Friday Financial Five - August 15th, 2014

Friday, August 15, 2014

Dan Forbes, GoLocalWorcester MINDSETTER™

Recovered jobs paying significantly less since the recession

A new study provides another perspective on job gains and the accompanying wages of those jobs since 2008. According to the report, the number of jobs lost since the Great Recession have been recouped. However, the replacement jobs pay wages reduced by 23 percent. The report also highlights the continuing disparity between income gains at the top and bottom of wage earners. Those in the top 5 percent of household income are experiencing a fifth of all recent income gains, while the bottom 40 percent of earners have less than 7 percent of income increases since 2005.

Weaknesses in studying income inequality

The Tax Foundation has a completely separate publication highlighting weaknesses in using IRS income data to measure societal equality. These purported weaknesses include changing individual incomes, different standards of living, and the absence of non-wage income. The report highlights the dramatic change in income for the average taxpayer throughout his or her lifetime. It also covers the large percentage of the low-income earners that are still in college. It finishes by touching about regional purchasing power and the non-wage income that is typical left out of analyses of inequality.

New revisions in the FICO calculation

Given the level of importance it holds in the American economy, the FICO score has always suffered from a lack of transparency. Those with a steady history of credit payments have benefitted from a higher score, but it’s nearly impossible for consumers to figure out how the score is calculated. Fair Isaac, responsible for FICO’s, has an updated version on the horizon with three significant changes. Medical debts will have a smaller effect, debts that go into collections and get repaid will no longer count, and they will implement a method to determine credit strength for those without much borrowing history. While lenders aren’t required to use the updated FICO calculation, those that do should see higher scores for consumers.

Germany remains the Eurozone rock

Checking in with the Eurozone, there’s still over 11 percent of the workforce unemployed. As an outlier, Germany’s rate is holding steady at just over 5 percent with rising wages. Unlike many regions in the world, German employers are having problems filling job positions. Inflation remains a Eurozone focal point, coming in at 0.4 percent while the European Central Bank continues to target a 2 percent rate.

Protecting children from parents’ LTC expense

A scary proposition exists in the ongoing efforts to provide Long Term Care for the nation’s aging population. Many states have filial-support laws that contend there’s a financial responsibility among family members for a loved one’s expenses, including healthcare. These laws provide the basis for care providers to try to recoup money from families, including Medicaid payments in many cases. Nursing home facilities have no margin for error and can no longer afford unpaid services. That means even the most diligent planning might still include some insurance coverage in the event of outstanding LTC bills.

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].