There’s this thing that the dream of homeownership in America is dead, and we’re not seeing that,” said Ms. Grier, the chief executive of Neighborhood Housing Services of New York City, which promotes affordable housing and is one of several groups that counsel homeowners and would-be homeowners. “We’re still seeing families interested in wanting to own their own property.”

The nonprofit GreenPath Debt Solutions, a counseling agency that has several offices in New York and provides telephone support nationally, is also seeing a steady stream of activity. Its goal is to teach about money management, mortgages, the closing process and homeowner responsibilities, “so first-time home buyers can make an informed decision,” said Setina Briggs, the housing program manager.

Barry Zigas, the director of housing policy at the Consumer Federation of America, said counseling wasn’t an absolute necessity “to become a competent, well-educated consumer.” But it’s time worth spending, he argued. A home purchase is “the sort of transaction you ought to enter into with as much information as you can.”

Prepurchase education, although traditionally aimed at low- and moderate-income first-time buyers, is available to anyone. Some loan offerings, like New York City’s HomeFirst Down Payment Assistance Program, require that people go through training to participate.

In the wake of the financial crisis, there has been plenty of debate about whether there was too much emphasis on homeownership and whether people who never should have bought were pushed into risky loans. Supporters of prepurchase education, including lenders, say that it reduces the chance that borrowers will get in over their heads.

But a recent study conducted for the Mortgage Bankers Association found that there has been little scientifically rigorous research to prove that claim. Still, Ms. Grier and others cite their positive experiences — her agency, for instance, reviewed the records of about 250 families who had gone through counseling from 2005 to 2008. “We did not find anyone who lost their homes due to being in a bad mortgage product,” she said. Those who did face problems did so because their income had decreased.

Families coming to counseling now say they want to avoid making the mistakes that brought others to the brink, she said. And those going through foreclosure counseling frequently say they wish they had learned the ins and outs of ownership before buying.

Sometimes counseling involves a one-on-one review of finances, in person or over the phone. That can be buttressed with classes — Neighborhood Housing Services, for instance, has a 10-hour program. Some agencies are experimenting with online education.

Whatever the format, prepurchase education comes at little or no cost to the consumer — most agencies charge $25 or $50 to pull a credit report and for study materials. The counseling programs are usually financed by a mix of philanthropy, support from lenders and government money.

The government financing is shaky, however: in April, during Congressional talks to avoid a government shutdown, $88 million was cut from the Department of Housing and Urban Development’s counseling budget. (HUD-approved counselors can be found at the HUD Web site.)

Programs probably won’t be eliminated until at least the end of September, said Eileen Fitzgerald, the acting chief executive of NeighborWorks America, a nonprofit group. Ms. Briggs said that agencies like hers were adequately staffed. A consumer ready for counseling “could pretty much get in the next day,” she added.

Article source: http://feeds.nytimes.com/click.phdo?i=fe27a59894cc1eee6fa6043022555f5f