MONEY First-Time Dad

The One Thing Prince George Won’t Get for His Birthday

Britain's Prince George is seen ahead of his first birthday
At just 1 year old, Britain's Prince George is still too young to know just how different he is from other tykes. John Stillwell—Reuters

Despite limitless funds, castles, and loving parents, Prince George will never own this one thing.

Today Prince George, the first son of Prince William and Kate Middleton, turns 1 year old. By all accounts his first birthday party will be tasteful and reserved for a select group of friends and family. The pomp quotient will be at a minimum.

Of course, when your great grandmother is the Queen of England, your dad is a prince, and you are third in line to become the king, the term “friends and family” takes on new meaning. Likewise, a small get-together at the house is something else altogether when that house is a 20-room apartment.

My son, whom I write about in this space most Mondays, is not the third in line to become the King of England, and isn’t currently the prince of anything. (Don’t tell his mother.) While Luke is only narrowing in on the second half of his first year, it is difficult not to feel a touch of parental inadequacy when you compare yourself to royalty.

For instance, we don’t have $41 million to bestow upon Luke. Nor can the Family Tepper abscond from muggy New York City to New Zealand and Australia for a summer vacation—although we did trek down to St. Petersburg, Fla. Luke will never be named the “World’s Most Eligible Infant,” despite his killer combination of Byronic looks and joie de vivre (at least in this journalist’s unbiased opinion). And that’s because he’s the child of relatively ordinary parents.

Yes, there is a whole stratum of experiences forever beyond Luke’s grasp because he wasn’t born into higher stock.

At the same time, though, there is one thing that we can give Luke that no royals can give their offspring. He will, by and large, live a normal life. And Prince George will not. Which is unfortunate.

With the castles and private jets and rapacious attention of an unrelenting populace comes a responsibility to become a symbol of, well, something. (I’m American and don’t understand the particular psychology of fetishizing kings and queens and princes.) When every move is studied and photographed and judged and written about, I imagine it would be hard to have a childhood.

The other day Luke and I went to the park. We were surrounded by lots of other families, and we took our place in an open spot in the shade. Luke spent the half hour seated upright, pulling up blades of grass and then toppling over. Our dachshund sat nearby, so when Luke was done with the grass he pet our dog for the first time. I took a picture of the scene and sent it to my wife.

That is where the picture stayed (unless, of course, I chose to use it for this column). The only people who will care that Luke has taken his first steps are his family, not the entire English-speaking world.

While we will never be able to give Luke a palace, we can at least give him that.

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly.

More First-Time Dad:

MONEY First-Time Dad

What Millennials Want That Their Boomer Parents Hate

Luke Tepper
Luke looks around for the inflation that has yet to come Taylor Tepper

It is nine letters long, (not legal weed), and causes investors' blood to boil.

Inflation. We really want some inflation. Now, if possible.

Macroeconomic forces are not top of my mind all the time. A couple of weekends ago, for instance, my wife and I played poker and drank beer on our friend’s rooftop patio. Our son Luke, clad in his new miniature gondolier outfit, crawled between our legs as one person after another told us how cute he was. That night Luke held onto one of my fingers while I gave him his midnight feeding. Later my wife and I slipped into his room for a few moments to watch him sleep.

I can tell you that at no point during our perfect summer day did the word inflation pop into our heads. We went to sleep thinking just how lucky we were to have such a beautiful son, rather than dwelling on the fact that we face an inflationary climate that is hostile to the economics of our new family.

We aren’t strangers to what economists call “headwinds.” Mrs. Tepper and I graduated from the same really expensive private college in 2008, just as the nation was mired in the worst recession in 80 years. We attended college (and later graduate school) as state governments across the country drastically cut higher education spending, which meant higher costs, which meant that we incurred a combined six-figures student loan marker. And entering the job market in the teeth of negative economic growth means we’ll be playing catch-up for years and years.

Given all that we (and Americans, generally) have endured since 2008, it might seem strange that I would ask for higher inflation. When the prices of goods rise quickly, the Federal Reserve is apt to raise interest rates. Higher interest rates make it more expensive to purchase a house, or borrow for anything. Don’t I want to own a house? What’s wrong with me?

For a little bit of context, let’s back up and look at where inflation has been over the past six years. If you look at the core price index for personal consumption expenditures (or core PCE), inflation is rising at an annual rate of 1.5%. In fact ever since Lehman Brothers declared bankruptcy it has barely budged over 2%.

inflation...

Even if you look at a broader inflation metric, like the consumer price index, prices have risen at 2.1% or lower for almost two years.

What does this mean?

For one thing, wage growth has stagnated at around 2% since we left school, and job growth, while picking up lately, has been relatively slow. Weak job creation and small pay increases means that people have less money to spend, which means fewer jobs and the cycle goes round and round.

So more economic growth (spurred on by more borrowing and spending) would help alleviate low wage growth, and help us ramp up our weekly paychecks. But it would also do something else. It would help us pay down our student loan debts.

Super low inflation is bad for people who have debt. Right now Americans owe more than $1.1 trillion in student loan debt. That means people our age are receiving raises that aren’t that high and have to confront a record level of debt before their careers really get going. With so much of our take-home pay earmarked for debt service, no wonder housing isn’t a priority, or affordable, for millennials (or the Teppers).

Of course, this kind of talk scares our parents (and rich people), who own bonds and other assets designed to preserve wealth instead of create it. Having already endured years of low interest rates, they really don’t want their bond portfolio to be hit by an inflation jump.

To which I say, tough. Many boomers entered the job market as the economy was expanding and college was affordable. Their children did not.

Luke has this one toy that he loves. It’s a sort-of picture book for infants consisting of a crinkly material, and he loves nothing more than smashing the thing between his hands and feet. In 17 years, he’ll want a car—and then four years of college.

I realize that the costs of these things will rise—prices always rise. It would just be nice if our salaries rose enough to pay for them.

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly. More First-Time Dad:

 

MONEY The Economy

Think the Fed Should Raise Rates Quickly? Ask Sweden How That Worked Out

Raising interest rates brought the Swedish economy toward deflation Ewa Ahlin—Corbis

Some investors are impatient for the Fed to raise interest rates. They may want to be a little more patient after hearing what happened to Sweden.

If you’re a saver, or if bonds make up a sizable portion of your portfolio, chances are you’re not the biggest fan of the Federal Reserve these days.

That’s because ever since the financial crisis, the nation’s central bank has kept short-term interest rates at practically zero, meaning your savings accounts and bonds are yielding next to nothing. The Fed has also added trillions of dollars to its balance sheet by buying up longer-term bonds and other assets in an effort to lower long-term interest rates.

Thanks to some positive economic news — like the recent jobs report — lots of people (investors, not workers) think the Fed has done enough to get the economy on its feet and worry inflation could spike if monetary policy stays “loose,” as Dallas Fed President Richard Fisher recently put it.

If you want to know why the argument Fisher and other inflation hawks are pushing hasn’t carried the day, you may want to look to Sweden.

Like most developed nations, Sweden fell into a recession in the global financial crisis. But unlike its counterparts, it rebounded rather quickly. Or at least, that’s how it looked.

As Neil Irwin wrote in the Washington Post back in 2011, “unlike other countries, (Sweden) is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe.”

Even though the Swedish economy showed few signs of inflation and still suffered from relatively high unemployment, central bankers in Stockholm worried that low interest rates over time would lead to a real estate bubble. So board members of the Riksbank, Sweden’s central bank, decided to raise interest rates (from 0.25% to eventually 2%) believing that the threat posed by asset bubbles (housing) inflated by easy money outweighed the negative side effects caused by tightening the spigot in a depressed economy.

What happened? Well…

Per Nobel Prize-winning economist Paul Krugman in the New York Times:

“Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan.”

And deflation is a particularly nasty sort of business. When deflation hits, the real amount of money that you owe increases since the value of that debt is now larger than it was when you incurred it.

It also takes time to wring deflation out of the economy. Indeed, Swedish prices have floated around 0% for a while now, despite the Riksbank’s inflation goal of 2%. Plus, as former Riksbank board member Lars E. O. Svensson notes, “Lower inflation than anticipated in wage negotiations leads to higher real wages than anticipated. This in turns leads to many people without safe jobs losing their jobs and becoming unemployed.” Svensson, it should be noted, opposed the rate hike.

image (8)
Sweden

Moreover, economic growth has stagnated. After growing so strongly in 2010, Sweden’s gross domestic product began expanding more slowly in recent years and contracted in the first quarter of 2014 by 0.1% thanks in large part to falling exports.

As a result, Sweden reversed policy at the end of 2011 and started to pare its interest rate. The central bank recently cut the so-called “repo” rate by half a percentage point to 0.25%, more than analysts estimated. The hope is that out-and-out deflation will be avoided.

So the next time you’re inclined to ask the heavens why rates in America are still so low, remember Sweden and the scourge of deflation. Ask yourself if you want to take the risk that your debts (think mortgage) will become even more onerous.

MONEY The Economy

A Key Fed Official Says the Job Market is Just Fine. But is He Right?

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas
Richard Fisher, president of the Federal Reserve Bank of Dallas. Jose Luis Magana—Reuters/Corbis

With a little help from Jonathan Swift, Shakespeare, and World War II, Dallas Fed President Richard Fisher makes the case for why interest rates need to rise soon.

In between references to Shakespeare, beer goggles and Wild Turkey, Dallas Federal Reserve Bank President Richard Fisher— a member of the Federal Open Market Committee that sets the nation’s interest-rate policy— expressed concern Wednesday about the risks caused by the Fed’s ongoing stimulative policies.

Thanks to a dramatically improving jobs picture, according to Fisher, the Fed should not only cut off its bond-purchasing program (known as “QE3″) by October, but the central bank should also shrink its portfolio of assets and begin raising interest rates early next year or sooner.

Whether or not the economy can withstand monetary tightening — fewer jobs means fewer people able to buy stuff — is open for debate. The real question, though, is if the jobs picture is really that strong?

First some context.

In his colorful speech, Fisher, one of the Fed’s leading “inflation hawks,” reiterated his belief that the Fed’s rapidly escalating balance sheet (now at approximately $4.4 trillion) in combination with a near-zero federal funds rate has led to investors having “beer goggles.” (As Fisher explains it, “this phenomenon occurs when alcohol renders alluring what might otherwise appear less clever or attractive.”) This is what he says is happening with stocks and bonds, which are both relatively expensive.

To make his point Fischer quoted Shakespeare’s Portia in Merchant of Venice: “O love be moderate, allay thy ecstasy. In measure rain thy joy. Scant this excess. I feel too much thy blessing. Make it less. For fear I surfeit.”

Portia’s adjectives (joy, ecstasy and excess) describe “the current status of the credit, equity and other trading markets that have felt the blessing of near-zero cost of funds and the abundant rain of money made possible by the Fed and other central banks that have followed in our footsteps,” Fisher said.

Of course, the Federal Reserve hasn’t bought trillions of dollars of debt, and cut the main interest rate to nothing, for no reason. There was something called, you know, the Great Recession — the once-in-a-lifetime cataclysmic economic event from which the country is still recovering.

But, said Fisher, things are improving, especially in the labor market. Not only did businesses add almost 300,000 employees last month, but there are more job openings, workers are quitting more often and wages are rising. Is he right?

Let’s check out some graphs:

Job openings:

ycharts_chart-1

Fisher is right that job openings “are trending sharply higher.” This time last year, there were a little less than 3.9 million job openings. Right now there are more than 4.6 million – an 18% increase.

“Quits”:

quits

The healthier an economy, the higher the number of employees who quit their job to either find another or start a new business. Therefore a higher so-called quits rate, means a healthier labor market.

Like job openings, the number of quits has been rising since bottoming out during the recession. The major difference though is that the number of job openings has almost reached pre-recession levels, while quits has not.

Wages:

wage growth
BLS

Fisher admits that wages aren’t growing “dramatically.” Nevertheless, he cites the Current Population Survey and the most recent National Federation of Independent Business survey to show that wages are on the rise.

However, wage data from the Bureau of Labor Statistics shows that Americans in the private sector are earning $24.45 an hour, only up 1.9% from last year.

But these three metrics aren’t the only metrics to gauge the health of the labor market.

Long-Term Unemployed:

l-t unemployment
BLS

Before the recession, about 1.3 million workers were without a job for longer than 27 weeks. Today, that number is slightly more than 3 million. While that’s significantly better than the post-recession high of 6.8 million in August 2010, there are still a lot of workers who’ve been without a job for a long time.

“Long-term unemployment is still a significant source of slack in the economy and is accounting for a historically large share of the total unemployment rate,” says Wells Fargo Securities economist Sarah House.

Broader unemployment:

l-t2
BLS

And while the unemployment rate may signify the economy is moving closer to full employment, the picture is less sanguine if you look at a broader unemployment rate that takes into account the underemployed (part-time workers who want to work full-time) and discouraged workers. Before the recession that number hovered a little over 8%. It’s now 12.1%. And while it’s trending down, it’s not coming down fast enough. At least according to recent testimony by Federal Reserve Chair Janet Yellen.

Conventional wisdom says inflation will come when wages really start to rise. Some, like Fisher, think we’re getting really close to that point. But if you take into account wage data from the BLS and look at the millions of Americans who aren’t working to their full capacity, it’s not hard to see how tightening monetary policy might make life harder on lots of workers.

MONEY First-Time Dad

What Adam Smith Taught Me About Child Care

Luke Tepper
The mental health of this child's parents depends on their division of labor.

The best parenting book you've haven't read was written by a childless British philosopher who's been dead for 200-odd years.

It’s 1 p.m. on Sunday, and a thick fog of panic begins to set in. Luke has just woken from his mid-morning nap and will need to go back down for a light snooze in three hours. If we miss that window, he’ll become too tired by bedtime and will holler for an extra hour before finally going to sleep for the night; and by the time he does, Mrs. Tepper and I will be hollowed-out shells of our normal selves.

But this afternoon is not an unscheduled pocket of time to be frittered away perambulating around Prospect Park. We have work to do.

Our mission is to retrieve a second-hand high chair (which combines a feeding seat with “a sophisticated pneumatic lift system” according to the ad), stop by the hardware store for air conditioning accessories, and buy groceries for dinner.

That’s just half the battle. Before we even get into our car, we must pack Luke’s diaper bag, collect a few of his favorite teethers and jam his apocalypse-proof $800 stroller into our trunk. This is all while entertaining the tyke so that he doesn’t cry, and detaining our dachshund behind the kitchen gate (which is intended for toddlers, oddly enough). Remember, we are just two normal humans with only four arms.

Here’s the really amazing bit: We got it accomplished. Like, all of it. Luke even passed out right after the clock struck 4 p.m. How? Well, it had a lot to do with Adam Smith.

In his masterpiece The Wealth of Nations, the economist discusses the benefits of division of labor with the example of a pin factory. Instead of each employee making a pin all by himself, each worker does one specific task, and in doing so the factory becomes much more productive.

“One man draws out the wire, another straightens it, a third cuts it, a fourth cuts it, a fifth grinds it at the top for receiving the head…”

Smith goes on to say that this system is efficient even for smaller factories with only 10 employees.

“Each person, therefore, making a tenth part of 48,000 pins, might be considered as making 4,800 pins in a day. But if they had all wrought separately and independently…they certainly could not each of them have made 20, perhaps not one pin in a day…”

Now, raising a child is not like making a pin. (For one thing, you don’t have to change a pin’s dirty diaper.) But splitting up chores, errands and responsibilities is a major reason why we still resemble functioning adults.

This wasn’t always the case. When Luke was first born, Mrs. Tepper naturally took charge. While I was absolutely terrified that one false start on my part would forever limit his boundless potentiality, Luke’s mother stepped up to the plate. She could pack his travel back while holding him in one arm faster than I could unfold his stroller.

She put him down for his nap, picked him up when he awoke and fed him. Even with the bottle, she was simply better at it than me. She was the superstar, and I was the benchwarmer.

Now, five months on, we’re more of a team. I developed my own rhythm with Luke, and now Mrs. Tepper isn’t the only one who can feed, bathe and clothe him.

Before we left that Sunday morning, Mrs. Tepper and I passed Luke between each other like a basketball. She pirouetted, diaper bag in hand, and I slid Luke gracefully into his stroller with three toys dropped onto his lap. It was an efficient, domestic dance that set the tone for a stress-free afternoon of chores.

Thank you, Adam Smith.

__________

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly.

More First-Time Dad:

Why a Maid is a Better Investment than a Divorce Lawyer

Why You Should Get Up From Your Desk and Go Home

Baby Clothes are Cheaper than Therapy

Why I’ll Send my Infant Son to College Before I Buy a House

Why Does my Baby Need Two of Everything?

MONEY My Money Story

LISTEN: I Got Paid to Iron Shirts While a Stranger Watched

My Money Story is a biweekly podcast. We tell one person's story of overcoming an obstacle (big or small) to achieve a dream - or simply pay the rent.

Julie Staadecker was 20-years-old, studying at Boston University and broke. To make some extra cash, she would pick up odd jobs — like catering or moving furniture. One day she stumbled across a job asking for a shirt iron-er, which turned out to be the most bizarre odd job she’s ever had.

Music: “Try This On For Size,” by Brian Wayy and “Hipnotyzed,” by Kojo Linder

MONEY Budgeting

3 Ways to Inflation-Proof Your Life

140710_HO_Inflation_1
Jason Hindley

The official inflation rate is low, but your personal CPI may be high. Keep it grounded with these moves.

Since the Great Recession, inflation has been unusually low, inching along at well below the 3% historical average. And over the past 12 months, the consumer price index has clocked in at a ho-hum 2.1%. But you are not the U.S. economy, and the costs of being you haven’t stagnated.

In some cases, that’s a good thing. If you’re in the market for a new TV or computer, for instance, you’ll pay dramatically less than you would have five years ago (see chart, below). Yet during the same period, prices of many of the biggest and most common expenses families pay, from child care and health care to key grocery items, have shot up. Meanwhile, in real terms, salaries are stuck in molas­ses, so consumers have roughly the same income as they did before Lehman Brothers collapsed.

Use these moves to keep price increases from eroding your paycheck.

Costs of Raising Junior

Strategy: Let Uncle Sam help. Diapers, summer camp, and orthodontia may be budget killers. But the biggest strain on parents comes from two expenses: child care (up from an average $87 a week in 1985, adjusted for inflation, to $148 now) and college (tuition and fees for state schools: up 27% in real terms since 2008).

Tax breaks can help you reduce those costs. Got children under 13? Sign up at work for a dependent-care flexible spending account to use pretax dollars to pay for up to $5,000 of child-care bills, says J.J. Burns, a Melville, N.Y., financial planner. That saves you up to $1,400 in the 28% bracket.

Your company doesn’t offer the FSA, or your costs exceed the limit? Claim the child-care tax credit on your 1040 for up to $3,000 in bills for one kid, $6,000 for two. A married couple filing jointly with adjusted gross income (AGI) over $43,000 can write off 20% of bills up to these amounts.

As for college, saving via your state’s 529 plan may put money back in your pocket, says Savingforcollege.com founder Joseph Hurley; check “What’s the Best 529 Plan for Me?” to see if that’s true for you. Contributions grow tax-free and are fully or partly deductible in 34 states and D.C. (withdrawals are tax-free in every state). Plus, once your child is in school, you may qualify for the American Opportunity Tax Credit on tuition and fees worth as much as $2,500 and a deduction of up to $2,500 on student-loan interest.

Everyday Expenses

Strategy: Find a cheaper substitute. If you grilled hamburgers this Fourth of July, then you already know about skyrocketing meat prices. And that’s not all: The prices of car insurance, butter, milk, and eggs have all risen at double or triple the CPI. For gas, make that sevenfold.

Solution? Substitute a lower-cost item or supplier that can fill the same need. Trade T-bones for chicken breasts—the price of which has tracked inflation the past five years. Reach for a glass of wine (down 2% over the past five years) instead of a bottle of beer (up 9%).Then take the strategy wider. Carpool to work or use public transit to save on gas. And shop around for a cheaper auto insurer.

Health Care Costs

Strategy: Comparison-shop. Workers’ contributions to health care premiums have climbed 26% in real terms since 2008, based on data from the Kaiser Family Foundation. Prescription: Compare prices, which vary widely even in-network for doctors, services, and drugs. By logging on to your insurer’s web tool you can save thousands on MRI and CT scans, specialists, and physical therapy.

Also, to avoid big bills later, take advantage of free preventive care like physicals, which most plans must now offer, says Katy Votava, president of Goodcare.com, a health-plan consultancy. You can’t do much better than paying zero.

What's cheaper

MONEY First-Time Dad

Why a Maid is a Better Investment than a Divorce Lawyer

Luke Tepper
It takes a lot of work to keep these sheets clean—but now, it's not our work.

Hiring help can make sense for new parents—even poor-ish ones. The next installment in a series of dispatches on being a new dad, a Millennial, and (pretty) broke.

On a normal Saturday, my son Luke wakes up around 6 a.m.—which means I wake up at 6 a.m. Mrs. Tepper, half-asleep, is still recovering from our son’s late-night feeding four hours earlier. So 6 a.m. is my time.

The next hour is filled with jungle-themed activity mats, frozen teethers and a $23 French rubber giraffe named Sophie that is seemingly standard-issue in my neighborhood despite its outrageous price tag.

By 9 a.m., Luke is back asleep and my wife and I make breakfast, do the laundry, and walk the dog. If we’re lucky we’ll have the bed made, the dishes done, and Luke’s things assembled in some kind of order by the time he wakes up at 10 a.m. (Of course his cadre of stuffed animals will be strewn across the floor by 10:15 a.m.) Around 11 a.m. we dress him, assemble his diaper bag and set off on errands. (Grab the dry cleaning, pick up dog food, stop by the farmer’s market.) By 1 p.m., we’ve returned to our disheveled apartment, and Luke goes down for another nap. By 2 p.m. we can’t remember our names.

We used to love Saturdays.

After almost five months of little sleep and spending almost every waking hour —and these seem to be growing exponentially—on our kid or our household tasks, we’ve come to the conclusion that certain unintended expenses needed to be incurred if we want to save our sanity and stay on speaking terms.

In short, we decided that we needed a maid.

There’s an economic argument in favor of paying someone else to do mundane chores. With only so many hours in a day, every second you’re rinsing dishes or walking dirty clothes to the laundromat is a second you could have used to further your career, to spend more quality time with your kid, or to actually have an adult conversation with your spouse.

As Catherine Rampell wrote in The New York Times last year:

Hiring people to work essentially as servants smacks of classism or insufficient self-reliance. Scrubbing your own toilet or doing your own laundry supposedly builds character, or something to that effect. And while it’s certainly good to have these skills in a pinch, it’s probably not a wise financial decision to use them all the time if you could instead be engaging in other activities that improve your—and your family’s—well-being.

Still, I didn’t like the idea of hiring someone to clean our apartment. While the Mrs. and I make about double the U.S. median household income, we live in one of the most expensive cities in the world. We also already budgeted $400 a week for child care so Mrs. Tepper (who makes more than I do) can return to work.

Money wasn’t the only reason. I enjoy washing the dishes. The soft rhythm of a basic task is almost meditative, especially after a long day. I enjoy cooking dinner. I may be a tad sentimental, but feeding my family healthful meals is a source of pride.

I could intellectualize the rationale for hired help, but some part of me had a hard time accepting that we were that type of family. Maids seem like a lifestyle choice for richer people.

But this hang-up was just something I had to get over for my family’s sake.

So we hired a maid. She was recommended by a friend and stops by for four hours every two weeks at a cost of $120 a month. That’s $15 an hour—which is a lot cheaper than a $500 an hour divorce lawyer.

Since Mrs. Tepper and I don’t go to the movies anymore—which costs north of $12 a ticket in New York—and eat out less frequently these days, we found room for the additional expense (wistfully) in our entertainment budget.

Of course we’re still sleep-deprived most of the time, and we can’t afford a personal chef or a dog walker or wash-and-fold laundry service. But thanks to a relatively small investment, when Luke rolls over these days, it’s onto a recently mopped floor that we didn’t have to mop ourselves.

And I must say, coming home to a spotless apartment and a happy wife sure beats returning to a spotless apartment and an unhappy wife.

___________

Taylor Tepper is a reporter at Money. This column appears weekly.

More First-Time Dad:

Why You Should Get Up From Your Desk and Go Home

Baby Clothes are Cheaper than Therapy

Why I’ll Send my Infant Son to College Before I Buy a House

Why Does my Baby Need Two of Everything?

MONEY The Economy

Why the Good Jobs Report Isn’t Even Better

140702_JR_GOVERN_1
Bridge Building in the New Deal Era Photo Researchers—Getty Images

These four charts show why today's jobs report could have been that much better— if only public-sector employment would ever bounce back.

Thursday’s jobs report, which showed that the nation’s unemployment rate fell to 6.1%, was viewed in a very positive light.

Not only did more Americans gain employment than expected in June, but wages perked up as well. The White House, in fact, noted that the private sector has added 9.7 million jobs over 52 straight months of job growth.

The key word there is private. Of the 288,000 jobs added in June, 262,000 were private sector positions. That means only 26,000 came from Federal, state and local governments. Which means if you’re a teacher or a Leslie Knope-wannabe, finding work remains less than easy.

In fact, this chart shows how the public sector outlook has deteriorated since the end of the recession in June 2009:

US Government Payrolls Chart

US Government Payrolls data by YCharts

Yet in the aftermath of past recessions, such as the one that ended in 2001, local, state and federal jobs have traditionally been the first to rebound:

US Government Payrolls Chart

US Government Payrolls data by YCharts

Federal employment in particular continues to be weak…

Source: BLS

…The same goes for teaching jobs.

teachers
Source: BLS

Why have teachers had such a rough go of it? Well, according to the Center on Budget and Policy Priorities, states are simply spending less on education:

At least 35 states are providing less funding per student for the 2013-14 school year than they did before the recession hit. Fourteen of these states have cut per-student funding by more than 10 percent.

But states are not alone. Ever since the effects of the stimulus have worn off, federal government spending has also hit a wall.

MONEY Ask the Expert

Can I Diversify My Portfolio With One ETF Rather than Four?

Q: Does investing in a “total stock market index fund” give you diversified exposure to large-, medium-, and small-sized companies? Or do I need to invest in separate mutual funds for my large- and small-company stocks? — Toby, Davis Junction, IL

A: No, you don’t need separate funds. The Vanguard Total Stock Market ETF is designed to give you exposure to a broad cross-section of different types of domestic equities in a single exchange-traded fund.

Its portfolio breaks down like this: around 72% is invested in large companies, a little less than 20% is in medium-sized businesses, about 6% is in small-company shares, and 3% is in so-called micro-cap stocks.

Now, you can achieve similar diversification by allocating your dollars into a collection of more narrowly constructed funds that focus on industry-leading large companies or quick-growing but volatile small companies.

For instance, you could pick up Money 50 funds Schwab S&P 500 Index , with iShares Core S&P Mid-Cap and iShares Core S&P Small Cap . (Although, if you’re not careful, you might end up with more exposure to smaller companies than you want. About 30% of IJR’s portfolio is in micro-cap stocks.)

All things being equal, says BKD Wealth Advisors’ portfolio manager Nick Withrow, you’re better off going with the one fund than three or four.

For one thing, each fund comes with its own expenses. If VTI dovetails with your risk tolerance, then you’ve taken care of your domestic stock portfolio at a measly cost of 0.05% of assets annually. That’s marginally cheaper, by about 0.06 percentage points, than buying a host of exchange-traded funds that collectively approximate VTI’s portfolio, says Withrow.

But there’s another reason — you.

Basically, you don’t want to get into the business of buying and selling ETFs to try and time the market. And you’re much less likely to get into that expensive habit if you buy-and-hold one fund, rather than picking three or four.

“The more choices an investor has, the more apt he or she is to feel that they have to do something,” says Withrow. “The idea of simplicity, especially with a buy-and-hold attitude, goes a long way.”

Of course, one total market exchange-traded fund doesn’t mean your portfolio is complete. Don’t forget about foreign equities or, you know, bonds. But when it comes to U.S. stocks, one cheap total market ETF (like VTI) is particularly useful.

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