Retirement Raidings

Americans are borrowing record amounts from retirement savings. Should 401(k) loans be limited?

In good news for Americans’ retirement security, new data shows Americans might finally be saving more for retirement. But Americans are also borrowing more from their retirement accounts, thereby potentially erasing a big chunk of these gains.

Over the 12 months ending in June 2015, Americans on average socked away a record high of $10,180 into retirement savings, according to recent data from Fidelity Investments. At the same time, more than 1 in 5 Americans – or 21.9 percent -have an outstanding loan against their 401(k). According to Fidelity, the average balance for these loans at the end of June was $9,720 – up from $9,500 a year ago.

Paradoxically, says Doug Fisher, Senior Vice President at Fidelity Investments, larger account balances might be prompting bigger loans. “I call it the ‘false sense of continued prosperity’ effect,” he said. “When 401k balances go up because the stock market rises, people feel like they have more wealth and borrow more.”

The actual result, however, could be significant long-term damage to Americans’ retirement security.

Continued at the Washington Monthly…

Segregation’s Impacts on Latino Education and Earnings

Latinos achieve lower earnings and education in the nation’s most segregated cities, says a new study.

Latinos are America’s largest, fastest growing – and perhaps most geographically concentrated – group.

According to the Census Bureau, more than half of the nation’s 54 million Latinos live in just three states – California, Texas, and Florida. The Pew Research Centerreports that the nation’s 100 largest counties by Latino population also include 71 percent of all Latinos.

While some research argues for an “enclave effect” that benefits minorities who live together, a new study from researchers at New York University’s Furman Centerfinds worrisome impacts associated with increasing Latino segregation in major metropolitan areas. In particular, the researchers find a direct correlation between higher levels of segregation and lower rates of education and job market success.

Continued at the Washington Monthly…

Ending Banking Deserts in Texas

“Banking development districts” and “savings lotteries” could help more Texans open and use bank accounts.

In the parts of Dallas known as South Dallas and West Dallas, west of the Trinity River, many neighborhoods could rightly be called “banking deserts.”

“You see a handful of bank branches, a Chase drive-through or an ATM kiosk in a strip mall,” says Texas State Rep. Eric Johnson, whose district includes these areas. “You don’;t see any – or very few – of the smaller community banks or credit unions.”

But what these neighborhoods do have in abundance, says Johnson, are what he calls “lower-tier” financial services providers: payday lenders, title lenders, pawn shops, and check cashers.

Dallas is, in fact, among the most “unbanked” cities in America, and Texas is among the most “unbanked” states. According to the Federal Deposit Insurance Corporation (FDIC), more than one-third of Dallas-area households – about 36 percent – either have no bank account at all or rely mostly on check cashers and other non-bank providers for financial services. These households are what the FDIC calls “unbanked” and “underbanked.” Statewide, nearly 4 in 10 Texas households – or about 38 percent – fall into one of these categories, compared to about 27 percent nationwide.

But Texas might now be on the path to reversing these trends. In May, Johnson successfully led the passage of legislation that could put Texas at the forefront of improving access to mainstream financial services. Better access to banks, Johnson hopes, would also mean better access to mainstream financial products such as home mortgages, small business loans and lower-cost consumer credit – all of which are in short supply in many parts of Dallas and Texas.

Continued at the Washington Monthly…

Financial Volatility Is the New Normal for American Households

New research finds most Americans are unprepared to weather a financial crisis.

Standard financial planning advice presumes that financial emergencies – the loss of a job, an illness or accident, or an unexpected car or household repair – are relatively infrequent for most households. But new research shows that many American households live in a constant state of financial uncertainty, experiencing major monthly swings in their income and expenses.

A recent report from the JPMorgan Chase Institute, which analyzed a sample taken from 2.5 million accounts, finds that volatility is the norm, even at higher incomes. According to the study, as many as 89 percent of Americans see their incomes fluctuate by more than 5 percent from month to month, while 60 percent see changes in spending greater than 30 percent from month to month. Moreover, these figures are roughly the same across all income levels.

Continued at the Washington Monthly…

The Opportunity Index

How well is your state helping you succeed?

istorians in Texas mark January 10, 1901, as the day modern Texas began—the day when the Lucas No. 1 well struck oil at the Spindletop field near Beaumont. As the authors of the Texas Almanac write, “The gusher spewed oil more than 100 feet into the air until it was capped nine days later. With that dramatic fanfare, Texas’ economy was wrenched from its rural, agricultural roots and flung headlong into the petroleum and industrial age.”

Since that fateful day at Spindletop, the mystique of Texas—as the land of big dreams, big wealth, and unlimited opportunity—has become as outsized as the state itself. As a mecca for corporate America, Texas is now home to more than fifty Fortune 500 companies, including such corporate behemoths as ExxonMobil, AT&T, Dell, Lockheed Martin, Hewlett-Packard, and, of course, Texas Instruments. The state also boasts an outsized share of the nation’s millionaires, trailing only California, New York, and Florida in the share of residents whose net worth tops $2 million or more. In the exclusive Houston neighborhood of River Oaks, where the median home price is $3.5 million, sprawling colonnaded estates fit for J. R. Ewing average more than 7,500 square feet of living space.

Without doubt, Texas is doing great by its corporate citizens and their executive elite. Texas Brags, a Web site run by the office of Governor Rick Perry, puts it with typical Texas swagger: “Texas is a land of ongoing success and endless opportunity.”

But when it comes to the people of Texas versus its companies, the promise of opportunity rings hollow for many.

Right off I-45 in Houston—across the freeway from the Lamborghini dealership—is Remington Ranch, a subdivision of cookie-cutter tract homes built mostly in 2005 and 2006 and now a casualty of the housing crash. Of the thirty properties for sale one day this fall, fifteen were in foreclosure. The schools that service this neighborhood—Ralph Eickenroht Elementary, Bammel Middle School, and Andy Dekaney High—receive among the worst possible ratings from At Eickenroht, for example, third-grade math scores in 2011 were 24 percentage points below the state average.

In the rest of Harris County, where Houston is situated, neighborhoods like Remington Ranch are much more typical than ones like River Oaks. With a population of more than four million, Harris is the largest county in Texas and the third-largest county in the United States. The Houston-based nonprofit Children at Risk says that as many as 27 percent of children in Harris County were living in poverty in 2010, while more than 19 percent lacked health insurance. Statewide, the Kaiser Family Foundation says 24 percent of Texans were uninsured in 2011, which is worse than in Mississippi. Education is a problem too. In 2011, 24 percent of Harris County schools failed to meet federal standards for Adequate Yearly Progress under the No Child Left Behind Act. Only 19 percent of Texas students go on to finish college.

Nevertheless, it’s the state’s business-friendly image that has garnered the lion’s share of public accolades and fueled the state’s reputation for opportunity and economic growth.

Chief Executive magazine, for example, has ranked Texas the nation’s “best state for business” nine years running. Texas has also dominated CNBC’s “America’s Top States for Business” ranking since its launch in 2007, placing first in three of the last seven years and second in 2013. According to the running tally of these accolades maintained by the state, Texas also won the 2012 “Governors Cup” from Site Selection, “the magazine of corporate real estate strategy and area economic development.”

It’s certainly possible to overstate the impact these rankings and public recognition have had on the public policy choices Texas has made. But it’s also likely no coincidence that the “winning mix of low taxes, reasonable regulatory structure, fair court system and world-class workforce” that Texas Brags credits for the state’s success tracks almost precisely with the factors most praised by CNBC and other business-oriented press. Indeed, the most heavily weighted factor in CNBC’s rankings is the “cost of doing business”—that is, the rate of state and local taxes, as well as the cost of utilities and worker wages. As one CEO told Chief Executive, “The regulatory and tax environment in Texas makes it my first pick.”

But imagine if Texas—and every other state—got the spotlight not just for their success in growing business but for their ability to grow opportunities for their citizens, and at all levels of the income ladder. If states were graded not just on the basis of their corporate tax rates but also on the strength of their investments in education, how would Texas—and neighborhoods like Remington Ranch—be different?

Continued at the Washington Monthly…


Storefront Coyotes

Meet the con artists who “help” immigrants with their visa problems—and who will get rich if Congress passes a “tough” immigration reform bill.

For more than a decade, Loma International Business Group, Inc., operated out of the seventh floor of the elegant stone building in downtown Baltimore known as “Baltimore’s First Skyscraper.” Loma’s owners, Manuel and Lola Alban, seemed to fit in well with the lawyers, accountants, and government officials who also had offices in the building. Manuel Alban advertised himself as an attorney, and the couple purported to offer legal services to immigrants, particularly from Honduras and El Salvador, who were looking for help in dealing with their immigration status. Over the course of a decade, the Albans filed immigration paperwork for more than 600 clients, charging each hundreds of dollars for their work.

In June 2011, a federal judge shut down Loma for deceptive practices. According to a complaint filed by the Federal Trade Commission (FTC), Manuel Alban was not an attorney, nor were the Albans authorized to provide immigration services, as they claimed. Moreover, more than half of the immigration applications they filed were rejected or denied, often because they filed the wrong form or failed to pay a fee. Collectively, the Albans bilked their clients of tens of thousands of dollars.

The Albans succeeded by using word-of-mouth advertising and preying on their clients’ vulnerability. “Since most consumers have limited English skills,” said the FTC’s complaint, “they place their trust in the Albans to select, prepare, and file the necessary English language immigration forms.”

They also succeeded by exploiting the Byzantine complexity of the immigration system, which is too intimidating for most laypeople to navigate on their own. Jackie Vimo of the New York Immigration Coalition, a nonprofit advocacy group, calls immigration law “second only to the tax code for complexity.” She says her group “strongly advises against” clients applying for an immigration benefit on their own, because the stakes for immigrants are so high. Says immigration lawyer Rachel Van Wormer, “You put the wrong things on your form, and you could be deportable.”

Talk of immigration reform is moving closer to reality, and the legislation that emerges from Congress will determine whether the treacherous path that immigrants already face becomes more dangerous still. While politicians jockey to craft a “tough” bill that piles on hurdles and paperwork for immigrants, unscrupulous entrepreneurs like the Albans are likely salivating over the opportunities.

Continued at the Washington Monthly…