TIME Saving & Spending

The Insane Reason You Could Pay 50% More For Car Insurance

Inside A Carmax Inc. Location Ahead Of Earnings Figures
Bloomberg/Getty Images Customers check out a vehicle on the sales lot at a CarMax Inc. dealership in Brandywine, Md., on March. 29, 2015.

It doesn’t even have anything to do with how well you drive

You probably figure that if you’re a bad driver and collect some fender-benders or speeding tickets in your DMV record, your insurance company is going to charge you accordingly. But what you might not have expected is that insurers also might slap you with penalties — sometimes hefty ones — if you’ve blown off paying a bill here or there.

Car insurance companies in all but three states — California, Hawaii and Massachusetts, where it’s illegal — use a driver’s credit history in the secret sauce of their underwriting formulas. People with bad credit are considered higher-risk customers, so insurers often charge them more, explains Jill Gonzalez, an expert at WalletHub, a personal finance site that just published a study showing what insurance companies in what states penalize drivers the most for poor credit.

WalletHub asked the five biggest car insurance companies in the country for quotes for two imaginary drivers who were identical except that one test case had excellent credit and the other had no credit history.

“There is a strong correlation between one’s credit characteristics and insurance losses,” Gonzalez says. “The insurance companies usually look at the the credit history to see how the insured can manage his or her risk exposure.”

Across the board, the difference between quotes given to the “great credit” versus the “no credit” driver varied by 49%, but some fluctuations were much, much greater.

Credit obviously isn’t the only factor insurers look at to determine premiums, and different companies assign varying degrees of importance to this characteristic. WalletHub’s study finds that Farmers Insurance seems to place the most weight on driver credit data, with a 62% difference between quotes given to WalletHub’s two hypothetical drivers. Even Geico, the insurer WalletHub says “seems to rely on credit data the least,” has a 32% fluctuation between the two driver scenarios.

The results also vary widely by state; in Connecticut, the impact of great credit versus no credit only contributes to a 15% fluctuation in premiums. In Michigan, however, it’s another story: WalletHub finds that credit status contributes to a 115% fluctuation in rates.

Gonzalez says the biggest issue consumers face is that a lot of companies aren’t up-front about their use of credit data in underwriting. “The problem we discovered is that not all of the companies are transparent in letting their customers know that credit scores impact insurance premiums to a significant extent,” she says.

WalletHub looked at the websites of the 10 biggest auto insurers to see how soon, how often and how prominently they advised customers that their credit would be a variable in the eventual premium price they were quoted. It says Progressive is the most transparent, but Gonzalez points out that a lack of transparency among many carriers means that drivers have to do a lot more homework if they have credit problems.

“Consumers with no credit have to do some serious research before deciding on an insurance company,” she says.

TIME

Here’s a New Way the Ultra-Wealthy Are Hurting America

Mmmmmoney: Get a grip; it's just paper
KAREN BLEIER; AFP/Getty Images

They're the only ones with money. What they're doing with it is the problem

More than five years into an economic recovery, a lot of Americans still don’t feel like they’ve made up the ground lost since the last recession, never mind getting ahead. As it turns out, the wealthiest Americans feel the same way. That’s a problem for the rest of us because they’re pretty much the only ones who have any money to spend these days, and when they don’t spend, the entire economy slows to a crawl.

The math isn’t hard to figure out: Consumer spending makes up about 70% of GDP (it was 71% in 2012, according to the Bureau of Labor Statistics), and the richest 20% of Americans are responsible for roughly 40% of consumer spending, according to Pam Danziger, president of Unity Marketing, a company that studies the luxury market. So when that top tier pulls back, it has outsized repercussions.

“That’s smart for them, but it’s certainly not good for the economy,” Danziger tells Bloomberg in a recent article. She calls this segment the HENRYs, which stands for “high earners, not rich yet.” These people pull down a decent paycheck, but they might not have the kind of home equity, investment portfolio or other markers of net worth to feel truly rich.

This might sound a little ridiculous; after all, we’re talking about households with incomes of around $111,000, compared to a median household income in the United States of just under $52,000 in 2013.

But as social scientists Mark Rank and Thomas Hirschl point out in an NPR article, just because you crack that top income tier in one year doesn’t mean you’ll stay in that coveted bracket. Maybe you lose your job or switch to a lower-paying but less stressful job. Maybe you or your spouse stops working for a while to raise kids or provide caregiving for an elderly parent. These are all pretty typical reasons for income to fall, but they gnaw at the confidence of these high earners. And many of these families in coastal cities like New York or San Francisco where the cost of living — especially housing — is so high that they’re still just treading water, even a six-figure income.

“The rich often think they’re poor,” chief equity strategist for Wells Fargo Funds Management John Manley tells Bloomberg.

This adds up to a dynamic that just isn’t sustainable, some economists say. “As of February 2015, core retail sales per person still stood 14 percent below their pre-recession trend, costing retailers $51 billion in February 2015 alone,” a March report by the Center for American Progress warns. Instead of focusing on the rich, it says, policymakers and companies should seek ways to shore up the struggling middle class and restore their earning power.

 

TIME

Why We’re All in Big Trouble If Gas Prices Keep Going Up

A pump at the Pilot Travel Center on East Austin Road in Nevada, Missouri. January 10, 2015.
Barrett Emke for TIME A pump at the Pilot Travel Center on East Austin Road in Nevada, Mo. on Jan. 10, 2015.

Most of us are barely scraping by as it is

The lower gas prices Americans have been enjoying for the past several months were supposed to boost consumer spending and get the ball rolling on more robust economic growth. That didn’t happen, and a new survey has a revealing insight as to why.

According to Bankrate.com, 40% of Americans are using the money they’ve saved from lower gas prices to pay for necessities like groceries and rent payments.

“The overwhelmingly most common response, by more than a two-to-one margin, was using it for necessities,” says Greg McBride,Bankrate’s chief financial analyst. “It was the top answer among every age group and every income group.”

Fewer than 20% of people are banking that extra cash, and fewer than 5% are investing it. Bankrate found that only about one in seven of people are spending that extra money on discretionary purchases like dinner out or a vacation. “Household budgets remain very tight,” McBride says. “People don’t have a lot of extra money to throw around, and that’s why we’ve had this slow growth.”

Millennials are a little more likely to splurge — 17% versus 14% for all respondents — but they’re also more likely to be saving or investing those savings than Americans overall.

“Millennials have gotten the memo,” McBride says. “They’ve got a greater inclination towards savings than we’ve seen in recent generations.” They’re also less likely to be saddled with mortgages and childcare costs, although many of them do have hefty student loans to pay off.

For months, Americans have displayed a reluctance to loosen their purse strings even as gas prices fell. The recent increase in prices at the pump has only confirmed what many people suspected — that those super-low prices weren’t here to stay. More importantly, paying for necessities or socking away those dollars isn’t helping the economy the way economists had hoped. McBride says earlier Bankrate surveys found that when gas prices go up, 60% of people say they cut back on discretionary spending. Compare that to the meager 14% who are increasing their spending now that gas prices have fallen.

“We’ve been waiting for this economic shot in the arm from lower gas prices and it hasn’t materialized,” McBride says. “Now we know why.”

That’s because lower gas prices, no matter how welcome, are no substitute for higher wages, which have been conspicuously absent for much of the recovery. “Until people see more money in the paycheck, they don’t feel the economic recovery has landed at their doorstep,” McBride says. “Until that happens, the economy’s only getting better for other people.”

TIME Saving & Spending

This Will Change the Way You Use Your Visa Card Forever

American Express, Discover, MasterCard and Visa credit cards are displayed for a photograph in New York, U.S., on Tuesday, May 18, 2010. Credit-card firms caught off-guard by U.S. Senate passage of curbs on debit fees are facing what one executive sees as a "volcanic" eruption of legislation, including possible limits on interest rates. Photographer: Daniel Acker/Bloomberg via Getty Images
Bloomberg/Getty Images

It could majorly cut down on theft and fraud

This is one of those tech advances that are simultaneously cool and disturbing. Visa is adding a feature to the smartphone apps of member banks that lets banks know when a customer is traveling.

Convenient! This way, your card won’t be automatically declined just because you happen to be 50 miles or more away from home—a situation that can trigger an alert to a bank’s fraud department. Your bank, thanks to your phone’s location feature, will already know exactly where you are. Scary! Well, maybe.

It’s hard to decide. Fewer hassles are always good, of course. Nobody wants to be that poor sap standing hapless and red-faced at the checkout counter with a declined card. But do we really want our banks tracking our movements? (The financial crisis gave Americans plenty of reasons to think twice.)

Thankfully, the feature, Visa Mobile Location Confirmation, coming in April, will be entirely opt-in. Customers have to knowingly turn it on for it to work. Big Brother isn’t really so terrifying when you’re inviting him to watch you.

It’s entirely understandable that banks would want as many as people as possible to use the feature—they lose billions to debit- and credit-card fraud every year, and those numbers are on the rise. But the feature is not a panacea, of course. For instance, it won’t help if someone’s phone and bank card are stolen at the same time.

On balance, though, it seems like a net win for both banks and consumers.

TIME Saving & Spending

If You’re Going to Buy a Car, Do It Now

A General Motors Co. Car Dealership Ahead Of Earnings Figures
Daniel Acker—Bloomberg/Getty Images General Motors Co. Chevy Malibu vehicles sit on the lot at JP Chevrolet dealership in Peru, Illinois, U.S., on Wednesday, July 23, 2014.

If you need a car loan, this is your year

Financing a car — especially if you have good credit — has never been this cheap. Don’t wait too long to take advantage of this, though. By this time next year, if not sooner, borrowing costs will be ticking up again.

Personal finance site WalletHub.com surveyed 157 lenders and consulted with experts in a new report about car loans. The average car on the road today is about 11 and a half years old, so maintenance and repair costs are likely to be mounting. More than half of the experts consulted for this study say interest rates are likely to rise within 12 months.

Right now, though, financing is dirt cheap. Among all financing sources, the average APR on a new car loan for someone with good credit is right around 3% for new cars and just over 3% for used cars. The picture is brightest for people with credit scores above 720. On average, these buyers can get away with paying less than $1,600 in financing charges over the life of a 5-year, $20,000 new car loan.

For a new car, if you go through the manufacturer, the average best rate is right around 2% for a new car and just under 5% for a used car. Nissan, Toyota and Chrysler offer the lowest rates for customers with high credit.

The average at credit unions is also under 3% for new car loans. (One note: While the study looks at each manufacturer’s APR for a 36-month loan term, most car buyers opt for 60-month loan terms, which tend to have slightly higher rates. These averages also assume the buyer has good credit.)

The best deals can often be found by financing directly through the dealerships, the study finds. On average, dealers are offering rates 35% below average.

The study also suggests credit unions as a good place to look for a car loan, with rates 25% below average). National banks offer average rates, while regional banks tend to be more expensive, with rates 40% above average. Still, your milage may vary, as the saying goes, so it’s a good idea to check out all your options.

It also pays to shop around if you plan to lease. Although the report finds that Nissan, Volvo and Infiniti offer the best lease rates, many car companies’ financing arms are still lacking in transparency when it comes to the actual APR you’re getting, so you don’t actually know if you’re getting the best rate unless you do some legwork before you get to the dealership.

Even people with fair credit can benefit from today’s super-low rates. The study finds that people with credit scores between 620 and 659 will pay an average of just over $7,000 over the life of the loan, a drop of nearly $500 over the past three months. Across all lending sources, the average APR for someone in this credit bracket is about 12.5% for a new car and just over 13% for a used car.

Since that’s a pretty sizable gap, if you’re thinking of buying a car this year, it might benefit you to take some steps to raise your credit score before you go shopping — you could effectively be saving more than $5,000 over the life of the loan.

 

TIME Money

Americans Are Optimistic About the Economy Again

Money
David M. Elmore—Getty Images/Flickr RF George Washington

Middle-income America hasn't been this upbeat in years

The days might still be short and gray in much of the country, but when it comes to money and finances, Americans today have a sunnier outlook than we have in a long time.

A new Gallup survey on how Americans feel about our standard of living hit the study’s highest-ever level since the organization began tracking the metric seven years ago.

Every month, Gallup asks Americans if they’re satisfied with their standard of living and if they think that standard is going up or down, then calculates the answers into a single-number index. In December, that number was at 50 — an all-time high. By comparison, the index was at 14 back in October and November of 2008 when the Great Recession was at its worst.

In another all-time high, 81% of respondents say they’re satisfied with their current standard of living, a jump of 12 points since hitting a recession-era low in late 2008.

And we’re even more optimistic about the future. Today, Gallup finds more than six in 10 Americans say it’s “getting better” when asked about their standard of living — the highest-ever recorded in response to this question, and almost double the one-third of Americans who selected this answer back in October 2008, a record low.

“People’s outlook for their standard of living going forward has improved much more than their current satisfaction with it,” Gallup says.

In a second recent survey, the America Saves campaign finds that our collective willingness and ability to save is significantly higher than it was last year immediately after the holidays.

“[This] suggests that Americans are now feeling better about their financial condition,” Stephen Brobeck, a founder of America Saves and executive director of the Consumer Federation of America (the nonprofit behind America Saves), said in a statement.

The America Saves data show this greater interest in and ability to save is driven primarily by households with an annual income of less than $75,000.

“Our new data suggest that low- and middle-class Americans are feeling more optimistic about their financial situation now than a year ago,” Brobeck says.

In its analysis, Gallup suggests that freer spending, perhaps helped along by low gas prices, could be contributing to our collective optimism. The America Saves data offers clues that this could be the case: Compared to a year ago, the income bracket reporting the biggest jump in how effectively they’re able to save money is households earning less than $25,000.

“Instead of being distracted by heavy holiday spending and debts, they are . . . interested and active saving today,” Brobeck says.

TIME Money

Why You Should Never Buy Stuff When You’re Sad

TIME.com stock photos Money Dollar Bills
Elizabeth Renstrom for TIME

When retail therapy backfires

If you lose out on a plum assignment or get passed over for a promotion, your first tendency might be to head to the mall or click over to Amazon for a pick-me-up in the form of some discretionary splurging. It’s a common response, but a new study says it’s not the best one.

In fact, researchers warn that those purchases could leave you feeling worse about yourself, not to mention leaving a hole in your wallet as well as make you less resistant to future temptation.

A new study in the Journal of Consumer Research uncovers some interesting findings about how we cope with failures. A big personal or professional disappointment disrupts how we see ourselves, and we often respond unconsciously. Say you get passed over for a big promotion. You might go out and buy the luxury watch or designer handbag you were going to reward yourself with anyway, as if to say, “See? I don’t need them to look successful,” in an attempt to bolster your bruised ego.

But there’s a catch: The researchers suggest that, instead of cheering you up, anything you buy that’s associated with whatever you’re trying to forget actually just serves to remind you of that flub or failure. Instead of being a consolation prize, it acts as a trigger that makes you feel even worse, chips away at your self-control and even impairs your ability to focus on completing difficult tasks.

In experiments, subjects were asked to think about a past intellectual failure, then choose a copy of brainy-sounding Scientific American magazine. Afterwards, they reported that selecting the magazine made them dwell on that past incident when they felt dumb. When researchers offered these subjects chocolate candy, they found that those negative feelings led to lower self-control, with subjects less able to resist the offer of junk food.

“After experiencing a setback in one area of their life, consumers might be better off boosting their sense of self in a different area of their life,” the researchers say. For instance (if you must indulge in retail therapy) they suggest following up an experience that makes you feel dumb with a purchase intended to make you feel better about your social standing rather than one aimed at make you feel better about your intellect.

TIME Budgeting

The 1 Task Americans Just Can’t Accomplish

Stack of money
Getty Images

And, worse, it's a serious oversight

When it comes to budgeting, we have good intentions—really, we do. It’s just that somewhere between the idea of keeping track of our money and spending within our means and the execution of that pretty important task, we fall short.

According to a new survey from Bankrate.com, 82% of Americans say they keep a budget. That’s up from just 60% in 2012. Sounds great, but we really shouldn’t pat ourselves on the back just yet.

When Bankrate asks exactly how people keep their budgets, it finds that about a third just scrawl it out on paper—and almost 20% say they budget just by keeping track in their heads. “Mental accounting is really unreliable and prone to mathematical mistakes and rationalizations,” says Claes Bell, Bankrate.com’s banking analyst. ” In survey after survey, Americans show a lack of basic knowledge about some critical issues.”

Bankrate’s survey finds that fewer than 40% of Americans have money for a $500 or $1,000 emergency like a medical bill or car repair. To pay for an unexpected expense, about a quarter say they’d cut back on their spending, 16% would hit up family or friends for a loan and 12% would load up their credit card.

“In part this is a reflection of the economic struggles many Americans have gone through since the Great Recession,” Bell says. “Many households simply haven’t had the ability to set aside an emergency fund.” But now that the economy is on the upswing again, he says we really ought to stop making excuses and trying to keep track of our spending by memory alone, in order to sock away a rainy-day fund.

“I do think people really underrate the importance of having a cash reserve on hand to cover emergencies,” Bell says. “For many, a financial downward spiral is just one emergency-room visit away.”

Bell says people should take advantage of websites or apps that help you make and stick to a budget. Not big into technology? Even a basic spreadsheet is a step up from pencil and paper (or relying on your memory). Using a computer lets you track your spending over time and save that information so you can go back to it later — because are you really going to save and file all those pieces of paper you’d be using instead?

Keeping track of your budget electronically also means you’re less likely to make a mistake in the math, Bell points out. “Also, some budgeting tools and apps allow you to connect their services to your checking accounts and credit cards so you actually see how your spending compares to what you budgeted, automatically and in real time,” he says.

TIME

America’s Most Outrageously Expensive Places to Live

Courtesy: City of Palo Alto

Think your town is pricey? Think again

If you’re trying to pinch pennies, you might want to stay away from New York City, Bellevue, Wash., Scottsdale, Ariz., and, oh, just about anywhere in California. According to a new analysis of Americans’ spending patterns by Mint.com, the 10 cities in the country where people spend the most are much, much bigger drains on your wallet than the national average.

In the Golden State, it helps to be made of money: the Silicon Valley area is especially spend, with Palo Alto, Mountain View and Sunnyvale all on the top 10 (Palo Alto is number one), along with Fremont, Irvine and San Francisco and San Jose.

Mint’s analysis looks at the average transaction amounts rather than the volume, so bigger cities don’t necessarily take a bigger hit (that doesn’t seem to help the Big Apple, though). While the average transaction for Mint users nationwide is $171, that number soars to more than $345 in Palo Alto, almost $240 in New York City and more than $235 in San Francisco.

Perhaps unsurprisingly, housing and auto expenses are highest in New York City, and healthcare costs are highest on the West Coast, in the San Francisco-Oakland and San Jose areas, two cities that have the second-highest home and auto spending, as well.

Nationwide, the top merchant frequented by Mint users is Amazon.com, followed by Wal-Mart, McDonald’s, Target and Starbucks, respectively. And for anybody who thinks it’s literally impossible to walk into one of those big box stores for one thing and not spend a bundle, you’ve got plenty of company: The average Wal-Mart transaction is more than $53 and the average Target ticket is more than $55.

And we make a lot — a lot — of food purchases: The top three spending categories by the number of transactions were all food-related: groceries, fast food and restaurants, respectively.

If saving the most money possible is your top priority, don’t despair, though: Mint also dug up the cities where Americans spend the least. You might want to check out a handful of cities in the middle of the United States: Columbus, Ohio, Indianapolis, Ind. and two cities in Texas — Fort Worth and San Antonio — were among the five places where Mint users spent the least, along with Orlando.

 

TIME Saving & Spending

The Disastrous Black Friday Mistake You Must Avoid

Money in jeans pocket
Image Source—Getty Images

Shop smarter—or else pay for the consequences

Going into the holiday season with a budget is a good start, but it might not be good enough. A new study shows that misestimating how much of a deal they’ll get on Black Friday and underestimating how long it will take them to pay off their holiday splurges will cost American shoppers.

According to the National Retail Federation, the average holiday shopper spent a little less than $770 last year. It predicts a total increase in Americans’ holiday spending of just over 4% for this year.

But shoppers could find themselves with sticker shock, a new study from NerdWallet.com warns. And middle-class shoppers could bear the brunt of it. According to a survey conducted by Harris Poll for NerdWallet, families in the $50,000 to $75,000 income bracket won’t pay off their debts for an average of nearly three months. Poorer families will pay off their debts a little more quickly, in an average of two months.

Odds are, even these estimations are optimistic. Other studies show that people tend to take longer to pay off their holiday bills than they anticipate. And, odds are, many of these shoppers aren’t starting from scratch but adding onto an existing balance — one that averages nearly $16,000, based on NerdWallet’s look at household credit card debt.

And the cost of servicing that debt keeps going up. The average APR on a general-use credit card is a tick under 16%, according to Bankrate.com. For store cards — you know, the kind many of us open over the holidays to get the one-day discount on purchases — it’s even higher. They have an average APR of over 23%, higher if you have marginal credit.

New data from Experian shows that more of us are signing up for those store cards and the higher rates they charge; both the amount we borrow and the number of cards we have has risen over the past year.

“Middle-class households can fall into a costly situation this holiday season, where they’ve been extended ample credit but have incomes too thin to comfortably pay the bills later,” warns NerdWallet senior retail analyst Matthew Ong. “Many are still struggling to reconcile a typically middle-class standard of living with stagnant incomes,” he says.

Adding insult to injury, NerdWallet also finds that those Black Friday deals many of us think we’re going to score might not be so hot after all.

In an analysis of 27 major retailers’ ads, more than 90% of them listed “sale” prices identical to last year’s Black Friday prices. This isn’t always apparent at a quick glance; the site found that retailers use tricks like misleading original prices and make shoppers jump through hoops like requiring mail-in rebates.

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