MONEY Spending

Kanye West, the Rich, and the Backlash Against Luxury

Kim Kardashian and Kanye West
Kim Kardashian (L) and Kanye West attend the "Charles James: Beyond Fashion" Costume Institute Gala at the Metropolitan Museum of Art on May 5, 2014 in New York City. Mike Coppola—Getty Images

There's a revolt against 'luxury' items, and it's coming from an unexpected place: the rich.

“Fancy” may be the song of the summer, but there’s a revolt brewing against brands that seem to offer more form than function.

Consumers fighting back against high-priced products wouldn’t be very surprising on its own. The economy is recovering, yes, but many Americans are still unemployed or are stuck doing low-paying or part-time work.

But this time around, it’s not just average Joes balking at the high price of a Gucci handbag. (Let’s face it, they weren’t the ones buying that kind of gear anyway.) Instead, criticism is coming from an unexpected corner of the market: the rich, the taste makers, and even the Louis Vuitton Don himself, Kanye West.

In June, the outspoken rapper appeared at the Cannes film festival and essentially declared war on so-called premium products.

“My goal in lifestyle, in everyday life—to change the idea of what luxury is,” said West. “Because time is the only luxury. It’s not all these brands that we just drove by that are somehow selling our esteem back to us through association.”

Kanye made the same point more explicitly earlier this month to an audience in London—this time with the aid of auto-tune. “It’s like they want to steal you from you, and sell you back to you after they stole it,” declared West in what would become a 15-minute rant against everyone from Nike and Gucci to the media and marketers. “They want to make you feel like you less than who you really are.”

It’s hard to tell whether Yeezy has actually turned on high end items or if this is another episode in his love-hate relationship with an industry that often spurns his increasingly desperate advances. Despite the recent outbursts, he’s still selling a Kanye branded plain white t-shirt for $90 a pop.

But if West’s criticism rings hollow, he’s not the only fashion icon slamming the ‘luxury’ label. On Friday, British designer Jasper Morrison, known for his utilitarian “super normal” style, let loose against anything marketed as upscale. “The most common mistake people make is believing the term “luxury,” Morrison told the Wall Street Journal. “It’s become an excuse for a lack of common sense, and invariably stands for overpriced, poorly considered product, whether it’s a hotel, an apartment block, a handbag or a holiday.”

It’s not just the creative class who have tired of paying $500 for a particular pattern. High-end consumers across the board are sick of it too. The Journal reports that growth in the luxury market has slowed, with sales rising 7% last year, down from 11% from 2010 to 2012. The reason? Sky high prices and a decreasing perception of quality.

While the cost of most goods has remained mostly stagnant during the recession, the price of luxury items has skyrocketed. The average price of luxury goods jumped 13% in 2013 while the consumer-price index rose only 1.5%. A Chanel quilted handbag is now $4,900, a full 70% more expensive than the same item five years ago.

Why are ritzy items getting more unattainable? The answer seems to boil down to two main factors. As the middle class shrinks, wealthy customers has been driving an ever larger percentage of retail sales. While many middle-market and low-end brands suffered in the wake of the financial crisis, businesses with a focus on high earners actually reaped a hefty profit. As a result, companies like Saks have been focusing more and more on the high-end. In the same vein, traditional top-tier brands seem to be raising prices to differentiate themselves from entry-level luxury products.

Another issue is the perceived quality of these so-called luxury products. According to the most recent Survey of Affluence and Wealth, published by YouGov and Time Inc., America’s richest consumers say companies don’t make the top-shelf like they used to. Seventy-eight percent of the affluent and wealthy report that many luxury goods are not compelling to them, and 71% of those surveyed claimed that most new products marketed as “luxury” are not what they consider to be luxury at all.

The result has been a developing concensus that many of these items are no longer worth the asking price. The Wirecutter, a website devoted to finding the “best” products in every tech category, is characteristic of this type of luxury backlash. In May, the site posted an article specifically devoted to convincing readers not to buy Beats, a premium brand of headphones marketed by celebrities like Jay-Z and Dr. Dre.

“Beats have positioned themselves as a luxury brand. And once you have a “high-end label mentality” at work, prices often go up higher than they should or need to be,” writes Lauren Dragan, the Wirecutter’s resident headphone expert. “While we’re happy to pay more to get higher quality, we aren’t willing to pay more simply for the name slapped on the side.”

MONEY alternative assets

New York Proposes Bitcoin Regulations

Bitcoin (virtual currency) coins
Benoit Tessier—Reuters

New regulations may make Bitcoin safer. But some people think they will also ruin what made virtual currencies attractive.

Bitcoin may have just taken a huge step toward entering the financial mainstream.

On Thursday, Benjamin Lawsky, superintendent for New York’s Department of Financial Services, proposed new rules for virtual currency businesses. The “BitLicense” plan, which if approved would apply to all companies that store, control, buy, sell, transfer, or exchange Bitcoins (or other cryptocurrency), makes New York the first state to attempt virtual currency regulation.

“In developing this regulatory framework, we have sought to strike an appropriate balance that helps protect consumers and root out illegal activity—without stifling beneficial innovation,” wrote Lawsky in a post on Reddit.com’s Bitcoin discussion board, a popular gathering places for the currency’s advocates.

“These regulations include provisions to help safeguard customer assets, protect against cyber hacking, and prevent the abuse of virtual currencies for illegal activity, such as money laundering.”

The proposed rules won’t take effect yet. First is a public comment period of 45 days, starting on July 23rd. After that, the department will revise the proposal and release it for another round of review.

Regulation represents a turning point in Bitcoin’s history. The currency is perhaps best known for not being subject to government oversight and has been championed (and vilified) for its freedom from official scrutiny. Bitcoin transactions are anonymous, providing a new level of privacy to online commerce. Unfortunately, this feature has also proven attractive to criminals. Detractors frequently cite the currency’s widely publicized use as a means to sell drugs, launder money, and allegedly fund murder-for-hire.

The failure of Mt. Gox, one of Bitcoin’s largest exchanges, following the theft of more than $450 million in virtual currency, also drew attention to Bitcoin’s lack of consumer protections. In his Reddit post, Lawsky specifically referenced Mt. Gox as a reason why “setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.”

New York’s proposed regulations require digital currency companies operating within the state to record the identity of their customers, including their name and physical address. All Bitcoin transactions must be recorded, and companies would be required to inform regulators if they observe any activity involving Bitcoins worth $10,000 or more.

The proposal also places a strong emphasis on protecting legitimate users of virtual currency. New York is seeking to require that Bitcoin businesses explain “all material risks” associated with Bitcoin use to their customers, as well as provide strong cybersecurity to shield their virtual vaults from hackers. In order to ensure companies remain solvent, Bitcoin licensees would have to hold as much Bitcoin as they owe in some combination of virtual currency and actual dollars.

Cameron and Tyler Winklevoss, two of Bitcoin’s largest investors, endorsed the new proposal. “We are pleased that Superintendent Lawsky and the Department of Financial Services have embraced bitcoin and digital assets and created a regulatory framework that protects consumers,” Cameron Winklevoss said in an email to the Wall Street Journal. “We look forward to New York State becoming the hub of this exciting new technology.”

Gil Luria, an analyst at Wedbush Securities, also saw the regulations as beneficial for companies built around virtual currency. “Bitcoin businesses in the U.S. have been looking forward to being regulated,” Luria told the New York Times. “This is a very big important first step, but it’s not the ultimate step.”

However, this excitement was not universally shared by the internet Bitcoin community. Soon after posting a statement on Reddit, Lawsky was inundated with comments calling his proposal everything from misguided to fascist. “These rules and regulations are so totalitarian it’s almost hilarious,” wrote one user. Others suggested New York’s proposal would increase the value of Bitcoins not tied to a known identity or push major Bitcoin operations outside the United States.

One particularly controversial aspect of the law appears to ban the creation of any new cryptocurrency by an unlicensed entity. This would not only put a stop to virtual currency innovation (other Bitcoin-like monies include Litecoin, Peercoin, and the mostly satirical Dogecoin) but could theoretically put Bitcoin’s anonymous creator, known by the name Satoshi Nakamoto, in danger of prosecution if he failed to apply for a BitLicense.

One major issue not yet settled is whether other states, or the federal government, will use this proposal as a model for their own regulations. Until some form of regulation is widely adopted, New York’s effort will have a limited effect on Bitcoin business. “I think ultimately, these rules are going to be good for the industry,” Lawsky told the Times. “The question is if this will spread further.”

MONEY

Hey, If Companies Can Change Their Citizenship To Get a Tax Break, Why Can’t I?

140718_INV_Inversion_1
Getty Images/age fotostock

A big merger turns an American company into a foreign one, and cuts its taxes. Nice trick if you can pull it off.

This morning AbbVie, a big pharmaceutical company based near Chicago, announced it agreed to acquire Shire, another drug maker that is often described as being based in Ireland. It’s actually incorporated on the small island of Jersey, a British Crown dependency. As part of the deal, AbbVie will incorporate in Jersey too, and as a result get what looks to be a pretty sweet tax break. The company’s “effective” tax rate, reports USA Today citing regulatory filings, would fall to 13% in 2016, compared to 22% last year.

And the great part is, the people who run the new company will get to stay in Chicago. Jersey’s nice, but with a population of about 90,000, and the English Channel on all sides, it’s a little inconvenient. For everything besides taxes, that is.

Allan Sloan just wrote an epic cover story for Fortune (which like Money.com is owned by Time Inc.) about the growing trend of companies switching their on-paper country of residence to avoid paying U.S. corporate taxes. Recently, the Obama administration has called on Congress to find a way to crack down on the practice, known as “inversion.”

So here’s a question: How is it that corporations can so easily change their legal address to get a tax break, but the rest of us can’t? (Not that we want to. We’re patriotic, fair-share-paying Americans… but still.)

The simple answer is that corporations are legalistic fictions. You could theoretically move and switch passports, but you’d miss your family and your favorite baseball team, and your employer might wonder why you’re not at your desk. Besides, explains Eric Toder of the Tax Policy Center in Washington, D.C., to do a inversion you need to find an overseas company to merge with, such that 20% of the new combined entity is held abroad. Sort of hard to slice-and-dice yourself that way. A company can go “live” in Jersey and still visit its U.S. customers every day, still employ people here, and still let the CEO keep his season tickets to the opera in New York or Chicago or Boston.

Corporations may be people these days, as the Supreme Court would have it, but they are magically incorporeal ones.

Behind the ghost-like corporate entity that lives abroad, of course, there are lots of actual flesh-and-blood people who live right here in the U.S. of A. So one answer to the question “Why can’t I get this tax break?” is that you can: Just own shares of a company like AbbVie that’s a good candidate for inversion. When corporations pay lower taxes, most of the value of that accrues to the shareholders, says Toder. So if you own some stocks, you get a piece of the action when corporations invert. But it’s probably a very small piece because you have to own a lot of stock to be paying much in the way of corporate taxes.

In other words, inversion isn’t a tax break for “corporations.” It’s a tax break largely enjoyed by wealthy households. Here is how much the Tax Policy Center estimates people pay in corporate taxes, based on income.

image-13
SOURCE: Tax Policy Center

You need to get to people earning over $100,000 per year before corporate taxes start taking more than a 1% bite, and the really noticeable burden of the corporate tax falls on people above the $500,000 level. They pay more because they’re the ones who own shares. (How do people earning less that $10,000 end up with some corporate tax? TPC attributes some of the cost of corporate taxes to workers getting lower pay than they would otherwise.)

When companies find tax loopholes, it effectively lowers tax revenues from higher earners, and means the government has to find other ways to raise money instead.

One way to stop companies from “inverting” is to lower U.S. corporate rates, which are high compared to the rest of the world, perhaps paying for it by closing tax preference enjoyed by some but not all companies. (Many companies are good enough at working the tax code that the “effective” taxes that are actually paid by U.S. firms is more in line with international averages.) And that’s part of the long-term solution even the White House says it wants.

But Congress moves slowly, while corporations are light on their disembodied feet. Too bad the rest of us can’t move that fast.

MONEY

What Six Californias Would Really Look Like

Under a tech mogul's proposed breakup plan, some "states" are more equal than others.

Tim Draper, the Silicon Valley venture capitalist behind companies like Tesla and Skype, has a crazy idea. In order to make California more responsive to the needs of local communities, it should be broken up into six separate states: South California; Central California; North California; West California; Silicon Valley; and Jefferson.

This concept might seem more fit for a speculative novel than reality, but Draper’s dream may actually get its moment in the sun. On Tuesday, he informed USA Today that his Six Calfornias campaign had received 1.3 million signatures—far more than the roughly 808,000 required for the initiative to appear on the 2016 ballot.

Draper’s proposal still has virtually zero chance of ever happening. Even if the ballot initiative is approved (a December Field Poll showed only a quarter of residents support it), a California breakup would require the approval of Congress. And it is all but impossible to imagine a GOP-dominated House ever approving a plan that could potentially create 10 new Democratic senators.

That said, the venture capital mogul has apparently captured the imagination of many Californians who yearn for a more representative and responsive government than the one in Sacramento. In that light, it’s worth examining what six new Californias would really look like.

The major flaw in Draper’s plan is that the six new states he has outlined are not economically equal. In fact, they’re so unequal that many have wondered if the whole concept isn’t just a techno-libertarian plot to free Silicon Valley from having to share its wealth.

Under the breakup plan, some new “states” would be getting a pretty good deal. Others, well, not so much. Here’s a breakdown of each region and how it compares on various economic metrics. (All state comparisons are relative to the current United States.)

The common theme: Things look pretty darn good for Silicon Valley and West California (which includes Los Angeles), at the expense of making Jefferson and Central California two of the poorest states in the union.

Major Cities

Silicon Valley: San Francisco, Oakland, San Jose

North California: Sacramento, Santa Rosa

West California: Los Angeles, Santa Barbara

South California: San Diego, Anaheim

Central California: Fresno, Bakersfield

Jefferson: Redding, Chico

Population

West California: 11.5 million (8th in the U.S., similar to Ohio)

South California: 10.8 million (8th in the U.S., similar to Georgia)

Silicon Valley: 6.8 million (14th in the U.S., similar to Massachusetts)

Central California: 4.2 million (27th in the U.S., similar to Kentucky)

North California: 3.8 million (29th in the U.S., similar to Oklahoma)

Jefferson: 949,000 (45th in U.S., similar to Montana)

Personal Income Per Capita

Silicon Valley: $63,288 (1st in U.S., similar to Connecticut)

North California: $48,048 (7th in U.S., similar to Wyoming)

West California: $44,900 (15th in the U.S., similar to Illinois)

South California: $42,980 (21th in the U.S., similar to Vermont)

Jefferson: $36,147 (40th in the U.S., similar to Arizona)

Central California: $33,510 (50th in the US, similar to Idaho)

Percentage Living in Poverty

Silicon Valley: 12.8% (35th highest U.S., similar to Colorado)

North California: 13.7% (28th highest in U.S., similar to Illinois)

West California: 15.2% (21st highest in U.S., similar to California)

South California: 17.8% (7th highest in U.S., similar to West Virginia)

Central California: 19.9% (2nd highest in U.S, similar to New Mexico)

Jefferson: 20.8% (2nd highest in U.S., similar to New Mexico)

Median Home Price in Largest City

Silicon Valley (San Jose): $708,500

West California (Los Angeles): $520,500

South California (San Diego): $494,500

North California (Sacramento): $247,400

Jefferson (Redding): $207,600

Central California (Fresno): $165,000

Number of State Universities

West California: 9

Silicon Valley: 7

South California: 7

North California: 4

Central California: 4

Jefferson: 2

Sources: Zillow.com, U.S. Department of Commerce, United States Census Bureau, Huffington Post, California Legislative Analyst’s Office, 2008-2012 American Community Survey 5-Year Estimates.

MONEY Odd Spending

10 Things Millennials Won’t Spend Money On

Young businessman with groceries and bicycle
Valentine—Getty Images/Fuse

By 2017, millennials will have more buying power than any other generation. But so far, they're not spending like their parents did.

Millennials are often maligned for their lack of financial literacy, but there is one money skill the younger generation has in spades: saving. After growing up during the Great Recession, millennials want to keep every cent they can. (If you don’t believe us, just check out this Reddit Frugal thread inspired by our recent post on millennial retirement super-saving.)

This generation may be way ahead of where their parents were at the same age when it comes to preparing for retirement, but the frugality doesn’t end there. Kids these days also aren’t making the same buying decisions our parents made. Here are 10 things that a disproportionate number of today’s young adults won’t shell out for.

1. Pay TV
The average American still consumes 71% of his or her media on television, but for people age 14-24, it’s only 46%—with the lion’s share being consumed on phone, tablet, or PC. Many young people aren’t getting a TV at all. Nielsen found that most “Zero-TV” households tended toward the younger set, with adults under 35 making up 44% of all television teetotalers.

Millennials aren’t the only ones tuning out the tube. In 2013, Nielsen reported aggregate TV watching time shrank for the first time in four years.

2. Investments
By all accounts, young people should be investing in equities. Those just entering the work force have plenty of time before retirement to ride out market blips, and experts recommend younger investors place 75% to 90% of their portfolio in stocks or stock funds.

Unfortunately, after growing up in the Great Recession, millennials would rather put their money in a sock drawer than on Wall Street. When Wells Fargo surveyed roughly 1,500 adults between 22 and 32 years of age, 52% stated they were “not very” or “not at all” confident in the stock market as a place to invest for retirement.

Of those surveyed, only 32% said they had the majority of their savings in stocks or mutual funds. (Too be fair, an equal number admitted to having no clue what they were invested in, so hopefully their trust fund advisors are making good decisions.)

3. Mass-Market Beer
Bud. Coors. Miller. When parents want a drink, they reach for the classics. Maybe a Heineken for a little extra adventure. Millennials? Not so much. When Generation Now (thank god that moniker didn’t catch on) wants to get boozy, the data says we prefer indie brews.

According to one recent study, 43% of millennials say craft beer tastes better than mainstream beers, while only 32% of baby boomers said the same. And 50% of millennials have consumed craft brew, versus 35% of the overall population. Even Pete Coors, CEO of guess-which-brand, blames pesky kids for his beer’s declining sales.

4. Cars
Back when the Beach Boys wrote Little Deuce Coupe in 1963, there was a whole genre called “Car Songs.” Nowadays you’d be hard pressed to find someone under 35 who knows what a “competition clutch with the four on the floor” even means.

The sad fact is that American car culture is dying a slow death. Yahoo Finance reports the percentage of 16-to-24-year-olds with a driver’s license has plummeted since 1997 and is now below 70% for the first time since Little Deuce Coupe’s release. According to the Atlantic, “In 2010, adults between the ages of 21 and 34 bought just 27 percent of all new vehicles sold in America, down from the peak of 38 percent in 1985.”

5. Homes
It’s not that millennials don’t want to own homes—nine in ten young people do—it’s that they can’t afford them. Harvard’s Joint Center for Housing Studies found that homeownership rate among adults younger than 35 fell by 12 percent between 2006 and 2011, and 2 million more were living with Mom and Dad.

It’s going to be a while before young people start purchasing homes again. The economic downturn set this generation’s finances back years, and reforms like the Dodd-Frank Act have made it even more difficult for the newly employed to get credit. Now that unemployment is decreasing, working millennials are still renting before they buy.

6. Bulk Warehouse Club Goods
This one initially sounds weird, but remember: millennials don’t own cars or homes. So a Costco membership doesn’t make much sense. It’s not easy to bring home a year’s supply of Nesquik and paper towels without a ride, and even if you take a bus, there’s no room to stash hoards of kitchen supplies in a studio apartment.

Responding to tepid millennial demand, the big box giant is trying to win over youngsters by partnering with Google to deliver certain items right to your home. However, even Costco doesn’t seem all that excited about its new strategy.

“Don’t expect us to go to everybody’s doorstep,” Richard Galanti, Costco’s chief financial officer, told Bloomberg Businessweek. “Delivering small quantities of stuff to homes is not free. Ultimately, somebody’s got to pay for it.”

7. Weddings
Getting hitched early in life used to be something of a right of passage into adulthood. A full 65% of the Silent Generation married at age 18 to 32. Since then, though, Americans have been waiting longer and longer to tie the knot. Pew Research found 48% of boomers were married while in that age range, compared to 35% in Gen X. Millennials are bringing up the rear at just 26%.

Just like with homes, it’s not that today’s youth just hates wedding dresses—far from it. Sixty-nine percent of millennials told Pew they would like to marry, but many are waiting until they’re more financially stable before doing so.

8. Children
It’s hard to spend money on children if you don’t have any.

After weddings, you probably saw this one coming, but millennials’ procreation abstention isn’t only because they’re not married. Many just aren’t planning on having kids. In a 2012 study, fewer than half of millennials (42%) said they planned to have children. That’s down from 78% 20 years ago.

Stop me if you heard this one: it’s not that millennials don’t want children (or homes, or weddings, or ponies), it’s that this whole recession thing has really scared them off any big financial or life commitments. Most young people in the above study hoped to have kids one day, but didn’t think their economic stars would align to make it happen.

9. Health insurance
According the Kaiser Family Foundation, adults ages 18 to 34 made up 40% of the uninsured population in the pre-Obamacare world. Why don’t young people get health coverage? Because they’re probably not going to get sick. This demographic is so healthy that those in the health insurance game refer to them as “invincibles.”

Since the Affordable Care Act, more millennials are gradually buying insurance. Twenty-eight percent of Obamacare’s 8 million new enrollees were 18-34 year-olds. That’s well short of the 40% the Congressional Budget Office wanted in order to subsidize older Americans’ plans, but better than the paltry number of millennials who signed up before Zach Galifianakis got involved.

10. Anything you tell them to buy
When buying a product, older Americans tend to trust the advice of people they know. Sixty-six percent of boomers said the recommendations of friends and family members influences their purchasing decisions more than a stranger’s online review.

Most millennials, on the other hand, don’t want their parent’s or peer’s help. Fifty-one percent of young adults say they prefer product reviews from people they don’t know.

MONEY prices

Hershey Raises Candy Prices 8%

Hershey's chocolate bar
Chocolate lovers will be stuck paying a little bit more for their fix. Scott Eells—Bloomberg via Getty Images

The candy giant is boosting prices, but that doesn't necessarily mean inflation is on the way.

Hershey announced on Tuesday that it would be raising the price of its candy products by an average of 8%. The company, which makes popular candies like Reese’s Cups, Kit Kats, and its eponymous chocolate bar, cited rising commodity prices as the reason for the increases.

“Over the last year key input costs have been volatile and remain at levels that are above historical averages,” said Hershey executive Michele G. Buck. “Commodity spot prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year.”

This year has been particularly rough for companies like Hershey that rely heavily on the cocoa market. The Los Angeles Times writes that cocoa futures hit almost three year highs in June due to increasing demand and weather issues in major cocoa-producing nations. (That’s one reason U.S. chocolatier Russell Stover announced this week that it was selling itself to Swiss giant Lindt & Sprungli.)

In an economy where inflation is a constant worry (sometimes maniacally so), Hershey’s announcement will no doubt trigger further concern in some quarters. Business Insider titled its report on the price jump “INFLATION ALERT,” and drew parallels between the chocolate maker’s decision and a recent bump in the Consumer Price Index.

More expensive candy bars may indeed turn out to be a harbinger of things to come, but the candy giant’s price increases have more to do with expensive ingredients than larger economic concerns. As MONEY’s Pat Regnier points out, worrisome inflation tends to occur only when there is real wage growth. And since the job market has yet to recover to pre-recession levels, substantial inflation may not be something to be concerned about just yet.

It’s not clear if chocolate lovers should worry either, at least not yet. Mars, the other American chocolate giant, has yet to raise its prices. If Mars follows suit, expect sweets to become more expensive across the board.

Even if you can’t forgo your suddenly-more-expensive Hershey Kisses habit, here are some other ways to keep your personal rate of inflation under control.

MONEY

First State Sues Over Student Loan Fraud

The most frustrating part: Legitimate debt relief similar to that offered by bogus debt consolidators is usually available at no cost to borrowers.

+ READ ARTICLE

On Monday, Illinois became the first state to sue so-called debt settlement companies for fraudulent student loan practices. The New York Times reports that two companies, Broadsword Student Advantage and First American Tax Defense, were sued for charging customers for debt assistance they never received.

Debt settlement companies, which consumers pay for help consolidating their loans and decreasing their monthly payments, have long had a reputation for taking advantage of desperate borrowers eager for a quick fix. With Americans now holding $1.2 trillion in outstanding student loans, college grads appear to be an increasingly attractive target.

According to court documents, the typical scam involves offering debtors a variety of services—some non-existent, some that are already offered free through federal programs—in exchange for money up front. First American even made up fake government relief initiatives—like the “Obama Forgiveness Program”— to entice customers, and feigned affiliation with the Department of Education. Rick Cibelli, an Illinois caregiver, told the Times he payed First American $175 over the phone to help pay down his $10,000 of student debt before learning the company’s purported federal connections were false.

The most frustrating part of debt relief fraud is that a legitimate version of the services offered by scammers are usually available at no cost to borrowers. Common student loan scams include offering to consolidate student loan payments (putting multiple loans under one lower monthly fee), debt forgiveness, or lower monthly payments. All of these services are offered free of charge by the Department of Education to eligible borrowers.

Persis Yu, a staff attorney at the National Consumer Law Center’s Loan Borrower Assistance Project, says she’s never seen a loan assistance company offer anything that isn’t already offered by the federal government. “The bottom line is they’re charging you for information you can get for free,” says Yu. In a 2013 report, the National Consumer Law Center found some student loan relief agencies charged up to $1,600, or $20 to $50 a month, for what amounts to filling out a few forms.

Yu believes that the primary cause of student loan relief fraud is a failure to educate the public about current government options. “There is an information vacuum, which I think is one of the reason why these companies have been successful,” laments Yu. Mark Kantrowitz, publisher of Edvisors.com, agrees. He advocates legislation that would require debt settlement agencies to clearly and conspicuously disclose that the services they offer can be also be obtained for free. “There’s nothing illegal about charging a fee for a free service,” said Kantrowitz “but when it strays into the realm of being misleading about what you’re charging a fee for, that becomes problematic.” Similar legislation already exists for companies that help families file the Free Application for Federal Student Aid (FAFSA).

Luckily, careful borrowers can avoid a scam. Yu says that anyone looking for student loan assistance should contact the servicer of their loan directly to discuss their available options. Any program not referred to them by the loan servicer should be considered highly suspect. Those with older loans granted under the Federal Family Education Loan program should also be careful when speaking to their lender about consolidation because these lenders are not required to disclose government consolidation options.

Unfortunately, outside of your current lender, there are precious few reliable resources for those with student debt. “We have had instances where borrowers who do contact their services don’t get the best information, so it’s incumbent on borrowers to get the best information,” Yu said.

One good resource is the NCLC’s own website, StudentLoanBorrowerAssistance.org, which offers trustworthy advice on loan repayment options, as does Edvisors.com. The Department of Education also offers excellent online materials, like a fact sheet on loan consolidation, including how to apply for a consolidated loan. The same site also explains various term-extension options, including a calculator that will use your income, loan amount, and interest payment to estimate how much you would pay per month and in total under various repayment plans. The Department of Educations also maintains a toll-free number, 1-800-4-FEDAID, that offers loan information.

Public sector workers, or those who meet various other conditions, may be eligible for forgiveness, cancellation, or discharge of their loan. This page explains the various requirements and how to take advantage of any programs you qualify for.

There are also a number of private refinancing options that can lower long-term interest payments. Matt Krupnick of the Hechinger Report writes that companies like Pave and CommonBond offer certain graduates advantages like flexible loans or low-interest payments. Kantrowitz says these loans can be great options for graduates who have good jobs and high credit scores, but are generally unavailable to borrowers struggling to meet their current payments.

Yu also cautions that while private refinancing can mean lower rates, it also means losing many federal protections, like forgiveness in the case of disability or death, or government income-based repayment plans. “If someone is going to consider refinancing, they need to know they will lose their rights under a federal loan,” said Yu. “That will have to be a cost-benefit analysis.”

MONEY Sports

Why Germany Is So Good At Soccer (and the U.S. Is So Mediocre) in 2 Charts

Germany's national soccer players Roman Weidenfeller, Shkodran Mustafi, Andre Schuerrle , Kevin Grosskreutz and Per Mertesacker celebrate
Kai Pfaffenbach—Reuters

Hint: It's Focus.

As Germany takes the pitch Sunday, fresh off crushing Brazil’s World Cup hopes in a historic 7-1 blowout, it’s worth reflecting how Germany got there. Not the team; the country.

See, this isn’t Germany’s first grab at the sport’s brass ring.The German national team is one of international soccer’s most consistent powerhouses. German teams—including those from the Nazi era, post-war West Germany, and reunified Germany—have qualified for 18 of 20 World Cup tournaments and missed the quarter finals of those only once. The team has also made it to a mind-blowing seven finals — a 35% appearance rate — winning three of them.

On the other side of the Atlantic, the United States has not exactly replicated Deutschland’s success. The U.S. has zero titles and zero finals appearances, and reached the semi-finals only once, at the first World Cup in 1930. This year, we were eliminated by Belgium in the round of 16, and finished 15th overall in the tournament. Not bad by our standards, but not great. And certainly not befitting of a country with the world’s largest economy, 300 million people, and an extremely competitive national team in almost every other team sport.

So why is Germany is so good and the U.S. so mediocre? Following America’s most recent loss, many theories have been offered. We over-coach our players; our college system doesn’t mirror international play; we don’t have a soccer “culture.” There’s likely some truth to all of these answers, but there’s one I find most convincing: competition from other sports. The U.S. has only so much athletic talent, and unlike many other nations, we tend to spread it around. Germany, on the other hand, concentrates the vast majority of its athletic talent on soccer—and they’ve certainly reaped the rewards.

In order to visualize this, I’ve assembled pie charts showing the revenue breakdown of the most popular professional sports leagues. The numbers aren’t perfectly analogous—updated figures on smaller German team sports are hard to come by, sports seasons don’t coincide and sometimes span more than one calendar year, and we’re including only major team sports. But as a rough proxy for each nation’s athletic focus, they are offer a clear picture of the sports the two nations care most about and to which they dedicate the most resources and, as economists and others would argue, talent.

In the two charts below, the green pie slice represents the percentage of major team sports revenue that goes to soccer. As you can see, it’s not even close.

GermanySportsRevNew

 

USSportsRev

Soccer eats up the overwhelming majority of German team sports revenue, while in the US, it barely makes up a sliver. Germany’s three major soccer leagues each take in over €100 million, and their combined revenue is €2.8 billion—the equivalent of over $3.8 billion. There’s really only one major sport in Germany, with a few second-tier leagues running far behind.

In comparison, America’s MLS teams have a combined revenue of about $494 million, as estimated by Forbes in 2013 (the MLS does not release total revenue figures). That’s about 1/7th of the NHL’s revenue, and 1/20th of the NFL’s total income.

So next time you’re wondering why the U.S. isn’t good at soccer, remember: the American people are not exactly focussed on the “beautiful game.” All things considered, it’s surprising we aren’t worse.

Sources: BBL: Deloitte via SportsBusinessDaily; DEL: Deloitte via SportsBusinessDaily; 3. Liga: DFB official figure; Bundesliga: 2014 report; 2. Bundesliga: 2014 report; NFL: Forbes via Statistica; NBA: Forbes via Statistica; NHL: CBS Sports; MLB: Forbes; MLS: Forbes

 

MONEY

Does Anybody Need a Money-Market Fund Anymore?

New regulations are meant to protect money market mutual funds from another 2008-like panic.

On Thursday, the Wall Street Journal reported that the Securities and Exchange Commission is expected to approve new regulations for money-market mutual funds. Remember money-market funds? Before the financial crisis, these funds were very popular places to stash money because each share was expected to maintain $1 value. Your principal would remain the same, and the fund would pay substantially higher interest rates than a bank savings account.

But these days for retail investors, money-market mutual funds are something of an afterthought.

So why is the SEC intent on regulating them now? And will tighter rules push them further into irrelevance? Here’s what you need to know:

What going on?

A money-market fund is a mutual fund that’s required by law to invest only in low-risk securities. (Don’t confuse funds with money-market accounts at FDIC-insured banks. These rules don’t affect those.)

There are different kinds of money-market funds. Some are aimed at retail investors. So-called prime institutional funds, on the other hand, are higher-yielding products used by companies and large investors to stash their cash. The big news in the proposed rules affects just the prime institutional funds.

Prime institutional funds would have to let their share price float with the market, effectively removing the $1 share price expectation.

The SEC reportedly also wants to impose restrictions preventing investors from pulling their money out of these funds during times of instability, or discouraging them from doing so by charging a withdrawal fee. It’s unclear from the reporting so far which kinds of funds this would affect.

Why is the SEC doing this?

As MONEY’s Penelope Wang wrote in 2012 when rumors of new regulations were first circulating, the financial crisis revealed serious vulnerabilities to money-market funds. When shares in a $62 billion fund fell under $1 in 2008, it triggered a run on money markets.

In order to stabilize the funds, Washington was forced to step in and offer FDIC insurance (the same insurance that protects your bank account). That insurance ran out in 2009, and now the funds are once again unprotected against another run.

The majority of the SEC believes a primary way to prevent future panics is to remind investors that money-market funds are not the same as an FDIC-insured money-market account at a bank. Before the crisis, the funds seemed like a can’t-lose proposition. The safety of a savings account with double the return? Sign me up. But as investors learned, you actually can lose.

What does it mean for you?

Not much, at least not right away. The floating rate rules only apply to prime institutional funds, which the Wall Street Journal says make up about 37% of the industry.

The change also won’t be very important until money-market funds look more attractive than they do today. Historically low interest rates from the Federal Reserve have actually made conventional savings accounts a more lucrative place to deposit money than money-market funds. The average money-market fund returns 0.01% interest according to iMoney.net. That’s slightly less than a checking account.

Investors have already responded to money funds’ poor value proposition by pulling their money out. In August of 2008, iMoney shows there was $758.3 billion invested in prime money fund assets. In March of 2014, that number had gone down to $497.3 billion.

Finally, it appears unlikely that money-market funds will ever be as desirable as they were pre-crisis. As the WSJ’s Andrew Ackerman points out, money funds previously offered high returns, $1-to-$1 security, and liquidity. Interest rates have killed the returns, and the new regulations will limit liquidity and kill the dollar-for-dollar promise.

Don’t count the lobbyists out yet

Fund companies are really, really unhappy about the SEC’s proposed regulations. They’ve been fighting the rules for years, and until there’s an official announcement, you shouldn’t be sure anything is actually going to happen.

Others are worried the new regulations, specifically redemption restrictions, might actually cause runs on the market as investors fear they could be prevented from pulling money out if things get worse.

But the SEC may have picked a perfect time to do this. With rates so low, few retail savers care much about money-market funds. That wasn’t true back when yields were richer and any new regulation of money-market funds might have been met with a hue and cry from middle-class savers. Today? Crickets.

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