Tag: Data

 

10 Years After the Financial Crisis – How Fintech Is Helping

“Too big to fail.” If reading that brings a little bit of red to your eyes, you’re not alone.

Though originally popularized in the 1980s during the bailout of Continental Illinois National Bank, this phrase once again became common parlance during the 2008 financial crisis. According to the Federal Reserve Bank of Cleveland, this saying became synonymous with the unwillingness of regulators to close a large troubled bank because they believed the short-term costs of a bank failure were too high.

So, it’s no surprise that nearly half (49 percent) of Americans still have negative associations with the term “too big to fail,” according to a recent Chime survey. The generations who had the strongest negative connotations included boomers (55 percent), many of whom lost their retirement savings in 2008, and millennials (50 percent), who graduated to a nonexistent job market.

In the decade since that phrase was splashed across newspapers and discussed at every dinner table, the United States has slowly clawed its way back from the financial crisis. This brings up the question: Has anything really changed?

How banks are doing

Following the Great Recession, the American people bailed out banks, investors, and shareholders. The Federal Reserve slashed interest rates and pumped trillions of dollars into the American economy.

Ten years later, the same big banks are still at the top of the game: JP Morgan, Bank of America, Wells Fargo, Citibank, and US Bank. Across the U.S., banks had record profits of $56 billion in the first quarter of 2018. Although CEOs earn less than before, they’re still killing it. The stock market has sustained one of its longest bull runs in history, with the S&P 500 growing more than 300 percent since the crisis.

“This is not an industry that has examined itself and remade itself in the wake of the crisis,” stated Phil Angelides, chairman of the Financial Crisis Inquiry Commission, in The Wall Street Journal.

That’s despite Dodd-Frank, a 2010 bill that aimed to protect consumers by placing more controls on banks, including their lending requirements. While the bill did result in increased accountability and oversight, the current administration has begun to roll back some of its provisions. Even if the remainder of the consumer protections stay intact, the WSJ points out that many of the regulators have backgrounds in the very industry they’re supposed to be monitoring.

In other words, banks are doing well, executives and stocks are flying high…but how about the American people?

How Americans are doing

Every year since 2013, the Federal Reserve Board has asked 12,000 adults about their financial lives for the Survey of Household Economics and Decisionmaking (SHED).

According to the 2017 report, only 7 percent of adults say it’s “difficult to get by financially” —  about half the number who said so in 2013. And nearly three-quarters say they’re either “living comfortably” (33 percent) or “doing okay” (40 percent).

Although things have improved, that doesn’t mean everything is OK. Here’s a deeper look at the numbers.

Unemployment and income

Unemployment has dropped to 3.9 percent, lower than it was before the recession. Even the “real” unemployment rate — which includes people who’ve stopped looking for work and people working part-time because they haven’t found full-time opportunities — is only 7.4 percent.

Not counted in that percentage, though, are the people who aren’t looking for work because they can’t find childcare, are addicted to opiates, or are turned off by low wages. Of the Americans who are employed, more than one-fifth (23.3 percent) are in jobs where the median wages fall below the federal poverty line, reports the WSJ. Nearly 40 percent of adults, according to SHED, have family incomes of less than $40,000. Overall, the WSJ says median household income has only risen 5.3 percent since 2008.

Chime’s survey underscores this: 54 percent of Americans are living paycheck-to-paycheck.

More people, SHED learned, are working on the side, too: 31 percent of adults engaged in gig work in 2017, up from 28 percent in 2016.

Wealth and inequality

Chime’s survey asked people how the recession had affected their financial habits. This is what we found:

  • 72 percent became more inclined to save money
  • 62 percent feel their savings are “in a better place” compared to 10 years ago

Despite these promising signs, the wealth gap continues to grow. One report by the Federal Reserve Bank of St. Louis went so far as to say millennials may become a “lost generation” for wealth accumulation.

“Wealth in 2016 of the median family headed by someone born in the 1980s remained 34 percent below the level we predicted based on the experience of earlier generations at the same age,” stated the report.

Those with exposure to the stock market — just half of the American population — have bounded ahead, while everyone else has been left behind. In the New York Times, Nelson D. Schwartz reports the “proportion of family income from wages” has fallen from 70 percent to just under 61 percent. The rest, he says, is largely from investments.

“The people who possess tradable assets, especially stocks, have enjoyed a recovery that Americans dependent on savings or income from their weekly paycheck have yet to see,” wrote Schwartz in the New York Times. “Ten years after the financial crisis, getting ahead by going to work every day seems quaint, akin to using the phone book to find a number or renting a video at Blockbuster.”

When the recession hit, Americans lost $16 trillion in net worth. Today, the wealth of the median American household is still 34 percent lower than it was in 2007, according to the New York Times. Why? Because for families without large investments, their wealth was wrapped up in home value.

Housing

Although housing prices have fully recovered — with the average house price 1 percent higher than the peak in 2006 — there aren’t as many homeowners as there were before the recession.

In what The Penny Hoarder calls “The American Nightmare,” 9 million people lost their homes during the housing crash. According to CNN, the overall homeownership rate dropped from 69.4 percent in 2004 to 63.1 percent in 2016. And, of the Americans who rent, nearly half of them are cost-burdened, according to Harvard University. This means they spend more than 30 percent of their income on rent.

Debt and savings

Debt also remains a common struggle. In fact, Chime’s survey found that 65 percent of Americans have some sort of debt, with 40 percent carrying more than $10,000 and 14 percent carrying more than $50,000.

Here are some staggering stats:

  • Student debt, in particular, has crippled millennials. Today’s students graduate with nearly $40,000 of loans, according to Student Loan Hero.
  • When faced with an unexpected expense of $400, 40 percent of adults can’t pay for it, reports SHED. While that figure has decreased from 50 percent in 2013, it still isn’t good.
  • Twenty percent of Americans are behind on their debt payments, according to SHED; a slight increase from 18 percent in 2015.

In addition, SHED found 22 percent of adults expected to forgo payment on some of their bills in November or December 2017 — mostly credit cards. (That may be why 64 percent of the people we surveyed prefer debit cards over credit cards.)

When it comes to retirement, the picture is also bleak. SHED reports less than two-fifths of non-retired adults think their retirement savings are on track. One-fourth have no retirement savings or pension whatsoever.

The rise of fintech

Though the traditional financial industry may not have learned much from the Great Recession, entrepreneurs did.

They immediately saw a need for a new breed of financial businesses. They realized banking and financial services should no longer be exclusive, confusing and predatorial. Instead, entrepreneurs thought financial institutions should be helpful, transparent and free.

So, in the years after the crash, fintech companies started sprouting up left and right.

While the streak of new companies began to slow in 2015 — perhaps, Deloitte posits, because other technologies like bots and blockchain have attracted entrepreneurs — investments into fintech are still robust.

In 2017, according to SHED:

  • 62 percent of adults auto-paid some bills
  • 52 percent received electronic account alerts
  • 46 percent used automatic saving

And, when it comes to mobile banking, those customers are more satisfied. Fifty-nine percent of the millennials we surveyed would recommend their online or mobile bank to a friend. Of those who used national banks, only 22 percent would do the same.

How fintech is helping

Although the financial crisis has had a lasting impact on Americans, it’s also created a landscape in which fintech can thrive.

So, if there’s been one benefit of the Great Recession, it’s the growth of new financial companies that value transparency and put consumers first.

New fintech startups are indeed helping today’s consumers close tomorrow’s wealth gap. For example, Chime offers comprehensive, modern banking with zero fees. With services like Early Direct Deposit, you can avoid predatory payday lenders. And, with automatic savings features, you can build your emergency fund without thinking about it.

In other words: we’ve got your back as you achieve your financial goals.

 

Are Millennials Losing Money to Bad Investments? The Data Says Yes.

Bad investments happen all the time. But when you think about bad investments, your mind likely goes right to the stock market where a lousy stock pick can lead an investment value to $0. Investments come in all forms, including a savings account or other cash-based asset class. But this is a big mistake! In an era where savings accounts offer poor returns, you may need to put a little more risk in your portfolio to avoid a bad investment. Follow along to learn why cash is a bad long-term investment, who is the worst offender, and what you can do to turn things around.

When cash joins the bad investments category

Cash is the most stable and secure option to store your assets, so what makes it a bad investment? With cash, the value of your holdings does not grow at a rapid rate. While your cash may grow when stashed in a bank account, the interest rates are terrible compared to other investments. As of this writing, just a few savings accounts offer over 2% annually, according to Bankrate. That is $20 for every $1,000 you have saved. But while the number of dollars in your accounts grows, the value of your account shrinks!

For July 2018, the annualized inflation rate was 2.9%. If you were earning 2% interest in savings, your account would lose just under 1% per year at this rate. For example, let’s say you have $1,000 saved at 2%. At the end of the year with simple interest, you would have $1,020. But the value of that slowly decreases over the year. Due to inflation, even with the $20 interest, your money would be worth $990 at the end of the year in terms of the dollars you started out with.

Because of the increase in the cost of groceries, movies, gas, and everything else across the economy as measured by the Consumer Price Index (CPI), you have less money than you started with if you invest in a savings account.

Who is investing the most in cash?

In the July 2018 Financial Security Report from Bankrate, 30% of Millennials said they think cash is the best place to invest funds they won’t need for ten or more years. This is entirely wrong, for the reasons explained above. Over time, Millennials and everyone else who put too much of their funds in cash will end up losing.

Of course, some cash makes sense. You should keep a cash emergency fund and any short-term savings, like a car fund or home down payment, in cash. But if you won’t need the cash for at least ten years, you can confidently invest in better performing assets knowing you have years ahead to recover if the markets take a turn for the worst.

Most Americans understand this vital concept. 32% responded that the stock market is the best place for a 10+ year investment. Fortunately, most recognize the risks of cryptocurrencies, and only 2% suggested that’s the best long-term investment. But cash came in second place with 24%, and the favorite for Millennials. Gen X, Baby Boomers, and the Silent Generation all knew better saying the stock market is the best place to invest long-term.

Best alternatives to cash investments

Millennials follow the trend of all Americans with poor savings rates. A 2016 Federal Reserve study found the average Millennials held just $2,600 in median savings. While that is more than you need for a $400 emergency, it is far from financial security. To help boost savings overall, make sure to participate in an employer-sponsored investment plan like a 401(k) if you have access.

For the self-employed, look to automatic deposits in an IRA or another self-employed investment vehicle. While Social Security appears to be safe and stable today, it is essential to save and invest on your own just in case those dollars shrink or dry up before you hit your target retirement age.

Most investment advisors suggest saving at least 10% to 15% of your gross income for retirement to ensure you maintain the same standard of living when you reach your golden years.

Focus on long-term goals for investment success

If you worry too much about little swings in the stock market, you could lose out on well over a million dollars in investment gains over the course of your career. While coming into careers during the Great Recession put the fear of investment losses in real estate and stocks into many Millennials, completely avoiding lucrative investments is the wrong choice.

Learn about how important investment classes work and structure your portfolio to follow along. In the worst case, pour your investments into a professionally managed target date retirement fund so you know your money is handled with your best interests in mind. But don’t put it all in cash. That is an expensive mistake every Millennial should avoid.

 

You Will Be Shocked When You See What Americans Pay in Bank Fees

It’s no secret that America’s big banks are raking in huge profits in fees. Last year they pocketed a cool $33 billion in overdraft fees alone. At almost every big bank, earnings are up, stock prices are rising, and those multi-million dollar CEO bonuses continue to climb higher. What we’re seeing is a massive redistribution of wealth in America. Big banks are fattening their pockets through sneaky fees that chip away at their own customers’ savings, in many cases without them even knowing about it.

Check out the Bank Fee Finder 2017 Report 

Bank Fee Finder Report Exposes Hidden Fees

To shed light on the problem of bank fees, today BankFeeFinder.com unveiled a report exposing the impact of hidden bank fees on Americans. According to the report which analyzed data from over 5,000 U.S. bank customers, Americans pay $329 annually in bank fees on average. When you consider that half of households in this country have less than $500 in savings, the impact of this bank fee epidemic is even more problematic.

Part of the problem is due to the fact that people just aren’t aware of how much they’re paying in fees. A study by Common Cents found that people significantly underestimate how much they shell out in bank fees. Their research showed that people estimate they pay $5 in fees per month on average compared to data from Bank Fee Finder which shows people pay $27 in actual fees paid each month on average. That explains why many Bank Fee Finder users have been shocked to find out how much they’re really paying.

 

The BankFeeFinder.com report also breaks down bank fees by category including overdraft fees, monthly, ATM, and other fees. According to the report, overdraft is by far the largest fee category, with banks charging Americans an average of $250 each year. While a percentage of people paid no overdraft fees, those who did were charged an average $412. This sheds light on how banks made $33 billion in overdraft fees alone last year.

Millennials Besting Boomers

The report also found that fees increase with age. Average annual fees for Millennials, Gen X, and Boomers were $308, $401, and $413 respectively. College students paid only $212 in bank fees annually (46% less than the $329 annual average). This likely results from many banks offering introductory no or low fee accounts until students graduate.

Big Banks Rack Up Big Fees

The report also shed light on how the big banks rank in terms of average fees given 87% of the 5,000 reports summarized were from five major banks (Bank of America, CitiBank, JPMorgan Chase, Wells Fargo, and U.S. Bancorp). In terms of average annual fees by bank, Bank of America account holders paid the most in fees at $497/year, and this represented 23% of all reports generated. That’s 50% more than the next highest annual average which came from Wells Fargo customers who paid $302/year and nearly twice as much as the $265/year on average that Chase customers paid.

You can read the full report below or download it here. And if you’re wondering how much you’re paying in bank fees, you can find out for yourself at www.bankfeefinder.com.

 

10 Stats You Should Know on Equal Pay Day

Equal Pay Day always falls during the second week of April to symbolize how much longer women have to work in order to earn what men earned by December 31, 2016. There’s no single cause for the pay gap, which means there’s no silver bullet to closing the gap. But we can start by getting educated on the issue and who it impacts.

1. Women earn 83% of what men earn

In 2017, women earned 82% of what men earned, according to a Pew Research Center analysis of median hourly earnings of both full- and part-time U.S. workers. The 18-percent difference between men’s and women’s earnings means that women are paid less than roughly $4 for every $5 paid to men.

According to the Gender Pay Inequality Report put out by the United States Congress, a woman working full-time earns $10,800 less per year than a man, based on median annual earnings. This disparity can add up to close to a half million dollars over a career.

2. The pay gap is even worse for mothers

According to the American Association of University Women, Mothers must work an extra 155 days to catch up to their male counterparts.

Women with children are often pushed out of the workplace due to a lack of sufficient parental leave policies and flexible schedules. Those who do stay in the workforce are subjected to the “motherhood penalty” with which we will lose 4 percent in lifetime earnings, a figure purely attributable to bias against working mothers.

3. The gender gap grows with age

Women today begin their careers earning almost as much as their male colleagues. Those between the ages of 18 and 24 earn approximately 88 percent of what their male counterparts earn. After 35, the median earnings for women are 74–82 percent of what men are paid. Men are also 85 percent more likely than women to be VPs or C-Suite Execs by mid-career.

4. Women of color are most affected

The pay gap affects all women regardless of age, background, or education, however, women of color are disproportionately affected. According to a report by the National Women’s Law Center, Black women earn, on average, only 63 cents for every dollar paid to a man, while Native and Latina women earn even less, at 58 cents and 54 cents respectively.

6. The financial industry has the worst pay gap

Women who work in highly paid fields such as finance, public service, and medicine feel the most economic pain from the pay gap. According to PayScale, finance and insurance showed the largest pay gap with women earning 29% less than men. Healthcare and social assistance had the fourth highest gap, even though women held 80% of the jobs in this industry, illustrating that even female-dominated sectors can have a gender pay gap.

7. Education doesn’t impact the gender pay gap

While advanced education can be a path to increased earnings, it does not appear to mitigate the gender pay gap.  At every level of academic achievement, women’s median earnings are less than men’s, and in some instances, the gender pay gap is larger at higher levels of education.

Women’s median earnings are lower at every level of education. In fact, women are often out-earned by men with less education: the typical woman with a graduate degree earns $5,000 less than the typical man with a bachelor’s degree.

8. The gender pay gap means more student debt for women

According to AAUW’s research report Graduating to a Pay Gap, between 2009 and 2012, men who graduated in the 2007–08 school year paid off an average of 44 percent of their student debt, while women in that group managed to pay off only 33 percent of their student debt. The gap in student loan repayment is even larger for black and Hispanic women with college degrees.

9. We’re still a long way off for pay equality

Although the gender pay gap in the United States has narrowed over time, if change continues at the same slow pace as it has done for the past fifty years, it will not close until 2059, according to the Institute for Women’s Policy Research.  Hispanic women will have to wait until 2248 and Black women will wait until 2124 for equal pay.

10. Despite less pay, women-led companies perform 3X better than the SP500

Quantopian, a Boston-based trading platform based on crowdsourced algorithms, pitted the performance of Fortune 1000 companies that had women CEOs between 2002 and 2014 against the S&P 500’s performance during that same period. The comparison showed that the 80 women CEOs during those 12 years produced equity returns 226% better than the S&P 500.

Conclusion

The impact of women in the workplace can be seen at a broader level as well. According to the Council of Economic Advisors, women’s increased participation in the paid labor force has been a major driver of economic growth in recent decades. In fact, they say the U.S. economy is $2 trillion bigger today than it would have been if women had not increased their participation and hours since 1970. That’s a lot of zeros! Imagine how much more our economy will grow when we close that gap once and for all.

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