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Monthly Archives: March 2008

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LendingClub Update

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Hi All,

Just wanted to give you a quick update on our thoughts on LendingClub. As you may know, LendingClub is a person to person on-line lending service similar to prosper.com. We signed up a while ago via a promotional offer.

Since most readers of personal finance blogs are interested in peer to peer lending, I wanted to give you a sense of our experience with the site so far. Since we don’t need to borrow any money, the following observations come from the standpoint of being a lender.

Account Sign Up: No problems here. LendingClub’s account sign up and deposit process is seamless and quick.

Better Protection for Lenders: From my review of LendingClub’s stated policies they seem more focused on lender protection than their competitor prosper.com. In this regard, there are two aspects I like. First, they only allow borrowers who have a FICO score of 640 or better. This effectively screens out most of the deadbeats. Second, LendingClub goes after delinquent borrowers rather aggressively. If they don’t hear from a borrower 30 days after payments are due, they call in the collection agency. Relative to prosper’s policies LendingClub’s 30 day period is far more aggressive.

Site Interface Needs Work: LendingClub’s loan listings are somewhat hard to navigate. Specifically, the load time and browsing displays have a cumbersome feel. Also, each loan’s listing in the search results primarily uses text and small icons in LendingClub’s black and orange color scheme, making it a bit of a cognitive chore to search the listings.

LendingClub Is A Start Up: This means there hasn’t been a lot of time for the service’s delinquency numbers to stabilize. Right now the number of delinquencies are somewhere between .65% and 1.5%, depending on how you look at it. This is pretty low, but since LendingClub has only been around for 9 months, its too early say whether these numbers are firm.

So, my assessment of the service now that its potentially very interesting for lenders, but their interface needs work and its still unclear what their default rates look like.

Best,

James

Robert Kiyosaki: Still Talking Nonsense

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Hi All,

I just got done reading Kiyosaki’s latest piece in yahoo finance. Kiyosaki is one of those personal finance gurus I go back and forth on. Some of his advice is good, sometimes it stinks. Right now, in the guys latest column, I think he’s dispensing bad advice. The gist of his latest is that people should be buying silver because Bernake and the politicians can’t handle the economy.

After reading it, I wanted to give Kiyosaki a big slap.

First of all, relative to the great depression and 80s stagflation, todays economic conditions aren’t that bad. So, I think Kiyosak is being overly pessimistic about the economy. Second, his thinking about how to react to economic conditions seems flawed. Kiyosaki recommends buying silver. He is correct that prices are currently high – 20.79 per oz. as of today. But, why buy something that’s expensive? Why not get a quality asset that’s inexpensive? Silver is up, yes that correct. But the whole point of making money is buying low and selling high. Not buying high – as Kiyosaki is advocating. Instead of getting silver, the proper response to current economic conditions would seem to be purchasing shares in a quality company thats current undervalued.

I don’t know why his latest column is so bad. Maybe his rich dad didn’t give him enough love as a child…perhaps it was his poor dad. At any rate, ignore his latest. Its trash.

Best,

James

Retirement vs. Your Child’s Education?

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Hello All,

Today’s posting is on the question of whether you should fund your children’s education or your own retirement.

Most personal finance advisers argue that all things being equal, it’s better to fund your retirement than fund your child’s education. The rationale is threefold:

1) If you are not financially well off, you’ll be less of a burden to your children
2) Scholarships and loan programs are available for students, but not for retirees
3) Acquiring assets like real estate or 401k accounts means that you’ll have more options

In our view, the last point is the most compelling. If you prioritize funding your retirement you’ll have more flexibility when it’s time to pay for your children’s education. For example, if your 401k account is flush, you’ll be able to take a loan against the balance (clicky). Alternatively, if you own your home you can always use the equity to put junior through school.

Of course, we do recommend contributing a modest amount directly to your children’s education. Why? Even a token amount like $25 or $50 a month can have an empowering effect on you and improve your family’s cohesion. – So basically, saving will bring you into the process and your kids won’t feel they’ve been left in the cold. There are several ways to do this:

1) UGMA and UTMA accounts. The Uniform Gift to Minors Act and Uniform Transfers to Minors Act allow you to set up a trust for the benefit of your children. How it works is you control the decisions made in the account but your child is the legal owner of the assets. They can be set up in most banks and brokerage accounts. Contributions over $10,000 may be subject to gift taxes and in some circumstances the first $1,400 of investment income is tax free.

2) 529 Plans. Named for the section of the IRS code that created them, 529 plans allow you to contribute up to $100,000 to an account for your children’s education. As long as the money stays in the account its’ growth, dividends and capital gains are protected from Uncle Sam. Starting in 2002, you can take withdrawals tax free. For more info on this, check out savingforcollege.com.

If you’re researching the topic, www.scholarshare.com is a good resource as well.

To conclude, it’s generally a better idea to prioritize funding your retirement. However, we don’t recommend neglecting your children so some modest savings via a UGMA/UTMA or 529 plan may be appropriate.

Best,

James&Miel

Who manages what?

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Today’s posting is on the division of labor in our financial life.

James:

James usually handles keeping an eye on the investment accounts, and handles his own banking and phone bill. Since we are doing the long distance marriage, James is also in charge of the physical upkeep of our apartments and paying for repairs, maintenance, etc. He also pays the power bill. James additionally manages the accounts and the bills for the investment property.

Miel:

Miel keeps an eye on her personal accounts such as her student loan payments, mobile phone, checking accounts and travel credit card bills. Miel also manages the mortgage payments, internet bill, and condo fees.

Jointly:

Utilities: James handles the power bill, Miel pays the internet service bill.

Second Mortgage: We are both chipping away at this.

It’s sort of an evolved system. Previously we had more of a division of household expenses, but that has changed by living apart. Now we each handle out own expenses separately.

Lessons learned in who does what:

  • If it works, don’t mess with it. If all are happy, then don’t juggling the system around.
  • Take time to touch base every once in a while to make sure that everything is still working for both of you.
  • It’s a good idea that both partners have an understanding of where things stand with the other’s areas of responsibility. This helps in case of emergencies or what not.
  • We like to keep a password protected speadsheet with account and login info so we can access things we normally don’t handle if need be.
  • From our experience it is much better to split the responsibility rather than going back and forth, or wondering who is going to pay a bill each month.
  • If systems are broken, then make sure to address the issue and ensure that both partners are satisfied with the outcome.

Hope this gives folks an idea of how we break things down in our marriage. We’d love to hear what works well for you.

Best,

Miel

Born to Buy

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My sister attended a lecture, put on by Illahee.org, that addressed the issue of why Americans spend money. I thought our readers might be interested in some of the great work that Juliet Schor is doing in this field.

Call it shopping therapy, or the like, Juliet Schor looks at why American are the biggest consumers on the planet. Schor explores the nature of (over) consumption in her current work, and in her best-selling books:
The Overworked American: The Unexpected Decline of Leisure;
The Overspent American: Why We Want What We Don’t Need; and
Born to Buy: The Commercialized Child and the New Consumer Culture.

Schor looks at the spending habits of Americans that are akin to the Soviet Era Star Wars. You buy more stuff, I need more stuff, then you need more stuff, of course making it so I need more stuff. Putting us in the endless rat race of trying to get ahead. Meanwhile working more and playing less.

Schor also points to an interesting factor that we tend to mimic how our peers and contemporaries are consuming. This means that if you make less than your colleagues and social networks, then you will likely overspend. Whether consciously of unconsciously we have a different awareness of what is considered as a ‘normal’ living standard.

However, if you make more than your cohort, then you are likely to spend less than those making the same amount of money but are associating with others in the same tax-bracket.

James and I happen to be a good example of this. Even living in an expensive city on one salary (plus stock generating income), we still don’t spend up to level that would be average for those making the same salary. It helps that we aren’t too cramped with our 600 sq ft and that we don’t like a lot of clutter, but I would also tend to think that it has something to do with the absence of social pressure to spend. To my knowledge I make more than anyone else in my social or familial network. Yet while back in DC I manage to avoid going to the mall but once or twice a year.

Food for thought in looking at your consumption habits.

Readers: We’d love to hear if you think that this tendency fits the patterns you see in your social networks.

Dr. Juliet Schor is Professor of Sociology at Boston College. Before joining Boston College, she taught at Harvard University for 17 years, in the Department of Economics and the Committee on Degrees in Women’s Studies.

Best,

Miel

Stuck In Neutral

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My wife Miel and I usually meet twice a week online. Among other things, we usually discuss our personal finance situation. When we talked yesterday both of us were feeling frustrated with our financial situation.

Our net worth hasn’t grown much at all. When we measured it back in December we were worth $368,000. Last month it was $373,000. That’s a modest increase of $5,000. We don’t have monthly goals for our wealth growth, so we don’t have clear expectations for what the numbers should be but still – we both would have liked to have done better.

Some things have been aggravating the situation:

1) Miel’s student loans came due. Since February, the amount we’re paying for her loans to Citigroup increased from $100 to $370. This puts a bit crimp in the rest of our budget and pressures our ability to achieve other goals.

2) The property tax bill arrived. We were not excited to receive the DC government’s property tax bill in the mail. We’ll need to come up with the $566.77 in the next couple of weeks to get this taken care of. Of course, we’re happy to contribute our share to the well being of the district, but considering our net worth progress the timing could have been better.

3) Our Swiss vacation was expensive. If you’ve been following our blog, you’ll know we just got back from Switzerland. The country is fantastic, but it was hard on our pocketbooks. We spent more than $3,500 on hotels, dinner, some modest shopping and plane tickets. While the trip was wonderful, next one we organize will probably be someplace significantly less expensive.

4) I’ve been wasting money. Specifically, I’ve been dropping a pretty good amount of cash on take out, lunches, movie rentals and stuff like that. Even a hundred dollars or so ads up to extra pressure on our budget and makes it harder to achieve our goals. So, basically my own spending habits have been contributing to this situation as well.

That said, we’ve been successful at building wealth in the past so I’m optimistic we’ll be back on track soon. Stay tuned.

Best,

James

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